Logistics Rewired: Freight Market Update

Nathan Strang: All right. Hello everyone and thank you for attending today's webinar, Logistics Rewired: Freight Market Updates. My name is Nathan Strang. I am Director of Ocean Trade Lane Management here at Flexport.

So keep an eye out for that. It'll include all of the slides that we present here today.

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All right now on to the introductions. I already introduced myself. But joining me today is Matthew Koivisto, Director of North American Trucking Procurement here at Flexport. Really excited to have him along and he'll be able to answer any of the questions that you might have in relation to trucking after his great presentation.

Today's agenda, we're gonna be covering a quick operations update for North America. Again, followed by that trucking update. So we're gonna be pretty heavily focused on the trucking side of it today. And of course, leaving plenty of time for your Q&A questions.

All right, moving on into the operations update.

The Ports, How is it Going?

All right, what's going on at the ports. Oakland if you've been paying attention, Oakland has some protests around the California AB5 Law that shut down a few of the terminals there last week. Terminals are back operating and open. According to the information that we got from the ports and the terminals, detention and demurrage has been extended for those days. It's still a disruption but they are utilized, they are employing that rule to extend the free time.

West Coast rail dwell remains dismal. We're seeing up to 30 days, sometimes individual containers up to 40 days leaving the ports. We've covered this in previous webinars about what's going on there. It's a few things, one of it is just too much inland capacity that's not being picked up at the terminals. So containers going into Chicago, Memphis, etc, are not being picked up by the consignees at those locations, that is causing backup onto the rail, because they don't have enough room to offload the boxes, which then backs up into the ports.

Additionally to that there's a lot of equipment that has to go into maintenance and the both of West Coast railroads especially are suffering from labor shortages, and they just don't have enough people to maintain those rail cars. If you're familiar with rail, a lot of that equipment is 10, 20, 30 or more years old. It can break pretty readily and requires pretty technical expertise to fix.

Today on the West Coast is Harry Bridges day which is a Union holiday however, checking the ports and terminals there are no closed gates today. It will be a working holiday.

On the East Coast, New York's empty return situation is still pretty dire. It's impacting all steamship lines but kind of in waves as ships come in and they're able to pull empties, they're able to all empties into the terminals. You know if a service then gets spread out, it doesn't come in instead of seven days, it takes 10 days, then the empties will back up again and we'll just be right back into the same situation.

We have seen steamship lines running sweeper vessels into New York, pulling out containers where they can, but we expect that congestion to last at least another two months.

Houston export receiving windows and import receiving windows are being impacted by lack of chassis. So if you're importing into Houston, you're pretty aware of the backups there. But it was seen as a bit of a relief port for the West Coast. This is one of the first calls after the Panama Canal. But unfortunately, a lot of people kind of ran in that direction.

Vancouver and Prince Rupert up in Canada, they're still at 100% yard capacity, even though cargo is starting to flow, anything going to Toronto, so if you're shipping Canada, through Canada to Canada, those departures are being metered, and that's really the source of most of the backlogs in Canada is the Toronto cargo. Stuff going into the United States is leaving, I don't want to say on time, but it's performing much better.

In the news, executive order to hold off rail strikes,so if you were familiar last week, the railway union in the West Coast again had threatened a strike. There is a 30 day cooling off period we're about a week into that and hopefully they can come to a resolution and avoid a rail strike.

And also if you click on the link JOC article on AB5 that provides really good background information for those who are tracking that. Onto the next slide, we'll take a look at just the regular port numbers.

The Ports, What Are the Numbers?

As I said Vancouver Prince Rupert, fairly steady eight to 12 days it's really destination dependent, stuff going into Chicago is departing in about six to seven days from both ports. Most of the backup and driving those numbers is going into Toronto. Expedited rail service ERS is back, so those of you who use that service through Canadian ports, it is available again and is moving.

Mixed results on vessels at weight Long Beach LA is still at 20 shifts Vancouver steady at about 18. The big news on there of course is Savannah on the east coast at 42 ships and holding. New York also can't seem to break the tide, they're still at about 17 ships. Wait times are also kind of all over the place. Oakland jumped up along with Vancouver due to the increase in vessels there. And despite the large number of vessels at Savannah wait times actually came down a little bit over the last two weeks.

One more thing I want to cover before we move on to trucking is, what we're seeing in terms of blank sailings. So with the decrease in, if we go to the next slide.

Blank Sailings

With the decrease in import volume, we're seeing the carriers respond by blanking sailings. So on the left side, you see the percentage of blank sailings as terms of percentage of capacity. It's going to lag a little that's why you kind of see that tail off at the end. But we're down to about 25% capacity moving on the TransPacific trade.

Why are they doing that? It's a signal that the carriers do not believe that a peak season is coming basically. So they're removing capacity to sail more efficiently, sail with more full vessels trying to keep their loadings above about 80%. Right now they're at about 81% on the TransPacific trade. And therefore kind of support rate levels.

If you look at total blank vessels, you can see that spike in September and October. Usually that is when capacity comes back into the market to support peak. So you can already see carriers are pulling vessels faster as you get into September and October.

What that means is that we're seeing again, kind of a carrier's not anticipating a peak and then anticipating even further reduction in capacity coming into the October timeframe.

What is that going to do to rates? The idea here is that that would then cause capacity come out of the system and therefore rates to stabilize. But it's going to have to do again with how quickly or not quickly demand comes out of the system going forward.

So one thing I would say to those of you shipping on the Trans Pacific, what can you do? If you're moving on, you're on the FAK or the spot market, it's still probably the cheapest way to go. But as capacity comes out of the system, it may be more difficult for you to find space, you might see cargo rolling, especially with these blank sailings. If you have fixed rates, BCO contracts, things like that, take a look at those. Those are probably even though they're at a higher rate, they'll offer you more space protection if you absolutely have to get cargo moving. We're also seeing very good availability on the premiums, the true premiums, the fast boat, fast availability type services such as CMA, EXX and Zim Zeke. So those are also alternatives as we move through.

All right, let's that is your operations update on ocean. I'll now kick it over to Matt for your North American Trucking update.

Market On-terminal Port Dwell

Matthew Koivisto: All right, thank you very much Nathan. Good morning everybody. We'll go ahead and jump right into it and give you a little bit of an update here on what we're seeing with on terminal dwell time at the major ports here in the US.

So basically, we track this on a monthly basis, primarily using data that comes directly from the ports. Where that's not available, we do multisource from several different areas as well, to come up with the average dwell time.

So basically, you can see that LA Long Beach is still not doing too terribly, it's been coming down and stayed around the six to seven day range for the last couple of months. Where things are definitely not going well though, if you look at Seattle Tacoma as well as Oakland. Unfortunately, Nathan mentioned the AB5 protests last week in Oakland, that's going to make July a pretty rough month overall, because we did see multiple days of closures of the port itself in Oakland, whereas in LA it was not that big of an impact.

But overall, though, when you start looking down through Savannah and Charleston, some of the Southeastern ports, the dwell time is holding steady, it's still around the eight to nine day range. So despite the fact that Savannah has a record number of ships offshore that Nathan alluded to, the on terminal dwell time isn't really increasing. We're still able to get containers out of there in a relatively timely fashion.

Same thing goes for New York. New York's biggest challenge right now has to do with returning empties to free up the chassis, so that truckers can pick up additional containers. So Nathan touched on that a little bit. But just generally speaking, the dwell times are either holding steady or ticking slightly down in most locations for the month of June. But definitely increasing in some of the PNW type port locations.

Next, we're going to give you a little bit of an update on AB5.

AB5 Update

So we do have a full blog article available that gets into more detail as to what's going on with AB5. If you're not too familiar, I'd definitely recommend reading that as well as some of the other industry articles available JOC, and freightwaves, for example. But just in general, this was a bill that was passed in late 2018, that went into effect in 2019. That has to do with the driver classification laws in California. This only impacts the state of California, but basically what it does is in the drayage world in particular, a very large percentage of the drivers are owner operators, meaning they're independent contractors.

So the question before trucking companies and owner operators today is, should I? or will I have to become an employee of a trucking company? Or can I maintain my own business as I've done in the past? So there's a lot of mixed thoughts around that. But basically, what trucking companies have been doing is since the law went into effect is preparing for this in one of two ways. One, in many cases, they've been offering independent contractors the possibility to become employees, which does satisfy the provisions of the law. But in others, the switch is a bit nuanced, but the trucking companies are taking on more of a broker feel about them, where they're brokering loads to another independent company, rather than to an individual driver.

So that second part is a little bit nuanced, but it's still moving through the ports in terms of how all of this is going to be ironed out. And as Nathan mentioned, and I alluded to earlier as well, we did have strikes over the course of the last I'm sorry, we shouldn't call them strikes, they're not strikes, their protests, drivers are not under contract. They're not striking, they're simply protesting the fact that they do not like or some do not like the AB5 provision. But both in LA and Oakland, we did have disruptions there.

Just last week, there still has been some protesting but no disruptions in terms of getting in and out of the terminal. So from a client perspective, the best thing to do is just to check with your trucking providers in California, and make sure that they're prepared for the potential impact of AB5. Alright, let's go ahead and move on. onto the next foreign FTL update.

FTL Market Update

So despite the fact that the drayage world still remains on fire in most locations, the FTL market has been flattening for several months now. So, when you look at it in terms of load tender rejections and the year-on-year rejections, that has decreased nearly 70% from the 2020 and 2021 averages, which is a sign that when a load is tendered to a trucking company, they normally we'll accept it rather than reject it, which is the norm a year or two ago.

Additionally, we do see spot rates falling, which again is an indication of a soft market. And the load to truck ratios are also down about 30% year-on-year, which again, indicates softening in the market.

Now, what does run counter to that is that we all have seen gasoline and diesel prices skyrocket these last several months. So while they have come down a little bit, they still remain very high compared to operating expenses a year ago. And from a trucking company's perspective that remains their single biggest operating expense.

So, while rate levels may be coming down, the market may be softening, operating expenses are not going down for trucking companies. So it's definitely a bit of a difficult time right now in the FTL space if you're a trucker. All right. Let's go ahead and go on to the next.

Limited Warehouse Space Leads to Longer Street Dwell

Now one of the things and I know we're in earnings season right now, if you're a fan of the morning talk shows. So Walmart, famously this week, declared that a big part of the missed that they had, had to do with the inventory glut, that we know a lot of the big box retailers as well as other importers are seeing, that has to do with the famous bullwhip effect that you probably heard about where some of the ordering patterns that were prevalent during the early days of the pandemic rebound weren't necessarily changed quickly enough. And we, as a result, many companies have too much inventory on hand, at a time when inflation has been skyrocketing, meaning people have less money to spend and are buying less things.

So, what is happening from a logistics standpoint is the warehouse vacancy rate in Q2 fell to a record low of 3%, which means 97% of all warehouses in the US are occupied. The utilization rate of those warehouses also increased to almost 86%, which means that there's no space available inside those buildings.

So while you've got a theoretical space of 100,000 square feet, you can't put 100,000 square feet of cargo in there because you have to leave room for the aisles, people to stage cargo and everything else. So when you reach the point of about 85 to 87%, that's set to be completely full.

Now, where we see the downstream effect of this is in the off terminal dwell time, where we know containers are sitting for extended periods of time, which unfortunately ties up a lot of the chassis that are needed to perform the import pickups.

So the two charts that we have on the right hand side, the top one is a pool of pools from LA Long Beach, which shows when you look at this time last year when we were definitely having a very difficult time in LA Long Beach with a lot of congestion and cargo dwell. We're well above that number now, almost double that number now in terms of the percentage of chassis that are dwelling on the street for extended periods of time. So that's pretty remarkable in addition to having a lot of the containers dwelling for a long period of time in LA right now, that should be moving on the rail. They're also dwelling off terminals for extended periods because many customers don't have the space available to receive the cargo.

The bottom chart is from SACP, which is one of the southeastern pools managed by CCM consolidated chassis management. So the best way to get a feel for how long cargo is dwelling off terminal is to zero in on the chassis pool data which is readily available in many markets.

So SACP encompasses Charleston, Savannah, Wilmington, Jacksonville, Atlanta and Birmingham, believe I got all of them. And you can see that 20 foot containers are dwelling right about the 15 day point off terminal and 40s are very close to 20 days.

CCM is a really great resource if you want to see what some of the inland ramps in particular are looking like in terms of off terminal dwell, I took a look this morning, for example, and Memphis was actually literally off the chart at about one 22 days for 20 foot containers, or for 40 foot containers and 30 days for 20 foot containers.

So we know that with the inland ramps in particular is everything's very congested. Cargo is sitting for extended periods of time once it's picked up from the terminals as well.

All right, that brings us to the end here. I think we've got plenty of time left for some questions.

Nathan Strang: All right. Thanks, Matt. Now we're on to QA. So again, drop your questions into the QA tab on the right side of your screen and we'll get to those. Before we start going into the formal QA the questions, something I forgot to mention, labor update for the West Coast for the ILWU and PMA negotiations, so it was announced on the 26th that the union and the employer have come to an agreement on healthcare benefits. That is probably Nathan's opinion here. But that was probably one of the biggest blockers towards signing an agreement because it comes with the largest bill, right. It's the thing that has to be paid for the most. So including being shared by both the employer and the employees. So very big blocker there, that's really great news, it's great that they announced a win there. A couple other things that they have to get through to sign an agreement, but that was probably the biggest negotiating point. So thanks on that one.

And let's start out with, one thing also. I had a question what's the difference between blank vessels, blank sailings and blank vessels. Sorry about that, always put definitions on your slides, blank sailings as a percentage of total sailings. So if there are 100 sailings and 25 are blank, that's 25% of sailings are blank.

Blank vessels is a total count of vessels. So the difference there is that the number of vessels on a trade lane will vary seasonally, whereas a percentage is always just total, and then the number is blank. So that's why you see kind of the number of the percentage go down towards October, but the number of vessels go up is because the expected capacity in that time also grows.

So a little bit different just kind of shows similar, but just a little bit more of how the market is reacting, and the total vessels spike there is a little bit more informative, because it's showing that they're pulling what would be the additional capacity at that time that would normally come into the system to support those late peak sailings those are coming out of the system. So that's what we saw there. Kick it over to Matt, for the next question I think.

Matthew Koivisto: Yeah, it looks like we've got a question here about how do we define dwell time. Many of the ports actually report the number of days that boxes dwell on the terminal. Sometimes this will come from individual terminals, or in the case of like GPA, for example, which is one extended terminal. They report the overall dwell time. Others will actually slice it up by import and export, some will show you rail dwell. What we always take, though, is the overall average of the number of days dwelling on the terminal, so that we can prepare or present a relative apples to apples comparison. So that would include rail dwell as well.

When you start slicing and dicing, it just makes it really difficult to provide any kind of consensus as to what's going on, so be consistent with it. We just want to always track it this way and present the average for overall dwell.

All right, let's see. Oh, Seattle, Tacoma delays, what's the primary issue causing what's the outlook for improvement? Well, it's interesting Seattle Tacoma has been experiencing extended dwell for several months now. I know just kind of anecdotally speaking, when we look at it from a Flexport perspective, we're not quite seeing as many challenges there. But I think a lot of it has to do with some of the receiving constraints, but also just trying to get through the backlog, which keep in mind that when we had the latest major shutdown in China, we did go through a period of several weeks where not too many ships, if any, were moving. When that bubble started moving, that's one of the reasons that as it hit the coast, he started to build backlogs in places where we shouldn't normally have backlogs of ships. So that's a big part of it as well. But just overall, I know these congestion bubbles keep moving. But definitely right now, when you look at Oakland and Seattle Tacoma, those are two that standout.

Nathan Strang: I can take the one on the choke points. Next, all right, we got a question. Is there a universal choke point in the ocean ecosystem? Or are the issues we're seeing different based on area? This is a good one for me. This is a little bit of a soapbox issue for me, actually, and what it is, is you see this a lot on on LinkedIn or Twitter or other social media where someone's like, aha, here it is, if we just fix this one thing that will fix all of all of ocean ecosystem, it's it's automation, or it's trucking, or it's Chinese ports or something like that. The answer is no.

It is in any complex system, and is a combination of factors, it always is a combination of factors. There are certain things that drive it more than others that can influence it more. But there are a lot of different choke points within that ecosystem, one of the biggest ones for me, and I will say, okay, what is it one thing is that terminals, either ocean or rail are not designed to be storage facilities.

So when someone who imports a container, and it gets to Chicago, and they don't pick it up, they are now immensely negatively impacting the system, because that is not that container is only designed to sit at that rail terminal for 24 to 48 hours, leave and then come back as an empty, it's not designed to sit there seven, ten, 14 days. It's especially not designed to sit there seven, ten, 14 days on a chassis, and this is something near and dear to Matt’s heart is that when a container is dwelling on a chassis for three days, that is three, four, five, six deliveries that aren't happening with that chassis.

So receiving and kind of and I hate to put it on, it's like receiving habits do drive a lot of this. It's not the only thing, those things are all fixable, we can fix that with additional capacity for storage, different management of chassis, understanding when a consignee is going to pick up their cargo so that it can be stored better. So those are all solvable things and you don't want to just blame it. But there's definitely a lot of things that are contributing to the ocean ecosystem, and there's no one fix. In fact, what we've seen is if you kind of focus on one thing and fixing one thing, it causes issues in other areas.

So if you, okay, we're gonna focus on gate appointments. Okay, great, we're gonna focus on gate appointments. But when that happens, generally you lose flexibility in being able to pick up hot containers, or change your appointments or use weakened gates. Like it's, one of those just interesting examples of like, there's a lot of different things and fixing any one thing or focusing too heavily on any one thing will create delays elsewhere. Um, maybe kick back over to Matt, for the FTL question.

Matthew Koivisto: And we've got a question there about FTL in the US versus how things are going cross border between the US and Canada. Cross border trade is still flowing pretty well, overall. I will say that when you look at markets like Toronto and Montreal, those are two very congested markets. Toronto being a rail market, Montreal port. But when you look at the cross border possibilities, those are still moving relatively well. Same with the southbound side of things. I think we're seeing a bit of an uptick in business in both cross border locations overall. But no major choke points at the border as of now. Nathan, you want to take the two minutes left here for the last webinar regarding third and fourth quarter outlook?

Nathan Strang: Yeah, I think that's a really good place to kind of leave off on. So the question is, what shipper, what should shippers expect for third and fourth quarters in regards to ocean import and export shipments? Yeah, I think this is a really good question here, and we kind of go back and look at those blank sailing charts. When you get a chance, and we'll again, we're going to drop the slides in the chat here. But what you're seeing is as demand comes out of the system, the carriers are going to respond by pulling their capacity.

So if there's not enough shipments to fill a ship, that ship is just not going to sail. So while rates are going to continue to improve, capacity is still always going to be an issue because that is the number one factor that they can control if there is no more demand, right? If you go out and you're trying to sell your product and no one is buying it, then you're just going to reduce the amount of product you have on your shelf to reduce your overall costs. So much like a lot of shippers are doing right now, and we talked about the Walmart numbers, and they're reducing imports, then the carriers are going to reduce their imports as well.

So I would expect to see that trend continue, if the carriers aren't forecasting a peak, that means that the time after peak and after the fall Asian holidays, we're gonna see a further drop in demand, we'll see a further drop in capacity. But we'll also see for those of you who are still importing for further drop in rates, so rates should improve coming through the end of the year.

What the floor is? That's going to be depending on kind of where the system finds stasis, where do they find where do they even out at. For exporters? That's probably its own webinar, there's going to be continued challenges there. Seeing support on exports is going to be continuing to be hard going forward. If you're an exporter, it's gonna be hard to find space, it's gonna be hard to find equipment, and it's gonna be hard to find reduced rates. We're just not seeing the same impact on exports that we are seeing on imports, in terms of rates. But again, that's probably its own discussion, and maybe something we should focus on.

We're now at time. Thank you very much for joining us today. Again, there's a survey for you to fill out, please fill out that survey. Hey, suggest let's do something on exports. That would be great. We're always looking for content ideas. Thank you for your feedback. Thank you for your interaction, and we will see you again in two weeks.