William B. Cassidy, February 18, 2015, JOC.com
A “freight storm” could follow resolution of the West Coast port labor dispute, with truck rates rising sharply as shippers work to clear cargo from ports, BB&T Capital Markets warns.
Intermodal and truck rates could “skyrocket” this spring as shippers seek capacity to move containers stranded at ports for weeks, the equity research firm said in a Feb. 17 note to investors following its 30th annual transport conference in Coral Gables, Florida. Trucking companies at the conference expected truck rates to rise 4 to 6 percent on average, excluding the impact of the West Coast container backlog.
Shippers at the conference said the situation at West Coast ports is getting worse, with big box retailers waiting to unload hundreds of containers from ships backed up at ports. “Any vortex this year would not be about weather, but more about the ‘freight storm’ that could be unleashed once the labor contract is resolved,” BB&T said in the investor note. “Estimates were consistently given at about 90 days to get back to normal once labor peace is reached.”
Terminal operators at the ports of Seattle, Tacoma, Portland, Oakland, Los Angeles and Long Beach resumed vessel, yard and gate operations Feb. 17, working to clear out the backlog of containers that had built up over the weekend, and to finish working ships at berth.
U.S. Secretary of Labor Thomas E. Perez met with the International Longshore and Warehouse Union and the Pacific Maritime Association in San Francisco to try to break the impasse. Shipper organizations have flooded the media with requests for an end to the contract stalemate they claim made West Coast port congestion unbearable.
Trucking companies are already working to expedite delayed cargo, often at a higher price for shippers that bear the extra expense of rerouting freight or changing suppliers and modes. Reddaway, a Western regional less-than-truckload carrier, reported expedited trucking demand was up 10 percent year-over-year from November through early February. The company attributed that increase to port congestion, and launched a new service designed to move freight inland faster over the weekend, for early Monday delivery.
In the fourth quarter, port congestion forced UPS had to drop containers into its network at distribution hubs closer to the ports, rather than farther inland, to expedite delivery.
When the container logjam breaks on the West Coast, already tight truck capacity is likely to tighten further. BB&T noted that load turn-downs by truckload carriers remain high, with large trucking companies turning down hundreds of loads a day. Heartland Express, one of the most profitable truckload operators, turned down 23,000 loads in January, BB&T said.
“If there is as summer vortex” caused by a sudden influx of containers into freight lanes, “then truckers with teams like Covenant Transport or a western presence like Swift or Knight would benefit,” BB&T said in the investor note. LTL trucking companies with drayage operations, many owning their own chassis, could be first in line for a share of stranded freight.
Freight brokers would also benefit, as would trucking companies with brokerage operations. “Our asset business isn’t heavily dependent on the West Coast, but where we do have an opportunity is in our brokerage and intermodal business,” John Simone, president and CEO of Van Buren, Arkansas-based USA Truck told JOC.com last week. “We are on the West Coast with our rail equipment. Our brokerage operation has offices all along the West Coast. We see that as an opportunity to capitalize on the situation when it breaks free,” he said.