Cargo price index falls in unison with port wait-time index

One of the challenges of interpreting ocean freight rate indices is that transport pricing can sometimes go down even when cargo demand goes up. Too many ships may enter the market or vessel interests may price for the top line over the bottom.

A case in point is the much-vaunted Baltic Dry Index (BDI), which has been widely cited in the mainstream press as a leading indicator for the global economy. Over the past decade, ship owners and fund managers ordered a record number of bulker newbuildings at Asian yards, flooding the market. The BDI – at least in the eyes of many shipping insiders – became more a bellwether of egregious investor behavior than of the world economy.

There is now an intense interest in the relationship between the U.S. and China and on how it will play out in terms of trade volumes, given current tariffs and threats of even more tariffs. One indicator that may provide insight is the Freightos Baltic Daily Index (China-North America West). This index provides a daily snapshot of how the price of containerized cargo is evolving on the trans-Pacific route, the most important shipping lane connecting China to the U.S.

One way to test whether this index is moving largely in sync with cargo demand or is being excessively swayed by vessel supply is to compare it to another index. FreightWaves’ SONAR data platform features a proprietary index that measures the weekly average waiting times for trucks at U.S. ports (WAIT.SEAPORT). Port properties are geotagged and trucks’ locational devices are used to determine average waiting times.

The comparison of the two indices shows a clear correlation since the beginning of 2018 – and both are now in decline, a potentially telling signal on the consequences of the U.S.-China tariff issue.

If the Freightos trans-Pacific index was dropping because of rising vessel supply, not cargo volume, it would seem unlikely that port wait times would decline in unison. If the trans-Pacific index was falling because cargo volume was slowing, it would make sense that port wait times would also decline, as the data shows.

The drop in the index numbers coincides with public warnings from Maersk Line, the world’s largest container liner company, that “new tariffs” and “the recent escalation of the trade war” could pare 1 percent off global container volumes. It also comes at the same time indexes tracking container-shipping costs on routes between China and Europe are not falling – implying that the trans-Pacific index may be affected by factors specific to China-U.S. trade.

If the lower cost of trans-Pacific freight is indeed being driven by demand headwinds due to trade tensions, the index could be a leading indicator on volumes of Chinese containerized goods imported to the U.S., given the lag time between booking a cargo slot and the arrival of cargo at its destination.

The most recent data appears ominous. In early May, U.S. President Donald Trump signaled the possibility of an escalation in trade tensions with China. Rates on the China-to-North America West Coast route were down 10 percent on May 30 from May 1. Meanwhile, the SONAR seaport waiting time index has been following almost exactly the same downward slope.