Annual Review and Outlook

While it may take time for all the lessons of the COVID-19 pandemic to fully come to light, the Port of New York and New Jersey has benefited from several early lessons learned. First, having a fully engaged port community based on well-established business relationships is paramount. When the pandemic began, the Council on Port Performance (CPP) was immediately mobilized. Established in 2014, the CPP consists of major port stakeholders including the New York Shipping Association, terminal operators, labor, shipping lines, trucking companies, railroads, shippers, warehousing, the Port Authority of New York and New Jersey, and others working jointly to address common issues. In early 2020, the CPP established a personal protective equipment (PPE) sub-committee tasked with procuring a sustainable supply of essential PPE so waterfront workers could continue to work safely and keep essential goods moving to market. Throughout the pandemic, the port never lost a day of operations due to COVID-19. The CPP was also a vital communication portal to identify and address supply chain issues early. While there are no simple solutions to the disruptions being experienced throughout the supply chain, open communication and collaboration have led to creative solutions that benefited the entire port community and enabled the gateway to flex its capacity to manage the volume growth. Open and transparent communication with the port’s end users — the shippers — was also vital. The authority proactively engaged with shippers to provide timely updates on the status of port operations. Sharing information, whether good or bad, has helped shippers navigate the uncertainty of the pandemic. With the current cargo surge expected to continue through 2022, the Port of New York and New Jersey’s success will continue to depend on the thousands of individuals that load, unload, inspect, store, and safely transport the products consumers rely on. Open communication, cooperation, and collaboration from all supply chain partners will help keep the gateway fluid and dependable.

The vital role that US West Coast ports play in the nation’s economy is under the spotlight as historic global supply chain congestion continues into the new year. Through much of the COVID-19 pandemic, extraordinary cargo volumes have slowed goods movement nationwide, creating enormous pressure on businesses and consumers. With these disruptions expected to continue well into 2022, it is clear that the congestion is a system-wide challenge requiring system-wide solutions. Every supply chain link — warehouses, trucks, trains, truck chassis, and other vital equipment, in addition to marine terminals — must operate efficiently and in concert to bring relief. The Pacific Maritime Association (PMA) is actively working to address this challenge with our partners across the supply chain, including the trucking, rail, and warehousing industries. We have also been pleased to participate in the White House task force to advance solutions and will continue to work closely with federal, state, and local leaders. Recent PMA-commissioned research has highlighted the need for systemic solutions, revealing a supply chain collapse that originated far from the docks. Equipment shortages, warehouse capacity limits, and intermodal chokepoints are all combining to dramatically slow the movement of goods through America’s distribution channels. Cooperation will be essential to support critical US maritime gateways and the thousands of jobs and billions in economic activity they support. The PMA welcomes the cooperation between ILWU longshore workers and West Coast ports amid record cargo volumes during the pandemic and is hopeful this spirit will extend to our upcoming contract negotiations. Modernizing terminals through automation will be a key issue, as it has proven to be an essential tool in moving cargo productively, protecting local economies, and meeting stringent environmental regulations. Bottom line: Solutions encompassing every stage of the supply chain will be needed to relieve this historic congestion challenge.

The maritime industry works together to keep global trade and national economies moving. With increasing urgency, supply chain stakeholders are being called to take action to reduce their environmental impact. Since the inception of the Northwest Seaport Alliance (NWSA), we’ve learned that working together creates greater outcomes for our ports and the communities we serve. To tackle the industry’s greatest challenges — whether supply chain disruptions or reducing maritime emissions — we will need strong partnerships and innovative solutions that support the future of the global economy and environment. The severity of the challenges facing the logistics industry has exacerbated its impact on the environment. Now more than ever, supply chains need to be reimagined to allow capacity to be scaled in response to unforeseen events while safeguarding the environment. After a nearly $500 million modernization, the newly expanded Terminal 5 in Seattle will open for business in the first quarter of 2022, bringing desperately needed new terminal capacity and berth space to the US West Coast. Beyond increasing cargo capacity, this investment will reduce the NWSA’s environmental footprint by giving vessels the ability to plug into a hydro-powered electrical grid instead of burning fossil fuel while idling at berth. The port partnered with the state of Washington to fund this installation and continues to collaborate across organizations and governments to identify critical funding for environmentally sustainable projects. As we navigate today’s pressures, economic expansion and environmental stewardship can occur simultaneously. Through collaboration, we can build world-class terminals that strengthen our supply chain, increase cargo throughput, support jobs, and facilitate trade opportunities while also achieving our environmental priorities.

The New York Times in October admitted that until recently, it did not have a beat for shipping and logistics. Apparently, the industry has now become “news that’s fit to print,” and that is good and bad. The current state of congestion and frustration has produced a string of front-page zingers. It is disheartening to see a stack of containers next to the headline “Inside America’s Broken Supply Chain,” or to watch TV pundits worry over whether shipping and logistics operators have become the Grinch that would steal Christmas. It’s also curious that few recognized the industry as Santa in years past. The change in reputation came quickly. Not long ago, mariners, longshoremen, truckers, and warehouse workers were regarded as frontline heroes in the fight against COVID-19. This presented an opportunity to use the well-earned reputational capital and shine a positive light on the many actors in global supply chains. Now, with ships and containers backed up and shelves looking bare, political adversaries have set their sights on ocean carriers, which they denounce as “foreign” despite shipping lines’ significant US employment and investments. The Biden administration’s executive order on competitiveness, which called out consolidation in ocean shipping, challenges to the long-held understanding of “merchant” in bills of lading, and increased FMC scrutiny of detention and demurrage practices have all rolled forward. They are having an effect that will continue into 2022, and possibly beyond. The Ocean Shipping Reform Act of 2021 embodies the prevailing mindset in Washington and would have a profound and long-term impact. Ripple effects are possible, and shipping and logistics companies should review their related policies and procedures as a precaution. Ocean carriers once benefited from antitrust protections, but the tables have turned. In this new era of antitrust activism, the risk is that trustbusters may see an opportunity to reshape an industry that left too few gifts under the tree.

Climate change is the most pressing environmental challenge facing our world, and ocean carriers have a responsibility to significantly reduce our impact on climate change by lowering our greenhouse gas (GHG) emissions. To this end, Matson is nearing the completion of our Hawaii fleet renewal program, which started in 2013. Under this program, we commissioned four new state-of-the-art vessels with multiple environmental features designed to help reduce GHG emissions, allowing us to retire the last of our steamships. In addition to the short-term goals described above, Matson has established the following medium- and long-term goals that reflect the company’s commitment and contribution to helping the world decarbonize and limit climate change: Reduce Scope 1 GHG emissions from our fleet by 40 percent by 2030, using 2016 (the first full year following our acquisition of Horizon Lines’ Alaska operations) as a baseline by improving fleet and operational efficiency. Achieve net zero Scope 1 GHG emissions from our fleet by 2050. This is a particularly ambitious goal. Currently, there are no commercially available carbon-neutral fuels for use on ocean-going container ships, nor the engine technologies to use such fuels or deliver them to terminals. As a member of the World Shipping Council, the Chamber of Shipping of America, and the Blue Sky Maritime Coalition, Matson supports efforts to create an industry-funded research and development program to accelerate zero-carbon fuels and technologies. While transformative technology develops, Matson continues to focus on its fleet renewal programs and modernizing terminal operations to improve efficiency.

As shippers and carriers evaluate their global transportation strategies for 2022, a regional port strategy should be part of the plan. Regional ports have proven to be reliable and efficient gateways to move cargo, even during the incredible period of congestion in 2021. The Port of Boston’s Conley Terminal, for example, successfully maintained operations throughout the COVID-19 pandemic while also completing an $850 million infrastructure expansion project that allows the facility to handle ships with up to 14,000 TEU of capacity. This network diversification approach should be part of every shipper’s national container routing strategy. Importers and exporters will benefit from diversifying their port gateway mix to include both large national gateways and niche regional ports as a risk mitigation tool. The ocean freight industry has been upended in the past year, challenging all stakeholders to reimagine how they provide value in the global supply chain. Ports such as Boston can be a strategic solution for shippers in 2022, ensuring they receive the capacity and premium customer service they deserve. Transportation partners that provide flexibility and outside-the-box solutions will be better positioned in the long term.

The lesson learned from 2021 is that every supply chain needs to build more resilience and capacity to keep pace with consumer demand fluctuations and unexpected events. Supply chain disruption is a normal event, and the COVID-19 pandemic accelerated and magnified the challenges that already existed in supply chains. Those supply chain providers that own, operate, and invest in their end-to-end supply chain assets have better capacity control, agility, and accountability for results. To prepare for 2022, Maersk added more vessels in the trans-Pacific trade to adapt to the extraordinary cargo flows, more containers to our equipment fleet, and more air freight capacity with the acquisition of Senator International and additional freighters. To keep pace with customers’ e-commerce logistics growth, Maersk acquired Visible SCM to handle this growing omnichannel distribution. In addition, Maersk added solutions such as a new transload center in Vancouver to help alleviate port and landside logistics challenges at Canada’s busiest gateway and mitigate demurrage and detention charges for shipper customers. These solutions, combined with increased digitalization, will help build resilience and capacity for customers to make supply chains perform better in 2022.

The biggest challenge facing container shipping in 2022 will be breaking out of intermodal transportation mode silos to facilitate the shipment of containerized cargo. By thinking outside “the box” and embracing information sharing in a safe and secure way to manage supply chain velocity, this can be achieved. With the COVID-19 pandemic limiting capacity in so many ways, the efficient deployment of resources is more critical than ever. Ports that provide tools for supply chain stakeholders to better utilize their resources will stay ahead of the curve in customer service and satisfaction. This information sharing must stay one step ahead of the cargo to permit planning and efficient resource deployment. It can also assist in ensuring equipment such as containers, chassis, and rail resources are available when needed. Although individual marine terminal operators may provide certain information, the true value of such a system grows exponentially when this information is made available through a port-wide, one-stop informational portal. Such data becomes even more valuable when the information sought can be pushed to supply chain stakeholders through application programming interface (API) communication. In fact, this was one of the suggestions in the US Federal Maritime Commission’s Interpretive Rule on Demurrage and Detention under the Shipping Act published in 2021. Container terminal operators in the Port of New York and New Jersey offer such an information sharing tool through their port-wide Terminal Information Portal System (TIPS). Recent enhancements to TIPS offer new functions to facilitate the flow of containers through the port, including but not limited to timeline representation of the container life cycle; unified container watchlists with advanced searching and filtering; the ability to download container, booking, and group code information through email notification, PDF, and Excel formats; vessel schedules with list and calendar views; and empty return instructions with multiple terminal and line views. Future enhancements to TIPS include modules for rail, chassis, and integration with US Customs information. Intermodal equipment providers, railroads, motor carriers, shippers, distribution centers, and warehouses can all benefit from this port-wide information.

The largest challenge facing the container shipping industry in 2022 is ensuring sufficient capacity to handle US import cargo volumes, which are projected to remain elevated at least through the spring. The need for expansion exists both on and off the terminals. With warehouse operators unable to process cargo quickly enough to keep up with arriving containers, import dwell times have doubled at seaports. This has had the domino effect of slowing vessel service. For port authorities, this dynamic requires building additional container capacity by reconfiguring existing terminal space, expanding onto adjacent property, or adding whole new terminals. At ports where intermodal rail is not congested, transfering cargo from truck to train can also help to clear space for incoming containers. Ports that can expedite expansion projects with available land and capital will benefit the entire supply chain by easing the transition between marine and surface transportation. Beyond terminal gates, private investment is necessary to provide the capacity required to ensure the free flow of goods from ports to distribution centers and on to the ultimate consumer. A partial solution would be to develop pop-up locations at under-utilized rail facilities and empty inland yards that have the capacity to store cargo. In addition, private investors need to build greater capacity by expanding existing warehousing and distribution structures and adding new ones. Additional square footage is needed to handle the current influx, but also to accommodate future growth once the current spike subsides. The workforce is another important aspect of container--handling capacity. As distribution centers grow to take on increased business, operators will need to add employees. Finding good people is no small task, so workforce development will be a key factor in the logistics sector’s success in 2022.

The freight transportation industry must change dramatically in the coming years, and several of the largest challenges depend on increased collaboration among stakeholders, including end-to-end system interoperability, digital transformation of container shipping, and the rollout of a zero-emission fuel. Digital transformation is fueled by interoperability, which is enabled by open-source standards that provide a common language and format for communication. Such standards need to be global and strongly supported by industry stakeholders and regulators. Since 2019, the Digital Container Shipping Association (DCSA) and its members have collaborated with industry participants and regulators to gain wide acceptance for digital standards that enable end-to-end interoperability through standardized data exchange. These efforts have focused on some of the most critical needs of container shipping, such as electronic bills of lading (eBL). Currently, shipping with an original bill of lading requires the manual handover of paper trade documents, which is inefficient, expensive, and error prone. It’s common to find 50 sheets of paper in a package of shipping documents that must be exchanged among, in some cases, 30 different parties. This creates inefficiencies that slow down trade and hamper growth and innovation. DCSA estimates that a 50 percent eBL adoption rate would save the industry roughly $4 billion annually. Widespread adoption of DCSA standards for eBL, as well as track-and-trace, Internet of Things (IoT), and just-in-time port calls, represents the start of an emerging digital ecosystem that will turn these activities into collaborative, data-driven, digital processes that improve sustainability and slash costs and delays. Digitally advanced industries such as banking and telecommunications have gone through similar digital transformations, with standards and collaboration as the cornerstone for driving change. Container shipping will achieve similar success by actively collaborating on digitalization to deliver great customer experiences in an increasingly sustainable way.

Due to ongoing supply chain disruption, the logistics industry should expect capacity constraints to continue, driven by superheated demand. However, stakeholders should not settle on this situation as a new normal but leverage it to spur the innovation and resiliency that will make supply chains stronger and more capable of handling future surges. Indeed, shippers looking for short-term resolution to congestion at ports, inland transportation networks, and other points in the supply chain may find those fixes inadvertently trigger even more disruption. Instead, the system overload, particularly in certain trans-Pacific supply chains, has begun to spur interest in nearshoring production and supply chains in Latin America and the Caribbean, closer to US networks and using less congested ports like Jacksonville, Florida, as entry points. The breakdowns in supply chains also must be addressed with new ways of thinking and planning, using technology and predictive analytics to better allocate resources. Carriers and ports have seen the positive results of using technology to better manage container and truck flow at terminals. By improving data exchange and analytics, all stakeholders can help cargo flow more smoothly by efficiently deploying assets and using business intelligence platforms and predictive analytics to improve our collective approach to solving problems by being three steps ahead of possible congestion. None of this will happen without more partnerships, however, as customers increasingly expect supply chain service providers to be more than asset operators. Carriers will succeed by leading partnerships that provide shippers with solutions for the long term.

During the last year, carriers quickly found out that good, regular, and transparent communication with all stakeholders is vital. Luckily, many were already quite ready IT-wise to enter home-office mode, able to respond almost normally to incoming inquiries and keep businesses up and running. In such a time, it is important to be swift in decisions; the ability to be flexible is decisive. One key takeaway from this period has been the benefits of online meetings. These should become more routine, even though they cannot replace meetings in person. For shippers, a constant and close communication flow with transportation providers is key, as capacity will be tight throughout the year. In a tight market, it is even more important for shippers and their carrier partners to know and understand each other’s requirements to build closer relations. Shippers need to secure space well in advance in order to ensure cargo flows according to plan. And they need to communicate in a timely manner when things do not happen according to plan. Port congestion and productivity issues will remain a major topic throughout all of 2022, which means shippers need to adjust lead times to allow for buffers in case of delays. For both the container and the multipurpose sector, the fallout from the COVID-19 pandemic will still be the biggest challenge. This includes productivity issues, delays in cargo readiness, delays and congestion in ports, and COVID-19-related restrictions at terminals, on board ships, and beyond. Carriers will continue their efforts to offer the space and capacity their clients need. “Special arrangements” like containers being carried on multipurpose or bulk vessels and vessels being chartered by forwarders and even merchants will likely persist for some time. In addition, oil prices have gone up quite dramatically, which means bunker costs have once again become a concern as well.

Beyond the supply chain issues currently dominating the headlines, it is worth taking into consideration the future direction of the ship-owning and operating sector in light of the International Maritime Organization’s (IMO) target of reducing the level of carbon intensity by 40 percent between 2008 and 2030 and the even more ambitious goal of 70 percent reduction compared to 2008 by 2050. There appears to be no obvious solution for the global maritime industry to hit these targets. A typical container vessel has a lifespan of at least 20 years, and given the current high capital cost of large newbuild container ships — OOCL, for example, recently paid $158 million per vessel for an order of 16,000-TEU ships — it might be closer to 25 years. The world fleet of vessels with over 10,000 TEU of capacity stands at 618 ships, and there are now a further 271 on order, a staggering 44 percent of the current fleet. Among these 889 ships, only 15 vessels in the existing fleet and 64 of the new ships on order can run on liquefied natural gas (LNG). Simply stated, the industry has a long way to go. The current global fleet, including the ships on order, will still be largely operational by 2050. The alternative fuels on offer, such as ammonia, hydrogen, or battery power, are not yet ready for universal adoption, and it’s a long row to hoe to get there. Slow steaming is a short-term solution, but that will ultimately put further stress on schedules and vessel operation at a time when supply chains are already severely disrupted, making it an unlikely solution. New regulations will be expensive, and ultimately the costs will be pushed to the shipper, so there is a large upcoming price to pay. It’s going to take a lot of green to go green!

COVID-19 has had a profound impact on how both nations and businesses oversee their respective supply chains. During the pandemic, several notable adjustments were led by governments across the Middle East region and the world, particularly with critical supplies for medical and food products. The industry also saw a shift in trade patterns and spikes in demand for different logistics services and capabilities. There is a greater emphasis now on localized sourcing for essential commodities vital for national stability and business continuity. Further, the pandemic has greatly accelerated the drive to digitalize the global shipping and logistics sector. In line with this trend, Abu Dhabi Ports and our partners have been operating the HOPE Consortium, one of the world’s largest technology-led supply chain solutions, capable of delivering millions of COVID-19 vaccines safely and efficiently. Over the past few years, there has been a marked increase in market demand for exceptional feeder services in the Middle East. Feeder services in maritime are invaluable in extending the reach of ports, eliminating port restrictions, increasing service frequency through small-sized ships, and enabling the possibility of servicing mega--container ships. Other benefits include achieving savings on network costs and decreasing inland traffic and air pollution around port areas. Therefore, it became a strategic priority for Abu Dhabi Ports to create a robust and sustainable feeder service that would enable us to supply key markets and unlock trade opportunities within the region. The introduction of SAFEEN Feeders will provide trade security for Abu Dhabi and the United Arab Emirates, bring much-needed connectivity to the regional network, drive cost savings to our mainline container carrier customers, and enhance the utilization of secondary regional ports. As shipping demand continues to increase at a remarkable rate, innovation and digitalization will be critical success factors. As a result, there’s an increased interest in leading-edge technologies like artificial intelligence, big data, and digital solutions that enable transparency across the entire value chain. Digital, smart technology and world-class infrastructure will continue to accelerate trade and make the future of maritime operations and services safer, more efficient, and more sustainable.

Prior to March 2020, most Americans did not think about trucking and the supply chain. Store shelves were filled, and the global supply chain was synchronized for consistent and reliable movement of goods from the manufacturer to the consumer. For many Americans, it was if items appeared on store shelves by magic. And who could blame them for this thinking, when everything simply worked and worked well? A recent Oracle survey confirmed that nearly half of all Americans never thought about how goods were delivered prior to the COVID-19 pandemic. The only time the supply chain was front-page news was during a natural disaster, such as a hurricane. Now, nearly 90 percent of Americans report they are mindful of the supply chain when making a purchase. All this is playing out when one of the most crucial links in the supply chain, the American truck driver, is in the highest demand we’ve ever experienced. The American Trucking Associations (ATA) estimates the trucking industry is short about 80,000 drivers. This record-breaking statistic is the difference between the number of drivers currently in the market and the optimal number of drivers based on freight demand. Furthermore, the ATA estimates the trucking industry will need to recruit 1 million new drivers over the next decade to offset drivers that retire or quit the profession. Truck drivers are frontline American heroes. Those joining the profession have an opportunity to pursue not just a transactional job, but a rewarding lifetime career that is essential to the everyday lives of Americans everywhere. From small-town America to our largest urban centers, opportunity awaits those who are ready to serve our nation. There has never been a better time to pursue a career as a professional truck driver.

Customers need innovation, especially in tough times. During the COVID-19 pandemic, the transportation industry learned that all links in the supply chain can break at the same time, delivering challenges across the globe. When “normal” didn’t work, shippers and carriers leveraged boots on the ground and innovated. Moving freight to lesser-known alternative airports was often a key solution. At times, it seemed like the 4.5 million workers missing in the US economy were all dockworkers and truck drivers. Even with rates up and delays the norm, relationships with customers proved to be positive and supportive. For Wen-Parker, our staff, who pride themselves on mastering this logistics game, made the difference under trying circumstances over the last two years, when almost nothing has worked with the precision of the past. That frustration, along with hundreds of charter flights, historic ocean moves, COVID-19 concerns, trucking shortages, missing containers and cartons, and that amazing “lost” US labor force made for a serious morale problem. We tried to alleviate that with some salary adjustments, work-from-home accommodations, station lunches, interim bonuses, and the recognition that we can’t be as good as we want to be in this market. Striving to meet our customers’ needs while celebrating what we can accomplish is a delicate but necessary balance. Cash is king, and the economic law of supply and demand still rules. As demand rose in 2020, basic air rates jumped about 400 percent before doubling again in 2021 during peak periods. Air and ocean providers usually require payments up front, which makes the search for space both a test of relationships from an operations perspective and a cash scramble to cover eight to ten times the working capital for the same volume as two years before. A keen watch on receivables and terms, a creative finance staff around the world, and a nimble workforce got Wen-Parker through record volumes with only emotional scarring.

Following a record-breaking flow of international container freight into US ports in the second half of 2020, fueled by a surge in online spending, the import waves in 2021 continued to shape the intermodal supply chain. Increased consumer spending on goods, rather than services and travel, led to rising import volumes. This created challenges across the supply chain. Port congestion slowed pickups and deliveries, containers piled up at terminals, and distribution centers and warehouses struggled to unload cargo, creating an artificial chassis shortage. To alleviate the pressure, TRAC Intermodal continues to expand and modernize our chassis fleet — building on a 20 percent year-over-year increase in 2021 — actively reposition chassis to critical pinch-point locations, and work with our labor and vendor partners to reduce out-of-service units, outperforming the record low numbers we saw in 2021. The last two years have taught the freight transportation industry that global trade continues to evolve. The COVID-19 pandemic brought the world to a standstill and slowed the movement of goods, but not the appetite for consumption. E-commerce drove ever-higher retail sales, and when suppliers increased their output, record volumes arrived at the ports and the backlog began to grow. Through the collaboration of key stakeholders, the market will correct itself, and these supply chain challenges will lead to innovation and effective solutions. TRAC is actively working alongside all our supply chain colleagues in both industry and government-led group efforts designed to build out, develop, and implement such ideas. Finally, a massive thank you to all the front-line workers in the entire US supply chain. In the teeth of a global pandemic, they turned up every day, doing their best to deliver. We’re eager to charge into 2022, and the future is bright.

The COVID-19 pandemic has laid bare a host of supply chain challenges, particularly in the US intermodal system. In 2022, the industry’s highest priority is to clear the current backlog as quickly as possible and restore more normal system velocity and fluidity. This begs the question: Are pre-2020 supply chain designs are still suitable for 2022, or is an end-to-end reworking in order? Consider chassis availability. Oliver Wyman research suggests the average time chassis spend on the street has as much as doubled since 2019, while intermodal shipping volumes are back to 2019 levels or higher. In more normal times, outsourcing chassis control to leasing companies and creating pools for common use has benefited the overall system. But now that normalcy has been upended, none of the individual stakeholders — from railroads and container lines to third-party logistics, drayage, and chassis providers — has both the commercial incentive and the leverage needed to fix what’s broken. Because the root cause of the current supply chain disaster in the US is a combination of labor shortages exacerbated by COVID-19 and terminal congestion, it cannot be solved simply by doubling the number of chassis. To clear the backlog, the industry must over-produce, or be permanently saddled with the pandemic’s legacy of high street inventory and slow turn times. This will add inordinate costs to the supply chain, costs that are then passed on to consumers, contributing to inflationary pressures. Containers and especially chassis must turn more quickly to regain the system velocity we have previously achieved and improve from there. Skyrocketing demurrage and detention charges by themselves are failing to persuade shippers to move and release equipment. The industry must come together and work as one to find solutions. That may involve identifying how the federal government could help, such as by temporarily suspending hours-of-service regulations, injecting emergency funds, or staffing critical bottlenecks. The alternative is to be left reacting to top-down government intervention, which rarely leads to an optimal outcome.

The congestion and associated bottlenecks now challenging the intermodal supply chain are the biggest problems facing US transportation as we transition into 2022. Unprecedented and unpredictable cargo volumes have driven a new response to inventory management — “just in case,” rather than “just in time” — that is at the heart of the matter. Can shippers recalibrate supply chains even as consumer demand for import goods remains strong? Just-in-time supply chains have driven the development of the modern intermodal system, including ports, terminals, motor carriers, and rail lines; for decades the model has been a key driver of globalization. Enter the just-in-case model. The pandemic economy of the past 18 months created non-traditional consumer behavior and skyrocketing demand for products in lieu of services. This preference for goods of all types, supported by increased spending from stimulus checks, followed the downturn of early 2020, and the subsequent out-portioned demand led to inventory stockpiling. Now, the downsides of just-in-case planning are all too visible. Congestion is the obvious one, along with capacity constraints and labor shortages. With no room left to move and store freight, goods “dwell” longer at sea, at the ports, in intermodal facilities, or wherever there is space. Compounding the supply side of the transportation picture is the relatively new expectation of next-day delivery. Given that the growth of e-commerce will outlive the COVID-19 pandemic, what shippers need now is a “just-enough” model, a balanced solution that delivers the nimbleness of just-in-time operations and the insurance of just-in-case planning. To facilitate this change, it is imperative that supply chain participants provide more transparency and consistent information sharing across modes and with cargo owners and shippers. With timely and accurate data, available to all when needed, intermodal can regain its footing. In its absence, cargo transportation capacity and resource allocation will continue to suffer, leaving the industry incapable of accommodating the next “black swan” event.

The greatest wisdom in logistics comes from its frontline workers. Ask a customer service representative (CSR) in the morning what lessons were learned from this past year, and they will tell you. As Marcie Hillyer, a five-star CSR at IMC Companies for over 30 years, put it, “I’m so burned out on all the excuses being made about this problem. I heard someone griping in the store about empty shelves and was compelled to give her a quick lesson on intermodal trucking. ‘Stop complaining about your burned biscuits and make a new batch.’” To put it another way, if a system is broken, wouldn’t it be better to try doing things differently? The US freight transportation industry should think about more inland hubs; relays for smaller, more nimble vessels; short-haul options by rail to optimize driver and chassis capacity; peel-off piles and short-term storage of containers at terminals; chassis interoperability and fair market access; collaborating on empty equipment return; and hiring the next generation of diverse leadership in an industry that is begging for change. The outlook and opportunity for US trucking is strong. The outlook is also met with concerns over driver count; according to the US Bureau of Labor Statistics, commercial drivers’ licenses have fallen 5 percent from pre-pandemic levels. The translation is pretty straightforward: Truck capacity will be precious. The risks for all trucking and intermodal providers include labor shortages and equipment imbalances. US trucking and rail will struggle as this wave of freight moves in and out. Effective and intentional balancing of equipment will be critical. Loads must be met with evacuation of empties at our ports and rail terminals. The balance of these assets is a critical component in freeing up chassis and space, and the result is greater driver efficiency and rail fluidity. Shippers value the critical need for drivers and the urgency to have freight on shelves. They have been diligently working to secure capacity, offering to sign multi-year contracts, and seeking innovative ways to partner going forward.

Although market volatility and congestion have impacted supply chains on a narrow geographic basis over the last few decades — like the “meltdown” in the ports of Los Angeles and Long Beach in 2015 — the only comparable global event that came close to the far-reaching, dramatic effects of the COVID-19 pandemic was the financial crisis of 2008–09, and even that pales in comparison to the current disruption. Shippers and transportation providers don’t have a ready-to-go mitigation plan to cope with events like these sitting on the shelf waiting to be triggered on short notice. That said, there are some lessons learned regarding the importance of how to position your business to be more nimble to cope with these extraordinary circumstances, specifically diversity of one’s customer portfolio, staying close to your key customers, helping them navigate the challenges they will face, stratification of business deal terms, having multiple options for sourcing manufacturing capacity, and having a level of technology and IT capabilities that enables you to manage assets when demand so significantly outpaces supply. Most important has been creating a way to drive the business when most of your people are working from home. Businesses must learn how to maintain their intensity and continue to build a culture of collaboration and innovation that enables them to differentiate in the market. That focus is even more critical in the challenging environment that we have operated in for the last 18 months. The quality and commitment of supply chain workers has shown through in an extraordinary way during the pandemic, rising to the challenge of not just keeping business running but bringing performance to a higher level in spite of the barriers that COVID-19 has produced.

COVID-19-related trade disruption has resulted in today’s “Great Congestion,” in which a massive disconnect between e-commerce purchases and the physical movement of goods through supply chains has contributed to a transport system that has been overloaded in key markets. There are virtually no barriers to e-commerce for consumer purchases today, as anyone with a smartphone or computer can quickly find and purchase nearly any product 24/7. Order fulfillment is another story. At the purchase stage, order fulfillment is usually portrayed as an expected delivery time with little if any disclosure or consideration of product origin or routing. Unfortunately, the lack of clarity on sourcing locations and lack of consequences for not meeting stated delivery dates has resulted in significant service failures from the increased cargo levels overloading international supply chains. Many consumers have had firsthand experience with purchases not being delivered or being significantly delayed due to this phenomenon during the last year. Although the current 20 percent cargo surge in certain markets is expected to be worked out over time, it’s humbling to realize that a return to “normal” 4 percent annual growth in trade would mean today’s cargo levels will reoccur in 2025. To effectively accommodate the likely cargo volumes in 2025 and beyond, new information technologies, data sharing and flows, and business processes will be required to complement physical infrastructure upgrades and expansion. These digital tools are not autonomous. Capable users and process managers will be required to use these new e-tools and develop refined business processes. Training and education at all job levels will be essential to effectively maximize their capabilities and effectiveness within supply chains. The Containerization & Intermodal Institute (CII) will continue to support education within the international trade industry through its facilitation of scholarships with industry sponsors and schools, as well as through the interaction of students with industry experts via CII forums.

The biggest challenge facing the US trucking industry continues to be recruiting and retaining professional drivers. Demand remains extremely high, retirement of long-time drivers accelerated last year due to COVID-19 and other reasons, and the number of new drivers entering the profession remains below 2019 levels. It’s a more stressful time than ever for drivers. Traffic congestion has returned. Road infrastructure continues to deteriorate; construction and repair projects create detours, delays, and safety hazards. Parking in a safe environment has also become more challenging. Then there are equipment issues. Manufacturers can’t meet the demand for new trucks, so fleets are aging. Older trucks are staying on the highways longer, which means higher maintenance expenses, more breakdowns, and fewer drivers available to haul freight. To retain drivers and entice new entrants, trucking carriers and shippers must step up and truly recognize and respect professional drivers for the value they represent. Even with wages, hiring, and retention bonuses at the highest levels ever, it’s not enough. But little things, such as a welcoming office to drop off paperwork, a cup of coffee, a kind word, clean and accessible restrooms, an inviting and well-stocked lunch or break room, immediate response to driver needs, or a sincere “thank you,” can make a difference. Fleets are doing all they can to provide a fulfilling job experience, but those efforts are diminished by some shippers that still treat drivers like second-class citizens. That’s got to stop. Shippers have as large a stake as fleets do in resolving the driver shortage and making driving a truck an attractive profession. Actions speak louder than words. It’s time for shippers to step up and give today’s professional drivers the respect and recognition they deserve.

The supply chain challenges the United States is currently experiencing go beyond any one mode in the supply chain. BNSF is working hard to make sure the railroad can handle the strong demand in front of us and continue to drive more throughput; however, it will take parts of the supply chain adjusting and collaboratively working together. The necessary physical capacity exists currently across the entire supply chain, and the answer to our current challenges is better utilization of that capacity. One example is BNSF’s logistics park strategy, in which intermodal hubs in Fort Worth, Texas; Chicago; and Kansas City serve nearby distribution centers in their respective markets. The proximity helps shippers streamline their supply chains, lowering transportation costs and carbon emissions. Finding ways to improve efficiency in the supply chain not only opens additional capacity but also improves sustainability. Rail is more than three times more fuel-efficient than trucking, moving one ton of freight roughly 500 miles on a single gallon of diesel. This is just one of the many reasons that rail will play an increasingly important part in moving goods efficiently and sustainably. Transparency, working together, and continuous communication are vital to ensuring shippers have access to the capacity they need. BNSF is committed to doing our part to work collaboratively with all parts of the supply chain to continue to move our economy and nation forward.

The COVID-19 pandemic has profoundly affected our lives in countless ways that no one could have foreseen. From a supply chain perspective, these impacts are being felt at origin factories in Asia and at US ports, as well as on highways and at distribution centers, through the last mile to store shelves. The supply chain has been pressured by significant volume increases of more than 30 percent, mostly from imports, an indicator of fundamental strength in US consumer demand, which is great for the economy. The knock-on effects of these imports include stressed physical capacity at the ports as well as in the middle and final miles of the supply chain. Most acute have been COVID-19’s impacts on the ability to fill jobs at warehouses and to source drayage drivers. Although a combination of mass vaccinations and the rollout of therapeutics will help get a handle on the pandemic, supply chain fluidity boils down to placing people in jobs to increase throughput capacity. Almost as important are visibility and transparency across business partners, working with a technology platform that will allow all stakeholders to see each other’s key performance indicators (KPIs) and other important data. Many supply chain participants want to protect that information for competitive reasons. But when operating shared assets used by a broad segment of the economy, such as a railroad, refusing to divulge that information really handicaps the network. Freight transportation providers will be working through these issues into next year, and supply and demand won’t even out until more trucking industry and warehouse jobs are filled, which I suspect will be sometime in mid-2022. That’s the beautiful thing about a free-market system. When there’s a stressor in the supply chain, everyone in the transportation industry is hyper-motivated to address it, solve it, and countermeasure it as quickly as possible.

America’s transportation marketplace is amazing, but the US supply chain showed some vulnerabilities during the COVID-19 pandemic, vulnerabilities that our adversaries saw clearly. America’s supply chain must become more durable and resilient to protect national security. The COVID-19 pandemic shut down supply chains, and they’re still not normalized. Beneath the supply chain problems that large US manufacturers and retailers felt in 2021 were 300,000-plus motor carriers and brokers with millions of committed lanes, firmly intact in early 2020. Those lanes and volumes changed or disappeared in March 2020. Scrambling for their lives, providers found customers to replace lost business. Carrier networks changed overnight. By summer 2020, those dark or slow manufacturers tried to step up but ran into supply issues, labor issues, and, of course, trucking issues. Since then, shippers have spent months luring capacity away from each other, continuing those network changes; the churning adds mind-blowing complexity as the industry tries to understand what the issue is. There is no one issue. There are infinite issues and ripples, as the world’s economy has yet to fully reopen. More recently, everyday Americans were exposed to the phrase “supply chain.” Even President Biden has been talking about the supply chain. What many Americans don’t understand, and what government needs to help to shape, is that so many of our goods are reliant upon imports from China. China is the world’s no. 2 economy and America’s no. 1 military adversary. When major US ports had dozens of ships awaiting unloading, with many consumer products short or out of stock, it became apparent how reliant the country is on Chinese-produced goods. A stoppage of key, lifesaving products like pharmaceuticals, personal protective equipment (PPE), or other materials and parts could potentially cripple the country and the economy. US businesses must diversify their supply chains, build resilience and redundancy, and bring at least some manufacturing closer to the US, or risk losing a conflict without a shot being fired.

Sourcing materials has always been a pressure point within US supply chains, and the resulting stress for companies to source their materials was further exacerbated by the COVID-19 pandemic. Many companies have found themselves with lean storage facilities and no flexibility due to an over-reliance on just-in-time inventory management processes and are now struggling to have enough materials to manage day-to-day operations. One company I spoke with recently had to shut down for two days due to lack of steel in storage. The need for building flexibility extends into carrier solutions as well, resulting in greater risk without a diversified carrier network. Sourcing from overseas countries like China lengthens the supply chain when the goal should be to shorten it. According to a February 2020 Gartner survey, 33 percent of global supply chain leaders had moved or were looking to move their operations out of China by 2023. Shippers are seeing the downsides to China sourcing play out right now with the backups at the West Coast ports. Despite the ports’ moving toward 24/7 operations, it will be a lengthy process to get those ships into port, unload the cargo, and get it where it needs to go. This is where sourcing in Mexico could provide a solution, shortening supply chains, cutting forecasting times, and providing a greater number of transport methods due to its proximity to the US. The cash-to-cash cycle would be cut drastically, and goods or services would be available to the market in one-third the time it takes to source from overseas.

All indications suggest the current supply chain backups in the US will extend well into 2022. Given this, the trucking industry’s greatest challenge will be to reach adequate capacities of people, facilities, and equipment as carriers seek to break the logjam. Why specifically people, facilities, and equipment? People are the heart and soul of the trucking industry, the drivers and dockworkers who continually work to move goods between our facilities and to the store shelf. Trucking companies are seeking innovative ways to demonstrate the benefits of a trucking career and get new drivers on the road, and how much headway the industry makes toward ending the supply chain disruption in 2022 will be determined in large part by how well we address the truck driver shortage. Of course, we must also consider the facilities in which these employees spend their time. Do these service centers have enough doors to handle demand? Are they centrally located to increase the number of shipments they can receive each day? Expanding the service center network to adequately store product — and, ideally, house excess capacity — is more important than ever. Trucking carriers also need the right equipment to keep the supply chain moving, both at our facilities and on the road, including younger tractors, trailers, and forklifts. The time to address these challenges is now. It’s critical that carriers and shippers start planning for 2022 as soon as possible to ensure there’s sufficient capacity for the carrier to move product and that there’s continual, open communication between partners to reduce potential shipping delays.

During the COVID-19 pandemic, consumers shifted rapidly toward e-commerce and haven’t looked back. Many anticipated this would happen over time, but a shift that was expected to take years to solidify has now occurred in a matter of months. eMarketer, a market research firm, projects US e-commerce sales will increase 17.9 percent to $933.3 billion in 2021 and e-commerce will grow its total share of retail sales to 23.6 percent by 2025. In response, suppliers are holding more inventory and positioning it closer to consumers. In 2020 alone, Amazon increased its fulfillment network square footage by 50 percent, on top of a 15 percent increase in 2019. More than ever before, shippers need reliable transportation partners that understand their sophisticated supply chain strategies. Specifically, e-commerce-driven consumption and increased inventory space are intermodal-intensive. Proximity to end consumers, coupled with greater capacity and reliability, makes rail well-positioned to meet accelerated consumer trends. At Norfolk Southern, we had to pivot and evolve our operations to meet the latest needs of customers. That required us to be nimble and create additional capacity on our trains and in our intermodal terminals, reconfiguring the layout of some facilities to accommodate increased international container volumes and bringing online some previously closed intermodal facilities to help with capacity. At the same time, the industry must keep an eye on the future and how those needs could continue to evolve, developing and deploying technology to increase transparency across the supply chain. Customer demand will only increase in 2022, and our goal is to deliver customers consistent and reliable service with an eye toward the future.

Supply chain woes dominated the news cycle in 2021, captured vividly through photos of cargo ships dotting the coast of Southern California. The effects of the COVID-19 pandemic on America’s logistics infrastructure have been well documented and remain ongoing, but the challenges have simply shed light on underlying systemic challenges in the import supply chain that existed long before COVID-19. With retailers stockpiling inventory and the acceleration of e-commerce, the bullwhip effect has been profound: miles-long traffic jams at major ports, containers piled up in terminal yards, dwell times at an all-time high, warehouses overflowing with freight, and soaring industrial real estate prices. With the global supply chain at such an imbalance, 2022 is likely to see more of the same. At its core, the issue is an ecosystem of commercially fragmented parties operating on disparate technologies that do not share data. These silos of information prove challenging when trying to locate a container, secure a chassis, obtain “last free day” information, and schedule suitable appointments for the pickup or return of containers. To improve the flow of trade, industry stakeholders must connect the critical links of the supply chain through digitization to increase the efficiency of drayage operations supporting port terminals. By freely sharing data, we can reduce wait times at terminals, increase dual transactions, improve traffic flow, and better utilize chassis in the Los Angeles–Long Beach port complex. Ports process roughly 90 percent of world trade, so it’s no surprise that their flaws have found their way into the news cycle. This attention is new, but the issues at the ports certainly are not. Hopefully, the recent exposure and increased awareness will lead to some real progress. If terminals and drayage operators can begin to optimize operations at the ports, America’s entire supply chain stands to benefit.

Shippers and the freight transportation industry have reason to be cautiously optimistic that volumes will grow into 2022. Kansas City Southern anticipates continued growth in cross-border trade throughout North America with the adoption of the United States–Mexico–Canada Agreement (USMCA). The key headwinds to watch are inflationary pressure, supply chain disruptions, and labor shortages; however, demand is strong and inventories are low, which should continue to support industrial production and freight volumes. As higher inflation impacts the supply chain, shippers can benefit from exploring the value of rail transportation compared with trucking in terms of price and capacity. Rail plays an essential role in the North American supply chain, providing safe, efficient, and reliable service. Shippers also reduce their total carbon footprint when shipping by rail, as rail is the most fuel-efficient form of ground transportation. Like others in the supply chain, Kansas City Southern is committed to providing exceptional service to shippers and doing our part to alleviate supply chain bottlenecks. We have invested in capacity, particularly along our high-density cross-border corridor, and put sustainable process improvements in place that have helped improve performance and customer service metrics over the past year. Shippers and transportation providers alike can win in our respective markets when we partner to add capacity and continuously improve processes to move freight more safely and efficiently.

During 2020 and 2021, maritime-related trade associations were forced to adapt to a global pandemic and supply chain challenges that severely curtailed revenue sources from fundraising functions. Some associations rely on industry gatherings as their principal source of funding. In addition, while certain players in the maritime business realized historic profits, others suffered and struggled to make ends meet. This caused many trade association members to question the value proposition of belonging to an organization and how supporting that association makes sense in today’s altered world. The COVID-19 pandemic forced trade associations to demonstrate the value they bring to their members and find ways to monetize that value. The Institute of International Container Lessors (IICL) provides an essential education and testing function for container inspectors on a global scale. While this revenue has been impacted by the pandemic, IICL found ways to be flexible with our registrants and allow them to take the exams when test centers reopen. This forced us to evaluate our processes, mine existing data for opportunities, and learn more about our customers. The data revealed that most container inspectors IICL certifies are located in China, yet we didn’t offer our certification exams in Mandarin. At the end of 2021, we began offering our two most critical exams in Mandarin. Going forward, IICL will automate the reporting of critical data and reminders to repeat customers for renewing certifications. Providing critical services and timely industry information to keep members informed is key to staying relevant and garnering support. In 2022, IICL will explore the sale of digital documents, develop more online training opportunities, and redesign and improve our website and online store.

It’s very clear that labor has been one of the biggest challenges in 2021 and will continue to be in 2022. The truck driver shortage in the United States has been a topic of conversation for years, but the disruption in 2021 has certainly highlighted this strain. The transportation industry is competing against better-paying jobs, in some cases with lower costs or fewer requirements to enter the industry. If carriers continue to improve driver compensation, that will directly impact the shortage. The spotlight has never shined as brightly on the transportation industry as it is right now. The opportunity is now, and getting this corrected is an opportunity the industry can’t miss.

The COVID-19 pandemic has provided an opportunity for shippers, brokers, and carriers to experiment with new ways to match truckload capacity and demand, and to do so quickly. Initiatives that ordinarily would take months or years happened in rapid fashion. As a result, we’ve seen three big changes in the truckload request for proposal (RFP) process in a short period of time. First, this is the age of continuous procurement. In 2020, the number of weeks that the 150-plus shippers in DAT iQ’s Freight Market Intelligence Consortium (FMIC) entered new contract rates on more than 100 lanes doubled from the historical average. This suggests that procurement has become an operational function, rather than a purely strategic process. Second, these off-cycle RFPs or “mini-bids” aren’t just smaller versions of an annual RFP. Mini-bids are focused, simpler, and intended to find reliable capacity fast, while an RFP is more exploratory and open-ended. Finally, the role of spot rates has grown well beyond simply a last resort for when a shipper’s routing guide fails. Auto-tendering to sophisticated brokers using application programming interfaces (APIs) and real-time “rate guardrails” is a better method for procuring capacity on sporadic, inconsistent, and low-volume lanes than showing them in an annual RFP. DAT analysis shows that for most shippers, any lane that has an average of 12 or fewer loads in one year has a 40 to 70 percent probability of being terminated the next year. Dynamic procurement methods save time and valuable resources. The annual RFP isn’t dead, but it’s not sufficient by itself anymore. The practice of continuous procurement, using a combination of both mini-bids and dynamic rates, accelerated during the pandemic and will be standard practice after the pandemic recedes.

Looking back on 2021, the most important takeaway is that the logistics industry remains open to evolving its business models to reflect the needs of the marketplace. Rather than holding onto and investing in systems that are no longer working, shippers and transportation providers should spend their time, money, and resources on next-generation systems that address current challenges and leverage today’s opportunities as well as those of the future. Historically, the industry tends to follow the philosophy of “If it’s not broken, don’t fix it.” Although most were aware of stress fractures throughout the supply chain, it has become clear that a critical breaking point is most acutely revealed during the final touch points before delivery to the retail customer. Lack of capacity, limited innovation, and labor stresses across the warehousing, distribution, and drayage segments have had a significant impact on the flow of cargo. Last-mile stakeholders and equipment providers are collaborating on solutions, such as grounded container yards, to reduce the inflow of cargo to the distribution centers, which would lower chassis dwell times, improving overall efficiency. The industry has traditionally been slow to embrace technology, but the COVID-19 pandemic has been a catalyst in the adoption of digitalization and automation. Whether the industry was ready or not, we are seeing the turn toward technology solutions, given the lower availability of human resources. Digitized solutions provide enhanced visibility, a key to optimizing operations and planning, supporting supply chain fluidity and improved cargo flow. A heightened level of insight, such as that offered with modern asset management systems, also enables optimized fleet management, increased inventory control, reduced administrative time, and minimized costs. Automation allows for contactless operations, reducing human error and delays. As we struggle with manpower shortages, automation will continue to evolve as a viable solution, ultimately becoming the major component of efficient supply chain operations.

From the COVID-19 pandemic, we learned that investments in technology are key. Having a first-class IT department that was able to transition 400 employees to remote working conditions within the first two weeks of the pandemic was a clear advantage. As business increased with heavier freight volumes over the last year, our investment in technology solutions has been an essential part of helping shippers be more efficient and cost-effective with their freight spend. Shippers looking for trucking capacity should be aware that it will remain tight until the industry solves — or at least lessens — the driver shortage. Increasing driver pay only addresses one aspect of a much larger problem that continues to bedevil the industry. Drivers’ working conditions, their reputation and treatment, and the difficulties of life on the road also need review, as these considerations are often just as important to prospective drivers as fiscal compensation. With this in mind, shippers should look to lock in contract rates whenever possible to allow for more efficient planning and scheduling, with a higher likelihood of securing capacity than gambling on the spot market. Communicate openly with brokers. Put all the chips on the table, and let them review underperforming lanes to help find better solutions to manage your network and maintain liquidity. Over the past two years, the traditional bidding and contracting process has changed. Conventional contract pricing lost favor during the pandemic as mini-bid contracts of three months or more became the preferred option. With the market changing so quickly, shippers are reluctant to make long-term commitments. COVID-19 created contract rates that were unsustainable. Transportation companies had to raise shippers’ rates to avoid losing their shirts. Many shippers were more inclined to transition their freight to the transactional market, resulting in a 20 percent year-over-year increase in transactional business. This year, the US trucking market will be challenged by shortages of all kinds. Even if more trucks and equipment enter the market, there will not be enough drivers to fill those seats. There are shortages of chassis at the ports; shortages of labor in all sectors of the logistics industry, including warehousing labor, third-party logistics, rail yards, and ports; and shortages of available warehouse space to accommodate the massive influx of goods into the country. Inflation and escalating costs present another major challenge. Carriers are facing exponentially higher insurance costs compared with only a few years ago. Costs related to drivers, maintenance, fuel, and new equipment have all skyrocketed. Shippers, meanwhile, are trying to mitigate escalating transportation rates while dealing with warehouse price hikes and a lack of capacity.

We learn more about ourselves in hard times than we do in good times. I’ve found that to be true in my personal life as well as within the organization that I lead. The COVID-19 pandemic forced every industry to find new ways to work, and Canadian Pacific (CP) employees stood up and showed leadership across the company, coming together to protect each other while delivering critical supplies for the broader economy through the most challenging of times. Looking at the broader supply chain, signs of fragility have emerged in unexpected areas. In early 2020, it was the manufacturing shutdown in Wuhan. Since then, the industry has witnessed shortages ranging from semiconductors to truck drivers to capacity at port and inland container terminals and warehouses. Asia will continue to be critical to supply chains in North America, but CP customers say they’re rethinking the extent to which they rely on it for sourcing. North America has so much to offer: abundant natural resources, processing and manufacturing capability, and resourceful workers, to name a few things. These strengths, combined with the need to consider the climate impacts of US import supply chains, will push a trend of nearshoring. The successful North American supply chains of the future will connect the places where natural resources are produced with regions where those resources are turned into consumer goods and the manufactured goods are consumed. That means shippers will need closer ties than ever before between the US, Canada, and Mexico. In 2022, I look forward to completion of the regulatory review of CP’s proposed combination with Kansas City Southern. I am convinced the time is right to create the first railway to directly serve these three countries.

Despite the extraordinary challenges of the COVID-19 pandemic, Canadian National Railway’s (CN) essential railroaders focused relentlessly on their mission to deliver the goods that people rely on every day. Given the disruptions that took place across the global supply chain over the past year, it is obvious that the effects of the pandemic are not over. Traditionally, freight moved through the complex international supply chain with relatively few bottlenecks, but COVID-19 caused a massive drop and surge in volume that the ecosystem was not designed to handle. Capacity issues at factories and ports in Asia, along with shortages of warehouse space, trucking capacity, and chassis in North America, caused vessels to back up outside major US ports as containers sat in terminals waiting to be delivered to already full warehouses. The pandemic brought to light the need for importers to develop ready options to enter the continent via multiple port gateways. Some shifted their port of entry to the CN-served Gulf Coast ports of New Orleans and Mobile, Alabama, where volumes have spiked 46 percent from 2020. COVID-19 drove the need for creative import solutions to get goods to market to bypass the congestion. CN initiated a new “first-trains-off-the-ship” approach, with nonstop priority train service from the Port of Prince Rupert directly to Chicago and Toronto, providing an alternative route for imports from Shanghai to the US Midwest and Ontario. By collaborating with our customers and supply chain partners, CN is offering real alternatives to the West Coast port congestion. For part of 2022, we should expect more of the same with regard to volume levels and supply chain disruption. On a personal note, I would like to thank all our customers and the ecosystem of supply chain partners for their genuine support throughout my 25-year career as a railroader. I am honored to have led a remarkable group of people dedicated to CN and the shipping community. CN’s future is in the hands of the best railroaders in the industry as they have proven to have the ability to embrace change not only to succeed but to innovate for our customers and lead a successful organization for many decades to come.

The “Big Quit,” the “Grey Wave,” whatever you call it, it’s happening. COVID-19 concealed the impact of the demographic shift behind soaring, transitory employment disruptions in the US, but the long-term effects of the pandemic have provided space for many to re-evaluate their circumstances and exit the workforce. Combined with a resurgence in economic activity, this phenomenon has created a labor shortage unlike anything before. This is not a shortage of skilled people that can be addressed with training and education, nor a shortage of willing workers that can be mitigated by raising compensation. There simply aren’t enough workers to satisfy demand. The pandemic forced transportation providers to relearn the critical importance of recruitment and retention and the need to develop individual value propositions for each and every employee. Those organizations in the supply chain that embrace this — and I mean really embrace the individual circumstances of their workers and build their operations around them — will win. This will take far more than providing bonuses, funding tuition, or engaging non-traditional communities. It will require accepting what a potential or current employee is willing to offer the company and molding opportunities around that. Automation of various elements of the supply chain can no longer be viewed as a threat to employment, but instead must be embraced as a means to facilitate operations and keep up with demand. Trucking carriers are going to have to do a lot more, with a lot fewer people to get it done. Operators have been hearing about this shift for decades, and it’s now here. The nearly two-year COVID-19 disruption simultaneously hid the trend behind a curtain and accelerated it. The biggest challenge facing US surface transportation in 2022 is the same challenge facing every industry for at least the balance of this decade: There aren’t enough people to do the work required.

US freight railroads proved resilient in 2021, navigating a year many hoped would prove easier than 2020. In a testament to the industry’s leadership and workforce and decades of private investment, railroads last year handled their highest volume of intermodal traffic ever in a six-month period as many shippers fought to clear backlogs. If there is one lesson railroads took away, it is that collaboration across the supply chain is key to keeping goods moving and meeting consumer demand. Continued efforts by railroads to increase visibility for customers — as well as their 24/7 operations — paid dividends and will multiply in the future as rail volumes continue to grow. The result will be less congested highways and lower carbon emissions. In the near term, US railroads are well positioned to meet demand. Class I carriers took steps in 2021 to navigate the environment, temporarily expanding yard capacity at intermodal facilities and re-routing traffic to decongest hubs like Chicago and Memphis. This nimbleness of railroads will prove valuable moving forward, even if the current crisis subsides. In the long term, policy in Washington, DC, namely passage of the Infrastructure Investment and Jobs Act (IIJA), will bolster the US freight sector. The IIJA provides historic levels of funding for rail grade crossings, including $245 million per fiscal year in formula grants for grade crossing projects, as well as a separate pot of $600 million annually for grade separations. The latter is thanks to the leadership of Sens. Maria Cantwell, D-Washington, chair of the Senate Commerce Committee, and Roy Blunt, R-Missouri. To meet the goals of the Biden administration, including growth of freight rail and climate mitigation, regulators must embrace the fact that railroads compete in evolving and vibrant intermodal markets. Policies like minimum-crew-size mandates or open-access regulations, which would create inefficiencies and divert freight away from rail, have no place in a 21st-century economy.