Thursday, October 13, 2011

Opinion: Harbinger of Doom or Just an Early Peak

Judging by the recent comments by some industry watchers, you would think that a few bad months of cargo numbers signals the coming of the Four Horsemen of the Apocalypse.

Yes, the United States West Coast ports have seen something odd happening this year in terms of when cargo is moving. And, yes, in terms of imports, most West Coast ports are likely to be flat or off slightly from last year.

However, the notion that 2011 is not going to follow the traditional peak season trend bears no basis in what we have seen in the past.

As an example, let's look at the Port of Long Beach – the nation's second busiest container port (and thankfully for this piece one that lists monthly cargo numbers for the past 15 years).

Ten years ago, the conventional expectation on the import shipping seasons at the Port of Long Beach was a fairly rote affair from year to year.

An average year began with January volumes tapering off from the highs of the previous year's holiday season. This was followed by the slowest month of the year, February, before imports ramped up sharply in March and April. From April, import volumes would increase steadily each month until hitting a peak in August. September would see a slight dip, followed in October by a slight rise to near peak levels, then a sharp drop off through the end of the year.

The nature of when certain cargo is delivered is, and always will be, driven by the domestic shopping seasons. Post-holiday months at the beginning of the year see less activity; Easter, summer, back-to-school and Halloween goods ratchet up imports through the end of summer, and the all-important Thanksgiving/Christmas shopping seasons see imports swell through October.

Keep in mind that we are not talking about comparing one year's raw TEU numbers to those of another year. We are talking about how each month of any given year relates to the other months of that year and how this plots out graphically.

For many years the idea of the traditional peak season trend was a given – almost taken for granted.

Then, several years before the global economic downturn that began in late 2007, there was talk that the peak season model was mitigating – spreading out over the year with peaks and valleys flattening.

However, an analysis of the past 15 years of monthly import data at the Port of Long Beach shows no major flattening or change in the traditional peak season pattern (except for a very slight flattening of the peak months of the holiday season). This analysis plotted average month-to-month import trends at the Long Beach port from 1995 to 2010, from 1995 to 2007, and from 2007 to 2010.

In all three cases, the plots were consistent with the traditional view of the annual shipping trends as detailed above (See Chart 1). In fact, it is interesting to note that plots of the average annual trend from 1995 to 2007 and the average annual trend from 2007 to 2010 mirror each other – except for the previously mentioned very slight flattening of the August and September peaks. When only considering the month-to-month trends throughout the year (not the actual cargo numbers for the respective years), this seems to indicate that even the global economic decline has not noticeably impacted the traditional peak season trend.

It goes without saying that there have been individual years that have deviated slightly from the traditional trend, but in most cases these deviations still essentially followed the traditional annual pattern.

Now there is talk that the traditional seasonal trends at the port will not occur this year. That somehow the current economic situation is going to blow the traditional model out of the water.

Fortunately, the numbers do not bear this out.

Our analysis suggests that 2011 may be little more than an exaggerated version of the typical shipping year – certainly with higher highs and lower lows, but still following essentially the traditional peak season track.

The overall trend line for 2011 has played out so far like this: January and February dropped off from the 2010 peak season, just as normal, but bottomed out in March, a month later than the traditional pattern. April saw a much larger than normal increase followed by slight declines in May and June. The peak for the year, at least so far, appears to be July, a month earlier than normal.

In other words, so far this year, 2011 has experienced three notable differences from the traditional peak season pattern: The slowest month of the year came a month early and was significantly lower than normal; the rebound after the beginning of the year dip was much higher than normal; and the busiest month of the peak season came a month early.

These are not the things of which economic catastrophe are made.

In addition, when considering the actual 2011 deviation from the traditional annual trend in TEU numbers, the numbers are very small (See Chart 2). The dramatic March dip represented an actual loss over where the traditional season trend would have placed it of about 40,000 loaded inbound TEUs. While this may be significant at many ports, for the second busiest port in the Western Hemisphere, it represents about a 1.25 percent drop compared to last year's total import numbers and only about 3 percent of all loaded inbound TEUs handled by the port so far this year. The early peak also cost the port another roughly 15,000 loaded inbound TEUs. Added together, these declines still only represent about 20 percent of the import TEUs handled by the port in a single month.

While our analysis is by no means an in-depth economic modeling of what to expect for the rest of the year, it does show in some small way that even if Long Beach import volumes decline for the rest of the year, it may not be the harbinger of disaster that some industry watchers are suggesting. It may just be a variation on the same trend that has been playing out each year for more than 15 years. And maintaining the same economic trend for more than 15 years, month-in-month-out says more about the long-term robustness of the port and shipping industry than any one or two month decline.