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Intermodal and drayage carriers are winding down a year that for many meant only modest growth in container trucking. On the international side, the National Retail Federation projected another record year for U.S. container imports, but it would amount to only a 1% increase in volumes over 2018. Domestic rail containers, meanwhile, saw a steeper drop of 4% from 2018.
As the industry looks toward 2020, there is hope among intermodal executives that container volumes will keep growing, albeit much of the growth may be in certain regions and for specific goods. Likewise, intermodal carriers want to see more done on the maritime link in the supply chain to improve efficiency. For its own part, container trucking will have to wrestle with a slew of regulations and cost increases that will require them to be more efficient as well.
Here are some views on how 2020 will shake out for intermodal.
The high water mark for drayage remains from 2018, when inbound international container volumes rose 6.5% and domestic volumes rose 5.5%. Against those tougher comparables, the 2019 peak season "was considerably softer than last year," said Andy Garcia, executive vice president of Oakland, California-based GSC Logistics. "The forecast for 2020 is, at this time, somewhat flat, unless the tariff issues are resolved."
The U.S. and China announced a preliminary truce in their trade war, a step that should give shippers more confidence, said Donna Lemm, vice president of national sales at Memphis, Tennessee-based IMC Companies. She hopes the truce can lead to more stability in international trade.
"We are very encouraged with the phase one announced agreement," Lemm said. "The news is welcome not only for U.S. importers but for our agricultural exporters as well."
But more normal trade relations with China are not likely to halt shippers from diversifying their manufacturing to other low-cost sources in Southeast Asia and the Indian Subcontinent. That trade shift, along with ongoing population shifts, are pushing up container volumes at Atlantic and Gulf Coast ports.
Ken Kellaway, chief executive officer of RoadOne IntermodaLogistics, likewise expects moderate overall growth in 2020, but "we are seeing a lot more growth in the Southeast and more volume headed down to Savannah, Charleston and Jacksonville."
As for the outbound side, it's also been a tough year for U.S. exporters, as any soybean farmer will tell you. But the U.S. petrochemical industry is in need of more freight handling as it taps international markets, said Patrick Maher, executive vice president of Gulf Winds International.
"Resin volumes continue to increase incrementally each month," Maher said. "So far the market appears to be absorbing the volumes well. It's a very efficient network with massive investments being made from all of the key stakeholders."
Limits On Owner-Operators
The biggest challenge facing intermodal trucking in 2020 will be the path forward under new legislation that the industry sees as limiting the ability to use owner-operators. Independent contractor drivers who lease their trucks to a licensed motor carrier provide much of the incremental, if not the majority, of drayage capacity at many major U.S. seaports.
The biggest import container gateway, California, will have a new law in 2020 that limits who can be considered an independent contractor. California's pending law also is being taken up in New Jersey. While the New Jersey bill appears stalled in the current session, it is likely to be taken up again in 2020.
"We've got a lot of independent contractors that are great drivers and that rely on this business and industry to make a living," Kellaway said. "No one really knows where this settles yet."
Two solutions seen by the industry are hiring independent contractors as employee drivers or brokering freight to drivers with their own operating authority.
The California law and similar efforts "mandate the use of employee drivers," said IMC's Lemm. While the carrier uses both company and owner-operator drivers in many markets, Lemm said IMC will be "100% asset-based" in California by Jan. 1.
Either way, the regulation means higher costs all around, GSC's Garcia said. Employee drivers mean higher payroll taxes and the costs of additional benefits, while drivers deciding to get their own operating authority will face higher insurance costs.
"The costs for licensing is reasonable, except for insurance coverage, which will increase substantially," Garcia said. "Insurance companies will disregard prior insurance records as an independent owner-operator regardless of whether the insurance record was favorable or not. Thus, there will be upward trends on pricing to customers, resulting from incremental insurance costs.
"California's cost for services will escalate, once again compared to the rest of the U.S., due to state regulations," Garcia said.
The trucking industry is mounting a defense against the new law. The California Trucking Association filed an injunction to stop the California law from affecting truck drivers. Garcia said he is confident that the CTA will be able to prevail in the case due to the new California law being preempted by federal interstate commerce laws.
RoadOne's Kellaway agreed that higher insurance costs are becoming increasingly burdensome for all carriers. The large damage claims being handed down in trucking accidents have forced some underwriters to exit the market. One carrier that RoadOne took over faced a tripling of insurance costs prior to its acquisition, he added.
"Insurance is one of the highest cost of goods sold in the transportation business and is getting increasingly more expensive," Kellaway said. "There are a lot of carriers out there that are fragile and their cost of operations is only going to go up."
Driver supply, a perennial concern of trucking, likewise faces challenges due to marijuana legalization. With recreational use already legal in California, New Jersey voters are also set to take up the question of legalization in 2020.
Kellaway said legalization limits the pool of potential drivers for intermodal trucking. The start of a national database of drug-and-alcohol violations by drivers and the potential for advanced testing strategies will give drivers who use controlled substances fewer places to hide.
"You are getting into a situation where state regulations are conflicting with federal regulations, and that is impacting the driver pool," he added.
Save for isolated cases, ports and rail yards did not see the systemic truck congestion that gripped drayage in 2018. But the lack of congestion does not mean ocean carriers and marine terminals should stop their efforts to make port trucking more efficient, said IMC's Lemm.
She said the Federal Maritime Commission's (FMC) ongoing investigation into the causes and cures for high detention and demurrage fees could prompt the maritime industry to come up with better practices to move trucks in and out of ports more quickly.
"To have push notifications on when a container is available, ready for pickup and not buried under a pile, that's what we hope to see," Lemm said.
Along with improved communication from the marine terminals, Lemm said better chassis operations should also be a focus in the coming year. She said the rules from ocean carriers on which chassis provider to use, and the occasional lack of chassis from those providers, are still a drag on intermodal carriers. IMC itself is part of an FMC-supported group that is advocating a "gray pool" for chassis, giving the choice directly to the trucker and shipper.
"The efficiency improvements in a gray, interoperable chassis pool model would be astronomical for all stakeholders," Lemm said.
Kellaway agreed that chassis provisioning is the weak link in the supply chain. The box rules that dictate using a particular chassis provider, which may or may not have equipment at the time, create many unnecessary truck trips and delays for drivers.
"The chassis situation is still a significant conundrum in the industry and I don't think there's a clear path to how it's going to get resolved," Kellaway said. With ocean carriers, marine terminals and pool operators all having a say in chassis provisioning, "everybody has a different motivation and agenda and they are not always aligned."
Gulf Winds' Maher said that chassis availability in the railyards it serves has improved this year. Nonetheless, it has also bought its own chassis fleet to "ensure our drivers and customers are moving on the best equipment available in the market."
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