Freight railroad alert raised to ‘red’ as shippers fear more West Coast port tensions

in Port News09/06/2023

The slowdown in International Longshore and Warehouse Union work at West Coast ports has created a congestion contagion that is spreading to the freight railroads, with uncertain consequences for the supply chain.

ITS Logistics responded to the spotty rail service by raising the Pacific Ocean region of its U.S. Port/Rail Ramp Freight Index to "Red" as a result of the issues between the ILWU and ports management, which have been locked in a battle over a new port worker contract. The West Coast ports, including Los Angeles and Long Beach, had seen an uptick in recent activity as labor talks progressed, taking back some volume from East Coast ports which had gained amid the labor tensions over the past year. But ITS now sees that shift as giving labor more leverage.

"The last two months of increased volumes have provided the ILWU leverage to affect operations at the terminals to forward their demands in talks with the [Pacific Maritime Association]," said Paul Brashier, vice president of drayage and intermodal for ITS Logistics. The PMA represents the ports in the contract negotiations. "We have moved the Pacific Ocean region to severe from elevated due to the breakdown of those talks and the subsequent shutdowns at a myriad of terminals up and down the western seaboard," he said.

The Association of American Railroads released its latest U.S. rail traffic for the week ending last Saturday, June 3, as well as volumes for May 2023, which show normal freight patterns. The latest labor issues began last Friday at The Port of Oakland, which was entirely shut down. That port processes less railroad freight compared to the ports of Los Angeles and Long Beach, which have been open with only certain terminals targeted for shutdowns.

Brashier said there is concern that inland port intermodal (IPI) freight will be hit next.

"Without a concrete resolution in sight, a lack of reliable communication from either party and the ILWU actions, shippers should stay vigilant and close to the situation on the West Coast as the situation remains extremely fluid," he said.

Union Pacificannounced Tuesday afternoon it had temporarily paused all U.S. exports and empty containers to the ports of Los Angeles and Long Beach because of rail congestion. A Union Pacific spokesperson told CNBC that pause was lifted as of 10 a.m. CT Wednesday. "We continue to monitor the ports to ensure fluidity. We are presently not seeing an increase in interchanges from other roads (boxes coming into the U.S. from the East), we have not seen that happen yet."

The average number of trains across its 23-state network is around 600, but the spokesperson stressed, "This is a dynamic and fluid number based on customer needs."

Not all the rails took precautionary action. A spokesperson for BNSF, owned by Berkshire Hathaway, told CNBC it has not issued any embargo and "at this time plan to keep our gates open."

Roughly half of U.S. intermodal shipments are related to international trade, so the situation at ports is extremely important to railroads, according to a statement from AAR senior vice president John T. Gray.

Shippers can look to the north and move their rail freight to Canada using BNSF rail to the Port of Vancouver and Port of Rupert, according to ITS Logistics. But risks exist there as well, with the ILW Canada union voting Thursday and Friday on whether to start a 72-hour strike at those two ports.

Brashier said ITS clients also are reviewing their U.S. options. The Gulf Coast and East Ocean ports continue to run smoothly, he said, and are using this time to increase infrastructure enhancements that will aid their operations when increased volumes pivot back to their terminals. Both Houston and the Georgia Ports Authority have announced rail service and infrastructure enhancements that will push cargo out of the terminals further inland to lessen congestion.

Union Pacific started its Houston service on June 1. Other Gulf port options include New Orleans. East Coast options are Ports America Chesapeake, The Port of Virginia, and Port of New York, which are serviced by Norfolk Southern and CSXSource: CNBC