Rail Firms Face Pressure as Capacity is Overwhelmed by Demand
RedStone Resource
May 5, 2022
Inside This Edition
Rail Firms Face Pressure as Demand Overwhelms Capacity
Like all industries, the rail sector is struggling to get workers back on the job after the pandemic. The supply chain and warehousing sector has 1.8 million jobs open in the US, an all time high and carriers are still finding it difficult to hire qualified workers.
US Ports Still Expect Record Imports
US ports and large organizations expect this year to set new records for US import volumes. Given some of the projected challenges at US ports, smaller port operators are also warning that they may experience some unusual bottlenecks and congestion – especially with inland distribution challenges that might result.
ECONOMIC BRIEFING
Diesel Prices Hit New All-Time Highs
Retail diesel prices hit a new all-time high at the end of April, topping $5.18 a gallon at a national level. Fuel surcharge rates as a result were tracking 63% higher on a year-over-year basis. The challenge is that this may not be the top of the retail price curve.
Diesel inventories hit lows not seen since 2008 in late April as US exports of diesel and other petroleum products surged 26% between February and March. Crude oil input prices are also accelerating again, West Texas Intermediate was near $105 a barrel on 4/29, which was 75% higher than it was a year ago and was 42.5% higher YTD. With the war in Ukraine continuing to show no signs of easing, global petroleum inventories will remain tight for the near term and prices will remain higher as a result.
TRANSPORTATION BRIEFING
Rail Firms Face Pressure as Capacity is Overwhelmed by Demand
Like all industries, the rail sector is struggling to get workers back on the job after the pandemic. The supply chain and warehousing sector has 1.8 million jobs open in the US, an all time high and carriers are still finding it difficult to hire qualified workers. With demand for rail service still remaining high, volumes are still overwhelming capacity.
The result is that many rail firms are being forced to continuously throttle back volumes from certain shippers in order to make available capacity “equitable for all”. The challenge is that this is also hitting some sectors that are critical in keeping national security interests intact (for instance: giving fertilizers priority at this time with food insecurity risks high and a short period of time to get crops fertilized for the growing season). But it would be difficult to decide who would be given priority, and the best administrative way to do it is to generally reduce all volumes for heavy shippers until congestion can be cleared.
Shippers will be looking for additional TL capacity to help fill immediate needs in the near term, which also tightens TL capacity.
US Ports Still Expect Record Imports
US ports and large organizations like the National Retail Federation (NRF) and others expect this year to set new records for US import volumes. Given some of the projected challenges at US ports, smaller port operators are also warning that they may experience some unusual bottlenecks and congestion – especially with inland distribution challenges that might result. The NRF and Hackett and Associates are still expecting an average of 2 million TEU’s to hit US docks this year. Other forecasts from West Coast Ports suggest that they could exceed their record 2021 year.
The uncertainty still hitting Chinese markets is a concern, and there could be some fallout from lost sales in the first half of the year while output is shut down. More than 50% of China’s GDP regions are undergoing various degrees of lockdowns to try and contain COVID outbreaks. Inland distribution challenges in the country are hampering some of the largest ports in the world and are grinding some supply chain activity to a halt. That will at least temporarily delay inbound freight headed to the US and could push heavy waves of freight (fulfilling and combining overdue order volumes from Q1 plus pre-peak and summer inventory building activity scheduled for the summer) and pushing those arrivals into some critical summer months. This is also the period in which port labor contract negotiations get underway on the West Coast in May (and likely extending into June and July).
