<div class="phx-topic abstract-wrapper">Carriers have entered 2023 with too much supply and not enough demand on the Asia-Europe trade, with rates continuing their downward spiral through January.</div>

Carriers have entered 2023 with too much supply and not enough demand on the Asia-Europe trade, with rates continuing their downward spiral through January.

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<div>Spot rates on Asia to North Europe this week fell to levels not seen since just before the start of COVID-19 in January 2020, with carriers unable to fill the deployed capacity on the trade lane because European importers are burdened by inflation and high inventories. Destocking efforts in Europe and North America are being reversed as businesses stockpile safety inventories, partly due to a resurgence of COVID-19 infections in China and increased concerns about future supply and pricing, according to the GEP Global Supply Chain Volatility Index produced by S&amp;P Global, parent company of the Journal of Commerce. With...

Spot rates on Asia to North Europe this week fell to levels not seen since just before the start of COVID-19 in January 2020, with carriers unable to fill the deployed capacity on the trade lane because European importers are burdened by inflation and high inventories. Destocking efforts in Europe and North America are being reversed as businesses stockpile safety inventories, partly due to a resurgence of COVID-19 infections in China and increased concerns about future supply and pricing, according to the GEP Global Supply Chain Volatility Index produced by S&P Global, parent company of the Journal of Commerce. With abundant container shipping capacity in the market, high stock levels, and weak demand, there is little incentive for shippers and their service providers to enter fixed rate contracts with carriers on Asia-Europe. “The whole tendering process is stretched as most shippers don’t have to rush into the market to secure space and equipment right now,” Peter Sand, chief analyst at rate benchmarking platform Xeneta, told the Journal of Commerce. “Third-party logistics providers are clearly also playing hardball with the carriers — being late on signing new deals,” he added. “Carriers are obviously eager to engage with big-volume shippers that can deliver stable and predictable volumes of cargo.” Xeneta put the Asia-Europe spot rate at $1,995 per FEU this week, down 86 percent year over year and flat compared with Jan. 30, 2020. Drewry’s Asia-North Europe rate this week stands at $1,741 per FEU, $340 below the price for the same week in 2020. Long-term rates on Asia-North Europe have also fallen sharply through January as contracts signed at elevated rates last year came to an end. The average long-term rate of $4,193 per TEU on Dec. 31 had fallen to $1,745 per TEU by Tuesday, the last day of January, according to Xeneta. An ocean forwarding executive based in North Europe told the Journal of Commerce this week that many customers were delaying the signing of contracts in anticipation of further rate weakness, while at the same time looking into longer-term fixed rates with an index element. “But the real challenge is in the volume commitment,” the forwarder said. “What do carriers expect, and what are shippers prepared to commit to?” Shippers push carriers for big rate cuts In an attempt to arrest falling rate levels, carriers plan to withdraw 27 percent of all Asia-Europe sailings through the first seven weeks of the year. The three major carrier groupings — 2M Alliance, THE Alliance, and Ocean Alliance — will have axed 53 voyages from the 196 scheduled sailings on the Asia-North Europe and Asia-Mediterranean routes by Feb. 17, according to Alphaliner. Xeneta CEO Patrick Berglund noted in a market update this week that carriers managed to protect long-term rates from the worst impacts last year, but that was now changing. “With the dawn of 2023, many of the contracts negotiated last year have expired,” Berglund said. “Shippers, well aware of market dynamics turning in their favor, have reacted, pushing carriers for major rate reductions. What we're seeing now is the effect of that as new contracts enter validity, and, for the carriers, [the worst] is yet to come.” But unlike in 2020 when the pandemic initially cut demand before unleashing a splurge in online spending, European consumers are now battling high inflation driven by rising energy and food prices, and a cost-of-living crisis. With inventory levels up, new import orders are down. Anja Roennfeldt, executive vice president of global ocean freight trade management at DB Schenker, said the Asia-Europe market was showing no recovery since the start of Chinese New Year, and bookings would remain slow for the month of February. “Current loadings are mainly from delayed or even purposely rolled-over shipments,” Roennfeldt told the Journal of Commerce. “The fresh bookings, especially for the first half of February, appear very weak.” Roennfeldt said some of the large overseas equipment manufacturers in China had resumed production this week, but most of the smaller factories would not reopen until next week. Contact Greg Knowler at greg.knowler@spglobal.com and follow him on Twitter: @greg_knowler .

Container Shipping News

Container lines

Asia-Europe

Asia-Europe spot rates soften to pre-pandemic levels

<div class="phx-topic abstract-wrapper">Double counting for US port calls on the same voyage would lead to an “unsustainable” cost impact on the US ro/ro operator, its CEO tells the Journal of Commerce.</div>

Double counting for US port calls on the same voyage would lead to an “unsustainable” cost impact on the US ro/ro operator, its CEO tells the Journal of Commerce.

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<div class="phx-topic">Italy’s Grimaldi Lines could be forced to stop calling at US ports on some of its trans-Atlantic services if it is charged double port fees for US calls, the head of its US affiliate says. Some of the vessels operating in Grimaldi’s trans-Atlantic Mediterranean service call initially at US East Coast ports, then continue to ports in Mexico before returning to US ports on the backhaul leg to the Mediterranean. “Should the same vessel be subject to double fees when entering the US on a voyage, the impact would be unsustainable, and some US calls would have to be dropped,” Andrew Abbott, CEO of Grimaldi’s North Atlantic operation, Atlantic Container Line (ACL), told the Journal of Commerce. ACL itself could face hefty tonnage charges if its vessels are considered roll-on/roll-off vessels under the latest US Trade Representative (USTR) car carrier proposals, even though almost 90% of its cargoes are containers or breakbulk. “Will we be considered a ro/ro carrier, when only 10% of our volume are cars or other rollable cargo? If so, we would be hit with enormous charges per voyage because the current proposal is based on net registered tons and not cargo carried,” Abbott said. ACL’s weekly cargo volumes between January and May show 80%, equivalent to 29,908 tons, was carried in containers, with a further 9%, or 3,490 tons, as breakbulk. The remaining 10% comprised 9% rollable equipment and 620 cars. It would be “logical” for ACL to be considered a container line given “89% of our cargo is containers or flat rack cargo,” Abbott said. If this was accepted by the USTR, ACL would not face port fees. <h3>ACL has questioned USTR classifications </h3>Abbott raised Grimaldi's potential withdrawal and whether it and ACL should be classified as container lines in a letter to Trade Representative Jamieson Greer during the public comment period <a href="https://www.joc.com/article/ustr-plan-to-tax-roro-ships-exceeds-statutory-authority-stakeholders-6039721">on the fee proposal that closed on July 7</a>. This came after USTR amended proposals in June to charge all foreign-built ro/ro vessels a tonnage fee every time they entered US ports, rather than on a vessel’s net registered tonnage. To blur the issue further, Abbott highlighted PIERS data between January and May that showed container lines carried 27% of the total vehicle volumes on the trans-Atlantic trade between the US East Coast and Northern Europe. By comparison, pure vehicle carriers carried 65% of overall volumes. PIERS is a sister product of the Journal of Commerce within S&amp;P Global. Under current USTR proposals, container lines would not pay port charges, even carrying cars in containers, so long as the vessels were not built in China or Chinese owned. “A more practical solution would be to assess any charges on the cargo lifted, no matter what type of vessel is employed, instead of the total capacity of the vessel,” Abbott said. <h3>Unintended consequences </h3>Other ro/ro and vehicle carrier operators highlighted in their own submissions to the USTR that current proposals target all non-US built ro/ro ships whereas other vessel types, including container ships and tankers, are only penalized if they are China built or operated. This discrepancy led some groups and companies to question whether USTR exceeded its remit in including all foreign-built ro/ro and vehicle carriers in its investigation of China’s dominance in the maritime, logistics and shipbuilding industries. Abbott said he’d yet to receive a response from USTR. “We are waiting for the final verdict and are expecting to see something coming out in an executive order before the end of this month,” he said. ACL has an extensive trans-Atlantic network linking East Coast ports in the US and Canada including New York, Baltimore, Norfolk and Halifax with European ports such as Antwerp, Hamburg, Liverpool and Dublin that is separate from Grimaldi’s services. “Hopefully USTR will recognize its proposal will have a major impact on the competitiveness of individual carriers, unintentionally letting Chinese carriers off the hook, while penalizing carriers with either US headquarters or US-flag vessels,” Abbott said. Contact Keith Wallis at <a href="mailto:keithwallis@hotmail.com">keithwallis@hotmail.com</a>. </div>

Italy’s Grimaldi Lines could be forced to stop calling at US ports on some of its trans-Atlantic services if it is charged double port fees for US calls, the head of its US affiliate says. Some of the vessels operating in Grimaldi’s trans-Atlantic Mediterranean service call initially at US East Coast ports, then continue to ports in Mexico before returning to US ports on the backhaul leg to the Mediterranean. “Should the same vessel be subject to double fees when entering the US on a voyage, the impact would be unsustainable, and some US calls would have to be dropped,” Andrew Abbott, CEO of Grimaldi’s North Atlantic operation, Atlantic Container Line (ACL), told the Journal of Commerce. ACL itself could face hefty tonnage charges if its vessels are considered roll-on/roll-off vessels under the latest US Trade Representative (USTR) car carrier proposals, even though almost 90% of its cargoes are containers or breakbulk. “Will we be considered a ro/ro carrier, when only 10% of our volume are cars or other rollable cargo? If so, we would be hit with enormous charges per voyage because the current proposal is based on net registered tons and not cargo carried,” Abbott said. ACL’s weekly cargo volumes between January and May show 80%, equivalent to 29,908 tons, was carried in containers, with a further 9%, or 3,490 tons, as breakbulk. The remaining 10% comprised 9% rollable equipment and 620 cars. It would be “logical” for ACL to be considered a container line given “89% of our cargo is containers or flat rack cargo,” Abbott said. If this was accepted by the USTR, ACL would not face port fees. ACL has questioned USTR classifications Abbott raised Grimaldi's potential withdrawal and whether it and ACL should be classified as container lines in a letter to Trade Representative Jamieson Greer during the public comment period on the fee proposal that closed on July 7 . This came after USTR amended proposals in June to charge all foreign-built ro/ro vessels a tonnage fee every time they entered US ports, rather than on a vessel’s net registered tonnage. To blur the issue further, Abbott highlighted PIERS data between January and May that showed container lines carried 27% of the total vehicle volumes on the trans-Atlantic trade between the US East Coast and Northern Europe. By comparison, pure vehicle carriers carried 65% of overall volumes. PIERS is a sister product of the Journal of Commerce within S&P Global. Under current USTR proposals, container lines would not pay port charges, even carrying cars in containers, so long as the vessels were not built in China or Chinese owned. “A more practical solution would be to assess any charges on the cargo lifted, no matter what type of vessel is employed, instead of the total capacity of the vessel,” Abbott said. Unintended consequences Other ro/ro and vehicle carrier operators highlighted in their own submissions to the USTR that current proposals target all non-US built ro/ro ships whereas other vessel types, including container ships and tankers, are only penalized if they are China built or operated. This discrepancy led some groups and companies to question whether USTR exceeded its remit in including all foreign-built ro/ro and vehicle carriers in its investigation of China’s dominance in the maritime, logistics and shipbuilding industries. Abbott said he’d yet to receive a response from USTR. “We are waiting for the final verdict and are expecting to see something coming out in an executive order before the end of this month,” he said. ACL has an extensive trans-Atlantic network linking East Coast ports in the US and Canada including New York, Baltimore, Norfolk and Halifax with European ports such as Antwerp, Hamburg, Liverpool and Dublin that is separate from Grimaldi’s services. “Hopefully USTR will recognize its proposal will have a major impact on the competitiveness of individual carriers, unintentionally letting Chinese carriers off the hook, while penalizing carriers with either US headquarters or US-flag vessels,” Abbott said. Contact Keith Wallis at keithwallis@hotmail.com .

Maritime

Ro/ro cargo

USTR’s ‘double-hit’ port fee proposal could force cuts to ACL’s US calls

<div class="phx-topic abstract-wrapper">Any investment by the largest trucking scale network in North America gives Truck Parking Club capital to expand its list of partner parking facilities. </div>

Any investment by the largest trucking scale network in North America gives Truck Parking Club capital to expand its list of partner parking facilities.

<div class="phx-topic">The connection between an available parking space for a truck driver and adequate capacity for truckload shippers may not seem immediately obvious. But the direct impact of drivers finding space to park at the most favorable time to fully use their hours of service is clear to a company aiming to build the largest collection of bookable space for truckload drivers in North America. “It’s been up to drivers to make decisions on where to park, and that often means they’re stopping with five hours left to drive,” said Reed Loustalot, chief marketing officer at Truck Parking Club, which offers a platform for fleets and drivers to arrange parking spaces. “That’s lost efficiency, and [if] you add that up across the industry, that’s a lot of wasted hours.” Loustalot said it’s hard to quantify that inefficiency across a nearly $1 billion industry. But arming drivers with the ability to book a space ahead of time in a way that lets them maximize their driving time definitely benefits shippers, carriers, brokers and the drivers, he said. “It’s worth it for the carrier to provide drivers with $25 for a space,” he said. “The alternative is they stop a few hours short [of their hours of service limit] and waste everyone’s time.” Truck Parking Club, founded in 2022 by CEO Evan Shelley, has been steadily building its network of available and bookable spaces through its app. From barely more than 1,000 spaces in November, the company now has 2,300 and plans to hit 10,000 by the end of 2026. Locations include space at trucking companies, truck repair shops, tow truck companies, storage companies, truck driving schools, trailer leasing companies, real estate investors, truck parking operators and truck stops. “Our north star is getting more locations,” Loustalot said. “Drivers just say they want more locations from us, so every dollar in the business is about getting more locations and better service.” Earlier this month, Truck Parking Club tied up an undisclosed investment from CAT Scale, North America’s largest truck weighing network. The investment provides Truck Parking Club with capital to add more parking spots to the assortment it can offer drivers. Shelley also said in a statement “leveraging [CAT Scale’s] knowledge and experience from building a trusted nationwide network will be invaluable as we continue building our truck parking network.” <h3>Broader reach to drivers </h3>Truck Parking Club last week also announced an integration with Platform Science, a widely used electronic logging device (ELD) hardware maker. That integration expands the distribution of Truck Parking Club’s app by making it available directly in-cab through the Platform Science device that drivers use for a range of functions. “We had fleets say to us, ‘let us know when you’re in Platform Science,’” Loustalot said. The cooperation is not exclusive, meaning Truck Parking Club can pursue integrations with other ELD providers and truckload telematics platforms. In May, Truck Parking Club began <a href="https://www.joc.com/article/truckload-technology-providers-partner-on-cargo-theft-initiative-5996628">partnering with GenLogs</a> to battle cargo and equipment theft by connecting Truck Parking Club’s data on commercial vehicles and their movements with GenLogs’ network of roadside sensors that track equipment location. Aside from aiming to drive more available capacity in the market, there’s a more direct link to shippers. Loustalot said the company has been seeing a “good amount of activity from private fleets, primarily using us for storage, and especially for trailers.” Those fleets tend to have drivers moving local loads or facility-to-facility shipments, “so parking isn’t the biggest issue, but trailers and drop trailer storage is an issue,” he said. “They use us as external yard.” As Truck Parking Club’s footprint grows, it begs the question: Why has there been no centralized parking platform before, and why do many fleets hand off the responsibility for finding, and paying for, parking to their drivers? “There are fleets that pay for their drivers to park,” Loustalot said. “But there are a million reasons they don’t want to do it. Most big fleets rent space, but cutting checks is another issue, and it takes a day to find a place to stash trucks. Folks have thrown their hands up, especially fleets that don’t have lots of real estate.” Contact Eric Johnson at <a href="mailto:eric.johnson@spglobal.com">eric.johnson@spglobal.com</a>. </div>

The connection between an available parking space for a truck driver and adequate capacity for truckload shippers may not seem immediately obvious. But the direct impact of drivers finding space to park at the most favorable time to fully use their hours of service is clear to a company aiming to build the largest collection of bookable space for truckload drivers in North America. “It’s been up to drivers to make decisions on where to park, and that often means they’re stopping with five hours left to drive,” said Reed Loustalot, chief marketing officer at Truck Parking Club, which offers a platform for fleets and drivers to arrange parking spaces. “That’s lost efficiency, and [if] you add that up across the industry, that’s a lot of wasted hours.” Loustalot said it’s hard to quantify that inefficiency across a nearly $1 billion industry. But arming drivers with the ability to book a space ahead of time in a way that lets them maximize their driving time definitely benefits shippers, carriers, brokers and the drivers, he said. “It’s worth it for the carrier to provide drivers with $25 for a space,” he said. “The alternative is they stop a few hours short [of their hours of service limit] and waste everyone’s time.” Truck Parking Club, founded in 2022 by CEO Evan Shelley, has been steadily building its network of available and bookable spaces through its app. From barely more than 1,000 spaces in November, the company now has 2,300 and plans to hit 10,000 by the end of 2026. Locations include space at trucking companies, truck repair shops, tow truck companies, storage companies, truck driving schools, trailer leasing companies, real estate investors, truck parking operators and truck stops. “Our north star is getting more locations,” Loustalot said. “Drivers just say they want more locations from us, so every dollar in the business is about getting more locations and better service.” Earlier this month, Truck Parking Club tied up an undisclosed investment from CAT Scale, North America’s largest truck weighing network. The investment provides Truck Parking Club with capital to add more parking spots to the assortment it can offer drivers. Shelley also said in a statement “leveraging [CAT Scale’s] knowledge and experience from building a trusted nationwide network will be invaluable as we continue building our truck parking network.” Broader reach to drivers Truck Parking Club last week also announced an integration with Platform Science, a widely used electronic logging device (ELD) hardware maker. That integration expands the distribution of Truck Parking Club’s app by making it available directly in-cab through the Platform Science device that drivers use for a range of functions. “We had fleets say to us, ‘let us know when you’re in Platform Science,’” Loustalot said. The cooperation is not exclusive, meaning Truck Parking Club can pursue integrations with other ELD providers and truckload telematics platforms. In May, Truck Parking Club began partnering with GenLogs to battle cargo and equipment theft by connecting Truck Parking Club’s data on commercial vehicles and their movements with GenLogs’ network of roadside sensors that track equipment location. Aside from aiming to drive more available capacity in the market, there’s a more direct link to shippers. Loustalot said the company has been seeing a “good amount of activity from private fleets, primarily using us for storage, and especially for trailers.” Those fleets tend to have drivers moving local loads or facility-to-facility shipments, “so parking isn’t the biggest issue, but trailers and drop trailer storage is an issue,” he said. “They use us as external yard.” As Truck Parking Club’s footprint grows, it begs the question: Why has there been no centralized parking platform before, and why do many fleets hand off the responsibility for finding, and paying for, parking to their drivers? “There are fleets that pay for their drivers to park,” Loustalot said. “But there are a million reasons they don’t want to do it. Most big fleets rent space, but cutting checks is another issue, and it takes a day to find a place to stash trucks. Folks have thrown their hands up, especially fleets that don’t have lots of real estate.” Contact Eric Johnson at eric.johnson@spglobal.com .

Surface

Trucking News

Logistics Technology News

Parking platform uses business growth to target truckload fleet inefficiency

<div class="phx-topic abstract-wrapper">But other Class I railroads will likely be vocal in their opposition to any deal and look to rally support from shippers to block the move, setting the stage for a contentious regulatory battle. </div>

But other Class I railroads will likely be vocal in their opposition to any deal and look to rally support from shippers to block the move, setting the stage for a contentious regulatory battle.

<div class="phx-topic">Union Pacific (UP) is in preliminary discussions to acquire Norfolk Southern (NS), according to <a href="https://www.wsj.com/business/deals/railroad-operator-union-pacific-exploring-deal-for-norfolk-southern-1d06e822?mod=Searchresults_pos2&amp;page=1">The Wall Street Journal</a>, in what could become the largest freight rail merger in American history. If a deal happens, it would create the first coast-to-coast US rail network and mark a dramatic shift in the structure of US freight railroads. The transaction, which would create a mega-railroad valued at $200 billion, would far exceed the $31 billion merger between Canadian Pacific and Kansas City Southern <a href="https://www.joc.com/article/us-regulators-approve-cp-kcs-merger-to-form-first-us-canada-mexico-rail-5192986">completed in 2023</a>. However, UP and NS bring different freight portfolios to the table, and any proposed deal is expected to draw intense scrutiny from regulators. <div class="wrapper-narrow float-right-element"><img src="/images/phoenix/6046006_0.1.jpg"></img></div>Other Class I railroads BNSF Railway, CSX Transportation and Canadian Pacific Kansas City (CPKC) will likely be vocal in their opposition to any deal and look to rally support from shippers to block the move, setting the stage for a contentious regulatory battle. UP and NS share a common commitment to the principles of precision scheduled railroading (PSR), an operations philosophy that emphasizes efficiency, asset utilization and cost control. But some in the analyst community have speculated that CSX could be a potential target of UP. UP might also see more upside acquiring NS, which has underperformed CSX for several years financially and operationally. But from a freight mix perspective, UP more closely resembles CSX. Since 2018, non-intermodal cargo has accounted for 53.8% of CSX’s volume, nearly identical to Union Pacific’s 55%, according to the Association of American Railroads (AAR). Non-intermodal accounts for just 43.4% of Norfolk Southern volume, with the majority being containerized freight. UP CEO Jim Vena has been critical of intermodal at times because it doesn’t generate the high margins of commodities such as agricultural products, petrochemicals, plastics and construction materials. “In the intermodal piece, I don’t know. I like the industrial and the bulk business,” Vena said last month at the Wells Fargo Industrials &amp; Materials Conference. “I think the railroads have made some real strategically impactful decisions on how they handle intermodal that are not helpful.” After a brief interjection from his chief financial officer, Vena added, “I didn’t say I didn’t love [intermodal customers].” UP’s CEO is a protégé of the late E. Hunter Harrison, the creator of precision scheduled railroading. PSR practitioners measure operating ratios — i.e. the percentage of revenue that is absorbed by expenses. Lower operating ratios mean more revenue flows to the bottom line, driving profits. “We have long believed that the larger carload footprint, better chemicals, autos, and export ag connectivity makes CSX a better target from a freight flow perspective,” David Vernon, an industry analyst with investment bank Bernstein Societe Generale, wrote in a note published Friday. “While the potential synergy value of a UP and CSX combination is slightly greater, it’s not that much greater.” <h3>Intermodal implications would be profound </h3>If it were approved, a transcontinental US freight railroad would cause a significant reshuffling of the domestic and international intermodal markets. Ocean carriers, for example, often sign long-term contracts for inland rail services. If a carrier currently uses BNSF on the West Coast and Norfolk Southern on the East Coast for international business, the fate of those contracts in a post-merger landscape would be uncertain. The implications for domestic intermodal would be even messier. Hub Group, Swift Intermodal and parcel giant UPS are already customers of Union Pacific and Norfolk Southern, but Schneider National and STG Logistics are locked into multi-year deals with CSX in the eastern US. The shakeup could be substantial for non-asset brokers, also known as intermodal marketing companies (IMCs). Union Pacific controls the EMP and UMAX 53-foot container pools, which are shared with CSX, NS, and Canadian National. A UP-NS merger could limit or eliminate CSX’s access to those pools, potentially impacting significant volumes of freight. “While intermodal channel partners would need to adapt, single line trans-con service would likely be more competitive to the highway and accelerate share shifts,” Bernstein’s Vernon noted. The largest unknown would involve J.B. Hunt Transport Services, the largest US intermodal provider. J.B. Hunt exclusively partners with BNSF in the West and relies heavily on NS in the East, although it does put a portion of business on CSX. J.B. Hunt is unlikely to sever ties with BNSF because their relationship spans nearly four decades and includes joint Quantum service offerings in the US and Mexico. J.B. Hunt has also been critical of the PSR model employed by UP and CPKC. While J.B. Hunt could shift its East Coast operations to CSX, a combined Union Pacific-Norfolk Southern could wield unprecedented pricing power, potentially creating the first company with enough leverage to compete with J.B. Hunt on pricing negotiations with shippers. Contact Ari Ashe at <a href="mailto:ari.ashe@spglobal.com">ari.ashe@spglobal.com</a>. </div>

Union Pacific (UP) is in preliminary discussions to acquire Norfolk Southern (NS), according to The Wall Street Journal , in what could become the largest freight rail merger in American history. If a deal happens, it would create the first coast-to-coast US rail network and mark a dramatic shift in the structure of US freight railroads. The transaction, which would create a mega-railroad valued at $200 billion, would far exceed the $31 billion merger between Canadian Pacific and Kansas City Southern completed in 2023 . However, UP and NS bring different freight portfolios to the table, and any proposed deal is expected to draw intense scrutiny from regulators. Other Class I railroads BNSF Railway, CSX Transportation and Canadian Pacific Kansas City (CPKC) will likely be vocal in their opposition to any deal and look to rally support from shippers to block the move, setting the stage for a contentious regulatory battle. UP and NS share a common commitment to the principles of precision scheduled railroading (PSR), an operations philosophy that emphasizes efficiency, asset utilization and cost control. But some in the analyst community have speculated that CSX could be a potential target of UP. UP might also see more upside acquiring NS, which has underperformed CSX for several years financially and operationally. But from a freight mix perspective, UP more closely resembles CSX. Since 2018, non-intermodal cargo has accounted for 53.8% of CSX’s volume, nearly identical to Union Pacific’s 55%, according to the Association of American Railroads (AAR). Non-intermodal accounts for just 43.4% of Norfolk Southern volume, with the majority being containerized freight. UP CEO Jim Vena has been critical of intermodal at times because it doesn’t generate the high margins of commodities such as agricultural products, petrochemicals, plastics and construction materials. “In the intermodal piece, I don’t know. I like the industrial and the bulk business,” Vena said last month at the Wells Fargo Industrials & Materials Conference. “I think the railroads have made some real strategically impactful decisions on how they handle intermodal that are not helpful.” After a brief interjection from his chief financial officer, Vena added, “I didn’t say I didn’t love [intermodal customers].” UP’s CEO is a protégé of the late E. Hunter Harrison, the creator of precision scheduled railroading. PSR practitioners measure operating ratios — i.e. the percentage of revenue that is absorbed by expenses. Lower operating ratios mean more revenue flows to the bottom line, driving profits. “We have long believed that the larger carload footprint, better chemicals, autos, and export ag connectivity makes CSX a better target from a freight flow perspective,” David Vernon, an industry analyst with investment bank Bernstein Societe Generale, wrote in a note published Friday. “While the potential synergy value of a UP and CSX combination is slightly greater, it’s not that much greater.” Intermodal implications would be profound If it were approved, a transcontinental US freight railroad would cause a significant reshuffling of the domestic and international intermodal markets. Ocean carriers, for example, often sign long-term contracts for inland rail services. If a carrier currently uses BNSF on the West Coast and Norfolk Southern on the East Coast for international business, the fate of those contracts in a post-merger landscape would be uncertain. The implications for domestic intermodal would be even messier. Hub Group, Swift Intermodal and parcel giant UPS are already customers of Union Pacific and Norfolk Southern, but Schneider National and STG Logistics are locked into multi-year deals with CSX in the eastern US. The shakeup could be substantial for non-asset brokers, also known as intermodal marketing companies (IMCs). Union Pacific controls the EMP and UMAX 53-foot container pools, which are shared with CSX, NS, and Canadian National. A UP-NS merger could limit or eliminate CSX’s access to those pools, potentially impacting significant volumes of freight. “While intermodal channel partners would need to adapt, single line trans-con service would likely be more competitive to the highway and accelerate share shifts,” Bernstein’s Vernon noted. The largest unknown would involve J.B. Hunt Transport Services, the largest US intermodal provider. J.B. Hunt exclusively partners with BNSF in the West and relies heavily on NS in the East, although it does put a portion of business on CSX. J.B. Hunt is unlikely to sever ties with BNSF because their relationship spans nearly four decades and includes joint Quantum service offerings in the US and Mexico. J.B. Hunt has also been critical of the PSR model employed by UP and CPKC. While J.B. Hunt could shift its East Coast operations to CSX, a combined Union Pacific-Norfolk Southern could wield unprecedented pricing power, potentially creating the first company with enough leverage to compete with J.B. Hunt on pricing negotiations with shippers. Contact Ari Ashe at ari.ashe@spglobal.com .

Rail News

North-American rail

Intermodal providers

Potential UP-NS tie-up would cause major shift in US intermodal market

<div class="phx-topic abstract-wrapper">MSC’s orders at two Chinese shipyards continue the carrier’s long association with Chinese shipbuilders, with the liner seemingly undeterred by US proposals to levy hefty port fees on Chinese-built ships. </div>

MSC’s orders at two Chinese shipyards continue the carrier’s long association with Chinese shipbuilders, with the liner seemingly undeterred by US proposals to levy hefty port fees on Chinese-built ships.

<div class="phx-topic">Three container lines, including Mediterranean Shipping Co. and Taiwan’s Yang Ming, are spending close to $4 billion on a raft of new ships to be built by Chinese and South Korean shipyards, carriers and shipyards have confirmed. The largest deals, which shipbrokers estimate at more than $1.7 billion combined, have been awarded by MSC for six 22,000-TEU liquefied natural gas-powered vessels. Four will be built by Shanghai Waigaoqiao Shipbuilding (SWS) and two by Hengli Heavy Industry in Dalian, China. The world’s largest container line has also upsized six LNG-fueled container ships ordered from SWS last year from 19,000 TEUs to 22,000 TEUs, the shipyard said. MSC’s orders at the two Chinese shipyards continue the carrier’s long association with Chinese shipbuilders, with the liner seemingly undeterred <a href="https://www.joc.com/article/revised-china-tonnage-tax-less-disruptive-still-costly-6005402">by US proposals to levy hefty port fees on Chinese-built ships</a>. They also take to about 30 the number of ships ordered by MSC at Chinese yards in the past year and increase MSC’s order backlog to 135 vessels totaling more than 2.3 million TEUs, according to the latest Alphaliner figures. <div class="wrapper-narrow"><dynamic-object type="jocchartid" resource-id="e01ed4f0-6075-42bf-a2f7-a63be815f7e0"></dynamic-object></div>Meanwhile, Yang Ming said it ordered seven 15,000-TEU dual-fuel container ships at a cost of up to $1.5 billion from South Korean shipyard Hanwha Ocean as part of its fleet renewal and expansion plan. The latest ships “will replace aging vessels and advance Yang Ming’s strategic development” when they are delivered in 2028 and 2029, the carrier said in a statement Thursday. The cost of each ship is between $194.8 million and $218.7 million, Yang Ming said in a filing to the Taiwan stock exchange. The vessels will be deployed on east-west routes alongside five LNG dual-fuel container ships ordered earlier and due for delivery beginning next year, the carrier said in its statement. Yang Ming said the LNG-fueled ships will achieve a 20% reduction in greenhouse gas emissions compared with traditional fuel. Continuing the ordering spree, South Korean intra-Asia operator Sinokor Merchant Marine has contracted Hyundai Heavy Industries to build four 13,000-TEU scrubber-fitted container ships at a total cost of $610 million for delivery between January and June 2028. Contact Keith Wallis at <a href="mailto:keithwallis@hotmail.com">keithwallis@hotmail.com</a>. </div>

Three container lines, including Mediterranean Shipping Co. and Taiwan’s Yang Ming, are spending close to $4 billion on a raft of new ships to be built by Chinese and South Korean shipyards, carriers and shipyards have confirmed. The largest deals, which shipbrokers estimate at more than $1.7 billion combined, have been awarded by MSC for six 22,000-TEU liquefied natural gas-powered vessels. Four will be built by Shanghai Waigaoqiao Shipbuilding (SWS) and two by Hengli Heavy Industry in Dalian, China. The world’s largest container line has also upsized six LNG-fueled container ships ordered from SWS last year from 19,000 TEUs to 22,000 TEUs, the shipyard said. MSC’s orders at the two Chinese shipyards continue the carrier’s long association with Chinese shipbuilders, with the liner seemingly undeterred by US proposals to levy hefty port fees on Chinese-built ships . They also take to about 30 the number of ships ordered by MSC at Chinese yards in the past year and increase MSC’s order backlog to 135 vessels totaling more than 2.3 million TEUs, according to the latest Alphaliner figures. Meanwhile, Yang Ming said it ordered seven 15,000-TEU dual-fuel container ships at a cost of up to $1.5 billion from South Korean shipyard Hanwha Ocean as part of its fleet renewal and expansion plan. The latest ships “will replace aging vessels and advance Yang Ming’s strategic development” when they are delivered in 2028 and 2029, the carrier said in a statement Thursday. The cost of each ship is between $194.8 million and $218.7 million, Yang Ming said in a filing to the Taiwan stock exchange. The vessels will be deployed on east-west routes alongside five LNG dual-fuel container ships ordered earlier and due for delivery beginning next year, the carrier said in its statement. Yang Ming said the LNG-fueled ships will achieve a 20% reduction in greenhouse gas emissions compared with traditional fuel. Continuing the ordering spree, South Korean intra-Asia operator Sinokor Merchant Marine has contracted Hyundai Heavy Industries to build four 13,000-TEU scrubber-fitted container ships at a total cost of $610 million for delivery between January and June 2028. Contact Keith Wallis at keithwallis@hotmail.com .

MSC, Yang Ming lead nearly $4 billion ordering spree for new vessels

<div class="phx-topic abstract-wrapper">US drayage truckers say costs and competition have been on the rise since the pandemic, while at the same time their pricing power is under downward pressure. </div>

US drayage truckers say costs and competition have been on the rise since the pandemic, while at the same time their pricing power is under downward pressure.

<div class="phx-topic">Drayage providers across the US say their survival is under increasing threat amid rising cost pressures driven by new competition, including technology-enabled platforms. To stay in business, operators are more often turning to mergers or acquisitions to bolster their companies in a bid to hold off competitors, market players told the Journal of Commerce. Drayage truckers say their costs have been rising since COVID-19, while at the same time their pricing power is under downward pressure. “We are in a situation where new entrants, brokers and AI [artificial intelligence] are in competition with us,” said Matt Schrap, CEO of the West Coast-based Harbor Trucking Association (HTA). “The lowest price wins.” Ken Kellaway, cofounder, chairman and president of RoadOne IntermodaLogistics, which has drayage operations across the country, said a price difference of as little as $50 among competitors will win the business. “The cost pressures are the largest I have seen in my career,” Kellaway said. Last week’s announcement <a href="https://www.ajot.com/insights/full/ai-gsc-shutdown-shocks-port-of-oakland-maritime-community">by Oakland-based drayage provider GSC Enterprises that it was shutting down its operations</a> has traditional operators wondering who is next. “It’s surprising that others haven’t fallen yet,” said Robert Loya, chief operating officer at TGS Logistics. <h3>Technology threat </h3>Traditional drayage companies in Los Angeles and Long Beach, many of whom have been operating for decades in the largest US port complex, are seeing market share erode as their contract-based customers seek lower prices from brokers, some of whom use tech-enabled platforms that allow freight interests to book freight directly with their competitors, Schrap said. RoadOne, based in the Northeast, sees the technology marketplace as the latest threat because it allows brokers to increase market share without investing in trucks, facilities or equipment. “Technology platforms position themselves as tech providers, but they’re really just brokers,” he said. “They’re taking market share as fast as they can. This is not sustainable [for traditional drayage providers].” But Michael Kroul, CEO of the truck broker KTI, said technology platforms are useful in that they help brokers see where the pricing market is in each region and where the freight opportunities are. He emphasized, though, that most brokers do not use the platforms as a tool to force rates lower at the expense of traditional drayage operators. “It’s not brokers who are causing rates to go down,” he said. “We’re not the lowest rate out there.” Kroul said the pricing pressure is due to the excess capacity that came into the drayage market during the post- COVID-19 boom when cargo volumes surged. “Everyone came into the market with COVID and many of them did not leave,” he said. Because drayage capacity exceeds demand, prices continue to trend lower while operating costs over the past three years have risen. “We see what costs operators are operating at, and it’s a tragedy,” Kroul said. Operating costs in California are rising faster than in many regions due to environmental rules that require the use of cleaner fuels, with the <a href="https://www.joc.com/article/new-clean-truck-rule-puts-california-dray-capacity-on-chopping-block-5221564">ultimate goal being to phase out the sale of diesel trucks by 2035</a>. New truck sales by then must be zero-emission heavy-duty trucks. Drayage operators are also affected by <a href="https://www.joc.com/article/la-lb-port-interests-spar-with-agency-over-emissions-rule-under-development-5223229">“indirect source rules”</a> under which drayage operators serving the ports and warehouses must contribute to overall reductions in emissions at those locations. “California’s drayage truckers continue to be subject to the most stringent environmental rules of any state in the country,” the California Trucking Association said in a statement. “A prolonged, challenging rate downturn combined with a crushing, unpredictable regulatory environment is endangering our members’ ability to keep cargo flowing at some of the nation’s largest and most important port complexes.” <h3>Smaller companies in danger </h3>In today’s drayage environment, both in California and nationally, smaller drayage companies are being bought out by operators with “larger bankrolls,” TGS Logistics’ Loya said. “The bigger ones are going to get bigger and the smaller ones are going to go away,” he said. “Those companies with fewer than 50 trucks are struggling.” Kellaway said brutal price competition in the industry is the root problem in drayage, and, unfortunately, bankruptcies may be the result. “If bankruptcies accelerate, then maybe customers will start to take note,” he said. Added HTA’s Schrap: “This race to the [pricing] bottom has to end.” Contact Bill Mongelluzzo at <a href="mailto:bill.mongelluzzo@spglobal.com">bill.mongelluzzo@spglobal.com</a>. </div>

Drayage providers across the US say their survival is under increasing threat amid rising cost pressures driven by new competition, including technology-enabled platforms. To stay in business, operators are more often turning to mergers or acquisitions to bolster their companies in a bid to hold off competitors, market players told the Journal of Commerce. Drayage truckers say their costs have been rising since COVID-19, while at the same time their pricing power is under downward pressure. “We are in a situation where new entrants, brokers and AI [artificial intelligence] are in competition with us,” said Matt Schrap, CEO of the West Coast-based Harbor Trucking Association (HTA). “The lowest price wins.” Ken Kellaway, cofounder, chairman and president of RoadOne IntermodaLogistics, which has drayage operations across the country, said a price difference of as little as $50 among competitors will win the business. “The cost pressures are the largest I have seen in my career,” Kellaway said. Last week’s announcement by Oakland-based drayage provider GSC Enterprises that it was shutting down its operations has traditional operators wondering who is next. “It’s surprising that others haven’t fallen yet,” said Robert Loya, chief operating officer at TGS Logistics. Technology threat Traditional drayage companies in Los Angeles and Long Beach, many of whom have been operating for decades in the largest US port complex, are seeing market share erode as their contract-based customers seek lower prices from brokers, some of whom use tech-enabled platforms that allow freight interests to book freight directly with their competitors, Schrap said. RoadOne, based in the Northeast, sees the technology marketplace as the latest threat because it allows brokers to increase market share without investing in trucks, facilities or equipment. “Technology platforms position themselves as tech providers, but they’re really just brokers,” he said. “They’re taking market share as fast as they can. This is not sustainable [for traditional drayage providers].” But Michael Kroul, CEO of the truck broker KTI, said technology platforms are useful in that they help brokers see where the pricing market is in each region and where the freight opportunities are. He emphasized, though, that most brokers do not use the platforms as a tool to force rates lower at the expense of traditional drayage operators. “It’s not brokers who are causing rates to go down,” he said. “We’re not the lowest rate out there.” Kroul said the pricing pressure is due to the excess capacity that came into the drayage market during the post- COVID-19 boom when cargo volumes surged. “Everyone came into the market with COVID and many of them did not leave,” he said. Because drayage capacity exceeds demand, prices continue to trend lower while operating costs over the past three years have risen. “We see what costs operators are operating at, and it’s a tragedy,” Kroul said. Operating costs in California are rising faster than in many regions due to environmental rules that require the use of cleaner fuels, with the ultimate goal being to phase out the sale of diesel trucks by 2035 . New truck sales by then must be zero-emission heavy-duty trucks. Drayage operators are also affected by “indirect source rules” under which drayage operators serving the ports and warehouses must contribute to overall reductions in emissions at those locations. “California’s drayage truckers continue to be subject to the most stringent environmental rules of any state in the country,” the California Trucking Association said in a statement. “A prolonged, challenging rate downturn combined with a crushing, unpredictable regulatory environment is endangering our members’ ability to keep cargo flowing at some of the nation’s largest and most important port complexes.” Smaller companies in danger In today’s drayage environment, both in California and nationally, smaller drayage companies are being bought out by operators with “larger bankrolls,” TGS Logistics’ Loya said. “The bigger ones are going to get bigger and the smaller ones are going to go away,” he said. “Those companies with fewer than 50 trucks are struggling.” Kellaway said brutal price competition in the industry is the root problem in drayage, and, unfortunately, bankruptcies may be the result. “If bankruptcies accelerate, then maybe customers will start to take note,” he said. Added HTA’s Schrap: “This race to the [pricing] bottom has to end.” Contact Bill Mongelluzzo at bill.mongelluzzo@spglobal.com .

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The world of LTL is slow to embrace change. Business anachronisms permeate current supply chain processes. These vestiges of the way things used to work define the LTL freight transportation procurement process of many modern shippers.David Knuth, logistics specialist at IEWC, a global supplier of cable and wire based in Wisconsin, is happy to have modernized the RFP process, automating the entire LTL bidding procedure with Bid$ense, SMC³’s automated truckload and LTL freight transportation sourcing solution. But when prompted, he can still recall what once was.In his previous job, a large part of his duties were consumed by creating an intermodal bid package for carriers. In a spreadsheet, Knuth detailed the company’s volumes lane by lane, taking care to delete any errant keystrokes or misleading data. He would then email out the information to each carrier, taking time to respond to detailed technical questions about the spreadsheet data. Finally, he had to compile all the results, create an algorithm that would compare the carriers on each lane, and award the business.“It was a huge undertaking. It took about four months to do,” Knuth said of the old process. “It was almost a full-time job for that part of the year, every year.”In his new job at IEWC, he sat down with Bid$ense on day one and was amazed at the capabilities. Knuth had never before used a bid tool. SMC³’s latest versions of Bid$ense automate the process even further, taking truckload and LTL RFPs entirely online. The tool draws on RFP best-practices protocols to streamline the bidding communication process, enabling bidding carriers to respond accurately and promptly to shipper requests. The solution also does all the distribution work automatically, electronically submitting shipper bid data to carriers based on their actual service capabilities and performance records. Carriers are alerted with timely prompts for RFP deliverables, so shippers aren’t waiting by the phone for responses.Another benefit of automating the process is the data-cleansing assistance. When Knuth sent spreadsheets to carriers, data errors might cloud the bidding process; he might have to resend data or simply accept a price that did not truly reflect the costs of doing business. Data cleansing is incredibly beneficial, he said.The spreadsheet technique also made bidding analysis an onerous task. Since Bid$ense automates and streamlines the entire RFP process, intensive examination is now simple. SMC³ knows that each bid has more than one best outcome. With uniform responses from each carrier, shippers can quickly rank results and create an unlimited quantity of what-if scenarios to make the optimal procurement decision.Jesse Burnett of Central Garden &amp; Pet experiences many of the same benefits. Founded in 1980, Central Garden &amp; Pet has spent the last three decades growing from a small garden supply company to a provider of a range of products from dog chews and bird seed to soil supplements and natural insecticides. For much of its life, the company shipped these disparate goods via LTL and truckload carriers to retailers throughout the country, relying on each business unit to negotiate directly with their freight transportation providers. This arrangement worked fairly well for a small company, but as Central Garden &amp; Pet expanded, leadership decided to consolidate decision making.Burnett helped centralize the transportation decision making in 2015 with SMC³’s Bid$ense. Before Bid$ense, every business unit operated independently as far as negotiating with carriers.“There were a lot of different things just floating around,” he said. “We didn’t have master agreements in place; no national pricing at all. The pricing from carriers was just all over the place, depending on where you were.”The transformations he saw with Bid$ense were immediate. Burnett has been using the tool about every other year since its implementation at the company. Central Garden and Pet’s $19.6 million 2019 LTL bid saved the company just more than 9 percent when compared to its historical average. For Burnett, though, bid automation extends far beyond savings.“We knew that we weren’t getting the best pricing offer from our carriers just because nothing was centralized,” he continued. “We knew that if we combined everything from all these business units and paired it with one corporate offering, then it would drive some cost benefit with it.”When the company initially decided to centralize bid procurement, executives researched a number of different methodologies and technologies. In the end, though, Burnett found that Bid$ense was both widespread and well known, and that his carrier partners already knew how to use the application. Burnett also highlighted the data-cleansing process as a major benefit, saying the rigorous process ensures that carriers always return the best price.“It definitely has helped drive savings,” he said. “Any time you go out there and you drive that competitiveness with the carriers and they know they’re in a bid environment, it seems to sharpen their pencils.”Transportation procurement is an integral part of the modern supply chain. With Bid$ense, shippers can develop a strategic implementation plan that saves them time and money, but also helps them create strong relationships with their carrier partners. These carriers appreciate the solution’s data-cleansing process; when carriers receive a complete shipment history and future volume forecast, they don’t have to guess on pricing. Carriers that receive more data from shippers get a complete picture of that shipper’s freight, allowing them to accurately plan instead of simply preparing for the worst-case scenario. Clean data presented through an automated system can lead to both bigger shipment savings and a lasting partnership between carrier and customer.Whether customers are looking to streamline over-the-road transportation bidding by automating the RFP process or create an entirely new, centralized sourcing process, Bid$ense has the analytical horsepower to get the job done.SMC³ 2020 Customer Case Study

SMC3rates_shutterstock_5247046.jpg

Shippers save money, time with automated transportation bidding tools

If there’s one immutable truth in the world of logistics, it’s this: LTL is an inherently complex form of transportation. Tariffs, rates, DIM weights, transit times — it’s enough to confuse even seasoned logistics professionals. The solution to this knowledge gap has historically been on-the-job training or university supply chain education, but for a variety of reasons there is now a pressing need for third-party, remote LTL training that prepares logistics workers for transportation success. Global Scope Can Overlook Local Intricacies In the past, professionals looking to move into a supply chain career learned about the basics of supply chain from universities. However, many of these college supply chain programs are now global in scope, focusing on worldwide supply chain management instead of the intricacies of specialized domestic transportation. And even these programs, which used to be widespread, are becoming less common. LTL is not an industry of broad-brush strokes; supply chain professionals really need a pointillistic understanding of the logistics of LTL in order to excel in the industry. Accelerating Need for Dedicated LTL Education This lack of specified training put the onus on employers to prepare new hires with the LTL knowledge needed to do their jobs. Dedicated LTL study is a necessity, not a luxury. At the same time, changes in LTL and the broader supply chain world are accelerating. The reliance on e-commerce has ballooned since the start of the pandemic, and last-mile LTL shipments and related e-commerce strains on the supply chain won’t diminish once social distancing abates. That genie isn’t going back into the bottle. So supply chain employers need logistics workers that are fully versed in all aspects of the industry, ready to solve unique shipping and delivery problems based on their extensive supply chain knowledge But why care about LTL? It’s been reported that some shippers in today’s world are no longer concerned with what mode is used to ship their goods. A Multimodal Approach Ensures On-Time Delivery This mode agnosticism means supply chain stakeholders have to be well versed in all modes of transportation. As unforeseen weather events and other disruptions, such as protests, become more common, savvy logistics employees will need to be armed with familiarity of all modes, not just the most popular, to ensure that freight is delivered on time, without damage, and in the most financially expedient way possible. Offerings like SMC³’s LTL online education courses cover a wide range of topics from LTL basics and operations to more advanced concepts like pricing analytics and transportation law. The company also has plans to continually refresh content, adding new expert presenters and taking the feedback of students to make the courses even better as time goes on. Learn more about&nbsp;<a href="https://logisticstrainingcenter.com/smc3-courses/" rel="noreferrer" class="joc_admin__link">SMC³’s LTL Online Education program</a>&nbsp;and view the 2021 hybrid schedule, featuring live industry experts,&nbsp;<a href="https://www.smc3.com/onlinelearning2021/" rel="noreferrer" class="joc_admin__link">here.</a>

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