Import container volumes continue to point to a slowdown in the domestic cargo market

Chart of the week: National Trucking Index – USA, Ocean Inbound TEU Index – China to USA SONAR: NTI.USA, IOTI.CHNUSA

At the onset of the pandemic, companies began importing goods at an incredible rate, which led to an unprecedented increase in truckload spot market rates. The link between imports and trucking isn’t always so consistent, but the pandemic has strengthened their relationship through an acceleration in e-commerce growth and societal change.

The Inbound Ocean TEUs Index (IOTI) measures bookings based on their estimated time of departure from their ports of origin. This particular granularity measures bookings from China to the United States, which saw a surge in May last year at the start of the buying spree.

China-to-U.S. bookings were up 16% year-over-year (y/y) as of June 1, 2020, while one-time trucking rates, as measured by the National Trucking Index trucking (NTI), fell 10% over the same period.

Transit times from China to the ports of Los Angeles and Long Beach – accounting for the bulk of the inbound volume of imported goods for the United States – averaged about 15 days, as reported by shipping carriers in May 2020, according to SONAR Container Atlas (SCA). This means that there was at least a two-week delay before national rail and road operators felt the pressure on the demand side.

By the end of July 2020, reservations from China to the United States had increased by 72% year-on-year and domestic dry van spot rates had increased by 15%, indicating that there was still plenty of room for rates to rise.

Most recently, last February, bookings were down 33% from 2021, while spot rates were 16% higher year-over-year. On Wednesday, IOTI from China to the US and NTI were down 9% from a year earlier.

It should be noted that some of the annual decline in booking activity in February occurred around the Chinese New Year, but the negative growth continued through March.

There are two main lessons to be learned from this analysis. The first is that cargo demand and therefore surface cargo volume in the United States is closely tied to shipping, which shouldn’t be much news at this point to anyone watching cargo patterns.

The second is that we should continue to see a contraction in domestic freight volumes over the next few months and potentially downward pressure on spot rates.

Spot rates are not built on demand alone, but it is a critical component. Since carriers will lose money if they don’t move (i.e. low usage) they will take some loads that they consider below their breakeven costs to essentially lose less .

This is important to know because their operating costs have ballooned significantly over the past year, especially when it comes to fuel. Once carriers decide to drop below the cost threshold on high-demand lanes, the countdown begins for how long they can hold out.

For spot fares on the Los Angeles-Dallas route, fares (including fuel) have fallen 35% year-to-date, faster than the overall market pace (~29% ). This indicates the decline on the demand side as capacity cannot grow at this rate and other demand side indicators such as the Outbound Tender Volume Index (OTVI) are also showing declines. major Southern California markets – down 15% since Feb. 1. to rail is also a factor here.
China is not the only source of imports, but it is the largest in terms of demand for goods and inland freight volume. The continued shutdowns in Shanghai also point to issues with future availability of goods that could add another layer of complexity to beleaguered supply chains. The question is how long will this trend last and how deep will it be?

About the chart of the week

The FreightWaves chart of the week is a selection of charts from SONAR that provide an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week, a market expert will post a chart, along with commentary, live on the front page. After that, the chart for the week will be archived on FreightWaves.com for future reference.

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