Could surging Chinese imports signal a full freight recovery?

Chart of the Week:  U.S. Customs Maritime Import Shipments – China to U.S. Seasonality View SONAR: CSTM.CHNUSA

Total U.S. maritime shipment volumes have grown to higher levels they were at prior to the COVID-19 pandemic that shuttered China’s production. The pandemic was starting to become a significant public health concern for China right around the time of their biggest holiday of the year, the Lunar New Year aka Chinese New Year (CNY).  Import volumes from China typically slow for about four to six weeks following the holiday due to factories shutting down and taking time to ramp back up, making it difficult to tell just how much impact the virus was having on production.

The COVID-19 outbreak pushed import volumes approximately 60% lower than last year at the trough. Now maritime shipments from China are exceeding last year’s numbers as orders that were placed in the early stages of the pandemic hitting the U.S. are now hitting the ports.

Whereas this is a good sign that production capacity has largely returned to China, the bad news is that it may not translate to higher domestic freight volumes in the near-term. The national Outbound Tender Volume Index (OTVI) that measures truckload shipments in the U.S. has been slowly recovering after hitting a bottom a few weeks ago around Easter, increasing 6.1% over the past two weeks—still 7% lower than 2019 levels.

Domestic truckload volumes are on the upswing but still well below 2019. Chart: SONAR – National Outbound Tender Volume Index Seasonality View

Maritime shipments from China have nearly doubled in the same time. The problem with deriving too much optimism from this figure is that many of these orders were placed over a month ago when freight volumes were peaking, before demand had softened significantly. Many of these orders may end up in warehouses as cancelled or unused for a while.

Looking at the mix of shipments labelled with standard industrial classification (SIC) codes, the largest monthly growth has come out of manufacturing and durable goods orders. This is good news for freight transportation as this is a signal that the industrial side of the economy may be recovering faster than anticipated.

Industrial production is the backbone of freight transportation, as many of those goods require multiple moves from various plants to complete. Many retail goods such as clothing and electronics only require one to two moves domestically on a truck prior to final consumption. Most of the retail goods arrive from overseas and are transloaded into a warehouse or distribution center one time prior to final delivery.  

As mentioned previously, there is still concern over whether these orders translate to into real recovery or are just an initial replenishment as factories recover for some lost time. A similar situation occurred in the automotive sector last fall after the General Motors auto strike pulled factories offline for a month. After the strike was resolved, a large surge of orders for parts ensued as factories attempted to make up for lost production.

Many companies are cutting their capital expenditure budgets on the business to business side due to economic uncertainty. This will have a downstream effect on future durable goods orders in the coming months. Consumer confidence is waning, but the stimulus bill from the government has many making more than they were prior to the shelter-at-home orders, which is only a temporary solution. It is still unknown how quickly many will be able to regain their employment. Time will tell if this is a short-term bump on a stair step style recovery or part of a more linear upward trend.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on for future reference.

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