Container volumes predicting strong holiday season

 ( Photo: Shutterstock )

(Photo: Shutterstock)

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. 

FreightWaves’ 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 HAUL.LAX and DATV.LAXDAL Indices. Both are clearly signaling that the container volume coming in through the Long Beach/LA port is surging and bodes well for the holiday shopping season.

  • Demand up strongly - The SONAR Headhaul Index (the rate to which loads out exceed loads in) for Los Angeles has surged from under 50 (parity with March) to 88.8 in the last 4 weeks.

  • Rates up strongly - The DAT Dry Van Rate index for the LA to Dallas lane has surged from $1.41 a mile in March to $1.84 a mile today (up 30.5%).

 Clearly, the number of loads out of the area are surging and outpacing the loads coming into the area.  We’d remind readers that the Long Beach/LA port is the largest container port in North America, handling more than 1/3 of the containers imported into the US (34% to be exact). Volumes in 2017 were exceptionally strong as the economy accelerated from both a consumer as well as industrial perspective. After a relatively slow start, inbound container volumes were up 7.4% for the year in total and ran as high as up 14.6% in July and up 12.4% in September of 2017. Volumes in 2018 have been strong on top of tough comparisons throughout the year. It appears that there was some pull forward in May and June as some shippers attempted to beat the potential tariffs with June inbound volumes up 8.4%, while July and August volumes were slightly negative (down 1.3% and down 3.1% respectively). Having now worked past that period, we are seeing clear evidence that the current volumes are surging strongly. Although the data for September container volumes has not yet been released, the data from the trucks (which move freight from the port to destinations through the US) is confirming that the volumes are up strongly and that the fall shipping surge is in in ‘full force.’

 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 the 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.

Side note - despite the strong pre-ship in May and June, inventories across the US economy fell in the second quarter and were a one-percentage point headwind to the GDP (the reduction of inventory is a negative to the calculation of GDP, while the increase of inventory is a positive to the calculation of GDP). Without the drop in inventories that occurred, GDP would have come in at 5.1% in 2Q!

Stay tuned…

- Donald Broughton – chief market strategist