Commotion by the Ocean

Railroad Weekly September 30, 2024

courtesy: South Carolina Ports

Inside This Issue

·   Commotion by the Ocean: Port Strike Could Start this Week

·   Blessed in the West: Pacific Ports Booming for Multiple Reasons

·   Train Pain from Hurricane: Big Storm Hits Southeastern Ops

·   Ascent of the Jasons: NS Announces New Exec Promotions

·   Mexico Shitty: Congestion Snarls Service South of the Border

·   Unifor War? CN Might Be Facing More Labor Trouble

·   Healthy and Wealthy: U.S. Economy in a Good Place Overall

·   New NEARS Resolution: RRs Pitch their Growth Plans to NE Shippers

Track Talk

“The stalemate remains in Master Contract negotiations because USMX [United States Maritime Alliance] continues to offer ILA longshore workers an unacceptable wage increase package.”

      - Harold J. Daggett, International President and Chief Negotiator for the International Longshoreman’s Association (ILA)

The Latest: Peril at the Ports

·   A major U.S. port strike looks increasingly likely, threatening yet another major supply chain disruption. The ILA union representing workers at ports from Maine to Texas wants sharply higher wages and protections against job losses from automation. Their employers (ocean liners, terminal operators, and port authorities) accuse the union of refusing to even negotiate. At a rail shipper conference in Pittsburgh last week (see below), the general sentiment was that a strike is indeed likely this week (as soon as Tuesday) and will perhaps last a week or so. Railroads appear relatively relaxed, however, with west coast ports led by Los Angeles and Long Beach reasonably well positioned to handle much of the demand. Indeed, shippers have already been rerouting freight to the west coast in anticipation of a possible strike. In some ways, a short eastern strike would even be a blessing for railroads, because eastbound shipments that reroute to the west are more likely to be railed to their final destination—trucks are less competitive over such long distances. Of course, nobody wants to see a long strike, which could badly hurt the economy. “For every day of a strike,” said IANA chief Joni Casey earlier this month, “it takes three or four workdays to work off the backlogs.” If he chooses, President Biden could invoke the Taft-Hartely Act, which would invoke a 90-day cooling off period.

·   Western ports have been busy, to be sure. They’ve been handling freight diverted by the Canadian rail worker unrest last month. They’ve been handling freight pulled forward in advance of tariffs. They’ve been handling freight that’s growing in response to still-solid consumer spending. And now, they’re handling freight that might have otherwise gone to the east. That’s been a good thing for U.S. intermodal freight, with railroads (according to AAR) reporting a 12% y/y increase in container movements last week. Movements are up 10% year-to-date. And remember, this includes domestic intermodal shipments, which have been growing more slowly amid tough price competition with trucks. IANA’s Casey thinks international intermodal shipments alone could grow by about 14% this year. That’s not the rail sector’s favorite type of business—moving international containers is their lowest-margin business. But it’s driving volume growth, at a time when railroads are under heightened pressure to do exactly that: grow volumes. 

·   This week, a potential labor strike. Last week, a hurricane. Several southeastern ports were impacted by Hurricane Helene, which made landfall on the eastern part of Florida’s panhandle, subsequently moving up through the southeastern U.S. The busy ports of Charleston and Savannah were among those impacted. Among Class I railroads, CSX and Norfolk Southern reported some train delays and cancellations.   

·   There was also, incidentally, a strike last week by workers employed at Canadian grain terminals. It lasted four days before the parties involved reached a tentative contract agreement. “The work stoppage,” wrote the Wall Street Journal, “affected six terminals at Port of Vancouver that are critical for exports of canola, wheat, barley, and other grains from Canada’s prairies.”

Other Developments

·   Yes, intermodal traffic is up significantly this year, albeit from very depressed levels last year. Still, it’s progress. However, as the latest AAR traffic figures show, carload traffic (all traffic except intermodal) is still down in the U.S. this year (by 3% year-to-date thru Sept. 21^st). For that matter, it’s down in Canada and Mexico too (by 1% and 8%, respectively). By now you know the story about coal, which is largely responsible. But across North America, metals, minerals, forest products, and autos are also down this year. Two specific areas of non-coal weakness right now are 1) A weakening steel market and 2) a weaker than expected market for construction materials, in part due to weather factors. The broader backdrop is a North American manufacturing and industrial sector that’s still barely growing. Even back on the intermodal side, volumes are way up but pricing is most definitely not.

·   The final quarter of the year begins this week. And that means railroad financial