Flexport Freight Market Update: 6/2/2022 Operations Overview & Ocean Markets Update — Takeaways

Photo by CHUTTERSNAP on Unsplash

Flexport hosted a webinar detailing the status quo of inland operations in the USA and Ocean Freight Markets, particularly from China. It was awesome — super informative and very receptive to questions. I highly recommend signing up for the upcoming on 6/16 going deeper into the Indian Subcontinent.

You can sign up for future webinar’s here.

Attached below is the slide deck they used to present and my takeaways from the call, in bullet format.

Operations Overview

Rail shortages on West Coast

Chasis shortages inland (Memphis and Chicago specifically)

Chicago BN is already using an alternate yard to start containing stuff and reducing bottlenecks.

Stacking containers in rail storage is an option

• Higher costs as well for exercising this option, however

East coast

• Empty chases and diesel fuel
• Ports clogged from vessel bunches
• Diesel price climbs
• Empty chasis

Canada

• ERS (Expedited Rail Service) moving 1–2 days

LA/LB (Los Angeles/Long Beach) increasing demand — the first week of June expected to reach 2021 numbers

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Norfolk = best US port

LA/LB = least efficient US port

• The metrics used to calculate this are quite interesting. Looks at Freightwaves for more: https://www.freightwaves.com/news/southern-california-ports-rank-dead-last-on-global-efficiency-index
• Shanghai reopens and peak seasons hits — we can expect more backups
• 25 ships are still more than ideal in terms of a backlog. We should be at 0 ships backlogged in the port.

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West Coast Labour Update

• Not much of an update
• Union asked for a pause on the 26th
• For holiday weekend
• No chatter — this is good because it means no one is angry.

Ocean Market Updates

• WoW capacity is fairly consistent
• Q2 should end on high note
• Capacity should be gaining momentum as we go into peak season
• A lot more capacity now than in 2020. — about 20% higher
• We lost that because of covid and congestion and other shortages
• But total capacity should be at its highest in peak season
• This is good news

Shanghai Covid Status

• Lockdown restrictions have been relaxed
• Small part of population still restricted
• Production is resuming where previously restricted
• Should be a few weeks before full capacity again
• Still have positive cases and thus a little uncertainty
• So might be trouble getting to full capacity
• Availability of materials
• Supply lines have some uncertainty which may later act as a bottleneck in capacity

Q&A

Empty Container Crisis

• East coast — lots of vessel bunching makes it difficult (when lots of vessels come in at the same time, not enough time for containers to be unloaded, go inland, and come back.)
• Industry problem
• NY/NJ not enough area to store containers at ports — not enough land to store containers
• Alternate offload locations (Baltimore, Boston, for NY/NJ)
• Empty receiving is good there
• Oakland is from west coast
• The reality of the market. As containers pile here, there are fewer for carriers — so carriers are invested in getting these containers out too.
• Volume is still above pre-pandemic volume in terms of inbound shipments. Handling empty containers is hard.
• A lot of containers are also not empty
• Front-loaded containers are actually full at off-dock locations or waiting to be unloaded
• Hopefully with less cargo to certain ports and things going inland again, hopefully, we get more certainty and balance where we don’t have a situation of needing containers while they’re still full of stuff.

On Shanghai and Expected Outcome in LA/LB

• As Shanghai increases production, the backlog will increase to the West Coast port, and then progress through the rest of the country.
• Not many extra loaders coming into the market (but perhaps later)
• Around July time — 1–2 weeks for the lockdown to lift, 1 week to get to port, and 1–2 weeks to arrive in LA/LB — the backlog is going to increase and we are going to have another high like last year
• On dock efficiency is still there
• But we are starting from a backlog at almost every port, not even starting from zero.

How viable is Mexico as opposed to Canada for accessing the west coast?

• Limited services and you need transport back to the US — so may not be the most cost-effective. It is an option that can be explored, however.

On 45ft High Cubes

• Avoid 45ft high cubes unless required — only a limited number of carriers take them — decreasing total number of carriers and limited amount of space on vessels to store these — upfront limit availability.
• Going into inland ports, and net save you that much in terms of cost for using a 45 ft high cubes

On Rail

Rail should be the future, but it’s really hard to expand because the railroad is owned by the railroad company.

If the railroad wants to expand, it has to purchase land and then meet all the environmental restrictions, building permits, labor, sourcing, and material, etc. This makes it difficult, and not viable as a near-term solution.

It is far more efficient for a train to run the same amount of freight compared to using trucks.

Improvements in rail have been happening — specifically in the space of precision timing.

Additionally, fewer and fewer people want to work on railroads — companies are having a hard time finding engineers and mechanics.

Asia and Europe are seeing expansion in their railroads.

Asia-to-Europe railroad system also shut down, but they didn’t have much capacity. The ocean is still the most used form of transport in connecting the two areas.

On Rerouting through Alternative Ports

The best port for you overall will likely be the port closest to the final destination.

Houston is an option yes, but it might add a lot of time in terms of going through the Panama Canal, and wait times at Houston, and end up being a lot longer than just waiting in LA/LB

On Empty Containers…

Miami will have situations where the clock still runs on containers in closed areas (when the clock should be stopped).

Some terminals still use 1990s computer systems.

• System limitation of the computer network in terms of empty container clocks

If I choose an alternate port while cargo is en route, can I terminate it’s current voyage, and pick it up at its current port?

• Yes you can, it’s called diversion
• You can request an interception at a port (but must be done before the vessel arrives
• You can add or remove rail legs as well (must be done before the freight is transferred to rail).

Ocean rates this summer?

• June should be flat in ocean rates
• But based on traditional seasonality and Shanghai slowdown
• But we don’t know how big the surge will be when these reset.

I take no credit for the insights here. They were all put together by Flexport. I just thought it might be useful to share some of the things I learned.

Hope you enjoyed :)