SONAR Indices & Insights: Understand freight demand in major trade lanes with the Freightos Baltic Daily Index (FBXD)

Adam RobinsonFreight Market Blog

The SONAR team has another “SONAR Indices & Insights.” Each week, you’ll learn about another index found within SONAR, the freight forecasting platform from FreightWaves. This week we’ll focus on the Freightos Baltic Daily Index (FBXD) and how it allows SONAR subscribers to understand freight demand in major trade lanes.

What is the Freightos Baltic Daily Index (FBXD)?

The Freightos Baltic Daily Index measures the daily price movements of 40-foot containers in 12 major maritime lanes. It is expressed as an average price per 40-foot container. This index is the world’s only ocean container pricing index that is reported daily.

In addition to average daily prices across 12 major maritime lanes, the difference between FBXD.CNAW and FBXD.CNAE is offered as FBXD.PANA. This is the price differential between shipping a 40-foot container from China to the North American West Coast and the North American East Coast. For example, FBXD.CNAW (China to American West Coast) = $1,200 and FBXD.CNAE (China to American East Coast) = $2,200. FBXD.PANA = $1,000.

freight demand freightos tree map

How the FBXD allows Participants to Understand freight demand in major trade lanes

What can you do with the FBXD to measure freight demand?

Use FBXD to better understand ocean freight demand in a given trade lane. Since a lot of freight originates overseas and then disseminates into freight networks across the U.S., seeing a major price increase from China to the West Coast of North America, for instance, is a good indicator that Los Angeles freight volumes will increase (with a lag of a few weeks) and likely means that demand will increase throughout the entire market. 

The difference between the China to West Coast price and the China to East Coast price tells you the value of shipping on a container versus shipping on land. If there is low capacity via rail or truck on land, shippers now have the option to ship through the Panama Canal to the East Coast.

Who do freight participants use the FBXD to measure freight demand?

When freight participants in the market understand what is coming into ports, they can get a sense of the freight demand that will occur for inland freight. Let’s take a look at how various participants use FBXD to measure freight demand:

  • Analysts: The FBXD indices are very good indicators of freight volumes (freight demand) moving in the selected maritime lanes and the subsequent port cities. This can often be a leading indicator of whether demand for ocean freight is increasing or decreasing across a given trade lane.
  • Carriers: Linking a long-term contract price to a verified and objective index showing incoming freight demand provides carriers a solid benchmark rate that keeps forwarders/NVOCCs from under-paying or going off-contract when prices drop.
  • Brokers: Monitoring the average price per 40-foot container in the spot market, brokers can learn whether they are overpaying if prices drop, and can have confidence that they are paying the market rate (or better than the market rate) should prices climb and freight demand increase.
  • Shippers: By monitoring the average rate for a 40-foot container in the spot market, shippers can better understand whether they are overpaying or getting a competitive price for their containers. Shippers can also use it to make more educated routing decisions – whether to route their shipments from China to the North America West Coast or to route them from China to the North America East Coast. 

The shipping industry needs
a new metric – the Market Rate –
to end the spot vs contract battle

How to Use the Freightos Baltic Daily Index with Other SONAR Charts

Spot rates for shipping ocean containers, dry van truckload and intermodal containers are all hitting multi-year 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 trucking 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.

freight demand freightos baltic daily index and truckstop data
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

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. 

freight demand inventory levels
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

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

Keep ahead of the freight market and turn to SONAR to measure freight demand & prepare

In uncertain times, freight market participants need certainty to stay ahead of the freight market and understand the freight demand occurring in each participant’s most important lanes. The freight forecasting engine, FreightWaves SONAR, allows participants to benchmark, analyze, monitor and forecast freight demand and costs to ensure more proactive responses to the market, the ability to provide a solid customer experience by offering transparency, and make decisions, faster. Get a demo of SONAR to see what the platform can do for you.