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Chart of the Week:  Freightos Baltic Daily Index – China to North America West Coast, Intermodal Spot Rates, Truckstop Dry Van Rate per Mile – USA SONAR: FBXD.CNAW, TSTOPVRPM.USA, INTRM.USA

Spot rates for shipping ocean containers, dry van truckload and intermodal containers are all hitting multiyear highs in almost pure synchronicity — an indication that shipping demand is strong across global supply chains.

The spot market may not be the largest volume of transactions in transportation, but it has long been considered a good barometer of capacity. When shipping demand exceeds the supply of capacity, rates increase. Conversely, when supply exceeds demand, rates decline. This is a bit of an oversimplification, but the core principle is what is important to understand.  

The Freightos Baltic Daily Index in the chart represents the average spot rate for shipping a 40-foot container from China, the U.S.’s largest overseas trading partner, to ports on the North American west coast. 

Rates were under $1,300 in this lane at the end of February but have increased to over $3,800 this month. Initially, rates were inflated based on the assumption that demand would be down. This led maritime carriers like Maersk to remove ships from service. Once China resumed production, rates increased slowly through April and May until taking off in early June. 

Once the carriers realized shipping demand had resumed, they began to put ships back into service but demand continued to outpace available capacity, leaving the rate at its highest point in years. 

Trucking spot rates were next, bottoming in late April and peaking this month, according to Truckstop.com. Intermodal spot rates, which represent the smallest percent of the total volume for the mode, did not begin to increase until mid-June and increased dramatically through July and August as rail carriers priced themselves out of business on the West Coast. 

These three modes did not always have such a clear relationship. The maritime rate from China to the west coast of North America did not have a strong connection to domestic trucking spot rates in 2019. Shippers pulled freight into the U.S. and pushed it into warehouses in order to avoid tariff increases or other potential supply chain disruptions due to the geopolitical tensions between the U.S. and China. 

The ratio of inventory to sales ratios climbed in 2019, while companies struggle to keep enough on hand halfway through 2020. Chart: SONAR – TBIS.USA

Essentially, they were keeping higher inventory levels than they normally would in case their sourcing was no longer available or costs increased. This is reflected in the total business inventory to sales ratio produced by the Census Bureau each month. The average inventory levels increased from 1.36 months of inventory on hand in 2018 to 1.39 in 2019.

Most of the freight that entered through the ports was sitting in a warehouse in 2019, meaning it was not getting placed on a long-haul truck. In 2020 demand for items that were not forecast to grow at a double-digit pace has forced shippers not only to react quickly to the unexpected demand, but also prepare for what else they may not see coming. 

The disruption to supply chains may be more apparent as we enter peak retail season in the U.S. economy resulting from the massive amount of spending on consumer goods around Thanksgiving and Christmas. Companies prepare for this by importing the goods they expect to have the most sales in the months of August through October, which then end up on the rails in October and trucks in November and December.  

With rates already exceeding all-time levels in the three main modes of transportation in September, it is hard to imagine what a strong retail season may do. Some experts like Zac Rogers, assistant professor of operations and supply chain management at Colorado State and contributor to the Logistics Managers’ Index, thinks we will have more of an extension to the already tight market with a slight bump, whereas many others think this will be the “mother of all peaks.”

Hard to imagine things getting much tighter, but 2020 doesn’t seem to care what we think.

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.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

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