In IANA’s August Numbers, First Signs of a Return to Normalcy 24/09/20

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Source: https://www.intermodal.org/article/ianas-august-numbers-first-signs-return-normalcy

 

In IANA’s August Numbers, First Signs of a Return to Normalcy

By Larry Gross, President and Founder of Gross Transportation Consulting

IANA’s ETSO (Equipment Type Size Ownership) database provides a wealth of information regarding the health and direction of the North American intermodal sector. Looking at the August figures, we can see that the remarkable intermodal rebound of summer 2020 is continuing but evolving in important ways.

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The intermodal market is composed of two major segments. International, also referred to as Inland Point Intermodal or IPI, is the segment concerned with the transport of international ISO containers (20’s, 40’s and 45-footers), while the domestic segment consists of 53’ domestic containers and the remaining TOFC business. It is a useful distinction because these two segments respond to differing market pressures.

As seen in this chart, the two segments have followed rather different trajectories during the recovery. International (in blue) bottomed out in March but the rebound was tentative until June. Domestic (in green) bottomed out a month later, but the recovery since then has been steep and continuous. Domestic volume moved ahead of prior year in June and has remained in the black since then. July was a remarkable 11% higher than 2019, but in August the gain was smaller but still respectable, at 4.3%. In contrast, despite the recent gains, International remained deep in the red in August with a year-over-year deficit of 9.0%. The last month where International surpassed prior year was July 2019.

There has been a substantial, and unusual disconnect between the volume of imports arriving in North America and IPI. “North America” is defined in this case as U.S. and Western Canadian ports. (We would like to include Eastern Canada and Mexico but most of those ports don’t report monthly figures). For the first two months of the third quarter, IPI was down 10.9% versus prior year while import TEUs (Twenty Foot Equivalent Units, the standard measurement of international container volume) were up 3.4% - a huge performance gap.

Increased use of transloading accounts for at least some of the disparity. As importers struggled to refill depleted supply chains, a “need for speed” dictated a preference for the Southern California ports. L.A./Long Beach import TEUs thus far in Q3 were up a whopping 10.6% over prior year. The ports’ share of inbound North American TEUs reached almost 36% in July, the highest level since December 2018. While IPI revenue moves in the bellwether Midwest-Southwest corridor were down 7.5% quarter-to-date, 53’ domestic container revenue moves were up 13.5% during the same period. The eastbound flow of domestic containers is typically almost entirely transloads, as there is little produced in Southern California these days. By choosing the transload option, importers not only benefited from the fastest route to inland markets, but retained routing flexibility for perhaps three or four additional weeks, allowing them to better gauge the fast-changing recovery and aim their goods at the markets that needed them the most.

An additional factor was a desire on the part of the ocean carriers to quickly turn import containers and load them empty on ships back to Asia. With eastbound rates at historic levels, every day saved was valuable, hence they much preferred to turn the container near the port and hustle it back empty to be loaded onto the next westbound ship.

As remarkable as this story has been, there are signs of change buried in the August numbers. IPI revenue moves increased 6% from July, while Domestic Container revenue moves edged up only 0.6%. It appears that the domestic container fleet is maxed out and there is no capacity remaining for further growth in the near term. Import TEUs arriving in Los Angeles and Long Beach increased 5.8% from July and set a new all-time record in August. But at the same time, imports arriving in Northeast U.S. ports increased almost 13% and Southeastern ports shot up a whopping 20% from July. Thus, it appears that the import routing pendulum is beginning to swing back towards the East Coast.

The intermodal network in Southern California has had difficulty dealing with the recent local surge of volumes. Congestion, tight equipment supplies, chassis dislocations and sky-high rates will all impact routings, helping along the diversion of freight, now that the immediate “need for speed” has subsided. Hence, to the extent that imports continue to grow, it will have to be in the form of greater IPI and likely through other ports.

However, continued growth is not assured. The overall durability of the current surge remains a big question. The expiration of the Federal government’s support of the economy, increasing coronavirus case counts and the looming flu season all are injecting uncertainty into the economic path forward. It would not be surprising to see activity begin to taper down. In any case, it promises to be an unusual peak season.

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