Chart of the Week: Outbound Tender Volume Index — Elizabeth, NJ, Los Angeles, CA (SONAR: OTVI.EWR, OTVI.LAX)
The trade war with China has had significant impact on economic activity over the past 18 months, forcing many companies to re-evaluate their supply chains. An unintended side effect of the conflict is the change of domestic freight patterns, as volumes that once entered the country through Los Angeles are now starting to hit the eastern seaboard. Freight volumes are averaging almost 5% lower out of L.A. after the May 10 tariffs went into place compared to the previous four months, while truckload volumes out of the Elizabeth, New Jersey market ,the home of the Ports of New York and New Jersey, have increased almost 27% according to FreightWaves Outbound Tender Volume Indices.
Last year was a record breaking year for the ports of Long Beach and Los Angeles in terms of loaded inbound TEUs or twenty foot equivalent units, which is a container size used for measuring volumes in the maritime shipping space. There were almost 9 million loaded inbound TEUs in 2018 between the two ports, 4.5% higher that 2017.
Meanwhile, the port of New York and New Jersey had an 8.2% increase in loaded TEUs in 2018, their biggest year-over-year percentage increase since 2009-10 during the recession recovery period.
Through July, the combined loaded container volumes for the Ports of Los Angeles and Long Beach were down 2.7% versus the same period in 2018. Through June, as July has not been released yet, loaded inbound container volumes were up 5% to the Port of New York and New Jersey.
Sourcing shifts to southern Asia
Tariffs get all the attention due to the quantitative dollar amounts being available, but the real threat is in the potential supply disruption resulting from an unstable economic environment overseas. This uncertainty has led to many companies looking to other countries for production.
Countries such as Vietnam and Malaysia to the south are the top targets for many companies looking to escape trade war fallout. Electronics companies like Samsung and Intel already have factories in Vietnam. Nike and Adidas also make a lot of their footwear in southern Asia where the cost of labor is relatively cheap. Vietnam’s economy reportedly grew by 8.2% in 2018. So why does the manufacturing shifting to Southeast Asia effect the freight patterns in the U.S?
The Port of Shanghai, where many of the exports bound for the U.S. originate, is roughly 5,700 nautical miles (nm) from the Port of Los Angeles and 10,500 nm from the port of New York and New Jersey through the Panama Canal.
The Port of Ho Chi Minh City in Vietnam is roughly 7,200 nm from L.A., but the shortest distance to the east coast of the U.S. is through the Suez Canal, not the Panama Canal. It is roughly 10,800 nm from Ho Chi Minh to New York through the Suez and 11,800 through the Panama Canal.
The distance increase is more significant for shipping to the U.S. West Coast versus the East Coast. Container ships are designed to run around 16-25 knots on average depending on size and conditions. Assuming they run about 20 knots for comparison purposes, the shipping time to the East Coast from Vietnam increases by about half of a day, from 22 days to 22.5 days. The time to the U.S. West Coast increases by over 3 days from 11.9 to 15 days, making the East Coast ports more attractive than they were from Shanghai in terms of time on the water.
The volumes have not been isolated to the Northeastern ports. The nation’s third largest port, Savannah, has had an 8% higher inbound loaded inbound container volumes year-to-date with outbound truckload volumes averaging 38% higher since May 10. The Norfolk and Charleston ports are up 6.5% and 5.5% respectively with outbound truckload volumes 20% to 40% higher year-over-year.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides 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 of the Week will be archived on FreightWaves.com for future reference.
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