A trucking and rail strategy that boomed during pandemic shocks is heating up again

  • A push of freight cargo back to the West Coast ports has increased the use of “transloading,” a truck-to-rail or rail-to-truck strategy that was popular during the Covid supply chain shocks and some supply chain experts say is here to stay.
  • Seeing an uptick in transloading requests from shipping clients.
  • Wall Street analysts say transport stocks will be beneficiaries of this logistics model, but their business models are still feeling the stress of the recent freight recession.

A logistics strategy called transloading, used by trucking companies during the pandemic to ease the container backlog, is increasing in popularity again after U.S. West Coast ports have started receiving higher volumes of containers that are being diverted away from the East Coast.

Transloading is the process of moving freight from truck to rail or rail to truck. U.S. importers are requesting this type of service more frequently as they move more freight on new routes as a result of the Red Sea diversions and the Panama Canal drought restrictions.

There is a double-digit shift from cargo moving away from the East Coast and to the West Coast, citing the issues seen in the Panama Canal and the Red Sea as well as the threat of a potential labor strike at the East Coast and Gulf ports.

The February Transportation Intelligence report from economic forecasting firm FR showed that U.S. imports moved inland via transload in 2023 were between 65-70% percent, compared to 2021 when it was less than 60%.

There is an increase in transloading staging at the ports around the country as retailers and suppliers are favoring the smaller loads of moving products.

The liability of not enough space or too much space has created this.

Retailers can save $500-$1,000 in transportation and soft labor costs related to imports through transloading and the acceleration of e-commerce and smaller business customers importing the range of 3,000 containers annually look to solutions like transloading.

The increased use of transloading comes as U.S. importers are dispersing their freight to international multiple ports to be nimble. Instead of sending containers to one port where the contents are then divided and dispersed, the freight is divided overseas and placed in multiple containers sailing to different ports, closer to respective distribution centers. The smaller freight loads save importers both time and money.

The current global supply chain issues should fuel more transloading growth.

Take the opportunity while there’s no congestion to move some of your cargo so you establish a transload supply chain via the West Coast, that way you’re not trying to set it up in the middle of a crisis.

The transloading has become a viable offering to build flexibility into the supply chain. The company now has multiple transloading operations on both coasts.

The shift in the volume of freight being moved from the East Coast to the West Coast was first highlighted in February in the ITS Port Rail Ramp Freight Index.

It has seen a significant increase in demand, and the company is bringing on capacity that was mothballed post-Covid to service it.

There are more onboard of that capacity to service the clients for the third and fourth quarter surge when it does come, about a 75-80% increase in transloading demand.

The concept of shippers bringing containers into multiple ports closer to their end customers and transloading can be seen in the Department of Transportation’s Import data.

It takes a third less time, less transportation moves, and offers clients the ability to be nimble. Shipper demand has jumped noticeably with their use of various distribution centers.”

The rash of global supply chain issues is adding to calls for an early peak shipping season push by importers and increased use of transloading.

It usually has an 18-day lead time to monitor for supply chain slowdowns and disruptions and give customers advanced notice to make decisions on containers needing to be diverted to another port, or freight transloaded.

The disruptions from the Suez Canal and Panama Canal have contributed to an almost 20% increase into the West Coast ports. If a 30-day transit time is used and now it’s a 60-day transit time, peak season could conceivably move up a month to June, just because of the disruptions in the marketplace. This will also influence transloading decisions.

It is typically 30% of the containers coming in are bound for the railroad and 70% are moved by truck.

Almost half of that is going to be translated. For ports, transloading containers is always going to happen and we can do more.

Transloading can increase the profits of trucking companies who offer the service because it reduces costs associated with container usage and fuel, as well as increases the efficiency of resources.

The logistics industry is at a major crossroads because of the structural shift in how retailers and importers are thinking about their supply chains.

From a supply chain standpoint, efficiency standpoint, and ESG standpoint, West Coast transit makes sense. It needs to be nimbled in managing the complexity of the changing supply chain so they can be stickier with the big shippers with various offerings and investments.

Given the increase in the number of transportation nodes in the logistics system, bringing freight into as many as five different ports should be a positive for many companies.

“This is an opportunity to deliver and grow market share based on delivering a product that is reliable, easy to use, and most of all consistent in transport. The biggest hurdle for intermodal is improving the consistency of business. Truckload rates are still in the doldrums so service is key.

Intermodal investments can be more attractive for long-term investors as compared to the more cyclical over-the-road truckload space, which disproportionately attracts hedge funds looking for short-term trading opportunities.

On the intermodal shift, there is a pretty sizeable West Coast drayage presence and can benefit from positive tailwinds. And for trucking overall recovery in cross-country moves because they necessarily cost more.

The West Coast container volume rebound will also have a ceiling. It probably doesn’t get to the historical 10-year levels of West Coast market share versus East Coast share normalize closer to a 50/50. Over the short term, there is a lot of diversion over to the West Coast as a result of the International Longshoremen’s Association strike threat, and the Red Sea and Panama Canal diversions.

Mexico’s growing cross-border trade profile
The transloading opportunity is also increasing in Mexico.

There are seeing more and more interest in cross border. A decision by the Surface Transportation Board to approve the Canadian Pacific
-Kansas City Southern merger last year, which has created more and better options for shippers. Genesee & Wyoming’s rail-ferry service going strong between the ports of Mobile, Alabama, and Coatzacoalcos, Veracruz, across the Gulf of Mexico.

Customers are asking about the growing market of cross-border traffic.

There is a large, thriving cross-border Mexico business unit that does a lot of traffic into and out of Mexico. Transloading at the border,  intermodal out of Mexico and truck out of Mexico. Customers look to intermodal for ways to capture both the dollar and carbon savings.

Source: CNBC

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