Chart of the Week: Import Ocean TEUs Index – China to Mexico, China to USA SONAR: IOTI.CHNMEX, IOTI.CHNUSA
Import bookings have doubled from China to Mexico in comparison with the identical period in 2019, with the majority of the rise coming prior to now 12 months. In contrast, import bookings from China to the U.S. are up a still-impressive roughly 40%, but nothing just like the Mexico figure. What does this mean for the U.S. freight market?
The Inbound Ocean TEUs Indices (IOTI) measure bookings of twenty-foot equivalent units on a 14-day rolling average based on departure date from the port of lading. They’re representative of maritime shipping container demand and a number one indicator of surface transportation demand.
Earlier this month, FreightWaves’ Noi Mahoney wrote concerning the skyrocketing container shipment growth on this lane based on evaluation from Xeneta. While it is almost unimaginable to say definitively what’s driving this growth, a few of the driving theories make strong logical sense.
Nearshoring has been getting a variety of the headlines over the past several years because of growing geopolitical tensions, especially with China.
It shouldn’t be widely discussed that China is almost as depending on the U.S. consumer as America is on China’s production. China is actively pursuing solutions to this as many American corporations look to diversify their production. One in all those solutions could also be manifesting within the import data.
U.S. freight demand has been steadily growing in every mode since probably the most recently concluded winter. The variety of TEUs clearing customs (CSTEU) was up 11% y/y last week, loaded rail container volumes (ORAILL) were up an identical amount, and the national Outbound Tender Volume Index (OTVI) was up 10%.
All three figures show a steadily increasing trend line. The rapid growth in imports within the China-to-Mexico lane is way sharper and expands beyond the organic growth of the American imports.
There are a couple of theories as to why this is going on. Probably the most popular and somewhat commonsensical is that China and/or its sourcing partners are bypassing tariffs by bringing goods into Mexico before sending them across the border, essentially making them “Mexican” imports and avoiding tariffs. This might be difficult for the U.S. to prove and/or implement.
A second theory is that China is sending more raw materials into Mexico because it is investing within the country’s manufacturing sector, expecting that the U.S. might be more willing to cope with its Southern neighbor for trade.
If these two theories hold true, then the North American supply chain will proceed to see an evolution to more freight coming across the Southern border.
It’s difficult to inform if the inbound Mexico imports have eroded any share from the U.S. at this point, thanks largely to the still-unstable shipping environment created by the pandemic.
Import bookings into the Port of Los Angeles are up 40% annually, with Long Beach increasing 11%. The IOTI from China to Mexico has somewhat mirrored the Los Angeles import bookings trend over the past 12 months.
The Laredo, Texas, and Tucson, Arizona, markets are two of the fastest-growing within the U.S. over the past five years. Laredo tender volumes are up 137% versus March of 2019, and Tucson’s are up 237%. Each are home to large border crossing points.
China cannot get replaced by nearshoring alone, but this shouldn’t be the one path forward. Whether it’s nearshoring, tariff bypasses or something else entirely, the Southern border is increasingly necessary for domestic transportation.
Concerning the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that gives an interesting data point to explain the state of the freight markets. A chart is chosen from 1000’s of potential charts on SONAR to assist participants visualize the freight market in real time. Each week a Market Expert will post a chart, together with commentary, survive the front page. After that, the Chart of the Week might be archived on FreightWaves.com for future reference.
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