Labor Negotiations to Take Center Stage
RedStone Resource
March 31, 2023
Inside This Edition
Still Watching Growth in the Baltic Dry Index for Signs of Global Pickup in Activity
By the end of March, the BDI was up 27.7% over the past 30 days but remains 40.5% lower than it was at this time last year. But relative to the long-term average prior to the pandemic, the index is still slightly above the 10-year pre-pandemic average.
Labor Negotiations to Take Center Stage?
Over the next two years, numerous labor contracts in the transportation sector will be up for negotiation and renewal. Lingering talks continue the West Coast between the ILWU and PMA with sporadic work actions that remind us that the negotiations continue.
Rail Volumes Still Sluggish 12 Weeks into the Year
The AAR report on rail volumes covering the USMCA markets shows the sluggishness across some sectors. Overall total carloads are down marginally by just 0.3% YTD vs. the same 12 weeks in 2022.
ECONOMIC BRIEFING
Air Cargo Rates Mixed Through February
International air cargo rates as tracked by the US Bureau of Labor Statistics (BLS) were showing an interesting dichotomy in February. Outbound prices for air cargo surged by 10.7% vs. rates in January and were 4.6% higher than rates a year ago at this time. Rates were also still 12.9% higher vs. February of 2020 and 43% higher than the decade prior to the pandemic.
However, inbound rates are showing a completely different macro environment for pricing. The BLS index was down 3.1% in February month-over-month and was down sharply by 31.9% year-over-year. Versus pre-pandemic levels they remain 10.8% higher.
As companies work to keep their inventories moderate going into the end of the year, there could be more tuck-in orders of pallets moving in overnight or second-day markets to help keep inventory levels lean. There was a surge of activity in the automotive industry overnighting international air cargo to keep assembly lines flowing amid tight inventory conditions across many of those production lines. That is especially the case between the US and Mexico.
Still Watching Growth in the Baltic Dry Index for Signs of Global Pickup in Activity
As mentioned last month, there has been some interesting movement in the Baltic Dry Index (BDI). The BDI measures the cost of moving raw materials (much of which are used in early-stage manufacturing) via maritime carriers in the world’s busiest trade lanes. As we reported last month, at a time when many global transportation metrics are still sluggish, the BDI was showing a surprising resurgence and could be hinting that conditions could already be picking up in some regions.
By the end of March, the BDI was up 27.7% over the past 30 days but remains 40.5% lower than it was at this time last year. But relative to the long-term average prior to the pandemic, the index is still slightly above the 10-year pre-pandemic average.
Global inventories of many primary metals used in manufacturing are still sitting very low on a historic basis. Commodities like nickel, copper, aluminum, lead, zinc, and others are still not in plentiful supply. As countries use stockpiling and pre-staging of these materials getting ready for the fall peak season, it eventually starts to create activity throughout the downstream portion of the supply chain.
TRANSPORTATION BRIEFING
Labor Negotiations to Take Center Stage?
Over the next two years, numerous labor contracts in the transportation sector will be up for negotiation and renewal. Lingering talks continue the West Coast between the ILWU and PMA with sporadic work actions that remind us that the negotiations continue. Shippers diverted a significant volume of freight to US Gulf and East Coast ports in 2022 during the initial stages of the contract talks, and questions remain as to whether they will continue this in 2023 if there is not an agreement before the peak inbound shipping season this summer.
Several contract negotiations are also going to be underway with the Teamsters Union and several freight and parcel carriers. The largest of which will be the UPS contract negotiation which covers more than 350,000 employees, about 70% of total UPS employees according to a UPS negotiations website. Other contract renewals this year include those for LTL carriers ArcBest (parent of ABF Freight System) and TForce Freight (TFI International). The ABF Freight contract expires on June 30th, the TForce Freight agreement expires on July 31st.
All these negotiations come at a curious time after two years of substantial growth and profitability for most carriers, but at a time also when the country is in the midst of a freight slowdown (on the verge of a freight recession to some extent) and some average times ahead where competition will be more intense, and capacity is more available from competition.
Rail Volumes Still Sluggish 12 Weeks into the Year
The AAR report on rail volumes covering the USMCA markets shows the sluggishness across some sectors. Overall total carloads are down marginally by just 0.3% YTD vs. the same 12 weeks in 2022. Intermodal is down more sharply by 10% and total traffic is still down 5.4% YTD. But pockets of growth are being seen in farm products excluding grains, metallic ores and minerals, automotive, nonmetallic minerals, and petroleum. These segments are likely to continue to show strength. Only chemicals, forest products, and grains were down YTD among the various sub-sectors tracked by the AAR.
Across USMCA markets, Canadian traffic is up 11.8% YTD through week 12, despite intermodal being down 7.3%. Mexican rail activity is also trending stronger with total carload traffic up 2.5% also despite a slowdown in intermodal (dropping 1.6% YTD). Weighing all three markets, total North American rail traffic is up 2.6% YTD with intermodal being a drag on overall volumes as it is trending 9.1% weaker YTD.
At one time, the AAR rail volume report was watched closely by Wall Street because of a category that is classified today as “other”. But that category includes waste and nonferrous metal scrap. Historically that category has had a close correlation to US GDP. That portion of the AAR report is currently down 5.8% YTD.
