Freight transportation stakeholders grapple with big uncertainties

A photograph of a container vessel sailing into a shipping channel at a port. There are cranes at the dock and hundreds of container boxes sitting on land.

Stakeholders participating in today’s global supply chain must grapple with three big themes: the growing impact of e-commerce, evolving global trade stances, and the rise of automation and other advanced technological tools in the processing of cross-border trade.

Panelists discussed the issues surrounding these challenges at a session titled “Global Trade Disruptions: Impacts on the Transportation System” at the Transportation Research Board convention last week.

The role of e-commerce in increasing cross-border activity

One major consequence of the growth in e-commerce is increased volumes in customs paperwork. Previously, one truck would have one manifest that listed the prices of a few costly items crossing the U.S. border.

But now, there are “millions of transactions happening at a very small [monetary] level,” noted Manuel Garza, director of U.S. Customs and Border Protection’s (CBP) Customs Trade Partnership Against Terrorism office.

Shipments of duty-free goods have grown considerably in recent years amid the e-commerce boom, Garza said. Annually, there are almost 486 million pieces of mail, along with 145 million packages, compared with 110 million to 115 million pieces of mail and 70 million packages just five years ago, he said.

Much of this volume moves by truck, with trucks carrying thousands of packages across the U.S. and Canadian border, Garza said. There is also a “big increase” in cargo coming via ocean shipping. CBP has been trying to streamline operations with its maritime partners because the agency doesn’t have enough resources to cover all the cargo coming in, he said. CBP must also monitor these volumes for shipments of illegal drugs. 

Addressing automation and technological advances

The federal government has been slow to regulate automation within the freight transportation sector partly because of concerns that the government may inadvertently favor some technologies over others, panelists said.

“My personal perspective is that regulating bodies are afraid of setting regulations with unintended consequences,” said Brian Hancock, chief innovation officer for Kansas City Southern (NYSE: KSU).

The government may put programs in place to spur investments that improve operational efficiencies, such as using artificial intelligence and machine learning at the U.S.-Mexico border to improve the collection and analysis of photo images, but Washington overall is still trying to figure out how the autonomous trend is going to affect how freight moves, Hancock said.

As private companies await direction on how to use automation in the supply chain, companies now are working with government partners to facilitate the flow of cross-border goods.

Hancock said KCS has been working with U.S. and Mexican officials on making cross-border activity more efficient. For instance, KCS uses artificial intelligence tools to compare the images of goods before and after they cross the border. A similar initiative is underway at Union Pacific (NYSE: UNP).

“Technology changes the way we manage borders. It changes the way we manage shipment information, and many times we don’t think about how this information can assist us,” Hancock said.

CBP worked with Mexican customs officials to speed cross-border movement at the bridge owned by KCS, according to Garza. One initiative entailed allowing Mexican train crews to work in the U.S. and vice versa so that trains would no longer have to wait more than half an hour to change out their crew. CBP also worked with Mexican customs to coordinate the screening and X-raying of goods.

“All of that combined really helped integrate the working relationship between U.S. customs and Mexican customs,” and resulted in a 25% increase in capacity for KCS within a year, Garza said. CBP is trying similar efforts with Union Pacific and its Mexican rail partner Ferromex, he said.

Sharing data to improve operational efficiencies

Data sharing at the Port of Los Angeles came about as a result of several factors in 2014 and 2015, according to Eugene Seroka, executive director for the Port of Los Angeles. Those factors included “epic levels” of port congestion, changes in shipping alliances, the divestiture of land assets and labor negotiations.

“We thought, if we could harness the supply chain data points that existed but were siloed, we could find a way to be better prepared” for any future disruptions, Seroka said. As a result, the port worked with U.S. customs officers, shipping lines and terminal operators to develop a pilot with GE Transportation to collect data that could improve supply chain efficiencies.

Although the port handled initial concerns about data privacy and potential data breaches, the multiyear discussion eventually led to data-sharing agreements, so now all seven marine terminals share import data, Seroka said. There are plans to start working with local short line and Class I railroads and with the trucking industry for additional data sharing, he said.

Meanwhile, the practice of data sharing alliances is garnering attention in countries such as Japan, China and Denmark, according to Maximilian Bauernfeind, a deputy head for the Austrian Ministry for Transport, Innovation and Technology.

Grappling with the unknown

With geopolitical uncertainties arising from evolving global trade policies, one of the challenges for freight transportation stakeholders is where and how to invest in their networks.

Uncertainty resulting from tariffs between the U.S. and China caused many shippers to adopt a “four corners” strategy in response to U.S. imports originating from countries other than China and altered shipping patterns.

Most supply chain leaders also are focused on having a secondary plan for moving freight around in the event of a weather or labor disruption, Hancock said.

Seroka called for the U.S. to adopt a “rules-based trade” policy as opposed to “free trade” so that companies and countries emphasize a trade framework that can be enforceable. 

“Weaponizing tariffs has created tumult” in the marketplace and put pressure on the transportation industry, Seroka said. He said the Port of Los Angeles is drafting a plan for 2040, but a challenge has been working the geopolitical variable into that equation.

In Europe, changes in trade patterns could result from Britain leaving the European Union (EU) at the end of the month, Bauernfeind said. For instance, Japanese car manufacturers have been closing plants in Britain because the products could get tied up at the borders, he said. The products would need to clear customs since Britain would no longer be required to adhere to EU standards, he said.