NAVIGATING THE HARDWOOD HIGHWAY: Insights Into Shipping and Logistics Practices

The global logistics landscape is currently undergoing significant upheaval, impacting various industries, including the hardwood lumber sector. Recent developments, such as issues in the Red Sea, have sent ripples through the industry, affecting both exports and imports. In this month’s feature, we delve into discussions with Stephen Zambo from AGL Group and Chad Fiala from ITG Transportation Services, Inc., to gain insights into the complexities and dynamics shaping the industry’s logistics landscape.

THE RED SEA SHIPPING CRISIS
Stephen Zambo sheds light on the far-reaching effects of recent disruptions on hardwood lumber exports and imports. He discusses the challenges arising from increased freight rates, longer transit times, and supply chain disruptions stemming from issues in the Red Sea. With freight rates on the rise and capacity constraints exacerbating the situation, the industry is facing unprecedented challenges in maintaining schedule reliability and managing costs.

NHLA: Stephen, thank you for joining us today. Could you start by outlining the key challenges the hardwood lumber industry is facing in terms of global logistics?

Stephen Zambo (SZ): Certainly, Renee. The Red Sea situation has become a focal point affecting not only the hardwood lumber community but all import and export sectors. The Red Sea shipping crisis is a result of Houthi rebel attacks on cargo. ships and tankers and is causing hundreds of vessels to avoid the Suez Canal, one of the world’s most important waterways. The increase in freight rates is a significant concern, primarily driven by a diversion of shipping routes around the Cape of Good Hope due to the Red Sea disruptions.

NHLA: How does this redirection impact the industry?

SZ: The rerouting increases fuel costs and transit times, leading to a surge in operational expenses. What’s more, there’s a noticeable reduction in capacity moving into the Middle East, compounding the challenges. The Panama Canal drought, conflicts in Israel and Ukraine, and the Red Sea issues have created a sort of perfect storm for escalating freight rates. Import rates have nearly doubled in the last 45 days, with export rates gradually following suit.

NHLA: Beyond the freight rates, are there other aspects that the industry is contending with?

SZ: Absolutely. An often-overlooked consequence of the Red Sea situation is the impact on container availability. Ships taking longer routes mean delays of 7-10 days on average, leading to shortages in container availability, particularly in inland locations like Chicago, Columbus, Nashville, Chippewa Falls, Louisville, and Cincinnati.

NHLA: How does this affect schedule reliability?

SZ: The repeated delays in vessel arrivals are translating into supply chain bottlenecks, resulting in a lack of schedule reliability. This, in turn, causes challenges in planning pick-up dates and times, putting strain on the market.

NHLA: Amid these challenges, are there any emerging opportunities for the hardwood industry?

SZ: Interestingly, yes. We’re observing new opportunities in Mexico and India. With the decoupling of US/China trade and increased foreign investment in Mexico as a “near shore” solution, there’s a noticeable uptick in loads going to both destinations. More shipments are heading to the border in Texas and interior Mexico than before.

NHLA: Thank you, Stephen, for providing insights into these critical dynamics. It’s evident that the industry is navigating through a complex web of challenges and opportunities.

SZ: My pleasure. It’s crucial for us to understand and adapt to these evolving circumstances in the global logistics landscape.

Shifting the focus to domestic shipments, Chad Fiala provides his perspective on the challenges and opportunities in managing domestic logistics. With an anticipated continuation of supply chain disruptions and capacity constraints, companies must adapt to ensure operational efficiency and competitiveness in the market. Fiala emphasizes the importance of proactive communication with customers and strategic planning to navigate the evolving landscape effectively.

NHLA: Chad, what can hardwood companies anticipate in terms of domestic shipments and logistics for the upcoming year?

Chad Fiala (CF): When you look at overall supply chains, one of the first questions asked is when are we going to get back to normal? And the first point is, whose definition of normal are we using and what is normal, right? We certainly don’t see a return to any type of normal in 2024. A major issue that I’m foreseeing for this year is not just costs but capacity. Over the last six months more than 30,000 trucking companies have gone out of business due to a very rough 2023. I don’t see that slowing down soon. In January, you had renewals (vehicle registrations, operating authority, insurance, driver licenses and qualifications, safety compliance, permits, International Fuel Tax Agreement (IFTA), etc.) that’s expensive. A lot of trucking companies couldn’t afford to do that. In April, taxes are due. A lot of companies aren’t going to be able to pay their taxes. Because of this, I believe capacity is going to be constrained, especially if there is any type of spike in volume. And then when you go back to the Red Sea and the SUEZ Canal and what’s going to happen with supply chains, there is going to be some congestion/delays. There is going to be some backup again. So, supply chains are still going to have some challenges, and that’s going to influence the capacity. Unfortunately, that is going to raise costs, transportation costs.

NHLA: What actions should hardwood companies take? How can they effectively navigate and maintain a competitive edge in 2024?

CF: I think salespeople need to be in really good communication with their international customers and buyers to encourage them to buy a little bit in advance and not wait until they›re running down on inventory. We’re starting to see that here in the U.S. on the import side, a lot of retailers just stopped buying because they stocked up on so much inventory. Now inventory is being depleted. One little crisis with a vessel delay, and you›re going to see major retailers with no patio furniture, and we›re headed into spring. That›s a big problem. The sales reps at the lumber companies should heed this and be in good communication with their buyers to encourage them to plan and be prepared for delays. This will aid in safeguarding them by ensuring their sales and orders are secured, thereby preparing their buyers for any potential delays.

NHLA: What other aspects of the logistics industry are currently capturing your attention?

CF: Another thing that we’re keeping an eye on, and no one has hit a home run on this yet, is concern over carbon footprint. I know that it’s big with the hardwood industry just being at the NHLA convention. I loved hearing the seminar on that. In the transportation world, as far as the carbon footprint is concerned, something we’re doing is keeping an eye on electric vehicles. I think we’re still far from that being a nationwide solution. It’s happening in California, but when you look at the weight of most lumber loads, that’s going to be challenging. But drayage in general, domestically speaking, I do see electric vehicles being a part of the picture just because they’re shorter hauls. When you talk about long haul, full truckload flatbed, I don’t see our grid being able to handle that soon. But internally, for ITG, we have measures to help with costs and the carbon footprint. Have you ever heard the term street turning? 

NHLA: Tell me about street turning. 

CF: In the container drayage world, there are imports and exports.  We see that many international shipments in the hardwood industry are for export out of the U.S.  Before sending a driver to the rails/depots to get an empty container to be loaded, we first look at our import business and see if we have loaded containers already on the street to re-load for export once empty. If a driver is delivering a shipment in Green Bay, WI and we have an export shipment to pick up in Milwaukee, we would attempt to “street-turn” that container so that the driver can stop in Milwaukee to load instead of driving empty all the way back to the rails in Chicago. This not only can reduce carbon footprint but can also provide cost savings to everyone involved. I do see that being a topic in 2024 and certainly within the next three to five years.  For dry van and flatbed shipments domestically, ITG focuses on reducing empty mileage, or deadhead, when picking up and delivering to lumber companies by strategically re-loading our drivers to specific origins/destinations.  

Special thanks to Stephen Zambo with The AGL Group and Chad Fiala with ITG Transportation Services, Inc. for contributing to this article.

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