Disruption forcing US importers to Take Greater Control of Landside Logistics
US importers are being forced to take greater control of landside delivery, whether by using expedited full truckload services or by funneling ocean containers through transloaded facilities to spit out freight in 53-foot domestic containers or trailers, or even by tapping less-than-truckload (LTL) capacity.
Shippers’ embrace of new inland distribution points during the COVID-19 pandemic, such as Salt Lake City, Las Vegas, and Phoenix, has further redrawn the inland delivery landscape. In many cases, the point of deconsolidation for containerized freight is shifting further inland from the coasts.
Container lines generally are pulling back how much inland point intermodal (IPI) container exposure they will guarantee, putting the onus on forwarders and shippers to find alternative capacity. That’s contributed to a scramble for extremely tight and high-priced inland distribution capacity.
The number of IPI containers moving intact out of California, Nevada, and Arizona fell 30 percent year over year in the fourth quarter of 2021, according to data from the Intermodal Association of North America (IANA). IPI volume out of the Pacific Northwest dropped 28 percent year over year in the same period.
In the current round of trans-Pacific service contract talks, ocean carriers have been less willing to provide intermodal rail service to IPI points that don’t work for their networks. Surface transportation providers are pushing back in a similar way against freight that doesn’t suit their networks.
As a result, US importers of Asian-made goods say they’re seeing landside costs within service contracts rise by at least 25 percent, as ocean carriers consolidate international rail flows through larger ports.
Container lines don’t want boxes stranded at inland rail terminals and shipper receiving facilities for weeks or months; they want to get those empties back to Asia as quickly as possible. But the transformation of the landside transportation landscape cannot be attributed entirely to the pullback in IPI volume. The ultimate drivers of these changes are evolving consumer behavior and the rapid growth of e-commerce.
Still, the lack of IPI capacity has many importers rewriting their playbooks on how to get goods from the ports to warehouses and distribution and fulfillment centers, retail stores, manufacturing plants, and homes. As the spring shipping peak approaches, shippers are finding capacity is as tight as ever — in some cases tighter.
“We’re dealing with consistent supply chain constraints,” Holly Pearce, director of logistics for battery manufacturer C&D Trojan, said in an interview. “I’ve had to do a lot more LTL and expedited to keep my plants running. Many shippers are getting into different modes than they had to in the past.”
Importers aren’t just switching modes or diversifying. They’re rethinking how they ship from overseas to the US, and when and where they inject their international freight into domestic supply chains. Some, including C&D Trojan, have leaped over ports by using international air cargo and LTL as the final mile.
That’s the type of change Maersk is trying to facilitate through its February purchase of Pilot Freight Services for $1.6 billion, which when completed will give the container line a presence in US truckload and LTL as well as last-mile services. An integrated approach to landside delivery is increasingly advantageous.
“We do a lot of drayage going to transload facilities, and now with Pilot and the middle mile, we can consolidate the international and domestic flows,” said Narin Phol, regional managing director of Maersk North America. “Our ability to combine both flows takes waste out of the supply chain.”
According to Ken Kellaway, CEO of drayage operator and third-party logistics provider (3PL) RoadOne IntermodaLogistics, shippers increasingly want an integrated view of that supply chain. “Our customers include large multifaceted importers, and they need drayage, warehousing, transloading, and regional truckload all tied together,” Kellaway told JOC.com.
In addition to those services, multifaceted importers also need LTL and dedicated trucking options. With truckload and intermodal capacity tight, and space limited for warehousing and transloading, shippers are asking LTL carriers for help in getting freight into inland distribution networks faster.
“Two or three years ago, we didn’t see ourselves at the ports, but we’re there now,” Geoffrey Muessig, chief marketing officer for regional LTL carrier Pitt Ohio, said in an interview. “Our LTL customers tell us about problems at ports where the warehouses are overflowing, and they’re asking us for solutions.”
In this pandemic-disrupted market, shippers will take capacity where they find it, and they’re willing to pay a premium. They may find more, and pay somewhat less, if they are able to change internal processes to help transportation providers free up more capacity. That includes adjusting order frequency and volumes.
“As a shipper, I definitely need to connect with my freight providers and ask where I can help them, where they need more freight to round out their lanes,” said Pearce. Offering carriers freight that fits their networks will be crucial to securing reliable inland distribution capacity in 2022.
Importers who spoke with JOC.com don’t expect much change in the international freight markets this year, nor do logistics managers responsible for purchasing domestic transportation. Last year’s increases in contract transportation rates are this year’s launch pad for fresh rate hikes, although not as high as last year’s.
Shippers tell JOC.com that domestic intermodal contracts are rising more than 10 percent across the US, while truckload contracts are rising in the upper-single-digit range. LTL trucking companies are pushing for low-double-digit percentage rate increases in contract negotiations, according to LTL shippers.
High trucking spot rates may moderate as more contracts with substantial price increases take effect, drawing spot truckload capacity back to the contract trucking market. However, that hasn’t happened yet, and it’s not clear when — or whether — continuing shortages of labor and equipment will ease.
Beating port congestion
Keeping freight moving, shelves stocked, and plants running will continue to take precedence over price, as importers grapple with supply chain disruptions from winter storms to shortages of labor and raw materials and even political protests such as those that obstructed key freight lanes across the US–Canada border in February.
The initial challenge, however, is simply getting freight out of congested port terminals. Ports are unlikely to see much relief in clearing cargo backlogs, even as the annualized growth in US imports slows to 1.5 percent in the first half, according to the Global Port Tracker report from Hackett Associates and the National Retail Federation.
“A shortage of equipment, worker availability, and storage space at distribution centers and warehouses across the country remains problematic, as does the export of empty containers back to Asia,” Ben Hackett, founder of Hackett Associates, said in the February Global Port Tracker.
The Los Angeles–Long Beach port complex, which handles about 50 percent of total US containerized imports from Asia, according to PIERS, a sister product of JOC.com within IHS Markit, has experienced unprecedented congestion during the rebound of the US economy that followed early COVID-19 lockdowns in the spring of 2020.
Key indicators suggest congestion has stabilized, although the largest US port complex is nowhere near the state of cargo fluidity it was prior to the pandemic. The average truck turn time at Los Angeles and Long Beach terminals was 92 minutes in January, up from 62 minutes in July 2020, according to the Harbor Trucking Association.
The average dwell time on Los Angeles–Long Beach docks for containers that move by truck to local destinations reached 7.7 days in December. That was down from 8.4 days in November but still nearly double the pre-pandemic average of less than four days, according to data from the Pacific Merchant Shipping Association.
Terminal operators in Los Angeles–Long Beach said IPI rail volumes have been down more than 25 percent since last summer, when the western railroads began to “meter” intermodal service from the West Coast to relieve congestion at intermodal hubs in the interior, especially Chicago.
Those terminal operators are urging shipping lines to book more IPI shipments because each train that leaves an on-dock rail yard eliminates upwards of 250 gate moves that would occur if the containers were moved by truck to transloading warehouses in Southern California.
Chassis “street dwell” times in the Los Angeles–Long Beach area have averaged between 8.8 and 9.2 days for the past year, which is more than double the normal dwell of less than four days, according to the Pool of Pools website, managed by the three largest intermodal equipment providers.
The street dwell may be one reason shipping lines are skittish about offering too much IPI through carrier haulage agreements. If containers incur rail storage, a form of demurrage, because of a lack of chassis, then the shipping line may be responsible for paying those fees to the Class I railroad.
Domestic intermodal options
Transloading to domestic intermodal may become a better option for those importers in early 2022, as railroads have canceled surcharges and intermodal marketing companies (IMCs) including Hub Group, J.B. Hunt Transport Services, and Schneider National have ordered thousands of 53-foot containers.
And large IMCs aren’t the only ones adding containers; LTL providers such as ArcBest, Estes Express Lines, and Yellow are also increasing their equipment fleets. That itself is a sign that transportation providers known primarily for domestic point-to-point service are crossing deeper into international business as their customers seek capacity.
But importers are demanding greater speed from transportation providers as they try to make up for time lost on the ocean leg. That’s pushing more freight that would have been shipped inland by rail into tractor-trailers, even if there are savings available putting cargo on trains in 53-foot containers.
On the East Coast, congestion that hit Savannah late last year appears to have shifted to Charleston, South Carolina, and Norfolk, Virginia. The South Carolina Ports Authority (SC Ports) believes it will take until mid-March to move enough containers from its terminals to work down its queue of vessels.
SC Ports has been urging importers to pick up containers quickly, rather than let them sit for weeks on the terminal. CEO Jim Newsome said there were 7,400 containers in Charleston that had been on terminal for more than 15 days as of Feb. 10, while a normal number would be 1,000 containers.
A shift in drayage capacity may complicate efforts to move containers faster in the Southeast. The number of new drayage providers operating at Charleston and Savannah jumped from July through December last year, with 305 new carriers in Savannah alone, according to carrier directory Drayage.com.
These are mainly one-truck operators that have left larger companies to pursue high spot market rates, according to Jason Hilsenbeck, president of freight marketplace LoadMatch.com and Drayage.com, which added 1,228 new drayage operator listings in 2021. “It’s been overwhelming,” Hilsenbeck said.
The effect is two-pronged. First, large drayage companies are losing drivers while customers are asking them to haul more loads. Second, importers who get shortchanged must go to the spot market and pay significantly more for drayage moves. The result may be a steep increase in contract drayage rates.
Transloading to truck
Frustrated shippers are turning from IPI and transloaded domestic intermodal to over-the-road truckload and LTL trucking, but they’re hitting well-publicized capacity and pricing constraints in those sectors as well. That’s making it difficult to tap overflow capacity as shippers have in the past.
The truckload sector is undergoing a shift of capacity in the form of truck drivers. Those drivers are leaving larger carriers to work for smaller companies or strike out on their own, a trend that has accelerated during the COVID-19 pandemic as truckers sought to capitalize on spot truckload rates that soared to new records.
The national average dry van spot rate tracked by DAT Freight & Analytics rose from $2.84 per mile in September to $3.00 per mile in December. January and February used to see some rate deflation, but in 2022, the national dry van average rate rose to $3.11 per mile in January and $3.13 per mile in February.
Spot market truckload rates from major West and East coast ports were particularly strong late last year. From October through December, the average monthly spot rate from seven West Coast ports to Chicago rose from $2.88 to $3.25 per mile, according to DAT, outpacing the national average.
Average monthly spot rates from nine East Coast ports rose from $2.21 to $2.27 per mile in the same period but then jumped to $2.44 in early January. The average dry van spot rate from Elizabeth, New Jersey, rose from $2.29 per mile in December to $2.73 per mile in January, a sign of tightening capacity.
Larger, high-volume shippers have difficulty connecting with those smaller truckload carriers, such as their smaller drayage counterparts. Many shippers are reportedly asking LTL carriers for help, betting they have more capacity to spare. But as shipping demand rises, LTL is hitting capacity limits.
“Weather, impacts from the COVID-19 pandemic, and labor challenges continue to disrupt the LTL network across the US,” 3PL C.H. Robinson Worldwide said in a Feb. 10 client advisory. “Multiple LTL carriers are now implementing freight embargoes at various locations.”
LTL networks were hit hard by the severe winter storm that struck about two-thirds of the US in early February, dislocating freight and disrupting linehaul shipping schedules. Unless shippers are already a carrier’s customers, they’re unlikely to get access to that carrier’s capacity anytime soon.
Pearce said she is hearing a consistent message from C&D Trojan’s LTL providers. “They’re saying ‘no’ to freight that doesn’t make sense for them,” either in terms of return or their freight mix. A more disciplined approach to network management is evolving from LTL pricing discipline.
Yet, customers are drawing LTL providers closer to ports. “We absolutely have customers that are begging us to pick up loads at the ports and expedite them,” said Webb Estes, vice president of process improvement at Estes Express Lines, the fourth-largest US LTL operator by annual revenue in 2020.
Estes Express plans to replace a 25-door facility in Savannah, Georgia, with a 125-door terminal this spring. The Richmond, Virginia-based carrier also handles deconsolidated freight from the ports of Norfolk, Virginia, and Charleston and is building a terminal in Southern California to expand capacity.
“We see no shortage of freight coming into the US in the coming years,” Estes said. The result will be more distribution options for shippers. New options will be needed as fluctuations in capacity and demand continue, driving containerized freight into new transportation channels.
And there will be a need for multiple options. Although Los Angeles–Long Beach remains the dominant US port of entry, importers are sending more freight to East and Gulf Coast ports. That may partially account for the drop in IPI volumes off the West Coast, according to Lawrence Gross, president of Gross Transportation Consulting and a JOC analyst.
Transloading is on the rise, but not at a fast enough pace to account for all the missing IPI traffic, according to Gross’s latest analysis. Carriers such as RoadOne IntermodaLogistics are making substantial investments in transloading facilities, but space is hard to find.
“We’re looking at doing more of it further inland, as the cost of land in Southern California is so high,” Kellaway said. “The incremental additional cost of trucking the container further inland isn’t that big. It’s the gate time at the port terminal that’s killing us.”
By: William B Cassidy / JOC