Market Updates

Canadian National Railway said it would take up to eight weeks to clear the cargo backlog from the 14 days of strike action at Western Canadian ports amid a weaker-than-expected peak season, while signaling some confidence that the longshore disruption is over as union members vote on the tentative deal reached last week.

“We are pleased to see an end to the work stoppage and we’re working hard to get those supply chains back in sync,” CN CEO Tracy Robinson said Tuesday during a second-quarter earnings call. “We expect to move most of the volumes that didn’t move during the first two weeks of July over the coming weeks.”

The result of the ratification vote by the rank and file of the International Longshore and Warehouse Union (ILWU) Canada isn’t expected to be released until Saturday at the earliest, according to two people close to negotiations. The last three weeks have been marked by the whiplash of a 13-day strike, a tentative deal rejected by a union caucus, a one-day wildcat strike, a federal labor board ruling the one-day strike illegal, the union issuing and then retracting a strike notice for last weekend, and finally union leadership accepting terms of the new contract.

Those terms have not been publicly disclosed.

Beyond the strike impact, Doug MacDonald, chief marketing officer at CN, said on the call the environment for intermodal volumes, both domestic and international, will stay challenging. Pricing for domestic rail through the shipment of 53-foot containers on short-haul lanes “will be under pressure” due to increased truck availability, he added.

MacDonald was the latest transportation executive in recent weeks to downplay the possibility of any meaningful peak season, saying the railroad downgraded its outlook for intermodal volume growth due to shippers saying they’re expecting a weaker-than-expected second half. CN shipments via international containers and 53-foot containers fell 11% year over year in the three months ended June 30, pulling down intermodal revenue 26% to C$983 million (US$743,600).

“We’re not really sure what’s going to happen in [the 2024 first quarter] and beyond,” MacDonald said, answering an investor question on whether there would be a volume rebound early next year. “But what we are doing is we’re kind of forecasting a normal year beyond that, and that’s as far as we’ve gone based on what the customers have told us.”

The timing and health of an intermodal volume rebound on CN’s network hinges on the North American consumer, Robinson said during the earnings call, during which the Class I railroad reported net income of C$1.17 billion for the second quarter, down 12% from the same period in 2022. While CN doesn’t expect a significant restocking of retail inventories ahead of the winter holidays, Robinson said “we are expecting to see some strength start to grow and return to more normalized level, say next year.”

Similar to CN, forwarder Kuehne + Nagel downplayed the chances of a traditional peak season for ocean markets, with CEO Stefan Paul telling investors Tuesday that at best “there will be a slight uptick in the fourth quarter.” Last week, Matson Navigation CEO Matt Cox said he sees a “muted peak season” for the trans-Pacific, according to the company’s preliminary earnings statement.

Source from JOC.com

US containerized imports are expected to build toward an August peak and in November will likely record the first year-over-year increase since June 2022, a major retail group said Friday. And while that is cause for optimism, the National Retail Federation (NRF) noted that labor strike at Western Canadian ports and involving UPS and the Teamsters could still snarl US supply chains this summer.

“We were relieved that labor and management at West Coast ports reached a tentative agreement last month but that doesn’t mean supply chain disruptions are over,” Jonathan Gold, NRF’s vice president for supply chain and customs policy, said in the group’s monthly Global Port Tracker (GPT), compiled with Hackett Associates.

Gold said the ongoing longshore strike at the ports of Vancouver and Prince Rupert should not have a “major impact” in the US but could still affect some retailers who move merchandise through Western Canada. And a possible strike by the Teamsters against UPS could crimp the ability to move goods from US ports to stores, he said.

“We urge all parties in both negotiations to get back to the table and continue efforts to reach a final deal without engaging in disruptive activity,” Gold said. “Seamless supply chains are critical for retailers as we head into the peak shipping season for the winter holidays.”

Diminished prospects for recession

According to the GPT, the prospects for a recession in the second half of the year are dimming and imports should increase as consumer demand ticks up and retailers reduce the inventory overhang that has kept warehouses full over the past year.

Consumer demand is stable, and consumers have continued to spend while retailers and wholesalers have reduced their inventories, Ben Hackett, founder of Hackett Associates, said in the GPT.

US imports grew at record or near-record monthly levels in 2021 through the summer of 2022 before growth stopped abruptly in the fall of 2022. GPT is forecasting that monthly year-on-year declines in imports will diminish over the coming months, with imports showing positive growth in November, which would be the first such reading in 18 months.

Retailers forecast that July imports will show a year-on-year decline of 11%, with August down 10.1%, September 3.4% and October 1.8%. Expected imports of 1.88 million TEUs in November would be up 5.9% from November 2022.

The GPT surveys imports at 12 major US ports on the West, East and Gulf coasts. It does not include imports through Vancouver and Prince Rupert, but NRF noted Friday the Western Canadian ports handled over 185,000 TEUs in May, approximately 9% of combined US-Canadian containerized imports at the ports covered by the GPT.

Source from JOC.com

The container shipping industry in Western Canada is bracing for the possibility of an extended strike at the ports of Prince Rupert and Vancouver after longshore workers went on strike Saturday morning as threatened over a contract dispute.

The ports are adjusting operations to mitigate cargo buildup as both sides remain far apart on how to best fill existing heavy-duty maintenance jobs and whether the union’s remit should expand to other types of maintenance jobs at facilities, according to two sources close to the matter.

The Canada affiliate of the International Longshore and Warehouse Union and waterfront employers also face a wide divide on what they’ll accept in salary increases, paralleling the major stumbling block US West Coast employers and longshore labor finally overcame in announcing a tentative deal on June 15 after more than a year of negotiations.

Canadian shippers moving cargo through the British Columbia ports have few options for diversions. The US West Coast longshore union on Thursday signaled its solidarity in a letter to its Canadian counterpart. The International Longshoremen’s Association, which handles cargo on the US and East Coasts, went a step farther, pledging Wednesday to not handle any diverted cargo from Vancouver and Prince Rupert. Through connecting rail networks, US importers and exporters also ship goods through the British Columbia ports and have more alternative routing options.

After ILWU Canada workers began a strike at 8 a.m. Pacific time on Saturday, the Vancouver Fraser Port Authority said to mitigate backlogs it was adjusting how it directs and manages anchorage. For example, vessel anchorages in the inner harbor, where DP Centerm and GCT Vanterm operate, are now limited to 48 hours. Average rail dwell times at Vancouver marine terminals were under five days, according to port authority metrics, reflecting generally fluid cargo flow before containers stopped moving Saturday morning.

Late night bargaining sessions on Thursday and through Friday night between the Canada ILWU and employers, with from the assistance Federal Mediation and Conciliation Service, failed to produce a contract agreement to replace the one that expired at the end of March. The ILWU filed a 72-hour strike notice with the federal government on Wednesday.

Canadian West Coast employers locked out the ILWU for less than 24 hours in May 2019 after an impasse in contract negotiations. Semi-automation, centered on the then new rail project at GCT Deltaport, frustrated negotiations, and now color current talks due to the prospect of some level of automation at a planned C$3 billion (US$ 2.2 billion) Vancouver terminal, Robert Bank Terminal 2.

Federal Labor Minister Seamus O’Regan on Saturday tweeted that mediators were still at the table, adding that the Trudeau government “cannot emphasize this enough — the best deals for both parties are reached at the table.”

All eyes on Ottawa 

The government took a similar approach in 2021 to Montreal port strikes, signaling support for both sides to work out their differences through negotiation and praising the merits of collective bargaining.  Parliament passed back-to-work legislation after four weeks of sporadic port disruption at Montreal, ending the strike and forcing an arbitrated contract.

With Parliament out of session and unable to potentially pass back-to-work legislation, the pressure is on the Trudeau government to use its political capital to force a deal between ILWU Canada and the British Columbia Maritime Employers Association. Prime Minister Justin Trudeau is generally viewed within the Canadian shipping industry as having acted too slowly — and weakly — when containerized supply chains were significantly disrupted over the last three years.

The stakes are high this time, given the size of Vancouver and Prince Rupert, the country’s largest and third-largest ports by volume, respectively. Vancouver and Prince Rupert handle more than C$800 million (US $604 million) in trade daily, equating to a quarter of all of Canada’s trade in goods, according to the BCMEA.

Canadian industry on Wednesday urged the government to act, though, it expressed its support for collective bargaining. Canada’s supply chains are already fragile and the strike will ripple through agriculture to manufacturing industries, while consumer and businesses grapple with inflation, wrote Robin Guy, vice-president and deputy leader of government relations at the Canadian Chamber of Commerce and David van Hemmen is vice-president at the Greater Vancouver Board of Trade.

“We are seeing signs that goods destined for Canada are already being routed to other ports, adding costs and increasing the environmental footprint of trade, all to Canadians’ detriment,” the duo wrote in the Globe and Mail.

Source from JOC.com