The US-China trade war's effects on truckload supply and demand in major port markets

( PHOTO: SHUTTERSTOCK)

(PHOTO: SHUTTERSTOCK)

Guest post by FreightWaves’ Henry Byers

The US-China trade war has had a massive impact on supply and demand within the US truckload market. Companies scrambling to beat the deadline of the proposed tariff increases on Chinese-made goods pushed major ocean container volumes into the ports, and left US warehouses packed full of imported goods that were not meant to ship until after Chinese New Year in 2019. As inventories grew, many US Importers ran out of available warehouse space, so they were left looking for options close-by US ocean ports to temporarily store their cargo while they waited for the 2019 retail season to kick off. This all happened simultaneously with what was already set to be a record year in peak season volumes as US retailers prepared to meet holiday-driven demand. So, the impact on the truckload market was immediate, and  truckload carriers were quick to respond by repositioning themselves to major US port markets where volumes have remained elevated ever since.

One of the best ways to visualize these tariff-driven effects on the truckload market is to compare the amount of outbound tender volumes with the amount of outbound tender rejections in Los Angeles, CA and Savannah, GA, which are two major port-neighboring truckload markets. If we look closely at these two indicators of truckload supply and demand using SONAR, we will be able to visualize how many contracted, outbound loads were being rejected by truckload carriers relative to the number of available loads during this time frame. Thus, providing us with a clear picture of the tariff-driven increases in volume, and their impacts on the truckload capacity within these port-neighboring markets.

Looking closely at our chart of the week, we see that heading into peak season (June/July 2018) outbound tender rejections in Los Angeles, CA (OTRI.LAX) and outbound tender rejections in Savannah, GA (OTRI.SAV), were high relative to outbound tender volumes in those same markets (OTVI.LAX, OTVI.SAV).  This shows us that prior to the influx of expected peak season container volumes along with tariff-driven container volumes, that the supply of available truckload capacity in these markets was low relative to the amount outbound volumes (demand).

LOAD VOLUMES FROM THE MAJOR PORT CITIES OF LOS ANGELES AND SAVANNAH WERE HEAVILY INFLUENCED BY INBOUND CONTAINERS THIS PAST YEAR. (IMAGE: SONAR  OTVI.LAX, SAV, OTRI.LAX, SAV )

LOAD VOLUMES FROM THE MAJOR PORT CITIES OF LOS ANGELES AND SAVANNAH WERE HEAVILY INFLUENCED BY INBOUND CONTAINERS THIS PAST YEAR. (IMAGE: SONAR OTVI.LAX, SAV, OTRI.LAX, SAV)

Then, as additional tariff increases were announced and expected peak season volumes started materializing into truckload demand within these markets, we see that tender rejections (OTRI.LAX and OTRI.SAV) both started to decline, with the only increases coming as the last wave of tariff-driven volumes arrived in November and December of 2018. This decline in tender rejections has continued through today, with a total decline of -82% YOY in both markets.

As outbound tender rejections were in a massive decline during this time-frame, outbound volumes were steadily increasing as retailers pushed demand into the market for the holiday season in 2018, and volumes have remained elevated from the pre-tariff volumes finally hitting the market. Today, OTVI.LAX sits at a 75% increase YOY, and OTVI.SAV sits at a 31% increase YOY.

As has been reported on by Zach Strickland in the past chart of the week, these elevated volumes in Q4 of 2018 have been highly correlated with an increase in national spot rates (DATVF.VNU) and an increase new Class 8 truck orders (ORDERS.CL8). As our chart of the week shows, it would seem that these new trucks have added a great deal of new capacity in the market, which has only helped to further the spread between the elevated OTVIs and the OTRIs for these respective markets.