Intermodal and freight transportation expert Larry Gross discusses key industry issues

Logistics Management (LM): How do you view the prospects for the 2022 Peak Season? Will it resemble something more traditional or has Covid changed things for good?

Larry Gross: I believe what we are seeing is a pull-forward of Peak Season, which, if you think about it, makes complete sense from an individual shipper standpoint. The reason for that is everybody got kind of skunked last year, with goods not making it in on time and are making sure this year goods are going to get here on time. The problem is there is nowhere to place to put it [freight] when it arrives. You saw some of that with Target’s recent announcement. I think it is sort of symptomatic. Target said “we have too much inventory, and it is the wrong kind of inventory…we are cancelling orders and are going to take penalties for doing that or we are going to discount stuff to move it out.” I suspect that is symptomatic of a broader issue that these retailers are going to have to deal with, because they have been trying to work with much longer than normal lead times, and now things are kind of clogging up. Where that takes me with regard to Peak Season is that I think it is going to be quite a muted Peak Season this year, because we are in the midst of the early stages of it even as we speak.

Is this a permanent change? I absolutely don’t think so. I think we going to go back to normal finally, but it is going to take until 2023 once the system gets some breathing room. I think we are in the last stages of this surge. Once it gets some breathing room, a lot of the difficulties we are currently seeing are going to smooth out. In fact, I think it is highly likely by the time we get to next year at this time we will be in an overcapacity situation in many parts of logistics and the supply chain, because velocity is going to really increase and all of these assets are going to start turning faster. When that happens, the gravy train will be over for the carriers. From a shipper perspective, it is going to feel a lot different.

I think it is already starting to feel different on the domestic side and the truckload side. It seems like the domestic market is easing up a lot faster than the international containerized market is. My contention is that this divergence cannot endure. Either the domestic market comes up or the containerized market goes down, and my money is on the latter.

LM: What do you thinhj about China's reopening, in terms of what it may mean for U.S.-bound imports?

Gross: The China thing has been a bit overhyped, because what it has done is allow the ship queues, to the extent that volume has actually been delayed, to be worked down a little bit, and it is not at all clear to me how much volume has actually been delayed, as opposed to just diverted to other ports in China.

Volumes out of Shanghai are down, but volumes out of other places are up so maybe the supply chain there is a little more agile than we are assuming. But even if that is not the case, then all that has happened is that the ship queues have come down a little bit and when this alleged tidal wave of volume comes back, well, the ship queues are going to grow a little bit more. But it has no impact on the inland, because that is strictly a function of how much is coming through the ports, which is relatively constant. The ports are astute enough that this time they are not going to let the tidal wave overwhelm them. They are going to say ‘OK, here is where you park.” From my standpoint, the only effect, I am expecting to see, if this happens, is a change in the number of the ships queuing. I doubt the number of ships queuing [in U.S. West Coast ports] will approach 100 or so like before, because part of the reason it got so bad is that the ports allowed themselves to get clogged up and they are not going to do that this time and throughput is going to be much better.”

I do think what we are seeing—and this is related to the port labor talks—is a West to East migration of volume. That has been underway for a long time. It kind of got waylaid by the pandemic and the surge but now we are back into it, and the uncertainty with the port labor talks is going to accelerate that. And, if you look at the port numbers [based on PIERS data and port reports], on a year-to-date basis [April], TEU arriving on the West Coast are up 2.6%. That is everything from Seattle to San Diego. On the East Coast, from Boston down and around the Gulf Coast and all the way to Texas, that is up 9.2%. That is a big spread, and it shows that all of the improvement is being generated by higher throughput on the East and Gulf coasts. If you look at it from a share perspective, over the last 12 months, West Coast U.S. share has averaged 41% of inbound TEU coming into the U.S. and Western Canada. It was 39% in April and 42.5% a year ago in April. The general trend is downwards, in terms of U.S. West coast share. If people are worried about—and they should be—potential disruption from the labor contract in the second half of the year, they need to be making that decision now. If they wait for it to happen, it is too late, because the ships will already be on route.

LM: Do you think a freight recession is looming, given some of the negative economic reports and indicators out there?

Gross: I do think the economy is going to go through a rough patch, which is going to feel bad, because things have been so flamingly hot. To me, this kind of becomes an academic discussion, in terms of it will be a recession or a slowdown or soft landing or hard landing. I will say that any slowdown in the economy, from the perspective of the freight world, is going to feel a lot worse than it might otherwise for two reasons. One is we are in the process of resolving a lot of these bottlenecks, so a lot of capacity is going to be released at a time when demand is going to wane. The second thing is that within this GDP number there is definitely going to be a swap going on between service growth and goods growth. People are all wanting to go on vacation, and nobody is buying another washing machine. From a freight perspective, it is going to feel worse. Never mind that consumers’ disposable income is getting chewed up by higher interest rates and gas prices. But the disposable income they do have is being rerouted to things that don’t generate freight.

When the situation resolves, it will resolve more quickly than most expect. Once the bottleneck gets released and stuff starts flowing through, it is going to really turn in a hurry. It is like the ELD crisis, when everybody thought it was going to go on for a long time, and what do you know, in 2019 it was completely different. The speed of that flip really surprised people, and in this go around it is really hard to predict exactly when the flip will happen but when it happens I think it will happen quite rapidly.