FREIGHTWAVES' SONAR CHART OF THE WEEK (Jan 20 -Jan 26, 2019)
Chart of the Week: TAC Air Cargo Index Price per kg to ship from Hong Kong to North America and DAT Dry Van Freight Rate Index (SONAR:AIRUSD.HKGNOA, DATVF.LAXDAL)
The story of the past year has been the increased activity in international shipping coming from China to the U.S. We have watched the Freightos Baltic Index rates from China to the North American coasts surge into late fall well past their normal peak season, and subsequently lead the surging volume out of the Los Angeles market. It appears air cargo has a similar relationship with surface transportation in the U.S. This week’s chart of the newly added Transportation Air Cargo Index rate from the Hong Kong airport to North America has a high correlative value with the Los Angeles to Dallas spot market price for dry van truckloads.
According to the International Air Transport Association (IATA), airlines transport goods representing approximately 35% of global trade by value but less than 1% by volume. The reason for this wide variance is the cost of transporting goods via air is quite high in relation to other modes of transportation.
Transporting goods via air is the costliest mode of transportation, but it is typically the fastest way to move goods long distances. Typically, only high value goods like electronics or pharmaceuticals fetch a high enough price to cover this mode of transportation along with some perishable goods and flowers.
Most of the air cargo is moved by carriers like UPS and Fedex, who have specialized fleets designed for carrying freight, but the passenger airlines like Southwest and American carry freight in the lower deck or “belly” of the aircraft while simultaneously transporting people on the main deck. The Transportation Air Cargo Index Price measures both methods of transporting freight from Hong Kong to anywhere in North America.
As mentioned above, only goods that fetch a high price will have enough value to move via airline. A lot of the goods coming from China are consumer electronics, which is why you see a big spike in the 4th quarter each year as the holiday season has things like TVs and phones in high demand. The shippers need to get these items on shelves and in warehouses to capture as much revenue as possible.
What is the most interesting aspect of this correlation, is the fact the air cargo rate moves almost in perfect sync with a single lane representing truckload prices from L.A. to Dallas – a very important lane in the U.S. that represents the movement of goods off the West coast. This means that most of the volume is landing in L.A. before hopping off the plane and heading east, like maritime freight.
What is even more fascinating is the similarities in magnitude. The rates in the TAC Index peak each year around Thanksgiving, just like the L.A. to Dallas spot market truckload rate. Both indices peak prices have increased each of the last 3 years. The chart below illustrates how each rate spikes similarly:
The transportation world is far more interconnected than most of us realize. The market prices have slowed their growth to the lowest value in three years, a pattern that is prevalent in many economic and trucking market indicators currently. It is important to note that slower growth is still growth. 22% year-over-year increases are not sustainable. 2019 is shaping up to be a sanity check year, at least in the early portion.
About Indices presented in this article
(SONAR: AIRUSD.HKGNOA)Transportation Air Cargo (TAC) Index price per kg to ship air cargo in US dollars - Hong Kong Airport to North America - The TAC Index price measures the average rate per kg to ship goods from the Hong Kong airport to North America by air. This can be by passenger or cargo airline and to any airport in the North American continent.
Cass Freight Index (DATVF.LAXDAL) - DAT Van Freight Rate Index - Los Angeles to Dallas - The DAT Van Freight Rate Index measures the average rate to ship a truckload on a dry van from the Los Angeles market to Dallas. The rate does not include fuel or any assessorial charges. It is one of the seven lanes developed for freight futures releasing in March of 2019.
(About Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week the Sultan of SONAR will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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