Brokers and forwarders: West Coast action not just tariffs

Freight Forwarders at Steam Logistics in Chattanooga. (Photo: FreightWaves/Lexi Alvidrez).

Freight Forwarders at Steam Logistics in Chattanooga. (Photo: FreightWaves/Lexi Alvidrez).

On November 16, Susquehanna transportation equities analyst Bascome Majors issued a Port Report confirming what many suspected: that West Coast port volumes in October were extraordinarily strong, up more than 12.4% year-over-year. The flood of Asian exports hitting Los Angeles (+25% YOY) and Seattle (+23.6% YOY) are thought to be driven by a combination of freight pulled forward ahead of January 1 China tariffs and strong consumer demand. 

“Looking toward quarter-end, we expect to see a strong end to peak season with continued upward spot price pressure into December (rates +73% Y/Y last 4-weeks),” Majors wrote.

Although August volumes contracted YOY on a hangover after the imposition of tariffs on July 6, this year monthly volumes had been tracking 2017 very closely since April. In October, we diverged from the previous year by a significant degree, which adds further evidence to the tariff pull-forward thesis. In each of the past eight years except 2016, October was softer than September, but this year October volumes grew 8.3% month over month. 

(Chart: Susquehanna Financial Group)

(Chart: Susquehanna Financial Group)

“On November 1, Maersk started moving large vessels into the Asia – West Coast Lane,” said Henry Byers, Director of Pricing and Partnerships at Steam Logistics, an international freight forwarder based in Chattanooga, who said that he had expected a container rate increase. “That was an unexpected move, because Maersk had been doing blank sailings to decrease capacity. They released more vessels to get that West Coast volume going to Chicago and Memphis by rail, and again on the 15th they didn’t increase the rates,” Byers continued.

Last week, FreightWaves wrote that Ontario (the warehouse district east of Los Angeles) dethroned Atlanta as the largest outbound market. Even though trucking capacity (TRUK.ONT) has grown steadily in that market for months, spot rates are spiking to their highest levels all year. Dry van spot rates from Los Angeles to Dallas (DATVF.LAXDAL) are at $2.43/mile net of fuel, up 33% since the middle of October. 

It’s not just the tariffs, though. Freight brokerages are seeing compressed margins and taking losses—even to the point of what an ex-broker at FreightWaves called ‘negative bangers’—as spot rates outrun contract prices. We reached out to Andrew Silver, CEO of MoLo Logistics in Chicago, who said his brokers are dealing with severe reefer capacity constraints in regional markets throughout the West.

“It’s at the peak of how bad it can get, on par with peaks from the past year. We play a lot in reefer, where it’s even worse, where rates are creeping up to five digits for cross country. On some loads, we’re paying north of $5,000 for a reefer from Los Angeles to Dallas,” Silver said. “The Northwest is tight, but that’s typical seasonality. It’s exceptional in other markets in the West. We paid $9,500 from Idaho to Pennsylvania—these are worst-case scenarios. Utah is an absolute mess right now. We have to honor our contract commitments, and that’s expensive to do during times like this.”

Our thesis is that tariff-related volume surges have sucked capacity into Los Angeles and Ontario and made freight markets in the Western half of the country especially sensitive to any additional disruptions.

Duke Begy, a shipper-facing VP at Arrive Logistics, said that his customers were changing their behaviors in dramatic ways—especially the retail customers.

“Shippers are exhausting every option on their routing guide, and when they go to the spot market, they’re paying extremely high rates to go pretty much anywhere east,” Begy said. “The smart ones are trying to increase their lead times and flexibility with pick up and drop off windows. We’ve seen customers breaking up truckloads into multiple LTL shipments. One of our large retail customers had an intermodal provider covering 85 loads that had to go onto the spot market day before and day of, just to get product on the shelf before Black Friday.”

Byers guided for robust volumes to hit East Coast ports in the last week of November, pointing out that due to typical 32 to 34 day transit times from Asia, much of the tariff impact has not landed yet.

“If the fastest transit is 32 to 34 days, you have a week to get on those boats,” Byers said. “If space is super tight, and rates increase again, that tells you there’s a significant amount of volume moving to East Coast. I don’t want to downplay West Coast, but there’s enough [steamship] capacity for it.”

“We get reports from overseas origins, where it happens in the beginning,” Byers added. “We’re pretty confident in saying that the Atlanta, Cleveland, and Charlotte freight markets, these inland points, will pick up the first week of December.”