Maritime booking surge suggests capacity could get tighter this fall

Chart of the Week: Inbound Ocean TEUs Volume Index, Outbound Tender Volume Index – USA  SONAR: IOTI.USA, OTVI.USA

Maritime bookings represented by the Inbound Ocean TEUs Volume Index (IOTI) show a 40% increase over the past two weeks, the strongest spike in activity since early spring. This movement breaks the slow downward trend that had been in place since late April and could mean this cycle of tightened transportation capacity may have yet to peak.

The IOTI is an index with a base value of 100 starting on Jan. 1, 2019. The current value of 222 indicates that there is over twice as much order volume (222%) with an estimated departure date of Aug. 26 as on Jan. 1, 2019. The biggest takeaway, however, is the most recent spike.

The link between maritime booking and surface transportation can be a bit cloudy, but there are a few insights to be gained by comparing the IOTI and OTVI.

Order synchronization

The first connection lies in the way shippers book maritime shipping orders nearly in sync with requests for trucking capacity at certain times. During the initial wave of the pandemic hitting the U.S. in March 2020, both the IOTI and OTVI spiked then receded in lockstep.

During the summer of 2020, both maritime and truck shipment requests increased from May until Labor Day but then became somewhat disconnected. This is probably due to the shift from replenishment to store/fulfillment freight.

Maritime and long haul surface freight tends to be focused on replenishment for large warehouses and storage facilities upstream in the supply chain, whereas short haul surface freight leans toward fulfillment and the end user in the retail space.

Many shippers thought the winter months would have some breathing room for inventory replenishment and easing capacity conditions to clear backlogs as life returned to normal.

This appeared to be the case initially as spot and tender rejection rates fell sharply to start the year. Tender rejection rates fell from 28% on Dec. 28 to 20.7% on Feb. 9, and Truckstop.com’s all-inclusive spot rate for its top 100 lanes fell from $3.22 the week of Jan. 3 to $2.71 on Jan. 28.

Surprisingly, durable goods demand increased nearly 11%, according to the personal consumption expenditures reported by the Bureau of Economic Activity in January from December as COVID cases peaked and quarantines stiffened in the U.S. Maritime bookings jumped 18% over the last two weeks of January.

In February an unusual series of extreme winter weather forced many facilities to shut down and trucks to be parked for nearly a week. Shippers subsequently panicked and requests for capacity jumped 22% in the last week of the month, just in time for some of the January orders to hit the ports.

Transition to land

The last point illustrates the second harder-to-measure connection between maritime orders and trucking demand. Orders take 12-35 days in a normal year to hit the U.S. ports from China, the largest point of origin. This number has expanded over the past year as port congestion delays are abundant on both ends.

Once the freight clears customs, it has three options:

1. Drayage to a warehouse.
2. Shipment by rail.
3. Shipment by truck.

The third option takes a bit more time and may include the first option for transloading. And of course drayage (transportation of the container from port on a truck) capacity is as tight as any, which causes even more delays to the traditional 53-foot dry van — the gross majority of the volume represented in the OTVI.

One thing is clear, though: While the exact timing may be uncertain, maritime import volumes provide fuel for the fire. While shippers are ordering more goods from overseas, there is more potential freight to move on land. This recent spike, at the very least, supports an extension to the current cycle, if not a portent of yet another round of tightening this fall.

by Zach Strickland at Freightwaves