Redwood Report: Market Intel Week of September 30, 2024

This Week’s Big Story: A Hurricane Hits and a Strike Looms

Welcome to a special edition of the Redwood Report, as the US logistics industry faces urgent pressures this week.

Hurricane Helene hit the panhandle of Florida late last week as a devastating Category 4 hurricane and the strongest storm in history to strike the state’s Big Bend region. It continued through Georgia and the Carolinas, bringing historic flooding to much of the Southeast. Hurricane Helene has tragically left 93 dead, more than 600 missing, and 4.6 million people without power as we write this report (see the map below). In addition, there are hundreds of road closures, as well as untold amounts of property and crop damage. Public health emergencies have been declared in Florida, Georgia and North Carolina, as both water supplies and roadways have been compromised. An initial assessment of needed relief efforts has begun, and the first relief loads are being activated. But efforts to distribute these loads will take place over the next few weeks.

When determining the impact of a natural disaster on the supply chain, the two key points to consider are “where” and “when.”

The “where” in this case is a fairly large area of impact, though not the same impact that would have resulted from a direct hit on Tampa. The flooding and inland damage are severe, however, affecting a large population that may be without power, water and other necessities for an extended amount of time.

The “when“ in this case is critical for a few reasons. Hurricane Helene hit near the end of the third quarter. That means shippers are trying to get orders off their docks, many deliveries are low lead time or perishable, and the need for service will increase as a result. More important, it’s critical that this storm hit near the set date for a potential strike by the International Longshoremen’s Association (ILA) — which experts say is looking more likely to happen. A planned walk-off will take place on Tuesday if the ILA fails to reach a deal with the United States Maritime Alliance (USMX) when the current six-year agreement expires today. The ILA represents 45,000 workers at 13 major container ports, stretching from Texas to Maine. 

The sheer amount of money at stake would lead us to believe that a resolution to any work stoppage would be found quickly. But the politicization of the labor standoff in the lead-up the upcoming US presidential election has somewhat complicated the situation. President Biden has already publicly stated that he will not invoke the Taft-Hartley Act, which would bring longshoremen back to work during an 80-day cooling period, and force negotiations to resume. There are plenty of swing states on the East and Gulf coasts that are up for grabs in the upcoming election, and a loss of union support could very well determine the outcome of these states, and therefore the election. At the same time, a prolonged strike would cause shortages, drive up costs and inflation, and represent real lost dollars — in addition to damaging the already challenged perception of the health of the US economy.

This “damned if you do, damned if you don’t” scenario has increased the possibility of a strike to the point where many trade groups have come together to attempt to lobby Biden to intervene — but so far, to no avail. Again, the general belief is any disruption would be short-lived. However it is September 30 and there have been no negotiations since June. The ILA alleges that their current master contract with the USMX had been broken due the use of automation at the Port of Mobile. This lack of any negotiation, and the particular difficulty of negotiating around the use of automation, is making a quick resolution increasingly difficult.

Overall, an initial backlog at the ports brought on by Hurricane Helene could turn into something far more impactful to the freight market if an ILA strike occurs — particularly if capacity moves west to handle import volumes, leaving the East Coast and Gulf Coast regions under-supplied. A strike of a week or more, while still highly unlikely, would be the kind of black swan event that triggers a market change. Freight market changes are trigged by critical demand events, and their magnitude is defined by the amount of capacity taken out of the marketplace prior to that event.

In this case, significant supply has been stripped from the market, as revealed in the Quarterly Census of Employment and Wages (QCEW) report. The gold standard for labor reporting, the QCEW is based on a review of unemployment claims, rather than the survey-based reports used for near-term evaluations of employment. This report shows that Long Distance Truckload Employment included -25,000 fewer employees than assumed at the end of the first quarter — and capacity has undoubtedly continued to be removed since that time. This is not a declaration that the market if going to flip, as the sheer magnitude of money and interests at stake in the ILA/USMX standoff suggest a quick resolution. But everyone should be watching very closely, as the potential for a large disruption — coming on the heels of a large disruption — requires our attention.

We will keep you updated on these two significant events that are impacting the US logistics industry.

Top Charts for the Week

A Natural Disaster Becomes a National Emergency

An astonishing 4.6 million Americans have lost power in the wake of Hurricane Helene, which is sure to spur relief efforts.

Will We Finally Reach a Capacity Crisis?

Redwood has been warning of the dangers of exiting freight capacity for months. The two events impacting the US this week might finally bring this situation to a head.

Get Up to Speed with Weekly Market Intel

What’s going on this week in the US logistics market? Follow the Redwood LinkedIn page to watch Christopher Thornycroft’s insightful Redwood Rundown video every week. You can also read our insights blog to learn about industry trends and gain intel, including the weekly Redwood Report!