The McCown Report : Top Ten US Ports

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Credit: The Port of Oakland

The ten largest US ports had a 12.9% drop in inbound volume in August, the same as the July decrease of 12.9% and a pause of a consistent trend over the four prior months. Those declines follow drops of 18.99%, 20.1%, 21.6%, and 31.6% in June, May, April and March. Prior pandemic volume spikes are driving these decreases. While August 2022 had a 0.6% year over year decrease, it came on the heels of August 2021 that had a 7.5% year over year volume increase. August 2021 was the last meaningful increase in that pandemic year. It was somewhat surprising that August came in at a double digit percent decline, as it was not as driven by those difficult carlier comparisons.

This August is the eleventh straight month where total inbound volume saw a double-digit percent year over year decline. I expect it will be the last month of double-digit percent declines. West Coast ports were actually stronger this month with a decline of 6.6%, while East/Gulf Coast ports had an 18.2% volume decrease. The West Coast was buoyed by Los Angeles, which had its first year over year gain in thirteen months.

The tough comparisons to unprecedented year over year increases then shifted to unprecedented year over year decreases. We will now be moving into a period without this pandemic related noise where the overall year over year change is a pulse related to the economy of tangible things. That was a key goal when I initialy began these reports some six years ago.

Key Data Observations For This Month

August’s overall inbound volume of 1,876,420 TEU was sequentially 3.1% above July. That latest sequential increase was above the 0.6% decrease that measure showed four years ago comparing August 2019 to July 2019. That positive comparison indicates a sequential change above the typical seasonal change when the pandemic effect is netted out. The 37 months after the beginning of the pandemic in August 2020 was a period that first included volume gains from increased consumer spending and then more recently included the rebound effect from that spending. August’s overall inbound volume was 4.5% below that 37-month average. There was a narrower coastal difference than in previous months with East/Gulf Coast ports 2.7% below the average while West Coast ports were 6.3% below the average. 42.0%-12.9% August had East/Gulf Coast ports under-performing West Coast ports, breaking a streak of 26 straight months when the East/GulfCoast ports over performed. August showed an 11.4 percentage point coastal gap based on an 18.0% drop at East/Gulf Coast ports and a 6.6% West Coast drop. The August coastal gap favoring West Coast ports was opposite the 12.9 percentage point East/Gulf Coast port advantage over that 27-month period. West Coast ports dropping in 20 of the last 24 months drove that.

The following chart below puts all of this into perspective by showing total inbound TEU volume by coast since 2017. As shown, total inbound volume is now trending back to where it was prior to the pandemic and seasonal patterns like volume ramping up from February to the summer has returned.

The coastal performance trends and differences are more apparent in the following chart comparing trailing three-month year over year changes since 2017. The underlying eastward transition due to the better cost economics of water miles versus land miles accelerated with the 2016 opening of the expanded Panama Canal allowing three times larger container ships. The pandemic initially benefited the West Coast due to its cycle time edge but since mid-2021 the growth at East/Gulf Coast ports has been above West Coast ports. In August based on the trailing three-month figures, that difference was down to 1.7 percentage points. That was well below the 12.9 percentage point East/Gulf Coast port growth advantage over the last 27 months and the 24.0 percentage point peak in October.

The shift away from the West Coast since 2016 is depicted more clearly in the following chart showing West Coast inbound volume as a percent of total inbound volume for each month along with the trailing three-month average for each month. As the trendline in the chart shows, over the six year period there has been a ten-percentage point shift in coastal preferences. For reasons related to underlying economic cost, total carbon emissions and congestion related impacts, I anticipate that an eastward shift will continue in terms of where inbound containers enter the U.S.

West Coast As A Percent Of Total Inbound Volumethe West Coast was the top performer. August’s West Coast decline of 6.6% as the smallest drop in thirteen months and significantly below declines of 21.3%, 18.9% and 20.5% for July, June and May. The East/Gulf Coast ports August decrease of 18.0% was on the other hand a sharp expansion of the July decline of 4.4%, but in line with June’s decline of 18.9% and May’s decrease of 19.8%. August was the tenth straight month of volume decreases at East/Gulf Coast ports following 27 straight months of increases. August reversed an improving trend evident since March.

Total Top 10 

The actual three-month trailing total inbound numbers showed an August decrease of 14.9%o, a contraction from the 17.4% in July and the fourth straight month of a declining trend. The trailing six-month figure in August was down 19.8% and that was the second straight month of improvement following twelve straight months of larger declines. The trailing twelve month figures are down 17.8%, the twenty-fourth straight month of deterioration in that broader metric.

Seattle/Tacoma

Ports with the strongest August performance were Los Angeles (up 7.2%), Charleston (down 10.2%) and Norfolk (down 14.9%). The weakest performance in August came in at Savannah (down 20.9%), New York (down 19.8%) and Seattle/Tacoma (down 19.0%). The table below lists the 10 ports ranked by imported container volume in the latest month. Volume for the three months ending is also shown along with year over year percent changes for the latest month, three-month and twelve-month periods. The column on the right is a comparison showing the annual growth rate of the latest month versus the same month in 2019, four years ago. That comparison is a four-year CAGR that in effect strips out the impact of the pandemic. The table also shows subtotals with the performance of the four operating ports and the six landlord ports. The former is comprised of all East/Gulf Coast ports with the exception of New York.

For the three months ending August, East/Gulf Coast ports decreased 14.1% compared to a 15.8% decrease at West Coast ports. Stronger performers over the last three months were Charleston (down 1.0%), Houston (down 7.1%) and Los Angeles (down 7.6%). Weaker performers were Long Beach (down 26.0%), New York (down 18. 1%) and Savannah (down 17.8%).

Over the last twelve months, the stronger performers were Houston (down 1.1%), Charleston (down 11.3%) and Norfolk (down 14.3%). The weaker performers were Long Beach (down 25.9%), Seattle/Tacoma (down 23.8%) and Los Angeles (down 20.4%).

The recent over performance of export containers continues, but August was the fourth decline in five months following five straight months of gains. However, nine of the last thirteen months have shown increases after fourteen straight months of decreases. Overall outbound volume decreased 2.8% in August, a sharp change versus the 0.8% gain registered in July. August and July follow declines of 4.3% and 5.5% in June and May.

Outbound volume however still outpaced inbound volume for the thirteenth straight month after 26 months of under performance. With outbound volume down 2.8% and inbound volume down 12.9%, the 10.1 percentage point gap is high but less than one-third the peak 30.8 percentage point difference in March. There is also a coastal gap in outbound volume with the West Coast ports typically under performing. Only 9 of the last 42 months have shown year over year outbound gains, with a 4.1% average decline over the period. While total inbound loads this August were 1.1% what they were four years ago during August 2019, total outbound loads are 13.9% less. That comparison nets out the pandemic but does not net out the effect of the China tariff situation that plays a role in the diverging volume performance.

Inbound volume remains well above outbound volume with the imbalance trending up recently. Total inbound loads were 2.32x outbound loads in August, compared to 2.39x, 2.29x and 2.24x in July, June and May. The 2.33x metric is above the trailing twelve-month average of 2.18x. The annual measure averaged 2.54x, 2.52x, 2.19x and 1.85x for 2022, 2021, 2020 and 2019. The following table shows the divergence in the year over year measures related to import and export volume growth.

The East/Gulf Coast ports have recently outperformed the West Coast ports on most measures related to volume.

In August, those ports represented 59.8% of exports but only 51.3% of imports. As a result, the imbalance at East/Gulf Coast ports is not as pronounced with overall imports 1.99x overall exports in August. West Coast ports had more imbalances with overall imports 2.82x overall exports. If everything else is equal, the more balanced a container port is, the more efficient it is for all parties. The highest imbalance seen at ports in August was Long Beach at 3.48x and Los Angeles at 3.47x. The lowest imbalance seen at ports in August was Oakland at 1.16x and Houston at 1.36x. A comparison of actual four-year growth rates based on August relative to August 2019 is a useful method to estimate recent moderate term growth trends absent the roller coaster impact of the pandemic. Those measures had overall import and export loads diverging by 400 basis points in August, with a growth rate of 0.3% for imports and a negative growth rate of 3.7% for exports in a narrower gap than in previous months. That was below the 470 basis point divergence in July. August showed similar differences in coastal performance for both imports and exports. Import loads on the East/Gulf Coast had a 1.8% annual growth rate when comparing this August to August 2019. That represents a 300 basis point gap compared to the negative 1.2% annual growth rate for West Coast ports in the same four-year comparison. That was a sharp narrowing of the 960 basis point difference that metric showed in July. Export loads had a slightly wider coastal gap, with the 1.7% annual negative growth rate at East/Gulf Coast ports 470 basis points higher than the negative annual growth rate of 6.3% at West Coast ports. That was a considerable reduction from the 750 basis point difference in July.

In terms of individual port performance in comparisons of this August to August 2019 carving out the pandemic effect, there is a fair amount of consistency among imports and exports. Houston remains the best overall performer while Seattle/Tacoma remains the worst overall performer. For example, in a comparison of imports this August to August 2019, Houston shows an annual growth rate of 7.9% followed by Norfolk at 3.0%. In contrast,Seattle/Tacoma had a negative annual rate of 7.3% followed by Oakland at a negative annual rate of 4.8%. In a comparison of exports, Norfolk led with a growth rate of 2.8% followed by Houston at 0.1%. Seattle/Tacoma had a negative growth rate of 12.7% while Long Beach was negative 7.0%. Over that same period, the operating ports outperformed the landlord ports in both directions. Related to imports, the operating ports four-year growth rate of 2.9% was 380 basis points ahead of the growth rate of negative 0.9% at the landlord ports. That represented a 450 basis point narrowing of that same metric compared to its July level of 830 basis points. With exports, the operating ports negative growth rate of 1.0% was 480 basis points better than the landlord ports negative growth rate of 5.8%. August represented a 450 basis point narrowing compared to the same metric at 830 basis points.

Updates On Container Shipping Pricing

A detailed analysis of sector pricing levels and trends was included in my 2Q23 report on container shipping results. Subsequent to that report being issued, additional facts related to pricing have come out that augment the more detailed analysis in the 2Q23 report distributed last month.

The CTS global pricing index is an aggregate measure of all loads actually moving based on data provided by the carriers. As it represents the universe of all loads whether moving under contract rates or spot rates, it is the best overall measure. The measure for July is out and at 75 it is 5.1% below the June index.. The latest sequential monthly drop of four points was the same as the decline the prior month. The CTS index is measured in nominal dollars against overall 2008 pricing which is set at 100. At 7S, the latest level translates into aggregate actual pricing being 259% below what it was fifteen years ago. For our purposes, a more relevant comparison is the CTS average of 66.33 during 4Q19, the last quarter unaffected by the pandemic. Compared to that benchmark, July was 13.1% higher. The SCFI, the oldest and most followed spot index that comes out weekly, had an average level in July that was 1.3% above its average June level. At its July average, the SCFI was 18.4% higher than what it averaged in 4Q19 before the pandemic began to effect volume and rates.

Comparing July to the peak pricing levels reached in early 2022, the CTS global pricing index is 63.2% below peak and the SCFI is 80.8% below peak. Several indicators point to broader pricing measures beginning to stabilize near current levels. One is that worldwide container volume in July showed the first year over year increase, albeit modest at 0.2%, following 17 straight months of declines. However, worldwide container volume never showed the same pronounced volume changes during the pandemic that were experienced in certain trade lanes. For example, July’s worldwide container volume of 15,055,533 TEU is only 4.8% below the peak monthly volume of 15,810,736 TEU achieved in May 2021. May is traditionally the highest volume month for container shipping, driven by loads originating in Asia and moving to North America and Europe related to the holiday season.

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