Here’s how high-frequency data revealed the freight recession months early

SONAR is built on a foundational idea that high-frequency, upstream data can power predictive signals well before lagging indicators. Freight is a commodity and pricing is often determined by the balance of supply and demand. Traditional legacy signals aren’t as valuable as understanding the direction of freight volume. 

Our critics built their thesis on data and methods that they are familiar with and have relied upon for years. In stable freight markets, without substantial volatility, advanced signals are less important to firms tracking global macroeconomic data. But these are different times and volatility is a real factor in the freight market.

Here’s how it happened. 

Tracking global container bookings at the port of origin allows more than 60 days of visibility into U.S. port activity 

U.S. container imports in November have officially hit pre-COVID levels, according to supply chain data company Descartes. In November, imports fell 12% versus October and 19.4% year over year.

Descartes tracks import volumes across U.S. ports as products clear customs. Its data affirms FreightWaves’ prediction published on June 7, 2022, that “US import demand is dropping off a cliff.” At the time of publication, FreightWaves warned that U.S. container imports would collapse in the coming months and the situation for ocean carriers would become dire. 

The call was based on FreightWaves’ new Container Atlas, a high-frequency data offering inside of the SONAR platform, a global supply chain market intelligence platform which aims to provide actionable intelligence for supply chain decision makers well in advance of other resources.

Container Atlas tracks global container bookings at the port of origin, providing a 60-plus-day leading indicator of U.S. port activity. Container Atlas data is upstream of U.S. import data, because it captures ocean container bookings when the capacity is reserved on the ship, a week or more before the ship departs its origin. Container Atlas combines these bookings with transit times and delays at U.S. ports to achieve an advanced perspective that has proven unmatched in its ability to predict forward activity. 

All of the data is anonymized so that no single participant or specific customer information is provided, only macro supply and demand intelligence. 

Container Atlas also takes in data from other types of sources, including pricing reporting agencies such as Drewery and Freightos, visibility providers, and customs import clearing information. 

The goal is to provide a comprehensive view of supply and demand for global cargo movement that can be turned into actionable information around pricing, capacity, and tracking the health of the global goods economy. 

Container Atlas is new to the SONAR platform, but FreightWaves has been offering high-frequency supply chain data for years, and the track record of market leading calls at major turns in the freight market is unmatched by any other data source. 

On June 8, the day after the FreightWaves prediction went live, J.P. Morgan analysts published a research piece offering an independent affirmation of our call, based on their own analysis of FreightWaves data and U.S. import signals. Global shipping stocks fell by 8%, wiping billions of dollars in value. 

Over the course of the following weeks, global shipping stocks sold off anywhere from 20% to 40%, with Hapag-Lloyd experiencing a $30 billion loss in market capitalization by June 22, according to an analysis published by Tradewinds. Through the close of the market on Dec. 12, 2022, ZIM has lost 73% of its market value since the FreightWaves prediction, while Maersk and Hapag Lloyd are down 33% and 48%, respectively.

Not everyone agreed with the call on containerized freight collapse 

While investors and traders sold off shares of global shipping stocks in the days after publication, not all of the firms on Wall Street agreed. In fact, Stifel Nicolas wrote a punchy rebuttal in an effort to discredit FreightWaves analysis and data. 

The Stifel research report on June 15, “Reports of the Demise of U.S. Freight Are Greatly Exaggerated,” stated that the bank went out to ocean container carriers in June to try to corroborate the drop that FreightWaves identified but failed to do so. “It is our understanding that the companies actually transporting the containers have not witnessed a sudden, sharp drop in container volumes at the end of May/start of June.” 

The report goes on to compare FreightWaves Container Atlas data with U.S. customs import data and other ocean data sources that didn’t match what Container Atlas signaled. 

With declining volumes comes declining prices. At the time of publication, container rates from China to the U.S. West Coast were $9,630, according to the Freightos Baltic Index, which measures spot container prices per TEU. Today, the same lane goes for $1,402/TEU.

In May 2022, container imports handled at the U.S. port peaked at 2.6 million TEUs, the most recent month of imports data before FreightWaves’ article was published. Descartes reported that container import volumes in November were 1.95 million TEUs, a drop of 25%. 

Data that tracks container volumes at U.S. ports will always be delayed and it is unusual to see such a rapid collapse in ocean container volumes. 

After all, Stifel’s report highlighted how anomalous the move we predicted was, comparing FreightWaves’ call to the drop in containers following the Lehman collapse: “Back in 2008, the collapse in Lehman Brothers and the ensuing recession caused sea-borne imports to drop by 15% within a couple of months. FreightWaves data suggest that the economy is deteriorating much faster and harder than during the Great Recession.” 

Even executives can get it wrong

Some investment analysts also rely on direct testimony from company executives. It’s not unusual for equity analysts to give excessive weight to anecdotes from public company executives, especially investor relations or C-suite executives who may themselves be dealing with summarized data on a lag.

While these reports can be informative, in a collapsing market, executives at the largest freight firms in the business tend to get it wrong. This happens across all modes. 

For instance, FedEx hosted an investor day on June 29, three weeks after the FreightWaves report and issued guidance for the following year. At the time, they expected volumes to increase throughout the second half and into next year. 

Unfortunately, for FedEx, their forecast was wrong. 

On Sept. 15, 2022, FedEx came out and warned about weakening global shipping volumes. CEO Raj Subramaniam admitted that, saying, “We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter. The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good.” He goes as far to suggest that a global recession is likely based on volumes across their network. 

Executives at the largest freight carriers often see trends later because market-wide volume deterioration often impacts them last. The higher-quality the carrier, the last they are to know. The freight market is one of the most fragmented markets on the planet and the largest firms tend to have strong relationships with high-volume shippers operating with contracted volume commitments. Even in slowing conditions, these relationships tend to stay persistent. After all, logistics companies build their entire networks around these shippers. 

But at some point, market volume declines so much that the largest shippers start to ask for rate concessions and the discretionary, irregular freight that tends to pay much higher drops out of their network, causing yields and overall volumes to drop.  

Tender indices are the high-frequency guidepost for truckers

On April 15, 2020, at the height of the lockdowns of the economy due to COVID, FreightWaves published an article that the “freight market is about to turn up.” This was based on the analysis of FreightWaves’ Outbound Tender Volume Index (OTVI), which tracks trucking market tender messages between shippers and carriers. 

Tender transactions are shippers’ load requests to carriers. These transactions come in the form of EDI (electronic document interchange) or API (application programming interface) transactions, based on shipper routing guides. Shippers — including big box retailers, automotive manufacturers, and other customers of freight services — send electronic requests to transportation providers for shipments to be picked up.

Load board data is one of the most common ways to track trucking activity. Unfortunately, this data is not dependable. 

This data tends to be the lowest quality of all freight in the market and is almost always broker-to-carrier-based transactions. It becomes greatly exaggerated when the market is either hot or cold because search and posting activities accelerate during challenging periods. Load boards often feature fake load postings and duplicates that can artificially skew the data. 

Loads that originate from tender data, on the other hand, represent the vast majority of loads that a large trucking company will book from their shipper clients under contractual agreements. Many of these are shipper to carrier transactions and do not involve a freight broker in the transaction. This dataset does not include fraudulent, fake load postings, since these networks require systems integration of known entities and load signal messages are often charged by the vendors that offer EDI or API tender transmissions. 

Most importantly, since tender data involves large shippers and carriers, they tend to be leading indicators of volume direction, since the largest carriers often have the first-right of refusal on freight that is in shipper routing guides. 

At the time of the April 2020 article, the thesis that the freight market would rally was very controversial. But FreightWaves’ stance throughout the summer of 2020 continued to defy the market sentiment as incredibly bullish. 

On July 21, 2020, FreightWaves hosted a 3PL Summit, which offered predictions and analysis on the freight market for the following year. I had the pleasure of hosting Dr. Jason Miller of Michigan State in a discussion on predictions for the U.S. trucking market and his thoughts about where the market was headed over the next year. There was a stark contrast between our analysis that the freight market would continue a bull run and Dr. Miller’s belief that the freight market would be incredibly bearish. 

His analysis at the time was based on government and other lagging freight market indicators that suggested that the economy was headed for a significant decline. On the other hand, I relied on what our high-frequency tender volume data was suggesting and believed that the trucking market was going to continue to improve through the rest of 2020 and into 2021 with very little concern for a slowing. You can watch our conversation here.

Fast forward into 2022, FreightWaves made another market-defining call, predicting that a freight recession was imminent, based on the same tender volume data that we used in our 2020 bullish call. After the controversial bullish call in 2020, the stock market took our call much more seriously this time around and the transports sold off sharply. Over the four days following our article, global transport stocks dropped by 7.3%.

At the end of the day, the April 2020 and March 2022 calls tracked the round-trip the freight economy has experienced since the start of COVID. 

SONAR’s high frequency data provides early warning signals about conditions in the freight market

For decision-makers in the freight market, having advanced signals on the direction of the market is increasingly important as the supply chain experiences volatility. 

While the massive swings of the COVID cycle are unlikely to happen in the near future, the supply chain will always be subject to uncertainty, especially as the economy reforms in a post-globalization configuration. High frequency data is a new concept, but the value to participants and observers in the freight market is tremendous. Having an advanced perspective will derisk many of the decisions that a company will make regarding the freight market. 

For shippers, it will be managing their routing guide and using pricing signals to either lock in rates when the market is heating up or renegotiate rates when the market is cooling. There is also the advantage of knowing well in advance about a potential capacity crisis that is brewing months or quarters in advance. 

For carriers, it is timing their capital spending and compensation levels in times of a heating market, or slowing down new asset purchases, expansion or reducing investments in times of a cooling market. Given the fragmented nature of freight markets, advanced analytics and signals can enable a carrier to gain the advantage in contract renegotiation season. 

If you know that the market is set to soften, then price loads aggressively and agree to more concessions in return for volume guarantees well before competitors. If you know that the market is heating up, like it did in 2020, it is looking at customers that have been challenging to deal with or not paying enough and having leverage to renegotiate higher rates. 

The power is in the data and being the first to know gives you enormous amounts of it. As we say at FreightWaves, we are not smarter, we just have better data. 

To learn more about SONAR check out SONAR.FreightWaves.com.