The Weekly Tender: Capacity crunch, FedEx’s bold move and reshoring revelations

Historical context and implications

This surge stands in stark contrast to the muted holiday seasons of the past two years. While a seasonal uptick is typically expected as we approach the Christmas holiday, this year’s surge is unprecedented in recent memory. The phenomenon is not isolated, with rejection rates climbing in major logistics hubs including Los Angeles, Dallas, Atlanta, Chicago and Harrisburg, Pennsylvania. This market-wide event suggests a fundamental shift in capacity dynamics rather than a localized anomaly.

For logistics professionals and supply chain managers, this trend signals a need to reassess strategies and prepare for a potentially tightening capacity market. The rapid push through the 7% mark and into the mid-8% range indicates that carriers now hold significant pricing power, at least in the short term. If this momentum continues into the first quarter, shippers who haven’t planned contingencies may face challenging times ahead.

FedEx spins off LTL business, marking end of conglomerate era

End of an era for FedEx

In a move that’s sending ripples through the logistics world, FedEx announced its decision to spin off its less-than-truckload (LTL) unit, FedEx Freight, into a separately traded public company. This strategic shift reflects a changing landscape in the logistics industry and a return to core competencies for FedEx after nearly 30 years of pursuing an integrated service model.

The new structure will see FedEx comprise its legacy air, ground, and parcel segments, which generated $78 billion in revenue in the recent fiscal year. Meanwhile, the soon-to-be-independent FedEx Freight, the largest LTL carrier in the U.S. with nearly $10 billion in annual revenue, will chart its own course in the LTL market.

Market reactions and future prospects

This move opens up new opportunities for investors seeking pure-play LTL exposure. The spin-off, expected to occur within the next 18 months, is poised to create incremental value for shareholders and provide enhanced operational focus at both businesses. For the broader industry, this signals a trend towards specialization over-diversification, with companies finding greater value in focusing on their core strengths.

The success of both FedEx and its LTL spin-off will depend on their ability to adapt to changing market conditions, invest in technology, and meet the ever-increasing demands of shippers in a digital age. As the dust settles, the industry will be watching closely to see how this restructuring impacts competitive dynamics and shapes the future of logistics services.

Intermodal market experiences ‘long peak’ despite challenges

Resilience and growth

The intermodal sector is demonstrating remarkable resilience, with volumes remaining robust even as we move past the typical peak season. Class I rail networks have largely maintained their efficiency despite the surge in volumes. Network velocity for most Class I railroads has declined only slightly year over year, with variations by carrier. This unusual trend may be attributed to shippers using rail as “warehouses on wheels” for goods not immediately needed, taking advantage of slower transit times and potential tax benefits.

Volume increases and future rate expectations

According to the Association of American Railroads (AAR), total intermodal traffic in North America saw a significant boost last month, increasing by 8% year to date through November 2024 compared to the same period in 2023. U.S. railroads played a major role in this upsurge, originating an average of 282,000 intermodal containers and trailers per week in November 2024, marking a 10.7% increase over November 2023 and representing the highest weekly average for any November since record-keeping began in 1989.

Looking ahead to 2025, the intermodal market is poised for continued growth, driven by strong consumer demand, strategic infrastructure investments, and shifting global trade patterns. While capacity constraints and service challenges persist, railroads are actively working to improve efficiency and expand their networks. Shippers should expect a dynamic pricing environment and should closely monitor service metrics, labor negotiations, and potential policy changes that could impact intermodal rail transportation in the coming year.

Reshoring gains momentum: Toymaker leads the charge

Industry shifts toward local production

This week, we released a new episode of Bring It Home, a video cast dedicated to American Reindustrialization.

Molson highlighted how his company, Viahart, a prominent toymaker, has announced plans to bring some of its manufacturing operations back to the United States. This strategy, aimed at reducing shipping costs and navigating potential tariffs, highlights the growing appeal of reshoring among American businesses.

Viahart President Molson Hart emphasized that reshoring will allow the company to save on shipping costs by importing stuffed animal skins rather than fully assembled products. This approach not only optimizes container space but also provides greater flexibility in production. Hart acknowledged the initial challenges, stating, “I’m expecting to lose money for a little while because of my over-optimism and because whenever you start something new — we’re effectively building a small factory — you tend to lose money at the beginning and then over time you figure things out.”

Broader economic implications

The move by Viahart is indicative of a larger trend across various industries. Reshoring manufacturing operations has gained traction due to several factors, including rising overseas labor costs, concerns over supply chain resilience, and the desire to reduce carbon footprints. This shift has significant implications for the logistics landscape, potentially altering traditional shipping routes and volumes.

Moreover, the trend towards local production is expected to impact employment dynamics in the U.S. manufacturing sector. While it may create new job opportunities, it also presents challenges in terms of workforce skills and automation integration. As more companies follow suit, the freight industry may need to adapt to changing patterns in domestic versus international shipping.

A Second Jones Act? SHIPS for America Act proposed

New bipartisan bill aims to boost U.S. maritime participation

In a move that could significantly impact the container shipping industry, a new bipartisan bill known as the Shipbuilding and Harbor Infrastructure for Prosperity and Security (SHIPS) for America Act has been introduced. The legislation would require that at least 10% of seagoing China imports move to the United States on ships built and registered in the U.S., and staffed by American crews, beginning in 2029.

Sponsored by Sen. Mark Kelly, D-Ariz., and co-sponsored by Republican Sen. Todd Young of Indiana and Reps. John Garamendi of California and Trent Kelly of Mississippi, the bill aims to revitalize the U.S. maritime shipping industry and reduce reliance on foreign vessels.

Anticipated industry changes and challenges

If passed, the SHIPS for America Act would have far-reaching implications for the shipping industry. It would require a significant expansion of the U.S.-flagged fleet, with the bill setting a target of establishing a national commercial fleet of 250 U.S.-flagged ships within a decade. Additionally, the legislation calls for all U.S. government cargo to move on U.S. vessels, up from the current requirement of 50%.

The proposed requirement that 10% of cargo imported from China be transported on U.S.-made and registered ships marks a pivotal initiative in the SHIPS for America Act. Scheduled to commence in 2029, this legislation seeks to bolster U.S. maritime capabilities and decrease dependency on foreign vessels amid China’s formidable dominance in global shipbuilding. Currently, over 70% of the world’s commercial ships, including the largest container vessels, are constructed by China, significantly overshadowing U.S. maritime manufacturing.

Co-sponsored by Senators Mark Kelly and Todd Young, alongside Representatives John Garamendi and Trent Kelly, the bill underscores a call to action for revitalizing the American shipbuilding industry. It aims not only to fortify national security but also to rejuvenate economic interests within the shipping sector by fostering growth in the U.S. fleet. This includes a significant expansion plan to build a national fleet of 250 U.S.-flagged ships over the next decade.

However, this legislation’s operational and logistical shifts are poised to present substantial challenges. For U.S. shippers and logistics providers, meeting the 10% threshold means recalibrating supply chains to accommodate American-built vessels, potentially leading to increased costs and adjustments in shipping alliances. The preference for U.S. ships at congested American ports, as advocated by the bill, could further disrupt existing port operations and dynamics.

While the SHIPS for America Act could foster domestic job creation and strengthen maritime infrastructure, it may also ignite contentious discussions within the shipping industry as stakeholders weigh the economic implications against national policy objectives.

The proposed changes will likely pose operational and cost challenges for Chinese container carriers in alliances and vessel-sharing agreements. Moreover, the bill would give preference for berthing to U.S. ships at crowded American ports, potentially altering current port dynamics.

Industry stakeholders are closely monitoring the progress of this legislation, as it could fundamentally reshape the competitive landscape of maritime shipping to and from the United States.

Potential port strike looms: Labor negotiations at critical juncture

Negotiation landscape at East Coast ports

The specter of a potential port strike is looming large over East and Gulf Coast container ports as contract negotiations between the International Longshoremen’s Association (ILA) and port employers represented by the United States Maritime Alliance (USMX) have reached a critical juncture. With the contract extension set to expire on January 15, 2025, tensions are mounting over key issues, particularly the introduction of automation technologies at ports.

The ILA, representing 45,000 dockworkers, has opposed semi-automated container cranes, arguing that these innovations threaten to eliminate union jobs. This stance has brought negotiations to a standstill, with the union breaking off talks over employers’ demands to include such technology in the new contract.

Historical context and future predictions

The current impasse is reminiscent of past labor disputes that have disrupted port operations and sent ripples through the entire supply chain. A three-day strike by the union in October 2023 brought container and roll-on/roll-off traffic to a halt, highlighting the potential impact of a prolonged work stoppage.

Adding a layer of complexity to the situation, President-elect Donald Trump has publicly backed the ILA in its resistance to automation. This endorsement could influence the dynamics of negotiations and potentially impact any federal intervention in the event of a strike.

As the deadline approaches, shippers are taking preemptive action, increasing imports to mitigate the risk of disruption. The outcome of these negotiations will have significant implications for port operations and the broader logistics and supply chain industry, potentially reshaping how goods move through U.S. ports in the coming years.

Key Takeaways: Navigating a shifting landscape

As we wrap up this week’s trends, it’s clear that the freight and logistics industry is at a pivotal juncture. The surge in tender rejection rates suggests a tightening capacity market, which could lead to higher rates and more challenging conditions for shippers in the near term. FedEx’s decision to spin off its LTL business underscores a broader trend towards specialization in the industry, potentially inspiring similar moves from other logistics conglomerates.

Despite typical seasonal patterns, the intermodal sector’s resilience indicates a shift in how shippers are utilizing rail services, possibly as a strategy to navigate uncertain market conditions. Meanwhile, the growing trend of reshoring, exemplified by Viahart’s move, signals a potential long-term shift in global supply chains that could have lasting impacts on shipping patterns and volumes.

On the regulatory front, the proposed SHIPS for America Act represents a significant potential shake-up in maritime shipping, which could dramatically alter the competitive landscape if enacted. Lastly, the ongoing labor negotiations at East and Gulf Coast ports serve as a reminder of the delicate balance between technological advancement and workforce concerns in the industry.

For industry professionals, staying informed and agile in response to these trends will be crucial. The coming months may require a reassessment of logistics strategies, contract negotiations, and risk management approaches to navigate this evolving landscape successfully.

To stay ahead of these trends and access in-depth analysis, subscribe to FreightWaves newsletters and explore our comprehensive market intelligence tools. Our team of experts continues to monitor these developments closely, providing timely insights to help you make informed decisions in this dynamic environment.

U.S. DOT creates freight car security rule targeting China

In a strategic move to bolster national security and safeguard the domestic supply chain, the U.S. Department of Transportation has imposed a groundbreaking security rule specifically targeting freight rail cars manufactured in China. This initiative, driven by rising concerns over potential espionage and cybersecurity vulnerabilities, mandates stringent assessment procedures for equipment sourced from Chinese companies.

The rule outlines specific criteria that must be met before Chinese-manufactured railcars can be utilized within the U.S., including rigorous inspections and enhanced scrutiny of onboard technology systems. This regulatory measure seeks to mitigate risks posed by foreign influence, ensuring that the infrastructure integral to the nation’s commerce is fortified against unauthorized data access and sabotage.

Industry experts anticipate that this directive will significantly impact procurement procedures and potentially disrupt existing supply agreements with Chinese entities. As the U.S. continues to navigate geopolitical tensions with China, the freight industry must adapt to these regulatory changes, underscoring the necessity for diversified sourcing strategies and strengthened cybersecurity protocols.

Think tank recommends user-funded ATC to enhance efficiency

The aviation sector could soon witness a transformative shift as DOGE proposes a user-funded model for Air Traffic Control (ATC) to the U.S. Department of Transportation. This recommendation comes as part of ongoing efforts to modernize America’s aviation infrastructure and address existing challenges in the current funding mechanisms.

Proposal details and potential benefits

The think tank’s analysis suggests that transitioning to a user-funded ATC system could lead to more efficient resource allocation and heightened accountability within air traffic management. By collecting fees directly from those benefitting from the ATC services, the plan aims to ensure that the financial burden aligns accurately with service usage. Proponents argue that this approach could incentivize improvements in service provision and reduce government expenditure, offering a market-driven solution to funding constraints.

Impact on industry stakeholders

Implementing a user-funded ATC system would have significant implications for various industry stakeholders including airlines, private jet operators, and general aviation participants. Airlines and operators might experience changes in operational costs, which could subsequently impact ticket prices, fuel charges, or other ancillary fees. Moreover, the transition would require a robust framework to establish equitable fee structures and mitigate potential disparities in charges for different aviation sectors.

Challenges and forward steps

Critics of the proposal highlight potential challenges, such as the complexity of transitioning to a new funding model and the risk of disproportionately impacting smaller players in the aviation market. To address these concerns, the think tank recommends phased implementation and continuous stakeholder engagement to navigate the transition effectively. As discussions advance, the aviation community will inevitably weigh the potential efficiencies against the operational challenges posed by such a significant policy change.