Domestic freight management: The redistribution of imports increases risk of putting domestic networks further out of balance

Zach StricklandChart of the Week, Freight Market Blog

Import volumes continue to climb, creating bottlenecks at some of the largest ports in the US. Domestic freight management importers are scrambling to find a more reliable point of entry by booking freight coming into less-congested areas. The Inbound Ocean Shipments Index measures freight booking activity for shipments entering the U.S. at the port level based on estimated departure dates. The Port of Oakland has been outpacing many of the nation’s largest ports in terms of shipment growth since the end of September. Port Houston recently saw a huge spike in bookings in the middle of March. What will this do to the already strained surface transportation providers networks and subsequently trucking rates?

Over the past year the driving storyline for the economy and transportation has been the surging consumer demand for durable goods, which has led to extreme growth in imports and domestic freight management and movements. 

The ports of Los Angeles and Long Beach account for over 40% of the total maritime import shipment volumes. Image – SONAR Tree Map of import market share

The largest lanes for maritime imports originate in China and end on the North American West Coast, predominantly the ports of Los Angeles and Long Beach. As of last week, the Southern California ports handled over 40% of the shipments entering the U.S., creating new trouble for domestic freight management as these loads precipitate volatility in the OTR market.

According to this week’s chart, bookings for freight bound for alternative ports are increasing faster than LA and Long Beach. Given these are percentages of much smaller starting figures, the changes are significant against the backdrop of historic norms. 

Not only are the ports infrastructures set up to handle a smaller amount of container volumes, but the surface transportation providers such as drayage, rail and truckload will also be tested as freight flow patterns disrupt network balance. 

For drayage providers, this will simply be an abundance of demand that will inevitably push rates higher and keep them busier than normal. The amount of drayage capacity will directly impact what happens downstream to warehouses and trucking providers, potentially limiting or delaying their exposure to surging demand.   

Rail networks were already tested last fall with heavy volumes moving from west to east, creating large imbalances. This new pattern may actually help even things out on their end with freight being more evenly dispersed. The big risk to rail in the long run if importers decide to push more freight into the East Coast ports is eliminating the cost advantage intermodal by rail has for long haul moves over 800 miles.

Yet, there’s always a bit of uncertainty, and this could mean lower volumes over time. 

Truckload networks take a long time to build efficiently and drastic changes to domestic freight management and overall flows can wreak havoc on available capacity. Some markets may benefit from additional volumes. Northern California for instance is normally oversupplied in relation to the rest of the country with more freight entering than exiting the area. A growth in import volumes could help balance the markets as outbound demand rises. 

Savannah, however, is on the opposite end of that spectrum. Savannah produces more freight than it consumes thanks to the port and a relatively low population density. Carriers will have trouble finding enough inbound loads to keep the market well supplied. Carriers will more than likely reposition trucks from Florida and South Carolina to meet the growing demand. 

While these are nearby, they will also require “deadheading,” in which they move the truck without an active paying load, driving up the outbound rate.

Imports have been fueling domestic freight management volumes over the past several months. Chart: SONAR – Outbound Tender Volume Index, Customs Shipments – USA

In the big picture, this also means more freight to move in general throughout the U.S. As mentioned previously, there may be limitations to downstream providers that buffers their experience to an extent, but that will lead to an extended period of elevated demand versus a large spike.

Looking at import shipments clearing customs and tender volumes for truckload shipments, there appears to be a ceiling that has formed for the time being. This supports the notion that a spike is unlikely without a strong catalyst. 

So even as imports grow and are redistributed across various ports, the main risk to transportation markets will be pushing certain areas out of balance. 

Epilogue: Domestic freight management hangs in the balance when import activity changes drastically

The risk of volatility has always been paramount in domestic freight management. Unfortunately, there are major forces affecting today’s market, from the uncertainty of the vaccine rollout around the globe through the recent Suez Canal blockage, says CNBC. Even more importantly, ocean alliances appear to be stable for the time being, said Henry Byers of FreightWaves. However, the need for an increased way to understand the imbalances deriving from import or export changes and how those imbalances affect OTR freight and overall flow of goods is still essential. And like all things within the supply chain, anything could happen to throw the whole balance or lack thereof into yet another tailspin.

Fortunately, the data would seem to suggest that ocean freight is relatively stable, despite the changes caused by the hiccup in the East Coast imports due to the Suez Canal issue. For more insights into how data analytics can inform freight market management and transportation management, request a FreightWaves SONAR demo by clicking the below.

(Epilogue by Jason Vanover)