November 2022: Supply Chain Digest
- The International Brotherhood of Boilermakers became the third union to turn down a tentative agreement that was negotiated in mid-September by the railroads and the Biden administration. Today, seven unions have approved contracts, two unions are scheduled to vote on November 21 and three have rejected their agreements. Strike three on agreements begins to increase the possibility of a nationwide railroad strike. If any union strikes, all 115,000 would most likely honor any picket lines and remain at home.
- Groundbreaking was held for a second international railway bridge in Laredo, TX. The $100 million dollar project is solely funded by Kansas City Southern. The current volume is at 24 trains per day, and the new bridge will bring available capacity up to 45 trains per day.
- Some positive news amidst the doom and gloom on the economy: wholesale trade is showing solid growth as we head into 2023. The result? Industrial freight markets are showing resiliency in keeping carriers hauling loads. With no turndown in manufacturing, the industrial sector is showing strong demand for a wide range of products.
- In a twist of supply chain fate, The Port of Los Angeles experienced its slowest October in 13 years. The October volume was down 22 percent over the five-year October average. The Maritime Executive is reporting LAX Port executives to state the reason for the drop in volume is primarily due to a shift in routings to East Coast ports as shippers mitigate risk due to the unsettled labor negotiations with the ILWU. Secondly, the seasonal surge came early in June and July, versus September and October, as shippers attempted to avoid empty shelves due to the ongoing port.
Federal Motor Carrier Administration (FMCSA) Issues Interim Guidance on the Interpretation of “Broker” and
“Bona Fide Agents”
The arrangement of transportation, defined as an intermediary between Shipper and Carrier, has long been the standard bearer by which to define “broker.” In recent years, the terms bona fide agent and dispatch services have been used to define those individuals acting in some capacities as a broker with no legal authority to operate as a broker. The FMCSA has recently issued guidance surrounding both bona fide agents and dispatch services in an attempt to begin to craft requirements, both legal and financial, that can be utilized by parties engaged in freight movements. The reason for the FMCSA issuing guidance is due to the mandate in the Infrastructure Investment and Jobs Act (IIJA) requiring the FMCSA to issue guidance on the definition of broker and bona fide agents.
FMCSA received feedback from various industry entities in an attempt to add clarity to the definition of a bona fide agent. The most common definition was that the bona fide agent focused their services on one carrier. However, after full consideration, the FMCSA’s guidance is that a bona fide agent representing more than one carrier is not necessarily a broker requiring broker authority from the DOT.
In recent years, small carriers have begun using the services of a dispatcher. The dispatcher identifies and assigns shipments to one or more carriers within their pool of carriers. The dispatcher is compensated by the carriers and is typically paid as an independent contractor by the carrier. The dispatcher does not have authority issued by the DOT and has a contractual relationship with each carrier it provides services for. Many dispatch services may provide back office services to the carrier including accounting and load control activities. The standard compensation to the dispatch service is a set percentage of the load.
After a review of public comments, the FMCSA’s guidance is that there is no commonly accepted definition of a dispatch service. However, there are three common features. First, they work exclusively for motor carriers, not for shippers. Secondly, they source loads for motor carriers, and lastly, they perform additional services for motor carriers that are unrelated to sourcing shipments. In further guidance, the FMCSA did qualify which services performed by a dispatch service would require brokerage authority. Those qualifiers are: 1) the dispatch service negotiates a shipment rate with the shipper 2) the dispatch service is engaged in the monetary actions of a load 3) the dispatch service arranges a shipment with no legal contract with the following criteria: a) the dispatch accepts a load with no truck to move the
shipment b) the dispatch service is a named party on the shipping contract or c) the dispatch service is soliciting on the open market to find a truck.
ROCKFARM One View
Is the bottom coming for truckload rates? When you take into account the increase in fuel, the drop in the cost per mile rate becomes even more dramatic. The average Rockfarm cost per mile has continued its descent, hitting a new low of $2.78 midway through November. The November low is now entered the average rate levels we have seen for the past six years.
What is apparent in the market is asset truckload carriers accepting tenders at their contracted rates. You can argue this is also a direct result of shippers adapting to the market by decreasing the timeline between bids. Many shippers have moved to quarterly or even 30,60,90 day, bid cycles to keep on top of the market. This type of strategy gives a shipper a more realistic view of truckload rates and their slope as well as maintaining processes within their tender execution.
We have now had three straight months of increased diesel costs. Until diesel exports slow, we are not likely to see fuel prices return to anything near the past seven years in quite some time. Refinery capacity is near peak levels while geopolitical events maintain uncertainty on the global front.
What we are seeing across our client engagements is rigorous planning and cautious optimism for the year ahead. The challenges that came out of the pandemic are getting solved. As we march forward toward 2023, a number of challenges will continue to plague us from the pandemic. Unsettled inventory levels, supplier compliance, resources, and technology adaption are a handful of challenges that will impact our supply chains.
Work With the Experts
For more information please reach out to our Supply Chain Coach team.
FOR MORE INFORMATION, PLEASE REACH OUT TO INFO@ROCKFARM.COM.
By Brad Stewart
Brad’s journey into logistics began as a Marine Officer and transitioned from the LTL docks to the non-asset side within the logistics service provider arena. As a co-founder of Rockfarm, Brad drives our business development efforts and delivery of our promise. An Arizona native, Brad enjoys spending time outdoors in his home state with his wife and family.
“Our approach to the market allowed us an opportunity to push forward in 2008 and enable our mission, “lower the cost to serve” to stand as a cornerstone to our company today.”
Ronan, Dan. (2022 November). Third Railroad Workers Union Turns Down Pact
Mack, Jack. (2022 November). New International Bridge Aims to Help Laredo Remain No. 1 Inland Port
Miller, Jason. (2022 November). US wholesale trade data shows industrial economy still resilient: analyst
The Maritime Executive. (2022 November). Port of Los Angeles has Slowest October in 13 years
Department of Transportation. (2022 November). Federal Motor Carrier Safety Administration, Definitions of Broker and Bona Fide Agents