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West Coast Volumes Poised To Rip


At the end of July FreightWaves asked a question that seemed almost counter-intuitive at the time – is the freight market starting to recover? When trucking carriers are shutting down at the highest rate in years and tender rejections are near all-time lows, one might be forgiven for thinking the question was a little absurd.

Yet volumes out of West Coast freight markets don't just look healthy – they look very robust indeed. From Los Angeles, specifically, volumes are up 39 percent year-over-year (OTVI.LAX). Current volumes are up against relatively easy, post pull-forward comparisons in 2018, but at this point a good set-up for peak season seems to be emerging from some noisy data.

One example of noisy freight data that has to be taken into consideration is that BNSF's intermodal volumes are down 3.1 percent for the third quarter to date, while Union Pacific Railroad's (NYSE: UNP) are down 9.5 percent for the same period. That sounds like a lot, but Susquehanna transports analyst Bascome Majors reminds us that "Union Pacific remains in the early stages of its PSR-related [precision scheduled railroading] Unified Plan 2020 with a main driver of efficiency coming in the reduction of low-density, unprofitable intermodal lanes."

In other words, part of the messy intermodal data is due to Union Pacific-specific operational initiatives; volumes are better than they look. Volumes slightly down at BNSF can be chalked up to the spread between intermodal and trucking rates going negative – at $1.68/mile from Los Angeles to Dallas, intermodal is now more expensive out of that market than trucking. 

On the water, July volume numbers also came in strong. Los Angeles loaded container imports were up 8.7 percent year-over-year, while Long Beach was down 9.9 percent. Oakland was up 7.4 percent and Savannah was up 7.5 percent. Filled vessels should pull rates up into peak season.

Spot rates for 40-foot containers from China to the West Coast (FBXD.CNAW) have been trending gradually upward since the beginning of June, and FreightWaves expects a solid general rate increase on August 15. For most of this year, container rates on the Transpacific eastbound have been slightly ahead of 2018 prices, but just crossed under them. Still, steamship lines have not announced many blank sailings, and this morning, August 13, the OCEAN Alliance said it was adding capacity to its Asia-East Coast service, which calls on the ports of Houston, Mobile and Tampa. 

Freight brokers from Chicago to Chattanooga told FreightWaves today that capacity in California is tightening up and it's taking them longer to cover loads.

"We're still taking the loads, but built-to-covered timelines are growing and growing," said William Kerr, president of Chicago-based Edge Logistics. "We need all the loads still, for sure. Rates are still low, but I think it's starting to heat up."

"It's busier than a few weeks ago, but far from slamming," said Michael Feig, chief operating officer at White Plains-based Capital Logistics. "It doesn't feel like a good freight market. My guess is late next week will be tighter than now out West."

Dry van spot rates from Los Angeles to Dallas (DATVF.LAXDAL) are at $1.49/mile right now, but the Trucking Freight Futures market forward curve has rates averaging $2.09/mile in November (FWD.VLD), implying a 33 percent upside over the next three months.

Chart: FreightWaves SONAR

"DAT shows the number of loads available is much higher than the number of trucks available," said Nathan Frazier, director of national accounts at Chattanooga-based Lync Logistics. "It's getting tight, which will push up the rates."

In the middle of the country, Chicago to Atlanta rates have risen consistently during August to $1.73/mile.

Large enterprise transportation providers do not seem to be feeling the markets shift quite yet.

A brokerage executive at a publicly traded asset-based carrier said "our West Coast freight is still moving fast off the boards. We have had some carriers tell us they are seeing it pick up on the West Coast but not enough to create an issue with coverage."

But that message was contradicted by a logistics operator at another publicly traded asset-based carrier, who said, "things are tightening. We expect a good, but not great [peak season]."
Other freight markets have started contributing to national volumes – San Antonio, San Francisco, Savannah, St. Louis and Wilmington have all seen significant upward movements in their headhaul scores, week-over-week.

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