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January 2 2023

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96 Journal of Commerce | J anuar y 2, 2023 EXECUTIVE COMMENTARY ANNUAL REVIEW & OUTLOOK 2023 Surface Transportation ◀ "With a potential recession looming, shippers should be wary of taking aggressive recessionary actions and cutting partnerships." Aaron Brown with dedicated assets. At the other extreme, low volume and inconsis- tent lanes are best handled through a dynamic market mechanism — such as an API to a sophisticated broker or a private load board. In other words, let the low-volume lanes float (to some degree) with the market rather than spend time setting up contracts that typically do not get honored anyway. Save your time and effort on the middle bucket of lanes that have sufficient volume to justify an annual contracted rate but do not rise to the level that warrants dedicated operations. Lanes have different characteristics and should use different procurement methods. Smart shippers are using this soft market to analyze their freight networks, segmenting lanes accordingly and expanding their procurement portfolio to include dedicated, contract, and spot relationships. NFI Aaron Brown SVP of Port Services To understand how shippers and carriers can better cooperate, we must first understand where the last few years of industry volatility has left both parties. Shippers found themselves scrambling to keep up with demand in the buying boom of 2021–22, lean - ing heavily on transport providers to find and create the capacity the market was demanding. In response, carriers took on the responsibility of adding equipment and personnel at elevated pricing to serve peak demands. The shipping environment that prioritized immediate capacity above all else ultimately drove the cost to serve to peak levels. Now, with demand seemingly leveling out from pandemic-era highs, shippers are asking for cost cuts as threats of a recession are on the horizon. However, the carriers who took on recessionary and a long-term view, helping shippers to control their network better and transport pro- viders to adjust costs accordingly. Although it's tempting to pull the plug on your existing infrastructure, it's important to have established carrier partnerships to scale your business when the economy inevita- bly bounces back. Norfolk Southern Corporation Alan H. Shaw President and CEO Several mac- roeconomic trends are transforming our markets to be more service- sensitive, and we are challenging ourselves to respond with an enhanced service the responsibility of adding new assets and paying competitive sala - ries cannot simply switch off those costs because demand has shifted. In years past, this type of contention has led shippers to remove certain carrier partners from their networks in favor of irrational pricing from others. The solution for better cooper - ation? Getting out of the cyclical boom and bust of the industry and taking a longer-term, strategic approach. With a potential recession looming, shippers should be wary of taking aggressive recessionary actions and cutting partnerships. In times of economic downturn, smaller companies and carriers typically take the largest hit. Now is the time to be aligned with stable partners who can weather carrier volatility and provide immediate capacity once the market recovers. Working together to under - stand and ease costs strategically — versus entirely shutting off the firehose — alleviates risk in both a Kansas City Southern (KCS) Patrick J. Ottensmeyer President and Chief Executive Officer Kansas City Southern (KCS) is closely watching the economy and the impact of inflation on consumer demand. We are also watching and managing the lingering impacts of supply chain instability. While we view these inflationary and supply chain head - winds as an opportunity to compete for new business and strengthen existing customer relationships, it is also an important time for all surface transportation modes to collaborate to optimize service to customers and help heal some of the fractures in the global supply chain. Sustainability is another important factor for customers and surface transportation providers and an area where collaboration is essential for the good of all. Increasingly, customers are taking advantage of the fact that rail is the most fuel-efficient form of ground transportation, which is an important com - petitive advantage as shippers seek ways to reduce their total carbon footprint. A key example of surface trans- portation cooperation is the proposed combination of Canadian Pacific (CP) and KCS to form Canadian Pacific Kansas City (CPKC), which is pending regulatory approval. If approved, this transaction would create the first US–Mexico–Canada railroad. With the increased capacity and cooperation of a combined network, CPKC can provide competitive alternatives for existing rail customers, along with enhanced opportunity for truck-to-rail conver - sion. Grain, automotive, auto parts, energy, intermodal, and other cus- tomers will benefit from the increased efficiency and simplicity of the com- bined network. Another example of cooper- ation is when earlier this year, CP and KCS, on an interline basis, launched the first dedicated international intermodal train between Lázaro Cárdenas and the US Midwest. This first Lázaro Cárdenas-to-Chicago train was born out of the need to avoid excessive delays due to the unprecedented and ongoing supply chain challenges affecting North America's West Coast. "Increasingly, customers are taking advantage of the fact that rail is the most fuel-efficient form of ground transportation." ▶ "Providing a strong and resilient service product, offering innovative solutions, and making rail more convenient for customers will put our industry in good position for a successful 2023." Alan H. Shaw

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