A quiet first-half at U.S. ports underscores the overall slowdown in the freight market. In the first six months of 2019, the four largest container ports on the West Coast saw overall import volumes drop 5 percent from year-ago levels. East and Gulf Coast ports saw a flat first half for inbound container volumes overall.
The early read on the third quarter is more of the same as Southern California inbound volumes remain flat, and Savannah still reports volume growth. RoadOne Chief Executive Officer Ken Kellaway said the Southeast ports are benefitting from the shift away from China to other Asian sources, as well as their competitive transportation costs and the growth in their local markets. Overall, U.S. ports are unlikely to see the overwhelming demand seen last year. But Kellaway says RoadOne, one of the top 10 drayage and intermodal carriers in the U.S., is at least seeing an uptick in activity in ocean containers. Below is an excerpted interview with FreightWaves on the drayage market.
What is demand looking like?
We are starting to see some pick up in volume, but it’s not going to be an extreme peak or big jump. Everything got slower after the first quarter, not catastrophic, but we are starting to see an uptick, which is nice. The uptick is more on the international side. We are not not seeing an uptick on the domestic intermodal side. There’s been a pretty significant downward trend in domestic intermodal during the second quarter.
Part of the trend is due to implementation of precision scheduled railroading and the reduction in lanes. There’s also more truck capacity in the market and fuel prices have remained relatively stable. So the delta between intermodal and truck pricing has closed. Shippers are deciding to move to over-the-road trucking versus intermodal.
What is the regional outlook?
Los Angeles-Long Beach is up slightly. Savannah is strong, but so is the whole southeast. One reason for that are the changes in sourcing from Asia due to the tariffs. We are seeing a realignment of service strings from China to other exporters like Vietnam, Indonesia and Cambodia. Some of the inbound containers are shifting a little because the ports might not have the right string to service those new sources. For a steamship line, you have options on these Southeast Asia ports through the Panama or Suez Canal, and the East Coast ports are more reachable through the Suez Canal. The impact is the need to realign drivers and have the capacity when steamship services realign.
We are seeing more growth in the Southeast ports than in the West Coast. It’s not necessarily because the West Coast ports are doing anything wrong, but part of it is the cost of doing business in the Southeast is lower from a shipper’s perspective. California trucking costs are very high, partially because of the clean truck requirements, which are not necessarily a bad thing. But also, the employee classification issue makes it very difficult to use an independent contractor. Independent contractors make up a big portion of intermodal, but there is a challenge in using them on the West Coast.
There’s of course the population migration to lower cost states, and the Amazon effect. More distribution centers are being built near population centers, so there is going to be more demand in these regions. The Southeast ports have also done an amazing job in adding inland rail capacity and have great turn times. Southeast ports have 30 to 40 minute turn times so it keeps drayage costs lower. We will continue to see growth in the Southeast.
What’s your approach to these markets?
Our goal is to be a single-source provider in intermodal trucking. We want to be in a position where we’re able to compete in all lanes for a shipper’s RFP and we can do so through a three-pronged approach. We have a company store model with RoadOne’s own 1,200 trucks and 40 service locations.
We also have agents operating under IntermodaLogistics: First Coast Logistics, Mile High Logistics, US IntermodaLogistics and American IntermodaLogistics. There, we have 30 agent offices with capacity of 600 trucks. The agents are like franchises. Some of their business is from our customers, but they have their own customers as well.
Then there’s the new third prong where we don’t have a store or capacity, and that’s through our RoadOne LogisticSolutions (ROLS) brokerage. There we can align with small- and mid-size carriers in drayage and intermodal. We brought in guys from Coyote and other intermodal trucking brokerages. It allows us to focus on a smaller tier of customer than we would focus on at RoadOne, or they can handle the overflow from our customers. They (ROLS) are a brokerage under their own operating authority.
What is the trucking market like now?
The market is looser and there is more capacity. That said, getting qualified drivers is still a challenge. We have a high threshold for drivers and are stringent on hiring standards. Drug testing is a significant issue and we make sure that drivers have no FMCSA violations. So the number of applicants has gone up, but the quality of those applicants has declined. Our acceptance ratio is below 20 percent. But we want drivers with a clean background. The reward is a fantastic benefits program from fuel purchasing to insurance. We have a great RoadPerks benefit program. The key is giving them consistent freight and work.
How is freight-tech impacting RoadOne?
All of our trucks have in-cab technology that can give automatic status updates to customers. Our TrueVision transport management system is one of the top intermodal TMS available. We can geofence locations, provide customers with live status updates, and track where every driver is.
Regarding some of the new apps for intermodal and drayage trucking, we certainly don’t think they will all survive. It’s a bit reminiscent of the dot-com boom. We are more of an old-school transportation company in that we try to make money with every load. A lot of digital brokerages are burning up a tremendous amount of capital, but not getting a lot of traction.
There’s going to be some disintermediation in certain sectors, but we don’t see it being overly successful in drayage and intermodal, which is more complicated than in other sectors of trucking. There’s issues around customs clearance, chassis availability, free time at a marine terminal. There’s just more complexity in drayage. There is some technology that can help. For example, E*Dray (a technology partner of RoadOne) develops way to stack peel-off piles to improve drayage fluidity. There is a tremendous amount we can do in matchbacks for loaded and empty containers. We don’t do a good job in matching inbound and outbound loads for truckers. So there are some things we can do to improve fluidity and driver efficiency.
Drayage is going to be a challenge to automate. There are a lot of driver qualification issues around safety and insurance, port truck registration, and even getting a TWIC (transportation worker identification credential) card. There are a whole host of regulatory issues in drayage. Apps can help, but they are not going to eliminate certain layers in intermodal.
Is RoadOne still looking to acquire capacity?
We are still seeing drayage and intermodal as a very active area for mergers and acquisitions. You have an aging ownership for many carriers, so that’s one thing. And the smaller guys are finding it more difficult to operate because of the insurance costs. The customers want to use bigger providers that have more service offerings. We always make sure we can provide those services. More companies are looking to sell, and we can give the smaller guys a home, either folded directly into RoadOne or by becoming an agent.