As shippers enter their peak season, they face a steeper and tougher peak to climb than in seasons past.
The US economy remains on one of its best trajectories in years, leading to higher demand from consumers. The demand is butting up against tight transportation supply, especially for trucking.
As a result, intermodal freight will likely become an increasingly popular option during the peak season.
A panel of freight industry experts delivered this message during Thursday’s “Navigating New Realities: Peak Shipping Season Intermodal Outlook” webinar sponsored by American Shipper and FreightWaves.
Patrick Duffy, research director of American Shipper, says this peak season stands out for “particularly daunting conditions: surging imports, perhaps to beat tariffs; reductions in carrier service due to consolidation, GRI (general rate increases) and bunker surcharges.
“As trade rhetoric continues to grow negative and trucking capacity remains tight, you have beneficial cargo owners and forwarders shipping earlier this year and wondering whether they will have to rely on expensive air cargo to fill their shelves,” Duffy said.
Speaking on the panel, Ibrahiim Bayaan, chief economist at FreightWaves, says this year’s peak shipping season comes against the backdrop of a robust US economy.
US gross domestic product grew 4.1% on an annualised basis in the second quarter, “one of the strongest quarters since the recession,” Bayaan said. While annualised GDP growth once hovered closer to 2% to 2.25%, “we have been able to exceed those levels over the past several quarters, particularly this year because of some policy changes.”
The US economy “is in a different state than it was four or five years ago,” he added. Other economic indicators are also strong and accelerating.
Bayaan says that retail sales plateaued last year, especially after a series of hurricanes hit the US Southeast. But low unemployment and high consumer confidence are pushing retail sales up 6% this year.
Retailers, though, are still keeping their inventories lean with US inventory-to-sales ratio falling since the second half of 2016.
“You have this combination of low inventories and high demand, which means inventories have to be replenished and sent out again,” Bayaan said. “This lean inventory is positive for the transportation industry, but it does put pressure on carriers to do things in a timely fashion.”
Of course, more of those goods are moving through ports and SONAR data indicate some shippers have started earlier than normal.
Bayaan says the inbound tender volume index for shipments coming through Los Angeles ports peaked at over 189 in July, before settling at its current level of 175. The San Francisco inbound tender index hit a 121 level in June, before settling to its current 98 level.
“Everything is pointing to a very strong peak season as far as freight,” Bayaan said.
The increase in inventory replenishment, along with shrinking truck capacity due to electronic logging data (ELD) and hours-of-service (HOS) mandates, has pushed up producer prices for trucking 11% year-to-date, Bayaan says. Meanwhile, the pool of commercial drivers has not kept up with 2% growth this year.
“It feels like the US economy is running out of excess capacity,” Bayaan said. The US is “producing as much as we have capability to produce.”
Steve Golich, executive vice president of privately held intermodal marketing company Alliance Shippers, also says that trucking capacity is tighter than it’s been in a while, due to the ELD and HOS mandates.
For example, moving a trailer from the Chicago rail ramp to auto industry customers in Michigan used to take one day. But the new mandates mean “ a driver cannot make that turn in a day, We are paying a driver for two days as opposed to one,” Golich said.
That is, when you can find a driver. Golich noted the aging workforce with the median age of commercial drivers now in the mid-50s. Better pay and lower barriers to entering the profession help, but “we are behind the eightball in truck driver capacity,” Golich said.
The upshot for Alliance is that “we are not on the front edge of looking for new business as much as trying to maintain and protect the business we have today.”
Tom Williams, vice president of intermodal marketing and sales for BNSF, says overall intermodal volumes are up in the mid-single digit range this year, which he says is about the seasonal norm.
“We are not seeing a trend that suggests overall that the peak season is earlier this year,” Williams said.
But strong imports are creating a “shift between what moves intact in ocean containers and what gets transloaded in domestic containers." He says there is increasingly tight demand for shifting 20- and 40-foot containers into domestic 53-foot containers for intermodal rail.
“Transloading is really busy right now,” Williams said.
While e-commerce was expected to chiefly benefit trucking, Williams says intermodal rail is also playing an important part as more domestic containers move to inland fulfillment and distribution centers. New analytic and tracking tools are also providing e-commerce vendors better tracking capability for intermodal rail.
“Intermodal is a very good solution for evolving supply chain needs,” Williams said. “The proliferation of e-commerce in retail might be seen as a headwind for intermodal, but intermodal is every bit of as effective for e-commerce as it is for brick and mortar.”
In response to growing intermodal demand from e-commerce, BNSF is adding additional hub capacity in Southern California, which remains the epicenter for Asian imports into the US. As well, BNSF is looking at container handling technology such as OOCL installed at its Long Beach terminal.