The CEO of Union Pacific warned of the impact to shipping as the U.S. consumer continues the march away from goods and over to services.
The slowdown is being felt in different parts of the economy, according to what UP president and CEO Lantz Fritz said he’s seeing.
“We can see things like the housing market has clearly slowed. Parcel packaging has clearly slowed,” the CEO told CNBC Tuesday. “We’re seeing that in both paper as well as parcel shipments. But there’s parts of the economy that are still percolating pretty good. Some of the reshoring, onshoring is creating opportunities for us in metals. In infrastructure construction we’re seeing it in things like rock and cement and steel. So it’s a mixed bag. Clearly, the economy is slowing and clearly the consumer side of the economy is slowing.”
Fritz addressed the Federal Reserve’s push to tamp down on inflation with interest rate increases and what impact that holds for Union Pacific and other businesses.
“I think there’s no doubt that some demand is going to be destroyed as the Fed raises rates. That’s economics,” he said. “Just how much, and how much is needed, that’s really their call. What we’re going to do is we’re going to ship what we can when it’s made available. This transition from the goods economy to the service economy, that’s real as well and that’s impacting our demand as well.”
That transition has created new implications for the supply chain. The pullback in imports partially allowed West Coast ports, such as Los Angeles and Long Beach, to catch up on a glut of containers that had been wreaking havoc on the global movement of goods. While that’s viewed as progress from the height of the pandemic, the CEO said there are other wrinkles still remaining in the flow of goods.
“Parts of the supply chain are pretty well recovered,” he said. “Let’s go to the ports. In L.A. and Long Beach, there are essentially just a handful of ships, if any, waiting to get on dock. That’s pretty well normal.”
Fritz acknowledged part of that clear-up has to do with shippers diverting cargo to alternative ports along the East and Gulf coasts as they await an outcome to the ongoing West Coast dockworkers contract negotiations. Workers have been laboring without a contract since July 1, when the previous one expired.
The issue now, Fritz said, is inventory.
“We’re also seeing a stack-up in containers still trying to get into warehouses for distribution,” he said. “So, I think we’ve got on the back end of the supply chain, we’ve got to work through inventory through this season and into next year so that that part of the supply chain can get back to normal.”
Union Pacific, along with the country’s other Class 1 railroads, last week saw the end to a nearly three-year collective bargaining process after lawmakers passed legislation forcing workers to take up a tentative deal based around framework backed by the Biden administration.
The recently ended contract talks involved over 100,000 workers and a dozen unions. Four of those 12 groups had rejected the tentative deals as they pushed for contracts to include sick paid time off. Carriers, meanwhile, repeatedly said they would not strike agreements beyond anything outside the scope of what was recommended in August by Biden’s Presidential Emergency Board, leading to fears the country was headed toward a national rail shutdown this week.
Those concerns were put to rest after Congress quickly passed legislation to thwart a strike, with Biden signing off on the bill last Friday. Two other measures, one to give workers seven days of sick pay and another offering labor and employers 60 more days to continue negotiations, were unable to clear a Senate supermajority. The current labor contract runs through 2024.