Christmas is coming, and retailers are getting ready. This week's Wall Street Journal, in an article (available to paid subscribers) titled "Trans-Pacific Shipping Indicates Retailer Optimism," cited a 6% increase in container freight arriving this summer at the ports of Los Angeles and Long Beach compared to 2012. While the increase has not exhausted excess shipping capacity, it did have a noticeable effect on spot market truckload volume and rates outbound from L.A. in September.
That truckload freight impact enabled me to predict this major trend more than two weeks ago, based on spot market data from DAT Load Boards and DAT RateView.
L.A. Freight Volume, Rates Signal Rise in Retail Orders
The first signal came at the end of September, just as the quarter ended, when I saw a spike in outbound rates from the Los Angeles market. That zip code cluster includes the Port of L.A. and the Port of Long Beach, the two busiest in the nation and the transit point for most Asian imports. Outbound freight availability from the L.A. market increased 38% in the second half of September, compared to the first two weeks of the month, and overall load volume for the month was up 52% compared to the same period in 2012. That was a clear sign of expansion in import traffic.
A note about those statistics: It may seem odd for the spot market volume to jump by double digits on a seemingly modest 6% increase in imports, but that's because most outbound freight from the ports is handled under ongoing contracts. That means that a large share of that incremental 6% is likely to be "exception freight" not covered under contracts, and therefore available to freight brokers and 3PLs for spot market transactions. The spot market represents about 15% of total truckload freight movements, depending on the season, so 15% or 20% of that 6% is a lot of truckloads.
Freight Moves to Chicago, then Other Hubs, for Distribution
As freight was still moving out of L.A., outbound rates for vans began to soar in Chicago in a matter of days. That rapid sequence indicated the consumer goods were already transitioning through wholesale and retail distribution centers in that major Midwest freight hub.
From September 16th to 27th, freight availability and rates dropped in L.A. and Chicago, but rose in Houston (volume up 32%) and Charlotte (up 54%.) The Port of Houston commonly receives goods from South America via the Gulf of Mexico, and from Asia via the Panama Canal. Charlotte serves as an inland hub, serving the Atlantic seaports of North Charleston SC and Savannah, GA, which receive goods from Europe as well as South America. Columbus also saw a 67% volume increase, as freight moved in and out of distribution centers there, causing load availability to rise and fall in alternating weeks.
Retail Growth Could be Anywhere from 2.4% to 4.9%, Analysts Say
A previous article in the Wall Street Journal, echoed by Reuters, noted that consumer research firm ShopperTrak predicts only a 2.4% increase in purchases for November and December of this year compared to 2012. This is considered a disappointing forecast that does not support retail growth targets. Other analysts, including spokesmen for the National Retail Federation (NRF), Deloitte and Alix Partners, predicted increases in a range from 3.9% to 4.9%, according to an October 3rd report on the CNBC web site. The NRF cautioned that consumer confidence could be affected by the government's handling of the budget and deficit.
Increased Freight Buoys Rates, Due to Tight Capacity
Freight volume is remarkably stable in September, down only a few percentage points from August, which, in turn, did not decline at all from July or even June. Van rates followed the same trends. Generally, van rates have remained stable in September and early October on the spot market, and at a higher level than expected for the season.
Rates did not decline steeply in July, which would be the typical pattern, and they have even edged up a few times in the past ten weeks, on a week-over-week basis. The increase in freight volume plays a big role in supporting rates, although seasonal and regulatory factors also play a role. A portion of the increase may be a holdover from the weather-related conditions in the spring that shifted seasonal freight volume into summer. Another factor is the new hours of service (HOS) which began July 1 and added an estimated 2% to rates overall, including a 4% impact on those lanes that were most susceptible to gaining a day of transit time due to poorly timed mandatory breaks.
Stay Tuned - and Stay in Touch!
I continue to watch spot market van rates and demand closely in all major markets, and I will blog about my findings. If you'd like to conduct a similar analysis, you'll want to get your own subscription to DAT RateView. Call the DAT sales team at 800-551-8847 or fill out this online form and someone will contact you.
Meanwhile, please return to the blog for my weekly updates, and I invite you to post your own comments here, as well. Let me know what you are seeing in your lanes, or send me articles or other information on the subject, and join the conversation.
The album "Santa's Got a Semi" includes humorous, holiday-themed songs such as "Old Hippie Christmas" and "I Farted on Santa's Lap, Now Christmas is Gonna Stink for Me."