Q&A: Matt Marshall, SVP of Commercial, for NYSHEX

Logistics Management Group News Editor Jeff Berman recently spoke with Matt Marshall, SVP of Commercial, for New York-based NYSHEX, a provider of two-way committed contracts and neutral exchange, which provides shippers and carriers with a predictable, efficient, and accountable system for global commerce. NYSHEX customers include seven of the leading global ocean carriers and more than 190 shippers. Marshall leads all Global Commercial activities for NYSHEX. Prior to NYSHEX, Marshall spent 4.5 years at Flexport in a number of Commercial roles, including Head of Key Account Management for North America and General Manager of the Southeast Region. Matt also spent 3+ years working at Deloitte Consulting in their Supply Chain & Manufacturing practice. Matt has an MBA from Penn State University and BS in Economics from the University of Wisconsin. LM's Berman and Marshall discussed various aspects of the ocean cargo market. Their conversation follows below.

Logistics Management (LM): How would you assess the current state of the ocean cargo market, from a NYSHEX perspective?

Matt Marshall: We all see the waste in the market. I would say that with the exception of the last two years, where every vessel is full, the performance of ocean freight contracts is really poor.

Our focus is on making those contracts effective. We have done 1.5M TEU (Twenty-Foot Equivalent Units) through our platform since our founding in 2015. On average, depending on the quarter, our contract fulfillment rate is between 98%-99%, where the average industry rate is typically in the 60s. We are growing really quickly and continuing to help shippers and carriers and NVOs—we really focus on all three parties, making sure they can have some reliability and stability in a very unstable market right now.

LM: Given the fair number of disruptions within the ocean cargo market, what are some ways in which industry stakeholders can navigate them?

Marshall: I work really closely with our shipper and retail base and so when you think about everything that has happened over the last two years, there has been a ton of disruption. It all started with Covid, every vessel is full, there are not enough chassis and warehouse space. The Ever Given happens in the Suez Canal that causes disruptions. If you think about the shippers, forwarders, and carriers, everybody is going to do everything they can to hedge against another significant disruption, and this is the one that has been on the radar for 1.5 years. I had a conversation with a Canadian-based retailer in the middle of last year, and it was starting to build out its hedging strategy for what if the West Coast shuts down [in the event of a stalemate on negotiations between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union]. The reason for that is I don’t think anyone is betting on a cordial, on-time end to these negotiations or they are certainly not putting all of their eggs in that one basket. I recently talked to a California-based retailer, doing 10,000-plus TEU per year, and I asked them how they are thinking about the talks and situation. The retailer said it is shifting as much volume to the East Coast as it can, as well as trying to move into the Port of Los Angeles (POLA), too, but are really focused on shifting more to the East Coast but only got half of what it tried to get moved. What we are seeing already is that the East Coast is significantly full. The Port Authority of New York and New Jersey (PANYNJ) has 14 ships sitting outside at anchor, which is the highest it has been in all of Covid, kind of matching those levels. That port is high already and then you are seeing shippers try to mitigate that by moving cargo to the U.S. East Coast, the Gulf Coast, and even into Canada, and Canada is full right now. This shift to the east helps to hedge and diversify but with the levels that things are at there is only so much the carriers are going to be able to take, and that is point number one for what we are seeing, with shippers shifting to the East Coast wherever shippers can get carriers to agree and then secondarily they are pulling volume forward. When I talked to the retailer, they said they are pulling as much freight forward as they can prior to July 1, so that if this happens, we are not as potentially exposed as we could be. Those are two big strategies that shippers are taking right now to try to mitigate the risk of this. The hard part is that in a normal pre-Covid year you probably had capacity to move it to those other ports but with all of those ports being essentially full as well, there is only so much risk mitigation so I think you are still going to find a lot of shippers pretty exposed to the US West Coast, given that Los Angeles/Long Beach is the largest port complex in the country.

LM: How do you view the current slowdown in China, due to its Covid policy, and its impact on the market?

Marshall: The Port of Shanghai has been not shut down but has been very underutilized the past couple of months, due to the zero covid policy in China right now. There are some reports saying that effective June 1, China will walk it back and reopen and it will probably take one-to-two months for Shanghai to get back up to full capacity, because it is not just the ports being open, it is the workers in the warehouse and really the truckers. It is the trucking capacity situation in China making it really difficult to get volume into the ports and, obviously, the factories and manufacturing itself. So, you are about to unleash the Port of shanghai again, which is going to push a ton of more inventory into the system and is going to run into an East Coast and Gulf Coast, which is full and Canada that is full. POLA/POLB has been better but now, again, you are running into these labor negotiations. Over the last 50 days or so, there has been a little sense of calm in the market, especially as POLA has improved, but with this expected glut of products coming out of Shanghai I think you are going to potentially see another really significant log jam of cargo coming into the U.S. I don’t think we should feel overly warm and fuzzy that the worst is behind us because even if the negotiations go on as planned and a deal is reached effective July 1, you are basically going to put another huge injection into the system and that is really what causes the downstream congestion. If this were to all flow normally week in and week out, you could cycle through it at destination. From February to now, there has been a 200% increase in the number of ships off of the Port of Shanghai. You have all of those ships waiting there, and as all of that inventory and production ramps up again, it is all headed our way.

LM: What is your take on this year’s Peak Season prospects?

Marshall: We might be heading into Peak Season sooner than we think, as retail sales rose from March to April and were also up annually. And, for the first time in about 20 weeks, the SCFI (Shanghai Container Freight Index) saw an increase…you are seeing rates creep up a little bit so we might be coming out of the normal seasonality.

LM: What does that mean for shippers, from a rates and contract perspective?

Marshall: When I look at some of the strategies shippers are employing, they are looking for longer-term contracts. We have seen a lot of that over the last eight months. Typically, in the ocean freight world, you are doing one-year contracts and one-year contracts only. We have seen hundreds of thousands of TEU of multiyear contracts across multiple carriers. The way I look at it is that they are basically making strategic bets with who their partners are going to be over the next couple of years, both carriers and shippers alike. I think that is a really big shift from transactional ocean freight into strategic ocean freight, because, yes, maybe the rates may fluctuate here and there over the course of 2022, but they are making long-term fixed rates, so that they can ensure they can ride out the big up and down swings in the system so that reliability is really important. That is a really big one and a trend we have seen over the last six months.

We talked about the pull-forward and the shift to the EC, and I would also say that historically if you are a BCO (beneficial cargo owner), you really try to work with carriers directly. In the last two years the number of shippers that have also kind of hedged and gone from BCOs or just carrier relationships to also include NVOs and borders. Almost everyone I talk to at this point has a forwarder or a multiple in the mix. Because if they cannot get space with one of their carriers, they need other outlets and, in the past, there has always been capacity available in the market…they may say “I have three carrier relationships and that covers me,” but in the current state it is more like “I have five carrier relationships and four NVOs to make sure I can get the support that I need.” That just was not the case two years ago.

LM: Are you seeing rates “sticking” more compared to pre-pandemic times?

Marshall: What is really interesting now is that we are kind of at that tipping point, where the spot market is kind of close to touching the long-term fixed rates so at the level we are at right now it is very close. There started to be a little chatter of “should I sign a long-term rate or is the market going back down?” And with the SCFI going back up, I think it is telling the story of where we are heading. Bluntly, any shipper that would walk away from long-term fixed capacity right now in favor of even slightly below but below spot market [rates] is going to get punished in Peak Season. It would be very short sighted to try to take advantage of any spot market advantage in 2022. This could run past Peak Season and into the 2023 Lunar New Year. If demand continues to be strong and vessel capacity continues to be full, that depends on China being able to put out the volume. If Covid hits and spikes in China again and there is less inventory coming out, that could have an impact but I think we run pretty strong for the rest of this year. And I think rates stay elevated and rate favorability is probably there in 2023, but if you stick with your carrier for 2022 and try to walk away in 2023, after they stuck with you, that is tough to have that reputation in the market, because the carriers know how to manage capacity.

LM: There are a fair amount of mixed economic indicators out there right now. What is your take on them?

Marshall: I think you see some companies hunkering down and getting lean, in case this gets really bad, but the data does not lead you to believe yet that we are trending in that direction.  Retail sales data remains solid and, also, the one to keep an eye on is the PMI to see where inventory levels are. In order to be really concerned, you would need to believe that inventory levels are really high and that consumer demand is dropping. I don’t think we have seen signs of either of those things yet. That does not mean it could not change a quarter from now, but, again, you would have to believe that goods and services, and that the kind of durable goods purchasing goes into services in the U.S., where we are back up to around 100,000 cases of Covid per day. I don’t see any dramatic indicators that tell me yet that we are seeing a downturn.

LM: Do you see shippers taking steps to up their inventory levels now to try and get ahead of peak season?

Marshall: Potentially. I think we are going to need some more time to see how it plays out while the macroeconomic risk is there. But if people keep buying stuff, we are going to continue to live in this current environment. If demand drops, this will all settle much faster but we have not seen those signs yet

LM: Much has been made of the potential for increased automation efforts at West Coast ports in the PMA-ILWU negotiations. What are you hearing about that?

Marshall: Anyone I talk to tends to have a fairly cynical view that there will be any more meaningful automation done. I think when you look at the environment you have a historically profitable carrier industry going into a union negotiation. I think there is some leverage they have there, and I don’t think anyone I have talked to has any sort of meaningful expectation for increased automation at the ports. There is meaningful investment in Norfolk on the East Coast.

But I don’t think on the West Coast that there is an expectation that we will see a lot of automation coming out of this negotiation especially given the dynamics and the profitability levels

LM: How much of a concern are current equipment and chassis issues for shippers right now?

Marshall: No and the reason is that it is all connected. If there is not enough warehouse labor, you cannot unload containers fast enough. If you can’t unload fast enough, they are sitting on a chassis in a yard, and it all compounds. What has been done is to order more boxes and more chassis to try to pump into the system. That does not necessarily get empty containers out fast enough; it actually just puts more empties around the globe. By the time this is all said and done, you have Essentially stretched out all the transit times with this, which means you had had to inject more containers into the system. And by the time the order books are done, you are going to see 13 million TEU worth of boxes around the world, which is equivalent to the combined container capacity of the top three global carriers. It is unbelievable. It is actually hard to have enough space to store those empties. We still have negotiations with carriers wanting to get empties back to China [more quickly] rather than export them. There is no silver bullet. Some shippers have bought their own trucks and logs companies to own the process, but that is exception not the rule.