Bubble Chart showing the flow of good in the supply chain

ILWU Contract Concerns Cause of Trade Diversion from West Coast Ports
A recent survey of major companies provides insight into the extent of trade diversion from West Coast Ports due to the ILWU contract negotiations. The survey, performed by CNBC on Dec. 12-19, revealed that 40% of the 341 Logistics Managers questioned had diverted trade from West Coast Ports. Of those that diverted trade, over 50% indicated the main reason for the diversion was the threat of an ILWU strike. Only 6% of these respondents indicated they would return 100% of their trade back to West Coast Ports when there is an ILWU contract deal. Thirty percent said they would return 50-80%, thirty-three percent said they would return only 10-30% of their trade and thirty percent were unsure.

Contract negotiations, which began 8 months ago, between the ILWU, representing 22,000 workers at West Coast Ports, and the PMA, representing 29 West Coast Port Terminal Operators are continuing after contract expiration in July 2022. Read more at CNBC.

Ban on Port Diesel Drayage Trucks Older than 2010 Takes Effect
A ban on diesel drayage trucks older than 2010 went into effect on January 1, 2023. The phased-in 2014 CA State Truck & Bus and Drayage regulations require that all Class 8 diesel-fueled drayage trucks serving CA Port and Rail Terminals have EPA 2010 or newer engines and be registered in the statewide Port Drayage Truck Registry to access Ports. According to the Journal of Commerce (JOC) and the SoCal Ports, the regulation bans about 4,000 drayage trucks from entering the Ports of Los Angeles and Long Beach, or about 16% of the registered drayage fleet and about 19% of the drayage fleet at the Port of Oakland.

Port drayage capacity will also be further constrained with fewer owner-operator truckers as enforcement of the CA AB5 Independent Contractor Law takes effect after the U.S. District Court ruling last June. The immediate effects of the regulations on Port drayage costs and capacity are not expected to be significant due to the current double-digit percentage decline in import volumes at SoCal Ports as a result of the softening of the economy and cargo diversion to East and Gulf Coast Ports while ILWU contract negotiations continue.

Container Dwell Fee Program to Expire at SoCal Ports
The Ports of Los Angeles and Long Beach announced the expiration of the Container Dwell Fee program effective January 23, 2023. The temporary program enacted in October 2021 called for the imposition of a container dwell fee of $100/day on import containers dwelling on the Port 9 days or more for truck cargo or 6 days or more for rail cargo as an incentive to free up space causing congestion. The fees to be charged to Ocean Carriers were never implemented by the Port Directors due to a steady decline of aging cargo on the docks of up to 92% since the program was announced. Meanwhile, the Port of Houston, which has seen an increase in the volume of cargo diverted from West Coast Ports, will be imposing a “Sustained Import Dwell Fee” on Cargo Owners of $45/day for units remaining on the dock 8 days after the expiration of free time in order to improve cargo fluidity, effective February 1st. Read more at Port of Los Angeles

BNSF “BIG” Project Could Transform SoCal Intermodal Rail
The BNSF Barstow International Gateway (BIG) project announced by BNSF last October could fundamentally transform the entire Southern California intermodal rail picture. According to the Journal of Commerce (JOC) and Larry Gross, Gross Transportation Consulting, Inland Point Intermodal (IPI) intact import containers transported inland by rail from SoCal Ports have steadily declined as a percentage of imports from about 30% in 2016 to 22% in 2022. IPI cargo destined for inland hubs such as the Midwest or Texas is susceptible to a diversion through other less congested or costly Gateways including British Columbia and the East and Gulf Coast Ports. The BNSF-funded $1.5 billion 4,100 acres “BIG” integrated rail facility, proposed to be located on the BNSF transon line in Barstow approx. 130 miles from SoCal Ports, will significantly improve the efficiency of assembling and dispatching the preferred 14,000 ft transon trains, thereby increasing the capacity and timeliness of IPI cargo. Moreover, the plans for the BIG facility include adjacent facilities for transloading cargo from Ocean Containers to (longer) domestic containers for further transport inland by truck or intermodal rail. Such facilities would significantly reduce the current drayage cost of transloading which ranges from $675 to $1,275 per 53 ft domestic load and reduce the current 20,000 dray moves per day at the Ports. The BIG project, which has support from the Ports, City and County, requires environmental assessment and permitting which could take several years. Read more at BNSF

Prologis Predicts California will Lose its Top Position in Industrial Development
Prologis, the top Industrial Real Estate firm in the U.S., made a supply chain prediction for 2023 that California will lose its 25+ year leadership position in industrial development to Texas, which will become the #1 State for net absorption. California’s shortage of developable land and rising barriers to supply will permanently constrain its logistics demand. As an example, by November 2022, one-third of the buildings under construction in the Inland Empire were in municipalities that had proposed or enacted local moratoriums on industrial development. Limits on future development in these areas would increase the value of existing properties and create challenges for customers looking to grow. Example communities implementing temporary warehouse development moratoriums due to environmental concerns in 2023 include the cities of Pomona and Colton, CA. Read more at Prologis

Schneider Transitions Western Intermodal Rail Operations to UP Railroad
Schneider, one of the largest Motor Carriers in North America, completed a transition of its western rail operations to Union Pacific (UP) from BNSF, whose contract expired on Dec. 31, 2022. Schneider stated it now has access to more rail lines as well as direct connections on transcontinental freight due to its partnership between the UP and CSX networks. Schneider also said, “the combination of more coast-to-coast connections and being the first fully asset-based carrier with company drivers, company-owned containers, and company-owned chassis to operate on the railroad will result in more consistent service and less time in transit”.

According to Scott Group of Wolfe Research, BNSF’s intermodal business was about 50% bigger than UP’s in 2021, but UP has since announced intermodal contracts with Schneider, Knight-Swift, and APL Logistics. These companies will join the Hub Group and XPO Logistics (formerly Pacer) to operate on UP, while J.B. Hunt will continue to operate exclusively with BNSF. Read more at Railway Age

Ocean Carrier Schedule Reliability Improving from Historic Lows Last January
Global Ocean Carrier Schedule Reliability has increased in the past year from a historic low of 30.9% in January 2022 to 56.6% in November 2022, according to a report by Sea-Intelligence. The Global Average Delay for Late Vessel Arrivals dropped to 5.04 days in November 2022 – a steady decrease from 7.38 days in January 2022.

Of the top 14 Ocean Carriers, MSC had the highest schedule reliability of 63.4% in November 2022. Maersk had the second highest with 61.7% and Yang Ming had the lowest with 42.5% schedule reliability. Read more at Sea-Intelligence