Chart of the Week: Inbound Ocean Shipments Index, Inbound Ocean TEUs Index – USA SONAR: IOSI.USA, IOTI.USA
According to the FreightWaves Inbound Ocean Shipments (IOSI) and TEUs (IOTI) indices, shippers are continuing to order goods from overseas at a record clip. According to the IOTI, which measures twenty-foot equivalent units being booked by estimated time of departure, shippers have ordered approximately 13% more TEUs than the same time last year and nearly 80% higher than January 2020 heading into a traditional slow point in import activity.
This week marks the start of the largest Chinese national holiday, the Lunar New Year. Normally the Lunar or Chinese New Year (CNY) is a slow period for import activity as an entire population takes a vacation simultaneously. Last year the holiday did not result in the same level of decline in production and subsequently imports to the U.S. Each vertical line on this week’s chart represents the start of CNY over the past three years.
American Shipper Senior Editor Greg Miller wrote about slumping volumes out of the ports of Los Angeles and Long Beach this past week. One of the main takeaways is this is primarily due to throughput handling issues and not a decline in import demand. Unfortunately, this has become a political issue, which makes interpretation of reality more difficult thanks to competing agendas.
The ports of Los Angeles and Long Beach handle roughly 30-40% of the total import container volume in the U.S., with some deterioration occurring last year as shippers found alternative ports of entry, but there was a consistent queue of ships in San Pedro Bay for the entire year, meaning there has been no shortage of work, with as many as 96 ships waiting or en route to the port complex in late December.
Any deterioration in container volumes at this point is due to the lack of ability to handle the freight, such as space, drayage and transportation capacity — all of which have been unable to meet demand for over a year.
The FreightWaves Outbound Tender Rejection Index (OTRI), which measures the ability or willingness of carriers to meet shippers’ request for truckload capacity, has been above 19% since July 2020. In 2019, a year when capacity was well supplied for the amount of demand, the index averaged around 5%. In other words, there is a serious lack of surface transportation capacity.
The ports are effectively at the center of the supply chain for many companies. This means their efficiency is impacted by both upstream and downstream participants. The lack of transportation capacity means containers pile up and there is no room left to place them. The ports have no control over downstream capacity constraints and the signs are that the ports will not see much relief in the form of a seasonal lull that normally occurs after CNY.
Looking at the number of shipments clearing customs, there is traditionally a lull in activity about four to six weeks after the start of CNY. Last year it peaked at this time, leading to a huge unseasonal boom of domestic freight transportation demand in March.
According to various reports, including one from Deutsche Bank using mobility data to track population movements, there is little evidence to suggest that CNY will have a significant impact on production this year as well. The reports cite governmental and societal influences surrounding COVID that is reducing the amount of vacation and travel that normally occurs at this time.
Ironically, transportation demand is being limited by transportation capacity to an extent. The lack of upstream transportation capacity means there is less to move downstream. So the lack of a CNY-induced lull may not necessarily induce a surge in import and subsequent surface transportation demand, but it will probably help extend it for months to come.
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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