Surface freight volumes remain strong

For the first time in seven years, the Port of Los Angeles/Long Beach held a job lottery for 3,000 longshore positions — and received 300,000 applicants. Los Angeles/Long Beach, which claims to be the largest U.S. port, has seen steady growth in freight volumes, up 5% for the calendar year through June. The greatest increase came from inbound loaded containers, but when outbound loaded containers are factored in, the port still reports a 10% increase in total loaded containers. Empty containers increased 5%. Just over 1% of inbound containers are empty, while 65% of outbound containers are empty.

Truckload demand continues to be strong, yielding a supply/demand ratio that is tracking at all-time high levels for the time of year, according to equity research firm Morgan Stanley. Its Truckload Index measures demand against supply, providing an index which, as the number increases, indicates tighter capacity. That index reached an all-time high in July and continues to track well above levels of the last four years.

Strong demand in both truckload and less-than-truckload (LTL) sectors are not offering any indications of a slowing of the U.S. economy, Morgan Stanley reports.

For shippers, the tight capacity translates into higher costs. While historically truckload carriers have absorbed much of fuel inflation, says Morgan Stanley, the current market situation makes it more likely the carriers will pass on those increased fuel costs to the shippers. “Customers unwilling to pay fuel surcharges in the current market will likely have difficulty securing truckload capacity,” concludes Morgan Stanley.

Tractor order rates are tracking at 25,000 to 38,000 units per month, well above the 18,000-to-20,000 units that represent the industry's replacement rate. Production levels have remained steady, leading Morgan Stanley to conclude the current tight capacity conditions will continue for at least a few more quarters.

Rail volumes increased 6% in the week ending August 14, driven by a 12.1% increase in intermodal and a 7.7% rise in chemical shipments. Burlington Northern/Santa Fe reported an 18.6% increase in intermodal traffic during the week, and Norfolk Southern saw intermodal traffic rise 27.7%. Some of this volume was the result of importers moving seasonal volumes a little earlier than in the past, but it also represents some market share gain from the truckload segment and from rail competitors Union Pacific and CSX, says Morgan Stanley.