(source: Freightwaves)
Since September 1, domestic intermodal container volumes have climbed by more than 7%, reaching their highest levels since December. This may not hint that rail ramp congestion is lessening, given the simultaneous drop (22 percent YoY) in international container volumes. Still, it could be a clue that some supply chain issues, such as container shortages, aren’t getting much worse.
Domestic and international intermodal containers are classified into two categories. The former is primarily controlled by domestic carriers such as Union Pacific (NYSE: UNP) and JB Hunt (NASDAQ: JBHT) and operates primarily in North America. International containers are those you hear about being in low supply and mainly owned by shipping companies like Maersk. These two container types reflect two independent modes of transportation, each with its own set of challenges.
Domestically, both types of intermodal containers face the same issue. Limited drayage capacity has hampered transportation across the country, owing to a shortage of chassis and drivers.
Container pileups have resulted from these shortages at train yards, notably in Chicago’s largest intermodal exchange facility. Railroads have limited service due to a lack of space to store containers.
From an annual perspective, providers like Union Pacific reported lower volumes (down 6.3 percent) but substantially higher revenue per container (up 15 percent) in their third-quarter profitability. Price hikes and accessorial charges mitigated lower volume revenue.
International container concerns are further complicated because they are desperately needed back at their origin places across the ocean. Maritime trade is generally one-way, with more freight moving into the United States than out. This means that shipping companies are struggling to return enough international containers to their origin nations (mainly China), limiting their availability for surface transit and driving up rates.
(source: Freightwaves)
Shippers and transportation companies appear to have found out how to translate additional overseas containers (mainly 20-foot and 40-foot) into larger domestic containers (48-foot and 53-foot) and get them moving across the country at some point.
The upward pricing pressure on rates appears to be diminishing as more overseas containers return to their original destinations. Over the last month, the Drewry World Container Index price for shipping 40-foot containers from Shanghai to Los Angeles (SONAR WCI.SHALAX) has plummeted 12 percent, reversing a strong trend.
The price decline is unlikely to be entirely due to an improvement in transferring containers back to China, as demand has slowed from its high, owing in part to the fact that many of the goods ordered at this time will not arrive in time for the holidays. However, when these two items are combined, they may be able to assist ease specific congestion concerns sooner than many people expected.
While this may not be the excellent solution one desires, incremental advances are worth celebrating after a long period of escalating supply chain difficulties.
The Chart of the Week’s Background
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