Strong Inbound Container Traffic Has These Two Technical Indicators Flashing

Strong inbound container traffic is starting to manifest itself across the country as goods are moved to final destinations. Two technical indicators that are jumping off the screen right now are the Headhaul Index map and the HAUL.JOT Index. Both are clearly showing that the return to growth in inbound loaded container flow that we saw in the Long Beach/LA port is continuing and gathering momentum.

• This increase in import volume has continued to buoy demand first in the LAX and ONT markets, but is now spreading to destination markets for rails moving containers from the ports to eastern retail markets. JOT, MEM, DAL, and ATL have all seen strength, with JOT and ATL seeing the strongest acceleration in the headhaul index in the last week (See chart below, which measures the change in that period). The darker the blue the more the market's headhaul index has improved. Bottom line: It is our experience that this activity may have mixed messages for the overall economy and mixed messages for overall dry van demand, but it is indicative of a strong holiday shopping season.

A FreightWaves' SONAR map showing the continued headhaul demand in certain markets as imports work their way across the country.

This is exactly what we expect as both brick-and-mortar and e-commerce retailers stock up their distribution centers in anticipation of a strong holiday shopping season. Full ocean containers (the 40-foot variety) are moved via rail from Los Angeles to markets such as Chicago (via the BNSF) or to Atlanta via either of the western rail and then most probably handed off to the NSC for transit over the Meridian Speedway to Atlanta. Those 40-foot containers are routinely moved to a nearby warehouse or cross docking facility where, depending on the product, the conversion is roughly three to two (i.e., three 40-foot containers become two 53-foot dry van trailers). Of course, this doesn't happen if the distribution center being filled is within a few miles of the rail yard, but especially if the last leg of the transit is more than a minimum charge distance, it probably makes sense to convert. What the current daily charge for the ocean container is also enters into the equation, but the point is still the same. Increased ocean container volume flowing from Long Beach/LA to eastern redistribution markets produces a seasonal surge in demand. The stronger the surge, the stronger the holiday retail season is setting up to be.

The FreightWaves' SONAR Headhaul Index for Joliet, IL, shows increasing demand.

Hence, when we see the HAUL.JOT index surge from 13.29 to 104.92 in less than three weeks, we get excited about the strength of the holiday retail shopping season.

A reminder from our October 5 report:

"All of this is signaling that this holiday shopping season will be very strong. We are often asked, "Why is the container volume so predictive of retail sales, is it as simple as retailers have to have the product on the shelves (or in the warehouse if they are an e-tailer) in order to generate the sale?" It is hard to refute the simplicity of this logic, but we believe it is a bit more sophisticated. Call it the "Wisdom of Crowds" (i.e., the more people betting, and the more money being bet, the more predictive a market becomes). Retailers of all sizes have professional buyers who have extensive experience gauging both the strength of demand from their customers and what specifically those customers are going to want.  Those professional buyers individually are capable of making mistakes about volume (they order too little or too much) and making mistakes about product selection (grey pull-over sweaters instead of blue cardigans), but collectively their sense about consumer demand and choice are highly predictive of what will actually happen in coming months. In part, this marketplace works because of the number of people involved and the money deployed, and in part, because the buyers who regularly prove their ability to correctly predict volume and selection gain ever larger budgets and influence over time. Those that don't, find other careers to pursue. Bottom line, the professional retail buyers (large and small) and the container volume that results from their buying decisions are predicting a strong holiday shopping season."

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