Terrible Toos: Too Much, Too Soon

By several measurements, freight growth is accelerating as we approach midyear and will continue in this promising direction for the remainder of the year and possibly into 2015. Although that’s positive for transportation and logistics providers, as well as for shippers whose growing volumes point to improving conditions in their own markets, it raises more questions about capacity at North American ports, the U.S. truckload market and other troublesome bottlenecks.

Volumes look strong from multiple directions — surveys, interviews and port data among them. Shippers surveyed by Wolfe Research in March and April on average expect their volume to rise 3.6 percent over the coming year, their most optimistic forecast in the quarterly survey since 2010. As Bruce Carlton, president of the National Industrial Transportation League, told the JOC last week, “Things are getting better. The climb out of the deep hole from the Great Recession has been arduous, but we’re getting there. There are definitely signs of economic growth, and that’s all positive.”

Other indications likewise have been positive. Import volumes in April increased 11.4 percent at the Port of Los Angeles and 11.9 percent at the Port of Long Beach. It was the first time in three years that, other than a Chinese New Year month, both ports reported double-digit import growth, North Carolina-based banking and financial analyst BB&T said.

Although some of that growth is likely a residue from freight slowing to a crawl during the rough winter or a sign that cargo owners are shipping earlier than usual to avoid potential disruption tied to West Coast longshore labor talks, others see underlying economic growth in the LA-Long Beach numbers.

“While some of April’s strength may be carry-over from March because of the lingering winter, we believe the marked improvement we saw in April is more reflective of improving core trends than a thaw from winter,” BB&T said.

The picture also is improving globally. The World Trade Organization in late April raised its 2014 forecast for growth in global merchandise trade to 4.7 percent from a 4.5 percent forecast it made last September. It expects growth to accelerate to 5.3 percent in 2015. In the global container market, London-based ship broker Clarksons is forecasting global loaded containers to grow 5.8 percent this year and 6.7 percent in 2015 following growth of 4.7 percent last year. “We think that growth is speeding up,” Clarksons analyst Trevor Crowe told the JOC recently.

Implications of this growth can be seen in terms of pricing and capacity. In ocean pricing, there is no impact; the carriers’ overwhelming focus on cost control achieved by ordering larger ships is standing in the way of rate increases. On the Asia-Europe trade this year, 30 ships of 13,300 to 19,000 TEUs will be delivered as carriers try to reduce unit costs, according to research firm Alphaliner. In the just-concluded trans-Pacific service contracting cycle, carriers either didn’t achieve sought-after rate increases or even retreated versus pricing levels for last year.

As Carlton told the JOC, “I don’t get any complaints from shippers about what they’re paying for ocean shipping. It is just silent. They have nothing to campaign about.”

But that’s not to say that everything on the ocean front is rosy. The bigger ships are challenging the ports as never before. All the evidence needed for that can be found in Vancouver, British Columbia, which is implementing the most far-reaching reforms ever seen in North America to put long truck lines behind it. It involves a multi-pronged strategy including higher truck rates, equipping trucks with GPS devices, penalties on terminals for lengthy truck turnaround times and a portwide truck reservation system.

A response of that magnitude, following a monthlong trucker strike this winter, vividly shows the degree to which ports now can be incapacitated by mega-ship calls that overwhelm terminals with surges of containers — as well as growing underlying volumes — a phenomenon witnessed in recent months at New York-New Jersey, Norfolk and Los Angeles-Long Beach.

The other bottleneck to watch is the U.S. truckload market, where rising rates and a driver shortage that seems to be growing more severe is proving to be one of shippers’ biggest challenges this year. “The driver shortage is the worst anyone can remember and is continuing to deteriorate,” investment firm Stifel Nicolaus said in a recent report. It said truckload shippers should expect to pay roughly 3 percent on average more than last year.

Make no mistake, there is still plenty of market commentary about economic growth being anemic, freight growth unspectacular, and rate increases will be moderate. Given the track record of the major developed economies in recent years, such caution is certainly warranted. But the trends are looking up and, for those shipping goods, that by itself should inject an element of caution.

Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.

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