Hello, and welcome to the Robinson Roundup, our regular series where we cover critical and timely topics in the transportation marketplace. I'm Mat Leo, and I'm here with my colleague Ryan Hammett. Today's agenda: The Federal Maritime Commission updates rules for detention and demurrage charges for import and export containers. America's economic growth isn't really doing any favors for the freight market, and Mexico continues to benefit from near shoring. We'll dive into these topics a little bit further in the next few minutes.

Well, anyone that imports and exports containers into the United States will be familiar with the topic of detention and demurrage charges. During a container's journey into or out of the United States, there are a variety of factors that influence detention and demurrage as it moves between a terminal and a receiver, most usually around the storage of containers at a terminal, use of a container, equipment, and wait time for drivers and equipment. And how these charges accrue when they vary by location, carrier, alliance, and even equipment type. Over the years, but particularly during the pandemic era port challenges, there are many disputes and high frustration between shippers, carriers and terminals around these detention and demurrage charges, which led the government to pass the Ocean Shipping Reform Act of 2022. Giving the Federal Maritime Commission or the FMC expanded authority and mandating certain billing requirements. Since this act was implemented, the FMC has been learning and listening regarding industry practices, which led to an expansion of the regulation to establish clear guidelines and standards around demurrage and detention charges that are effective May 28th of 2024. These rules are expected to provide more transparency and billing practices, reduce surprises and disputes, and encourage accountability for carriers and terminals. The new rule covers 3 primary areas. How billing is issued, when billing can be issued and how billing is disputed.

When charges are issued, there's now a minimum amount of information required and charges can only be issued to one party, which is either the party that provided ocean transportation or storage of the cargo or the consignee. Additionally, invoices for charges can only be issued within 30 days of when the charges were last incurred, meaning charges can't be invoiced months later. When there is a dispute, the FMC's rule states who is involved with the dispute and the time period they have, which is 30 days from invoice issuance to request mitigation, refund or relieving of the fees. While these rule changes are expected to improve the process and transparency, many shippers still have questions. So to help with that, C.H. Robinson just released a new blog article outlining details of the rule changes. Additionally, as the summer goes on, we plan to provide ways that shippers can minimize demurrage and detention costs. If that would be helpful for you, simply visit our blog at chrobinson.com where you can find it under Resources.

Well, Mat, let's briefly stay focused on international shipping before we switch our focus to the domestic freight market. What's the latest in ocean shipping? Well, while we could cover many different topics in ocean shipping, there are two major themes that shippers should be aware of. 1st, we do expect a strong peak season to occur between June and August and most likely to continue into September as well. The freight market demand has picked up since April and continues to be strong. Late spring and early summer is traditionally the time that orders are placed for back to school and holiday seasons, and while expectations were that this year should have fallen within the historical norms, we're actually seeing an early pickup in demand. And specific to the retail industry, many retailers are trying to avoid holding safety stock because of the continued uncertainty around consumer demand. So they're holding off on placing the holiday related orders until later on in the season and that's typically, whenever we see the peak season could extend into September. As peak ocean shipping season arrives, it is being met with continued challenges around longer transits, bad weather in Asia and vessels skipping ports, which is now contributing to a shortage of containers. As vessels wait on the water longer in order to stay on track to deliver to the ports, vessels will often skip or shorten their time in the port. Which means that empty containers are not being loaded to continue recirculating them through the global supply network. This is contributing to container shortages in some key markets, such as Europe, Asia and specifically northern China. And rail ramps in North America may experience this a little bit sooner rather than later. April and May are traditionally low volume months and we did see carriers increase their blank sailings during this time, but it has now turned into a perfect storm where demand has actually increased causing backlogs to occur in Asia with bookings of three to four weeks out. If peak season ocean shipping is a priority for you, make sure you contact your C.H. Robinson account team for the latest information.

Pivoting to the US freight market well, not much has changed. As we mentioned in our last update, the month of May saw the beginning of produce season in the Southeast, Memorial Day and road check week. And as expected, we did see some tightening in the load to truck ratio, but not in any way that isn't normally expected over that. The supply and demand fundamentals show that there continues to be more capacity than demand in the free market. Yeah. And there's also been a lot of talk in our industry around the state of supply. So instead of focusing there, I want to take a look at demand and particularly the type of economic activity that really drives freight. So we've all seen in the news that the economy is performing rather well and it's still growing. So why isn't that resulting in increased freight right now? If an economy is rising, shouldn't it translate into freight demand? Well, the reality is that not all economic activity generates freight demand. So if you look at the GDP results from the first quarter of this year, 63% of the GDP consisted of services and government spending. So as you can see on the chart here on the screen, freight demand is not a consistent outcome of spending in those two categories. For services, think of it like a date night. You hire a babysitter. They arrive. You take a lift to go to a concert. You're spending money in each of those steps, but there's not a tangible good needed to be shipped, rather just a service that's being rendered. And As for the government, while there is some infrastructure and defense spending that does generate freight demand, most of it is going to wages, education and governmental services. Over the years, there have been multiple examples of both of these sectors moving differently and sometimes even in completely opposite directions than the truck tonnage index. The industries that do consistently correlate with freight generation are automotive, housing, manufacturing, and food and beverage, and some of which are currently flat or even down. Right. Housing growth is likely to be diminished while the interest rates are high, and manufacturing at least through April. The ISM PMI has been in a state of contraction since November of 2022 with the exception of one month here this year of March where it briefly and barely flashed into expansion. In this chart, you can clearly see the clear correlation between the automotive industry and demand, which makes sense given that there's an average of 30,000 different parts on each vehicle, all by specialized vendors that need to ship each component. So essentially our message is don't just look at the top line economic numbers to anticipate freight demand increases, but rather keep an eye on the industries that drive the freight demand like manufacturing or housing, food and Bev and automotive.

OK, I'll pick up on your automotive theme and and continue with that as Automotive is a large factor in Mexico's economic growth. Because the automotive sector is a high freight generating industry, if automotive activity in Mexico is up, then freight demand in Mexico is also up. And while the automotive industry is not the only industry capitalizing on the recent near shoring trends, it has been one of the fastest and most significant industries to invest in Mexico. Automotive manufacturing has expanded into 10 states in Mexico. Finished vehicle production grew 21.7% in April compared to the previous year. Exports of finished vehicles grew over 14%, with 90% of those exports going to the United States. Due to these trends and others, in 2024, Mexico has been the top importer to the US, having now surpassed China. And to match that demand, we saw truckload capacity in the form of total number of carriers in Mexico increased in 2023 by 11%. And in the first quarter of 2024, we saw new license plate grants, which is indicative of expanding capacity, grow by 4% in the quarter compared to the previous year. But all that growth doesn't come without challenges. So as northbound traffic to the US increases, not only does it lead to bottlenecks and increased wait times at the border, it also leads to new challenges for freight internal to Mexico. Mexican carriers have begun to prioritize that well paying, consistent and often safer northbound or southbound shipments overtaking that local freight, which makes it challenging to find carriers to move that local freight. Another challenge in Mexico is growing driver scarcity. Where there is more demand for drivers than what's currently available. And then the third challenge, which actually is a benefit to the overall Mexican economy, is related to the Mexican peso. This economic activity is causing a fluctuation in the value of the Mexican peso, mostly with the peso strengthening, but for shippers and carriers that are doing currency conversions. On that cross-border freight that can cause challenges on budgets. Every month we feature insights like this on our cross-border section of our Robinson report, so make sure you check out that report each month to stay in tune with the latest trends in this dynamic cross-border situation.

Ohh. And one final note, there are two dynamic situations that we are monitoring at this time. One is the Port of Baltimore. It has reopened their main shipping channel, but each carrier will be providing some updates around when they will be resuming services in that area. And two, there are several potential Canadian strikes that are looming. Both with the railways and now Canadian border agents threatening to strike, which have a large impact on transportation. Both these situations remain very fluid, so with each of these potential strike situations, C.H. Robinson is working on plans to support both over the road and ocean solutions, so we encourage you to monitor our website for updates related to the Canadian strike as well as the Baltimore port. Well, thanks for joining us. Remember, Robinson goes further than anyone else in providing you with global perspectives for how to manage your complex transportation strategy. For more details and additional insights, reference the Robinson report on our website.