Thursday, August 16, 2018

Tough Road All Over

From Europe to Asia, truck capacity is squeezed by many factors

American shippers have seen rates spike and availability tighten as trucking capacity in this country fails to keep pace with demand. Reports from regions around the world suggest the problem is larger than just the United States, with a global capacity crunch underway in over-the-road transportation.

In this country, rising trucking costs are biting into the bottom lines of US manufacturers and retailers, forcing them to sound the alarm to Wall Street on their earnings reports and to look for supply chain efficiencies to reduce or counter higher logistics costs. US truckload rates have climbed 20 to 30 percent year-over-year on the spot market, and contract pricing has risen in the high single digits to low double digits range. Rising freight demand and the ELD, or electronic logging device mandate, has tightened truck capacity and had spillover effects on rail pricing.

European shippers are also paying more for trucking, due to a scarcity of drivers and higher fuel prices, factors at play in the US as well. This is in the face of a concerted effort by the European Union and member nations advocating for containerized rail, looking to reduce emissions caused by road transport.

The European Commission recently unveiled plans to cut new trucks’ CO2 emissions by at least 30 percent by 2030, with an interim target of 15 percent by 2025. The German government is boosting toll rates on heavy goods vehicles and extending toll highways beginning next January, expected to cost the industry around 2.5 billion Euros per year.

South of the border, strong freight demand and higher US trucking rates mean fewer trucks available for northbound loads at the US-Mexican border, even as demand for cross-border truck and intermodal rail grows. Mexico has their own new hours-of-service (HOS) regulations for drivers taking effect this month, and traffic between the two countries continues to mushroom. In April, the dollar value of US-Mexico trade by truck increased over 20 percent to $35.9 billion, according to the US Bureau of Transportation Statistics – and those figures, the latest available, were compiled before the produce season kicked into high gear.

In India, truckers just ended a strike by the All India Motor Transport Congress, which claims to represent nearly 10 million truckers. The proximate cause of the strike was a protest against rising diesel prices, but the drivers also had grievances concerning insurance costs, toll systems, and the awarding of contracts for direct port delivery services.

And while hard evidence is scanty, there are reports of truck drivers in China suspending work, mostly in inland provinces. Because of the sensitivities associated with industrial disputes in China, there is no official confirmation, and on-the-record comments were hard to find, but signs indicate that China, too, is seeing a tightening of the trucking market.

Industry experts say the capacity crunch is likely to be with us for the “long-haul,” highlighting the need for shippers to do everything possible to increase supply chain efficiency. 

Kirk Shearer
President & COO
(973) 726-2103
TOTALogistix, Inc.

Wednesday, July 25, 2018

Caught in the Crossfire

Burgeoning US-China trade war causes uncertainty for exporters and importers.    

With the US-China trade war heating up, American companies and their supply chains are getting caught in the crossfire.

On July 6, the Trump administration imposed tariffs on $34 billion worth of goods imported from China, with the Chinese government immediately retaliating in kind. Another $16 billion in American tariffs on Chinese imports has been announced but still pending.

But the US has a plan to impose an additional $200 billion of tariffs, which would mean more than a third of inbound containerized trade with China would be subject to the levy, a sharp escalation.

China, as it does not import $200 billion in goods from the United States, has not yet announced how it will retaliate, but reports from Chinese ports give an idea. Imported products from the States that used to “sail” through Chinese customs are encountering vastly greater scrutiny and delays.

A Shanghai importer told Reuters that officials at the city’s port had put additional inspections, customs holdups and bureaucratic red tape. For any shipper, such snafus are maddening and expensive, but for time-sensitive and perishable cargo they can be ruinous. As an example, shipments of fresh American cherries that would normally have been cleared in a few hours have been held for 10 days to two weeks, resulting in the fruit spoiling in the shipping containers. More than half of all US cherry exports have been shipped to China.

While having allies working together in a united bloc would help to soften the impact of a trade war with China, the US is simultaneously pursuing trade disputes with Canada, Mexico, and the European Union. Overall, continuing down this path is likely to lead to rising prices and declining trade.

“It’s very difficult to see how this doesn’t negatively impact all Americans of every walk of life,” Matt Priest, president and CEO of the Footwear Distributors & Retailers of America, said in a statement when the tariffs were first announced. “The president claimed that trade wars are easy to win, but what our industry has always known is coming true: Trade wars are costly, unnecessary and do harm to the American economy.”

Kirk Shearer
President & COO
(973) 726-2103

TOTALogistix, Inc.

Wednesday, July 18, 2018

In the Drivers’ Seat

Scramble for last mile delivery intensifies with the new player: Amazon.

There has been a lot of discussions, including in this space, about the growing shortage of long-haul truck drivers. With the mushrooming consumer demand for expedited and “Prime” shipping, the B2C space is liable to give B2B a run for its money when it comes to the scramble for drivers.

The rush to bring everything from groceries to gourmet meals to customers’ doorsteps has sparked such a demand that job postings for delivery drivers have tripled nationwide on in the past three years, reported Bloomberg News. The dearth of truck drivers needed to carry products from city to city is well-documented, but the growth of e-commerce depends as much or more on a steady supply of qualified last-mile car and van drivers.

Amazon, which has disrupted so many industries, and is largely responsible for the burgeoning need for last mile/last touch delivery capacity, is moving even more heavily into the retail delivery space. Augmenting its existing fleet of over 30 cargo airplanes, thousands of 53-foot trailers, and a cadre of independent delivery drivers, the company is competing directly with UPS, FedEx and the Post Office, while continuing to utilize those services.

At the end of June, Amazon announced plans to build a network of independent delivery companies, to put Amazon products, and others, into the hands of consumers, and incidentally be the entity, rather than Amazon itself, that hires the individual drivers. Amazon is hiring delivery companies, not delivery drivers. By doing so, Amazon hopes to avoid the issues that have bedeviled carriers such as FedEx, as to whether the drivers are its employees or independent contractors.

Currently delivering 7 million packages per day, with volume growing 18-20 percent per year, Amazon can feed its own pipeline while still employing the delivery carriers and methods it has used to date. Along with the Brown/Purple parcel duopoly, this includes the United States Postal Service, which could eventually become the big loser under Amazon’s scheme. 

With Amazon now boasting over 100 million Prime members, and Prime Free Same-Day delivery and Prime Free One-Day delivery now in 8,000 cities and towns, the biggest winner may be the consumer, along with those shippers who take advantage of diverse delivery choices. All they need is a supply of drivers.

The battle to control the last mile shows how much Amazon upends business segments it enters, and how the seemingly fixed and immutable small package universe can change virtually overnight. 

Kirk Shearer
President & COO
(973) 726-2103
TOTALogistix, Inc.

Wednesday, July 11, 2018

Capacity Crunch

‘Unprecedented’ demand strains US surface transport.

Barreling down the highway like an out-of-control semi-trailer, US freight demand is spiking, squeezing already tight capacity and further pushing up rates. Both spot and contract rates are accelerating, propelled by a combination of factors that have cumulatively created a market being called “unprecedented.”

These factors include tight oil pipeline capacity in Texas that is tapping flatbed and tanker trucks, continued strong demand for manufactured goods, a late start to produce season due to a late, wet spring in many areas, and the three-day International Roadcheck truck inspection blitz. Truckload contract rates are up about 11 percent on average, according to industry analysts, in what is being called “the strongest market anybody with a memory can imagine.”

The Cass Freight Index for May, released Friday, showed shipment volumes up 11.9 percent from a year ago, while the Cass Freight Shipper Expenditure Index was up 17.3 percent year over year, reflecting the higher prices shippers must pay to get goods delivered, reported the Journal of Commerce.

“This market is unprecedented,” said Rob Estes, president and CEO of Estes Express Lines, the largest privately owned LTL (less than truckload) carrier, saying the growth in business exceeds the previous peak of 2004 and 2005, when high freight demand and tight capacity fueled frenetic growth, eventually checked by the Great Recession. “There’s more opportunity than we can possibly handle.”

Spot rates in the top 100 US truckload lanes, meanwhile, have surged 26 percent on average year over year entering June, when the differential jumped to 29 percent. Demand in drayage and intermodal rail-highway shipping is also spiking, leading to a “perfect storm” situation. For some shippers, the challenge may be moving from having to pay higher rates to finding transport at all.

To avoid last-minute “dialing for diesels,” frantically scrambling to find someone, anyone, to move a load, shippers need to work with savvy industry professionals and nail down their carrier relationships.

Kirk Shearer
President & COO
(973) 726-2103

Thursday, May 24, 2018

Employee or Contractor?

Rule change threatens NY-NJ Port drayage capacity, say truckers.

Are the 10,000 or so truckers who serve the Port of New York and New Jersey employees or independent owner-operators? The wrong answer, says a trucking group, could seriously impact port operations.

The Association of Bi-State Motor Carriers set out their objections to a proposed rule change in how the drivers’ status is determined in a letter May 15 to the New Jersey Dept. of Labor and Workforce Development, reported the Journal of Commerce. Turning over determination of the drivers’ employment status to the IRS, said the association, would further exacerbate an already critical driver shortage, “pushing drivers away from serving at the port due to its burdensome, unduly restrictive regulations.”

The International Brotherhood of Teamsters, though, backed the proposal. The focus on the independent contractor vs. employee issue is a new front in the longstanding dispute between unions, who want to increase the ranks of employee drivers, and companies who do not want the liability and costs of employees.

Debate over the regulation follows an executive order signed by New Jersey Gov. Phil Murphy, creating a Task Force on Employee Misclassification. It follows legislative efforts in 2016 and 2013 to make it easier for owner-operators to be considered employees. Neither of those bills was signed into law, although the 2013 bill got to the desk of then-Gov. Chris Christie, who vetoed it.
Murphy’s executive order said misclassification of employees “deprives New Jersey workers of important legal rights and protections as well as certain employment-related benefits, including unemployment insurance, workers’ compensation, and disability benefits.” With most NY-NJ port activity taking place in New Jersey, state regulations have an outsized effect on the port’s drayage fleet, with 80 percent of the drivers, according to the carriers’ association, classified as independent owner-operators.

The NJ Dept. of Labor declined to comment, as the issue is under review. It is accepting comments on the proposed plan and in the coming weeks will submit its final determination to the governor for review.

Kirk Shearer
President & COO
(973) 726-2103