Chart of the Week: Outbound Tender Volume – by region SONAR: OTVI.URWT, OTVI.URSW, OTVI.URNE, OTVI.URSE, OTVI.URNW, OTVI.URMP, OTVI.URNW
Compared to June 2019, regional outbound freight demand has shifted noticeably to the Eastern half of the U.S. based on shipper requests for capacity (OTVI). The Southwest region, which includes Texas, has captured most of the growth while the freight-starved Northwest has deteriorated the most in terms of percentage change.
Some of this movement could be attributed to the post-pandemic economic fallout as supply chains become unkinked and consumption patterns stabilize. But there is definitely a sustainable shift in how freight is distributed domestically.
First off, we have to acknowledge that we tend to talk about 2019 like it was last year due to the fact that it was what many consider the last “normal” year before COVID-19 took us on a wild economic roller coaster ride. It was in fact four years ago, meaning that even during stable periods, patterns change over such a length of time — although the pandemic has definitely accelerated this recent shift.
The heat map above shows each region color-coded from darkest blue (highest outbound demand) to white (lowest outbound demand). The Midwest originates the most freight, with the Northwest and Mountain Prairie regions having the least.
The Southwest region averaged about 11% less demand in 2019 than the West Coast. That has flipped in the first half of 2023.
Inventory offloading
Inventory correction probably accounts for a certain portion of the shift as many companies have slowed their ordering now that they can receive goods on a more predictable cadence and consumption has slowed.
This activity would naturally reduce the amount of freight coming out of the West since that is the nation’s largest entry point for goods from overseas. While there are still many companies with inventory to shed, the nation’s largest retailers are reportedly close to being where they want to be.
The latest Logistics Managers’ Index inventory level component shows a slight contraction with a value of 49.5 — values below 50 show contraction, those above 50 show expansion. That’s a stark contrast to a year ago when they were expanding rapidly with values over 70.
Now that inventories are more in line with demand, some of the ordering patterns have remained relatively sticky. Looking at customs data that measures container volumes entering the ports, Port Houston inbound container volumes (CSTEU.USHOU) have doubled versus June 2019. The Southern California ports of Long Beach (CSTEU.USLGB) and Los Angeles (CSTEU.USLAX) have contracted when added together.