The smartest minds on Wall Street use charting analytics to quickly identify and then track trends in multiple data sets. Why? Because it works. Even the most intelligent investor or skilled trader identifies patterns in numbers when they are charted far faster than when those numbers are simply displayed in columns and rows. Graphically depicting data becomes more important when you are trying to compare two or more data sets and understand the relationship between them over time. When viewing a chart of a couple of data sets that are related, you begin to understand the reason of the marketplace. If you can add a series of technical indicators to the graph, you begin to understand the rhyme and the reason of the marketplace.
SONAR allows you to quickly view graphical series of data, many of which weren’t previously available to professionals trading the marketplace. More importantly, it allows you to view those data series compared to other data series (some proprietary, others not) and then apply the type of sophisticated technical indicators to the data series that are normally reserved for Wall Street. Patterns in the data don’t just sit there quietly as numbers; they literally jump off the screen at you. What are a few of those ‘jumping off the screen’ at us right now?
Two of the indicators that are jumping off the screen right now are the Headhaul Index map and the HAUL.JOT Index. Both are clearly showing that the return to growth in inbound loaded container flow that we saw in the Long Beach/LA port is continuing and gathering momentum.
JOT is the abbreviation for the Joliet, IL, market. SONAR’s HAUL indexes measure the equilibrium of volume in a market. It is the difference between outbound and inbound load volume. A positive value of movement indicates there are more loads exiting a market versus entering. A negative value or movement indicates there are more loads entering than exiting.
In this report two weeks ago (October 12), we interpreted the strong increase (from under 50 to over 88 in just 4 weeks) in the HAUL.LAX index as evidence that the Long Beach / LA port inbound container flow had returned to positive territory in September. That was confirmed as those ports reported a 2.3% increase in loaded inbound containers (on top of a strong 12.4% increase last September). Current data suggests October port data will be even stronger.
This increase in import volume has continued to buoy demand first in the LAX and ONT markets, but is now spreading to destination markets for rails moving containers from the ports to eastern retail markets. JOT, MEM, DAL, and ATL have all seen strength, with JOT and ATL seeing the strongest acceleration in the headhaul index in the last week (See chart below, which measures the change in that period). The darker the blue the more the market’s headhaul index has improved. Bottom line - It is our experience that this activity may have mixed messages for the overall economy and mixed messages for overall dry van demand, but it is indicative of a strong holiday shopping season.
This is exactly what we expect as both ‘brick and mortar’ and e-commerce retailers stock up their distribution centers in anticipation of a strong holiday shopping season. Full ocean containers (the 40--foot variety) are moved via rail from Los Angeles to markets such as Chicago (via the BNSF) or to Atlanta via either of the western rail and then most probably handed off to the NSC for transit over the Meridian Speedway to Atlanta. Those 40-foot containers are routinely moved to a nearby warehouse or cross docking facility where, depending on the product, the conversion is roughly 3 to 2 (i.e., three 40-foot containers become two 53-foot dry van trailers). Of course, this doesn’t happen if the distribution center being filled is within a few miles of the rail yard, but especially if the last leg of the transit is more than a minimum charge distance, it probably makes sense to convert. What the current daily charge for the ocean container is also enters into the equation, but the point is still the same. Increased ocean container volume flowing from Long Beach / LA to eastern redistribution markets produces a seasonal surge in demand. The stronger the surge, the stronger the holiday retail season is setting up to be.
Hence, when we see the HAUL.JOT index surge from 13.29 to 104.92 in less than three weeks, we get excited about the strength of the holiday retail shopping season.
A reminder from our October 5th report:
“All of this is signaling that this holiday shopping season will be very strong. We are often asked, “Why is the container volume so predictive of retail sales, is it as simple as retailers have to have the product on the shelves (or in the warehouse if they are an e-tailer) in order to generate the sale?” It is hard to refute the simplicity of this logic, but we believe it is a bit more sophisticated. Call it the “Wisdom of Crowds” (i.e., the more people betting, and the more money being bet, the more predictive a market becomes). Retailers of all sizes have professional buyers who have extensive experience gauging both the strength of demand from their customers and what specifically those customers are going to want. Those professional buyers individually are capable of making mistakes about volume (they order too little or too much) and making mistakes about product selection (grey pull-over sweaters instead of blue cardigans), but collectively their sense about consumer demand and choice are highly predictive of what will actually happen in coming months. In part, this marketplace works because of the number of people involved and the money deployed, and in part, because the buyers who regularly prove their ability to correctly predict volume and selection gain ever larger budgets and influence over time. Those that don’t, find other careers to pursue. Bottom line, the professional retail buyers (large and small) and the container volume that results from their buying decisions are predicting a strong holiday shopping season.”
Donald Broughton – chief market strategist