Hello, welcome to the Robinson Roundup, our regular series where we cover critical and timely topics in the transportation marketplace. My name is Ryan Hammett and I'm here with my colleague, Mat Leo. Mat, in some areas of the country, kids are headed back to school, but I think many of us are still shaking out the fog of summer brain. But despite the reality of summer brain, no matter where you were, executives are starting to talk about 2025 budgeting while also asking how 2024 budgets are holding up.

So if you're wanting to understand C.H. Robinson's thoughts on the truckload rate outlook over the next 12 months, you can find that information in our August freight market update on the website. But as everyone begins to ease into budget season, there are a few topics we thought would be helpful to better understand including LTL accessorial trends and how shippers can contain them, the impact of carrier operational cost to shippers, and the looming labor issues across Canada and some U.S. ports.

And let's kick it off with the LTL accessorial trends because we know that over the past decade accessorials have been increasing in count and frequency and the dollar amount. So in this chart here, we highlight the top 20 LTL accessorials not including fuel. And you can clearly see that in 2014, only about 10% or so of invoices had an accessorial charge billed onto it. But most recently that has quadrupled to approximately 40% of invoices. And the total impact of cost has increased five times over that period, which obviously means that accessorial maintenance has become a much more important concept to grasp to shippers more than ever.

Right, exactly. Within our August Robinson Report, we highlight several best practices to mitigate accessorial cost, but I'll mention two here. The first is to identify the accessorials that are most impactful to your business and consider how you could potentially decrease the impact or the dependency on that service. For example, excessive length has been a growing charge recently. Considering the current state of the soft truckload market, is it possible to save money while that markets down by moving some of your excessive length shipments via truckload? Potentially even as a multi stop or rolling consolidation shipment? Or could it be repackaged in a way that reduces the link?

A second way to mitigate accessorial costs is to maintain accurate records, particularly around weights and dimensions. LTL carriers have sophisticated technology to measure weights and dem so accurately recording and transmitting the carriers at the time of tender, those will mitigate those unplanned additional costs. And speaking of costs, we'll transition over to the increasing operational cost for the U.S. carriers. And we looked at the ATRI data and compared the change in the operational cost from a pre COVID market to that of the most recent year of 2023. And what we found was operational costs had increased 31% over that four years. And that's excluding fuel.

Now, you might be thinking that this is just because of inflation, costs have gone up a lot during that time frame. And yes, that is partially true. But the fact is that the increase in carrier operational cost is about 50% more than that of the standard U.S. inflation during that same time frame. So when you combine that with the fact that the DATs reported carrier to broker a spot rate per mile decreased 13% over that same time frame, it really illustrates how carriers are being squeezed by a large increase of cost with decreased income.

For carriers listening to this, we know we're preaching to the choir, but for shippers, you might be thinking, OK, what does this mean for me? Well, during this extended time of oversupply, we have seen carrier attrition as carriers are forced to exit the market due to these unsustainably low rates. But once supply and demand normalizes or even as the market eventually returns to undersupply, shippers should expect carrier rates to increase.

Spot rates are likely to increase rather quickly too, enabling carriers to catch back up with inflation and possibly even beyond to account for revenue that they've lost. Not only due to lower rates but also because of these increased costs. If you want to learn more about this topic, we cover it in detail in the August Robinson Report on our website.

And the final topic we'll cover here is what's currently happening in the news right now is two separate labor issues: one in Canada and the other on the east and Gulf coast in the U.S. So the labor contracts for the eastern Gulf coast ports expire at the end of September. And as of mid August, the two sides appear to be holding pretty strongly to their positions, which hints at a strike as early as October, which would be a disruption for the North American supply chain during a pretty critical time of the year.

Maersk actually said in a recent statement that one week of disruption would have a trickle down effect for about 4 to 6 weeks, which has industry groups like the Retail Industry Leaders Association, or RILA as it's commonly known, appealing to both sides to restart these negotiations quickly to avoid that strike.

But meanwhile, the International Longshoreman's Association or the ILA has said that not only are they not entertaining discussions of extending the current contract that's out there, they also aren't interested in receiving help from outside agencies including the Biden Administration or the Department of Labor. And because of the risk that this creates during peak season, many shippers have actually made the decision to reroute the freight to the different ports or pull forward those orders to help avoid the potential disruption all at the same time during peak season.

But the labor situation in Canada with the railroad is adding new complexity for the shippers that are considering rerouting their freight as the lockout for both Canadian rail lines could occur as soon as August 22nd, which you know, barring any rapid negotiations or potential government intervention there.

Exactly, as the ports and rails are highly integrated, since the threat of potential strike at both Canadian National and Canadian Pacific Kansas City began in May, shippers began contingency planning for both rail and ocean. For some that meant diverting ocean cargo away from Canadian ports and the U.S. ports. For example, cargo destined for the Montreal or Toronto areas could come in through the port of Boston or New York, New Jersey.

The ports of Halifax, Saint John, and Montreal on the east coast, depend on rail with 50 to 60% of port of Montreal's freight leaving by rail. So for contingency planning around ocean shipments, an alternative for customers could be to terminate at the Canadian ports and truck inland versus redirecting to U.S. ports like New York, New Jersey and then trucking to Canada up from there.

But this doesn't just impact the east coast. The port of Vancouver where rail ramps have been almost continually congested since summer of 2023 would likely see Seattle, Tacoma, or L.A. Long Beach as alternatives for their freight due to the rail strike. This interconnectedness of ocean and rail with both Canada and the U.S. potentially impacted by strikes between the end of August and October means that complexity of planning for peak season is very high for shippers this year. And that interconnectedness that you speak of goes beyond just the ocean rail as freight needs to move, it'll trickle into other modes.

And you think of a typical freight train carries around 300 truckloads worth of freight. And with nearly 70% of freight within Canada moving over the rail, there can be a significant impact to truckload capacity as customers look to keep that freight flowing. And when capacity constraints exist and that causes backlogs and that causes delay, so some of the more urgent freight's going to need to get shifted, again, truckload to expedited.

And then the same thing happens there: expedited potentially to air. So which you know, each one of those steps is going to continue to cause cost increases and the premiums on top of that. Right. So in the event of a strike for you these type of modal changes, we advise customers to ship really only the most critical freight while holding back on some of the less urgent shipments as much as possible until conditions are a little bit more favorable.

Both of these labor situations are dynamic and they change by the day. C.H. Robinson posts regular client advisories as new information is provided. Because of the fluid nature, shippers are looking for providers that can provide them with expertise, solutions, and scale across all modes to help them successfully navigate these really complex situations. C.H. Robinson offers unmatched expertise, tailored solutions, and unrivaled scale for the shipper community. Contact your C.H. Robinson account team if you need help creating a contingency plan to ensure your peak season is successful.

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.