In this episode, guest Joe Ruddy, chief innovation officer at the Port of Virginia, discusses how the maritime industry survived the rough seas of 2020 trade. Demand was light even before the pandemic, then fell off the cliff when Covid-19 struck, only to return with a vengeance in the latter part of the year. How did our nation's ports handle those changes, and what infrastructure is in place to keep goods flowing well in 2021 and beyond?
The trade war with China is not expected to go away under a new administration in Washington. Many importers are looking at diversifying their manufacturing, and even bringing some of it home or to nearby neighbors. But that is not going to be easy to accomplish.
And truckload capacity is tight and looks to remain that way for the foreseeable future. What are the factors driving that tight capacity, and is there anything shippers can do to hold down rates?
Articles and resources mentioned in this episode:
Podcast sponsored by DCV-TV
Other links
In this episode, guest Joe Ruddy, chief innovation officer at the Port of Virginia, discusses how the maritime industry survived the rough seas of 2020 trade. Demand was light even before the pandemic, then fell off the cliff when Covid-19 struck, only to return with a vengeance in the latter part of the year. How did our nation's ports handle those changes, and what infrastructure is in place to keep goods flowing well in 2021 and beyond?
The trade war with China is not expected to go away under a new administration in Washington. Many importers are looking at diversifying their manufacturing, and even bringing some of it home or to nearby neighbors. But that is not going to be easy to accomplish.
And truckload capacity is tight and looks to remain that way for the foreseeable future. What are the factors driving that tight capacity, and is there anything shippers can do to hold down rates?
Articles and resources mentioned in this episode:
Podcast sponsored by DCV-TV
Other links
David Maloney, Editorial Director, DC Velocity 00:01
Maritime survives stormy seas and is now riding high. Are trade policies with China resulting in more reshoring? And will we see any capacity improvements in the truckload sector?
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by DCV-TV. Five channels of streaming video are yours for the viewing on DCV-TV. major improvements have been made to the DCV-TV platform to enhance the viewing experience, provide greater search capabilities, and to expand the capacity of the video library well beyond the 3,000-plus videos already in the archive. Be sure to check it all out at DCVTV.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: How are America's ports and the maritime industry faring nearly a year into the Covid-19 pandemic? Joining us today to talk about that and more is Joe Ruddy, the chief information officer for the Port of Virginia.
Welcome, Joe. Glad to have you with us.
Joe Ruddy, Chief Information Officer, Port of Virginia 01:22
Thanks, Dave. Thanks for having me today.
David Maloney, Editorial Director, DC Velocity 01:25
For those who are not familiar with the Port of Virginia, can you share a little bit about your operations?
Joe Ruddy, Chief Information Officer, Port of Virginia 01:30
Sure Dave. We are a division of the Commonwealth of Virginia, and we operate marine terminals for them. We operate six facilities throughout the Commonwealth of Virginia. We operate Norfolk International Terminals, Virginia International Gateway, Newport News Marine Terminal, Portsmouth Marine Terminal. We also have a facility in Richmond, the Richmond Marine Terminal, that is served by a three-times-weekly barge up the James River, and then of course, we have our Virginia Inland Port, which is a rail- service facility in Front Royal, Virginia.
David Maloney, Editorial Director, DC Velocity 02:05
And of course Norfolk is the biggest of those, and 2020 was quite a year for the maritime industry. Early in the year, the ocean carriers were actually canceling sailings, as capacity was down, then the pandemic hit [and] demand really dropped off the cliff, only to return with a vengeance later in the year, as inventories were ramping back up for the holiday season and more was being produced overseas following the shutdowns in China. So that left operators in ports to the ability where they were having trouble keeping up. What was it really like to ride that roller coaster all last year?
Joe Ruddy, Chief Information Officer, Port of Virginia 02:40
So, Dave, for us, first and foremost, I would say, paramount was the safety of our colleagues. We imparted procedures, heavy cleaning procedures, we had temperature testing procedures, because we knew how important it was for us to be, remain fluid from a personnel perspective. So that was our first thought.
Secondly, we have been working diligently since 2016, investing over $850 million in our facilities. We were ready for both the downturn and for the increase that we're seeing right now, this four, five month, really muted increase. So, what we've been able to do is prepare ourselves, continue our construction efforts, complete our projects, and continue to make sure that all our equipment was properly maintained, and so that when that surge did return, that we were prepared for it. And I will tell you, we have been as fluid as we have ever been, even with all the new systems that we have begun using at our two main container facilities, which is Virginia International Gateway and Norfolk International Terminals.
David Maloney, Editorial Director, DC Velocity 03:50
Were there any particular steps that you took to be able to handle that huge volume that all the operators found in the fall?
Joe Ruddy, Chief Information Officer, Port of Virginia 03:58
Yeah. I think for us—so, if you look at our profile of freight, we're about 65% truck, about 33% rail freight, and the remaining two, two and a half percent is that barge traffic that I spoke about earlier.
Two major items: First of all, we have, about two and a half years ago, we started a reservation system. Our reservation system allows us to understand what is being delivered to the facility and what is being taken away from the facility. We grew more stacks to insure, for an ultimate experience for our motor carrier, and as a result, in our—it is required to have a reservation from when we wake up in the morning, at five o'clock in the morning, till three o'clock in the afternoon, and then we have a couple of hours where truckers can come and go without reservations. But what we're seeing is all in turn times—that's the time they get off the highway to the time they leave our facility—of 40 minutes or less. That's 92% of our trucks do that.
We've also been able to reduce our rail dwells, because we have new systems. At both VIG and NIT, we use a platform called N4. It's a Navis-based system. And we are seeing rail dwells of less than 35 hours, from the time that unit comes off the ship and gets on a train and sends it into the Midwest, it's less than 35 hours from the time, and we get it up on that train.
David Maloney, Editorial Director, DC Velocity 05:25
And you've made a lot of investments, too, over the past few years, anticipating the widening of the Panama Canal, for—anticipating a lot of larger volumes coming through to East Coast ports. Channel deepening and addition to berths. How is that going, and did that help you to be able to handle some of that capacity?
Joe Ruddy, Chief Information Officer, Port of Virginia 05:43
It really did, Dave. When John Reinhart came in in 2014, we were determined to ensure that our facilities were modernized. So, what we've been able to do is, we've added over 400 containers of capacity at NIT and about 675,000 containers at capacity at VIG. Along with our dredging project, which is already begun—it's a $375 million project—we'll deepen to 55 feet—we were able to anticipate volumes increasing. And so, as a result of that investment—the investment on the land side, the investment on the water side—we've been able to not only handle the increased volume, but we've also been able to do it in a world-class fashion.
I'll also tell you that our efforts outside the gate, on our road infrastructure has really been developed well. Our chief public affairs and development officer, Cathie Vick, really does a great job for us outside of the gate.
David Maloney, Editorial Director, DC Velocity 06:47
A lot of this, as I mentioned, was due to the widening of the Panama Canal, anticipating that more larger ships would be coming through, holding a lot more container space than other ships were able, to be able to come through the canal. Are you seeing those kinds of capacities now, and is it is it paying off for you, all the investments that you've made? Do you anticipate that will continue to increase in the future?
Joe Ruddy, Chief Information Officer, Port of Virginia 07:10
It has, Dave. I mean, I don't want to date myself, but when I started in this business, the three- and four-thousand-TEU vessel was the workhorse of the East Coast. What we're seeing now are the eight and nines, the 10s. They have become the workhorses of the East Coast. And so, we're seeing vessels upwards of 13, 14,000 TEUS on a regular basis. These are no longer maiden journeys any longer. These are these are regular things that are occurring.
So, what do you have? You've got the same amount of demand from our customers. They want their freight in the same way that they got it when the vessels were three to five to 7,000 to TEUs. But now, with a vessel that's 13, 14,000 TEUs, you can imagine the transfer of cargo is much greater in a shorter amount of time. Those demands to get that freight either to the inland areas of our country, or to the local areas, has been met by the Port of Virginia, and it's done so through these improvements—the use of technology, the cooperative nature of our agreements with our labor here, and the leadership that we have had from both in the Port of Virginia's organization, and outside. Our legislators have fully supported these moves, whether it be dredging or increased infrastructure.
David Maloney, Editorial Director, DC Velocity 08:25
What are the key advantages to coming to the East Coast for, especially for Eastern and Central markets, as opposed to coming to West Coast ports?
Joe Ruddy, Chief Information Officer, Port of Virginia 08:35
Well, I would tell you two things, all right? So, whatever that number is, that X percent of population east of the Mississippi, obviously, we have access into the heartland within two days, right, when it leaves our port.
The other thing is congestion. We are simply not congested. And yes, did we go through our bouts of congestion? We sure did. But those are long gone. And what we've done is we've been we've imparted systems like the reservation system. We are looking at ways to optimize our berthing right now. We know what we need to do on our rail side. So, all these things are making for fluid flow of freight. That's what's key to coming to the to the East Coast right now, that fluid flow of freight.
David Maloney, Editorial Director, DC Velocity 09:21
We have a new administration in Washington. Do you feel that [there] will be any legislation that you're hoping to get out of the new Biden administration, or anything that you might even be fearing that might happen?
Joe Ruddy, Chief Information Officer, Port of Virginia 09:32
Yeah, Dave. So, I don't know if there's anything that I fear from the new administration. I'm excited with regard to their approach on harbor deepening. Obviously, the harbor maintenance tax is a big item for us. It's not just important that, you know, it's great, we're going to get this this 55-foot, which is so important to vessel operations, both, you know, civilian and military, especially in our area. But what we're also getting is the use of this harbor maintenance tax, which allows us to maintain those depths, which allows us to keep it clear, keep those depths clear against our berth. So, that's just really key. And I know that the Biden administration will continue to support the use, the proper use of harbor maintenance tax. So, we're excited about that.
David Maloney, Editorial Director, DC Velocity 10:21
We've talked about the capacity issues and how difficult the last couple of months have been, as we've been ramping up to the holiday season or restocking inventories. We're past the holidays now, so what do you anticipate for the rest of 2021?
Joe Ruddy, Chief Information Officer, Port of Virginia 10:36
So, I think the rest of 2021 will provide us with—I don't see, we'll, I don't believe we'll see the growth that we saw the last five months, I think we'll still see some growth. It will be a little bit muted.
However, I believe that with this new administration and the continued confidence, as you're starting to hear about a plan, rollout of vaccine, about how we're going to approach, you know, this pandemic, I think consumer confidence will slowly begin to return. With that return comes, you know, comes consumerism. So we're we are actually looking at this very positively down the line, so we've had a very good, let's call it first half of our fiscal year, which just ended in December, and we're still looking for growth in the remaining six months of our fiscal year and beyond that. So, we have a very positive outlook, and as a result, we're continuing to do things on the marine facilities to anticipate that growth. So, we're looking forward to, not only a good 2021, but we're also looking for that growth to continue into 2022.
David Maloney, Editorial Director, DC Velocity 11:40
That's great.
And for our listeners, if you'd like additional information on the Port of Virginia, you can just go simply to PortofVirginia.com to find that.
Thank you for being with us today, Joe.
Joe Ruddy, Chief Information Officer, Port of Virginia 11:51
Thanks, Dave, and thanks for all you guys do.
David Maloney, Editorial Director, DC Velocity 11:54
Now, let's take a look at some of the other supply chain news from the week. Ben, you did an interview with an international law firm discussing U.S. trade relations with China. What did you talk about?
Ben Ames, Senior News Editor, DC Velocity 12:06
Well, that's right, Dave. And it's really, it's the flip side of the coin from what our guest at the Port of Virginia was just talking about. He'd mentioned some of the congestion that we've seen on the West Coast with container ships, and the importance of having a fluid flow of freight. Of course, China has, for years, been known as a global manufacturing hub, where companies from any nation could have all their goods built faster and cheaper than doing it at home, even when the cost of shipping is factored in, and that's where those containers come back to U.S. shores, as we were discussing.
For U.S. businesses, that relationship was challenged, is an understatement, in 2020, first by a trade war and retaliatory tariffs between the two countries, and then also, of course, by the pandemic, which really shut down manufacturing and cancelled a lot of travel and trade routes.
And believe it or not, 2021 could add even more layers of complexity to that U.S.-China relationship. I spoke with Sarah Rathke, and she's a partner at the international law firm Squire Patton Boggs, and she runs the firm's U.S. supply chain practice. So, Rathke said that 2021 could be what she called "a year of reckoning" between the two countries, forcing a lot of companies to maybe look at making changes to their supply chains.
For one thing, right, sitting here today, we're just a few weeks away from Chinese New Year—also known as Lunar New Year—which starts February 12, and typically leads the whole enormous nation of China to shut down for, virtually, for two weeks, the factories closing and businesses coming to a stop, typically. People travel to their home towns. Of course, it's hard to predict if that'll still happen under pandemic conditions, but we'll soon see.
But this year, China is coming under increased moral pressure as well for its behavior toward two minority groups that it's trying to pull into its central government. That's the Uyghurs and the Tibetans, who are both on the country's big western front. And that could lead to consumer pressure for some businesses to pull out of China.
So, as well, another reason that Rathke was pointing to for possible troubles is that there continue to be large problems in China with legal issues, particularly around protections for physical property, intellectual property is a big concern, and contractual rights.
David Maloney, Editorial Director, DC Velocity 14:26
Ben, what options do companies have to work around those challenges?
Ben Ames, Senior News Editor, DC Velocity 14:31
Yeah, it's a thorny problem, because there's certain products, like technology components, like LED computer screens, where China is virtually the sole supplier in the world at that rate of production. So there's nowhere else to source those things at the volumes that America is looking for. Some companies in the U.S. were already trying to diversify their trade routes through what has been called, quote, China Plus One strategy, where they might outsource some manufacturing to different countries, be it Vietnam or Taiwan or India or Mexico. But Rathke pointed out that none of those options has China's combination of modern infrastructure at ports and rails and its huge and well-trained labor force. So that could really leave many companies looking at other options, like increased automation in logistics and manufacturing, to do the work themselves, or reshoring, where they move business units back to the U.S.
David Maloney, Editorial Director, DC Velocity 15:29
Well there certainly does seem to be a number of factors that's driving nearshoring and reshoring, and most of the predictions I have seen is that the Biden administration will not really change our policies regarding China too quickly, if at all,
Ben Ames, Senior News Editor, DC Velocity 15:42
That's what I've been seeing as well, so far. Yep, it's definitely going to be a fascinating couple of months coming up here.
David Maloney, Editorial Director, DC Velocity 15:48
Thanks, Ben.
And Victoria, it looks like the tight capacity in the truckload market is something we're going to have to learn to live with for some time. You wrote about that this week. Can you share what you reported?
Victoria Kickham, Senior Editor, DC Velocity 16:00
Sure, Dave, happy to. So, just like we've been talking about here, we continue to hear about the challenges ahead across the logistics sector as the new year unfolds, and this week, truckload carrier U.S. Xpress released a forecast summing up what it sees as the key issues on the horizon for the trucking industry. Top on the list is the recurring theme of reduced capacity, as you said, and the company said it expects capacity to remain constrained, due in large part to a driver shortage we've heard a lot about, and that's been exacerbated by a host of challenges related to the pandemic. Many of those will continue to make it hard to find drivers, they say, and it could also lead to higher pay for those drivers that are available.
The forecast also predicts that contract and spot rates are likely to climb in 2021 as well. The combination of fewer drivers, the continued increase in freight demand, and reduced capacity, they said, will spur contract rate increases of between 8% and 15% while spot rates, they say, are likely to trend upward through the fall.
David Maloney, Editorial Director, DC Velocity 16:57
Did they have any thoughts on the overall economic outlook?
Victoria Kickham, Senior Editor, DC Velocity 17:02
Yes, absolutely, and it's kind of similar to what your, our guest said in your interview earlier. They said they expect an economic recovery this year, but they think growth will be slower in the early part of the year as the pandemic challenges linger—especially issues, you know, around the slow rollout of the Covid-19 vaccine—but they're optimistic for return to what they called "steady growth" overall, into the second half of the year.
All that said, you know, demand for freight remains hot, and like many others in the industry, they said many of the changes in the buying behaviors we've seen in the last year are here to stay, and likely to continue to drive that demand.
David Maloney, Editorial Director, DC Velocity 17:39
It certainly does seem to be the perfect storm of factors that will continue to leave carriers in the driver's seats for now. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 17:47
You're welcome.
David Maloney, Editorial Director, DC Velocity 17:48
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast notes section for some direct links on the topics we discussed today.
Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 18:03
Thanks, Dave. I enjoyed it.
Victoria Kickham, Senior Editor, DC Velocity 18:05
Yeah, you're welcome. Thanks for having me.
David Maloney, Editorial Director, DC Velocity 18:06
And again, our thanks to Joe Ruddy of the Virginia Port Authority for being with us today. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also encourage you to rate this podcast if your podcast platform allows for that. We appreciate your feedback.
And a reminder that Logistics Matters is sponsored by DCV-TV. Be sure to check out the latest videos on DCVTV.com, the largest and best source of videos for the supply chain industry. Stop by often to see the latest uploads. Again, go to DCVTV.com to view them.
We encourage you to subscribe to Logistics Matters on Apple, Google, Spotify, Stitcher, Amazon Music, and Pandora, or wherever you get your podcasts. Just search for "Logistics Matters" to find us. Our new episodes are uploaded each Friday.
We'll be back again next week, when our guest will be Melinda McLaughlin of Prologis, who will discuss the rising demand for warehouse space and how it is changing. So be sure to join us. Until then, please stay safe and have a great week.