The following is an archived collection of our weekly insights throughout the month of August. Those who had signed up to our Interlog Insights newsletter received each week’s update to their inbox on the original release date. If you like what you see below, please feel free to sign up yourself to get these updates right as they come!
This month's insights
- Canada Railroad Dispute
- Container Volume Performance
- U.S. Longshore Negotiations
Week 3 - Originally released Aug. 23
Insight: Canada's Rail Shutdown - How It's Arrived at This Point
UPDATE since original release: Canada’s federal labor board has formally ordered the railroads to resume operations. The dispute between the railroads and unionized employees has since forcibly entered a binding arbitration, a legal process where both parties elect a mutually agreed upon and independent arbitrator to determine the terms of a settlement on collective bargaining agreements.
Neither the railroads or Teamsters rail union can engage in a labor action (lockout or strike) going forward. Throughout arbitration, Canada’s freight rail networks will remain open.
Shortly after the government order, Teamsters Canada Rail Conference announced its intentions to file a lawsuit against Canada’s decision to prohibit a freight rail shutdown. The details of such a challenge are not known yet.
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The following sections of this insight were published prior to the knowledge of the update above and before the rail shutdown was stopped.
After warning of a lockout over the weekend, Canada’s two Class I railroads, Canadian National and Canadian Pacific Kansas City, spared no more than a few seconds when they formally locked out unionized rail employees early Thursday morning. Yesterday, at 12:01 a.m. the labor action was official, effectively shutting down Canada’s largest rail networks and pressuring cargo flow at the country’s ports.
How did we get here?
At the crux of this major disruption is a major disagreement. For several months, CN and CPKC have participated in a negotiation period with unionized labor over new collective bargaining agreements which will cover a combined 9,300 union employees (conductors, engineers, dispatchers, etc.,) of the two railroads. On the other end of the bargaining table is Teamsters Canada Rail Conference (TCRC), the union representing employees.
According to the railroads, the lockouts came after TCRC did not respond to final proposals on collective bargaining agreements. However, despite these offers being called favorable by railroad representatives, the union believes they fail to address key concerns of their rank-and-file, including work-life balance, scheduling, and concessions.
That said, given their differences, a lockout, or a labor strike, has been on the horizon since the start of the summer as negotiations between railroads and unionized labor have stalled. In fact, if it wasn’t for a government tribunal investigating the dispute earlier this summer, a lockout or strike may have occurred in the previous month.
Regardless, the tribunal, headed by Canada’s federal labor board, ruled a strike and/or a lockout would not be of enough risk to the country’s “health and safety” to warrant these labor actions being barred. Both parties were now permitted to pursue disruptive tactics to force the other’s hand in the stalling negotiations.
It didn’t take long for TCRC to organize a strike vote among its rank-and-file members who passed the labor action with near unanimous approval. With a government mandated “cooling-off” period (neither side could carry-out a labor action) out of the way, the union notified the railroads on Sunday that it would strike Thursday, Aug. 22—satisfying another government mandate: supplying 72-hours’ notice prior to a labor action.
Meanwhile, the railroads were ahead of the curb. Anticipating that TCRC would strike, the railroads, earlier that weekend, before the union’s strike notice, announced that they would both lockout their employees early Thursday morning.
Whether one calls the indefinite rail shutdown a strike or a lockout is up to their interpretation, but either way the impacts on North American supply chains will be palpable if the labor disruption drags on.
What are consequences of Canada’s rail shutdown?
Many U.S. companies use Canadian ports for both import and export shipping. This business preference is best illustrated in the relationship American shippers have with Canada’s largest port, Vancouver. The port is lauded by users for fast ocean service to and from Asia.
However, the rail shutdown has the potential to be catastrophic for this cross-border pairing.
Canada’s inland transportation system, especially on the western side of the country, is challenged by great distances. This makes parts of it, notably Western Canada, heavily dependent on railroads. In fact, nearly half of the Port of Vancouver’s throughput is moved on rail. With that considered, a halted freight rail system will pressure cargo flow between the port’s facilities and inland hubs.
How long will the shutdown last?
Ultimately, the severity of the shutdown comes down to time. How long will the labor action last? When will the two sides come to an agreement?
Realistically speaking, resolve should come sooner than later. The shutdown is not sustainable. The railroads locking out employees and halting freight movement isn’t financially viable. And, in the case of unionized employees, they could choose to stay on strike, even if the lockouts are lifted, but such a decision could work against their leverage.
After all, if TCRC remains on strike, how long will it take for them to become the villains in the eyes of stakeholders?
Ironically, the union’s intended effect of a strike, emphasizing labor’s importance to freight transportation, may be undermined if the strike is prolonged, at their discretion, to such an extent to which they’re blamed for disrupting the very freight market they are important contributors to.
Lastly, the time of the year will put added pressure on both parties to forgo further holdouts. Late August is in the middle of North America’s peak import season and nearing the start of the continent’s peak season of agriculture exports.
Ocean carriers and terminal operators will no doubt be disgruntled when their lucrative imports are met with diminished rail service. While on the export side, larger farmers, with tremendous volumes of grain and potash, have direct service contracts with the railroads.
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Insight: Port of Hamburg First-Half Container Throughput
The port reported a modest decrease in container throughput for the first half of 2024, even with robust growth in U.S. trade, Hamburg was unable to compensate for the drop in volume from China, the port released in a press release.
The decline was also influenced by longer maritime routes around southern Africa to avoid the Red Sea, leading to fewer large container ships calling at Hamburg. Some services opted to drop off boxes earlier in their port rotations to accelerate turnaround time.
In total, Hamburg handled 3.8 million twenty-foot-equivalent units (TEUs) in the first six months, marking a 0.3 percent year-over-year decline. This decrease stands in contrast to the performance of larger European ports like Rotterdam and Antwerp.
Additionally, Hamburg experienced a 0.5 percent drop in transshipment volumes and a 0.2 percent decrease in intermodal transport volumes, the JOC reports. However, rail showed positive growth, increasing by 3.1 percent year-over-year to 1.3 million TEUs, even with challenges like German rail closures and projects.
Week 2 - Originally released Aug. 16
Insight: Ocean Carrier Executives Diverge on Dockworker Strike Possibility
Two ocean carrier executives, in direct line to the ongoing U.S. longshore negotiations, have formed opposing outlooks on the possibility of a dockworker strike later this fall, a difference in opinion only adding to the complexity of whether a deal can be squared away in time.
Maersk CEO Vincent Clerc said earlier this month that a dockworker strike along U.S. East and Gulf coasts ports is unlikely, but this week, Hapag-Lloyd CEO Rolf Habben Jansen asserts the risk of the labor-related action is heightened.
“I look at the likelihood of having strong industrial action as in a strike as being highly unlikely,” Maersk’s Clerc said on an earnings call, transcribed by the Journal of Commerce. “It is our expectation that when the contract expires in September there may be some extension of the contract as there is a lot that still needs to be negotiated, but I hope we can get to be seeing eye-to-eye with the ILA before we [see a strike],” he added.
Clerc’s suggestion that the current labor contract, covering 45,000 dockworkers at East and Gulf coasts ports, could be extended is flowery when considering the utter lack of rapport between the two sides. It’s possible Clerc sees the strike threat as only rhetorical smoke, a bluff by union leaders to impose their demands, however the International Longshoremen’s Association (ILA), the union representing the dockworkers, has said repeatedly that it’ll not accept an extension of the existing contract which expires Sep. 30.
Meanwhile, Hapag-Lloyd’s Habben Jansen has grown uneasy over the potential of a coastwide strike: “Right now, when you look at the rhetoric that’s out there, I think that the chance that there will be some disruption has definitely gone up. If customers start worrying [about disruption to shipments] today, then they are too late; there’s nothing they can do anymore.” The statement is courtesy of reporting from the Journal of Commerce.
The uncertainty of this contract cycle can best be demonstrated in the disparate outlooks of these two executives, involved parties to these stalling negotiations. On one hand, Maersk’s Clerc is optimistic, maybe a touch quixotic, while Hapag-Lloyd’s Jansen is foreboding, maybe a touch apocalyptic. Whether other stakeholders align with the former or latter, or if they nest somewhere in between, below are the latest developments for them to consider when refining their own outlook:
• ILA is reportedly seeking wage increases and benefits that far exceed the precedent achieved by its unaffiliated union-peer ILWU during last summer’s West Coast longshore contract.
• ILA has asserted that it will not walk away from its demands. The union announced in early August that it will hold meetings in September to discuss strike strategies should an agreement not be met by then. ILA has reiterated several times that it will order its rank-and-file dockworkers to strike as early as Oct. 1, a day after the existing contract expires.
• The United States Maritime Alliance (USMX, representing ocean carriers and terminal operators) has seldom, publicly responded to ILA’s demonstrative approach. Despite occasional murmurs of maritime executives or other stakeholders, USMX, the formal representation of employer-parties, has only issued three updates of the contract talks during the summer. The messaging of these updates was as expected—limited in information and suspiciously optimistic.
In fact, in its latest update, released Aug. 9, USMX wrote: “We are proud of our record of nearly half a century of successfully negotiating new Master Contracts with the ILA without a strike.” Whether it’s an attempt to reassure faith in an agreement or a sentimental callback to simpler times, the group followed the statement with a retelling of its several labor proposals to ILA over the past two years, all of which the union rebuffed. In a way, USMX could be planting a subliminal idea to anxious stakeholders: “don’t blame us, blame them.”
Insight: Volume at the Port of Los Angeles Sees Record Highs
The Port of Los Angeles continues to see strong momentum with volumes handled in the month of July. In fact, the port said in a press release that the first seven months of this year is ahead of schedule, compared to the first seven months of last year; 18 percent to be exact.
Data from the port shows loaded imports in July this year totaled 501,281 TEUs – an increase of almost 40 percent from July 2023. Loaded exports totaled 114,889 TEUS – a slight 4% increase compared to July 2023.
The port credits an ‘early peak season’ – thanks to back to school items, fall clothing, and Halloween materials – for this volume boost at the port. Gene Seroka, Executive Director at the Port of LA, thanked various industry entities (terminal operators, dockworkers, truckers, etc.) for their work ethic every day in moving this cargo.
As we’ve discussed in our weekly Insights, labor negotiations on the East/Gulf Coasts have led some shippers to move some of their discretionary cargo to the West Coast to avoid any impacts from any fallout or potential strike/work disruption.
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Week 1 - Originally released Aug. 9
Insight: Progress Report on East, Gulf Coast Labor Talks
An agreement over a coastwide dockworker contract has yet to be forged. In less than two months, the existing contract will expire and, if the warnings from union leaders manifest, some 45,000 dockworkers across U.S. East and Gulf coast ports will strike, effectively halting the movement of freight across these trade hubs.
Since June, the following is a report of the progress made between the two negotiating parties: the International Longshoremen’s Association (ILA), representing unionized dockworkers; and the United States Maritime Alliance (USMX), representing ocean carriers and terminal operators.
Are you ready for the progress report?
No progress has been made since the start of the summer.
Phew. That was quite an exhaustive list of progress to report on.
For the last two months, ILA and USMX have not met at the bargaining table to discuss a deal. On June 10, ILA announced its decision to indefinitely withdraw from negotiations following a grievance with an employer’s use of automation, a hot-button issue headlining the list of priorities union leaders have listed in this contract cycle. This action of ILA backs its aggressive rhetoric, which began to heat up last November when the union first vowed of its intent to strike after the current one expires on Sep. 30, 2024.
In July, ILA President Harold Daggett reiterated to stakeholders that a chance of a coastwide strike is growing more likely, while later in August, he announced that union leaders will discuss strike strategies in early September if their demands are not met by then. In other words, ILA’s rank-and-file dockworkers are prepared to strike promptly after their current contract expires. The labor action could occur as early as Oct. 1.
The details of ILA’s demands are unknown to the public at this time, however sources close to the talks told the Journal of Commerce that the union is seeking a near 80 percent wage increase over the six-year life of the new contract. For comparison, the wage increase secured in last summer’s longshore contract with West Coast dockworkers was 32 percent.
West Coast dockworkers are represented by a different union, unaffiliated with ILA, and are covered by a separate contract negotiated in six-year cycles.
ILA justifies its accelerated wage proposal as a match to the exuberant profits reaped by their maritime employers, particularly during the pandemic-era shipping boom. ILA’s Daggett stated the union’s 45,000 members “ready to hit the streets if our demands are not met.”
West Coast sees a boost in volumes, market share
Whether such demands are intended to be met or not, there is a palpable rift between unionized labor and maritime employers. After all, the two sides reportedly have not met since June. As onlookers to this glaring impasse, shippers have exuded anxiety, perhaps best exercised through routing diversions away from East and Gulf coast ports.
According to Descartes, West Coast ports captured an increase in container imports at the expense of the other two coasts. In other words, the West Coast has absorbed discretionary freight volumes, or market share, from the East and Gulf coast.
Such a trend illustrates that a fair number of importers are adopting contingencies ahead of looming labor disruptions. Last year, the same phenomenon occurred, but it was the reverse. Shippers avoided the West Coast as prolonged negotiations for a longshore contract stalled. Ironically, during that time, they routed freight to East and Gulf ports instead.
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Insight: North American Intermodal Dynamics, Southern California Volume Sees Boosts
The North American intermodal landscape is currently experiencing some shifting dynamics, with Southern California emerging as a focal point where many of these trends converge.
First, let’s take a look at the activity levels in this region: import containers (measured in TEUs) arriving in California saw a 7.4 percent boost from Q1 to Q2, and were 11.3 percent higher compared to Q2 in 2023, per JOC data. Part of this boost is due to East to West Coast diversification. Furthermore, in June, Los Angeles/Long Beach ports accounted for 33.9 percent of inbound North American TEUS, marking a 2.5 percent increase from the previous year, JOC reports.
Now, once this cargo reaches its arrival in California, what’s next?
In Q2, 66.7 percent of import TEUs arriving in California were transported inland by rail, a decrease from 68.1 percent in Q1, the JOC reports. This doesn’t necessarily indicate a drop in intermodal volumes overall – intermodal numbers remained strong – but rather that their growth rate lagged slightly behind the increase in import TEUs.
Overall intermodal traffic from the Southwest grew by 13.6 percent year-over-year, with a significant boost from IPI traffic. ISO container moves surged by 27.6 percent, while domestic equipment moves saw a more modest increase of 3.8 percent, according to the JOC.