Labor a Dark Cloud Shadowing Supply Chain

Date: Friday, November 18, 2022
Source: Sourcing Journal

Cargo volumes are stable, rates are down and supply chain executives can exhale—this month, anyway.

Third-party logistics provider ITS Logistics’ U.S. Port/Rail Ramp Freight Index indicated a normalization for supply chains as ocean and trucking rates drop, coupled with newfound efficiencies gained during the height of the pandemic. ITS vice president of drayage and intermodal Paul Brashier called it a silver lining, but said his company and others have already been preparing their customers for a potential disruption at West Coast ports and for rail if contract negotiations go awry.

“This is something that could really, really significantly negatively impact, not just supply chains, but the consumer,” Brashier told Sourcing Journal. “We’re worried about inflation. Transportation costs are definitely a contributing factor to inflation, so this could be something that could really hurt folks.”

The executive said Dec. 4 could hold the potential for a rail disruption. The date marks the end of an extended cooling off period for the Brotherhood of Maintenance of Way Employees Division (BMWED), whose members voted against ratifying a tentative agreement with railroads.

“Right now, we’re working with our clients and advising to shift over whatever IPI [interior point intermodal, or inbound freight headed inland] they can, to coastal distribution centers,” Brashier said.

Many of those facilities service goods coming from the ports in Los Angeles or the Pacific Northwest and are already filled with excess inventory. However, the IPI shift is partially being offset by plunging trucking rates, with transport by truck just as, if not more, effective and in some cases cheaper to get to the inland facilities, Brashier pointed out.

A dozen rail unions are involved in the current round of negotiations, which began in 2020, with the nation’s major railroads.

Seven unions have so far approved contracts with carriers, while three have voted against ratification over a paid sick time dispute. The two remaining unions—the Brotherhood of Locomotive Engineers and Trainmen (BLET) and International Association of Sheet, Metal, Air, Rail and Transportation Workers Transportation Department (SMART-TD)—are expected to complete their voting process Nov. 21. The two unions account for the largest share, or about half, of the more than 100,000 workers involved in the current round of talks.

The National Carriers Conference Committee (NCCC), the group negotiating on behalf of the railroads, has repeatedly said it will continue to push for contracts based on recommendations made by President Biden’s Presidential Emergency Board (PEB), which do not take into account the additional paid sick time being pushed for by the unions.

“We’re already seeing [rail] slowdowns to begin with, and we’ve seen these probably for the past three to four months. And that’s easily discernible by transit time and IPI transfers,” Brashier said.

The executive used the example of a route from Los Angeles to Chicago, which used to take anywhere from five to eight days. Currently, the transit time sits at over 20 days.

“We’re already feeling it and it is a concern. If this shuts down, this affects not just containerized cargo or domestic intermodal cargo, but think about petroleum that’s moved over the rails, commodities, grains, coal—items like that that’s going to affect pricing for fuel,” Brashier said.

It’s not just rail negotiations that shippers are being advised on by their logistics providers.

In the case of the West Coast dockworkers contract, which expired in July, shippers have been re-routing cargo to the East and Gulf coast for many months now. Some of that is expected to return to the West Coast once a new contract is struck and ratified, but that’s not likely until the second quarter of next year, Brashier said.

A chunk of that cargo, however, will not come back at all, with Brashier saying some ITS customers have opened permanent distribution centers and operations near the Gulf Coast ports, southeast and eastern Pennsylvania.

“I would say that this is something that a lot of, especially retailers and consumer goods BCOs [beneficial cargo owners], probably had in the plans or thought about doing for a while just like infrastructure,” Brashier said. “Heavy investment into assets usually take something to kind of push that over the finish line. I think what’s really driving that is the consumer has changed. The consumer wants goods mailed or delivered to them in small pack and get to them in one to two days.”

The congestion that began in late 2018 with tariffs imposed by then-President Trump, followed by all that occurred with supply chains throughout the pandemic, was the push many companies needed to move ahead with those investments.

Another trend ITS is seeing among its customer base: a transition away from booking services door to door, or from the door of where product is being bought overseas to the door of their distribution centers. Instead, the savvier cargo owners, Brashier said, are hiring their own trucking or drayage providers and booking to the container yards or rail ramp to pick up product for final delivery. In some cases, they’ll turn to a company such as ITS to manage all of those efforts systemwide.

ITS is seeing the trend across consumer goods, retail and commodities among the other industries it services.

“You minimize per diem and demurrage [costs and fees] better because you’re controlling the trucking capacity,” Brashier said of what’s driving the trend. “So it limits the costs considerably for the BCO. It increases the control over the trucking transit. It helps them with planning and makes them more efficient.”


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