Peak Retail Season Looks Awfully "Flat"

Chart of the Week: U.S. Customs Import Shipments – Retail, Freightos Baltic Exchange Rate Index – China to North American West Coast SONAR: CSTM.RETL, FBXD.CNAW

The U.S. trade war with China has disrupted supply chains across the world by creating layers of uncertainty around how companies will need to source their goods—none more so than the retailers of the United States. In this week's chart of the week, the relationship between retail shipping volumes, illustrated in the blue mountain with Everest like peaks last September and October, and maritime shipping rates, shown as the jagged green line, is clear—retail shipping demand was a big factor in rate movement from China to the North American West Coast this past year. One thing that isn't certain is how the pull forward of inventory will impact domestic transportation in the 4^th quarter.

Retail trade shipments account for roughly 4% – 5% of the total inbound U.S. shipment count on average but surged over 7% in October last year. These are shipment counts or bill of ladings, which do not account for weight or space occupied. Typically, retail shipments are bulkier consumer goods, which means they will more than likely occupy more than 7% of the capacity on the ships.

The sudden early month spikes in the Freightos Baltic Exchange rates are general increases scheduled by the ocean carriers attempting to forecast demand. If demand does not meet expectations, the rates drop. The past 18 months has proven challenging to say the least. Ocean carriers have not been able to sustain the rates they started the year with — spot rates for 40-foot containers dropping 22% year-to-date.

Retail goods, which includes anything from clothing to furniture and appliances, is expected to keep the economy out of recessionary territory over the next several months. The 4^th quarter is traditionally driven by increased consumer spending due to the holiday sales. Many of the shippers will import goods from overseas in the 3rd quarter — mainly from China. From there, the goods move into warehouses and distribution centers before hitting the storefronts.

Recent trade disputes have incited shippers to import numerous goods in front of demand. This led to full warehouses and a lot of regional shipping around the port markets earlier this year, which has translated into a much softer peak import season. It remains to be seen if the volumes that hit the ports last year simply oversupplied the warehouses or there is much less demand anticipated by shippers this year.

From Ship to Truck

Looking at trucking volumes over the past several months there has been increasing activity compared to 2018. Volumes are averaging roughly 4-5% higher from August through the first half of October according to FreightWaves Outbound Tender Volume Index. The increases occurred right as imports were peaking in late July and early August, suggesting a connection.

West Coast volumes increased gradually until early October as the average length of haul spiked due to increasing long haul moves. Chart: SONAR – Outbound Tender Volume Index, West Coast; Average Length of Haul, USA

Diving deeper, West Coast volumes, where most of the Chinese imports are destined, increased roughly 8% from mid-July to late September, averaging over 20% higher than the same time last year. The increased import activity has fuel the region with excessive amounts of freight, indicating this year's softer import season was more than likely a direct result of the previous year's overheated activity.

The Outbound Average Length of Haul Index (OALOHA) shows the average mileage of loads submitted in the United States. From January through September, the average length of haul for U.S. truckloads was 590 miles. October‘s average OALOHA value has been 607 miles so far, a 3% increase.  The longer length of haul suggests more longer haul moves are occurring as shippers move freight out of warehouses to distribution centers closer to the end user.

The slower retail imports are not a sign of decreasing demand but a correction from 2018 overheating — a common theme in 2019. Once this holiday season ends, however, it is unclear what will be left to move, considering early 2019 activity was driven by last year's tariff turmoil.

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.

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Image Sourced from Pixabay