Top North America Container Traffic Remains Robust Through April 2017

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Includes: CHRW, CNI, CP, EXPD, HUBG, JBHT, KSU, NSC, UNP, XPO
by: James Sands
Summary

Top North America seaport TEUs were up 8.2 percent through April, a 130-bps increase from March.

Collectively, April was up 8 percent versus last year, when considering top North America seaports.

Performance across all North America seaport regions has remained robust.

TEU traffic results continue to suggest a competitive pricing environment between the trucking market, railroads and IMCs.

Top North America Seaport TEU Review

During 2016, top North America seaport twenty-foot equivalent container units (TEUs) were on track to witness negative performance. This was the case through September for laden and empty imported/exported TEUs. It was not until October through December, that positive momentum was sustained to close the year out with an overall approximately 1.2 percent gain.

Port of Los Angeles Source: Google Images

Through April 2017, performance remains robust with top North America seaports witnessing 8.2 percent growth versus last year. This performance increased by 130 basis points (bps) from the 6.9 percent recorded through March. Results have remained equally robust across West, East and Gulf coasts.

*Note: The seaports of Port Everglades, Jacksonville, Halifax, Wilmington DE and Mobile do not provide monthly TEU data. These mentioned seaports are excluded from the total calculation.

Despite the sequential decline in April, performance has now been positive seven out of the previous nine consecutive months. International trade continues to be robust for multiple modes, irrespective of the trade policy rhetoric. Sustained consumer demand continues to be a big driver for growth.

Gross domestic product (GDP) was revised higher to 1.2 percent from the initial 0.7 estimate. This represents a doubling of growth versus last year. First quarter TEU volumes at nearly 7 percent, still easily outpaced this level of growth, unit prices aside. The focus has already begun on downward revisions for the second quarter's GDP. Initial estimates were at 4 percent, which just dropped to 3.4. When all is said and done, I would not be surprised to see a similar doubling from last year's 1.4 percent second quarter.

The list below provides an overview of Top North America seaports. Collectively, these seaports reflected greater than 90 percent of total TEU traffic during 2016.

Source: Seaport websites, all numbers are subject to change based on revisions.

*Note: The seaports of Port Everglades, Jacksonville, Wilmington DE and Mobile do not provide monthly TEU data, and all TTM data is based upon the most recent fiscal year. Port Halifax provides quarterly TEU data so all information is as of the most recent quarter. These mentioned seaports are excluded from the total calculation.

As stated, the geographic dispersion of solid performance remains in place for all major North America regions. Some experts have contested that Asian trade has shifted and remained in East and Gulf coasts. This may or may not be the case, but the Port of Los Angeles has clearly benefited from the reshuffling of the aftermath from the Hanjin Shipping bankruptcy. Despite the loss, the Port of Long Beach has still witnessed overall solid growth against last year's higher baseline.

Top West Coast performers for the month included the ports of Long Beach and Manzanillo at 16.5 and 12.1 percent. For the East Coast, top performers included the ports of Charleston, New York/New Jersey and Savannah at 19.9, 11.8 and 11.7 percent. Gulf Coast leaders included the ports of Veracruz and Altamira, up 14.2 and 13.2 percent. Veracruz eclipsed the one-million mark for the first time and is quickly challenging Miami for the 15th spot.

Source: Seaport websites, all numbers are subject to change based on revision.

Top performers from the West Coast out of the top ten included the ports of Long Beach and Vancouver, up 16.5 and 13 percent. Los Angeles, the Northwest Seaport Alliance (NSA) and Oakland were up 8.3, 6.2 and 3.6 percent. Manzanillo (total imported TEUs) and Prince Rupert remained positive, while Lazaro Cardenas (total imported TEUs) was the only negative performer.

Top laden import traffic performers from the East Coast of the top ten included the ports of Charleston, Savannah, New York/New Jersey, Boston and Baltimore, up 20.5, 14.6, 14, 11.8 and 11.1 percent. Virginia was up 9.4 percent, while Miami and Montreal (total imported TEUs) were up 1.5 and 0.7 percent.

The Port of Houston's laden import TEU traffic continued its strong rise for the year. Houston's run of consecutive double-digit monthly year-over-year (YOY) performance now has extended for 11 months, setting a new record. Altamira (total imported TEUs) was up 22.4 percent, while Houston and Veracruz were up 12 and 10.5 percent. New Orleans (total imported TEUs) was marginally higher.

Source: Seaport websites, all numbers are subject to change based on revision.

West Coast port laden export traffic was more muted in April. Leading ports included Manzanillo (total exported TEUs) and Los Angeles, up 16.1 and 9.4 percent. Long Beach was up 3.1 percent, while the NSA, Vancouver and Oakland were all marginally changed. Prince Rupert and Lazaro Cardenas (total exported TEUs) were down substantially at -19.5 and -14.6 percent.

For East Coast ports, Montreal (total exported TEUs) was up 11.5 percent, while Charleston was up 8.7 percent. New York/New Jersey, Virginia and Savannah were up 4 and 3 percent, respectively. Boston, Baltimore and Miami were all down at -15.2, -7.4 and -2.5 percent.

Houston's passing of the Port of Oakland only lasted one month as Oakland regained its 8th place position back in April. Veracruz was dominant with 43.2 percent performance from last year, Altamira was up 6.1 percent. Both Houston and New Orleans were weaker at -4.5 and -4.9 percent.

North America Class I Rail Container Review

Class I rail operators break down their container performance by international and domestic services. For international containers, traffic moved proportions were as follows: BNSF and Union Pacific (NYSE:UNP) near 50 percent, Norfolk Southern (NYSE:NSC) near 60 percent and CSX near 40 percent. Most container moves for both Canadian rail operators are international.

In addition to direct haulage of international containers, a substantial number of international containers are transloaded to domestic containers with proximity to seaports, for BNSF, Union Pacific, Norfolk Southern and CSX. From this perspective, a substantial majority of container traffic for Class I rail operators is driven by seaport TEU traffic.

Additional companies directly benefiting from these trends include J.B. Hunt Transport (NASDAQ:JBHT) and Hub Group (NASDAQ:HUBG). Many others in the freight sector also benefit including ocean freight forwarders like Expeditors International (NASDAQ:EXPD), major truck brokers like C.H. Robinson Worldwide (NASDAQ:CHRW), XPO Logistics (NYSEMKT:XPO), among others.

Source: Class I weekly container units carried

Performance in April was mixed with Union Pacific, Norfolk Southern, Canadian National (NYSE:CNI) and Canadian Pacific (NYSE:CP) improving from March. Improvement was mostly marginal, with Canadian Pacific's 100-bps gain being the strongest, followed by Canadian National's 50-bps gain.

Canadian National continues to stand out as the closest correlating Class I rail operator to TEU performance. The company has clearly been benefiting from the improvement in Canadian ports during 2017. The exclusive access to Prince Rupert and Halifax is understandable, but it would appear that market share gains have occurred at Vancouver as well.

The significant underperformance by Class Is continues to suggest that the trucking industry has remained more competitive as lower pricing has ensued. We have seen impacts to volumes for both Hub Group and J.B. Hunt in the first quarter, as well as other intermodal capacity providers using Class I rail networks. Class Is have offset volume losses with increased pricing of purchased rail transportation.

Source: Class I weekly container units carried

Looking to May, performance has been much more positive with the primary exception being Kansas City Southern (NYSE:KSU). Kansas City Southern's struggles with the competitive truck market have been much more intense within Mexico. Last month's report assumed a slowing for Class Is in April, which occurred for the majority, next month we may see an acceleration.

With pricing increases for inter modal network use by rails, stronger improving volumes would suggest increasing demand, as intermodal marketing companies (IMCs) and capacity providers remain willing to pay more to access networks, or are becoming increasingly able to pass these costs on to customers.

Summary

As long as consumer demand remains stable, seaport TEU demand should remain strong. The good news is that solid performance has been spread across all major regions. From a traffic perspective, container shipping lines, air cargo carriers and Class I rail operators have performed strongly, while the trucking industry has continued to struggle, due to its more fragmented market.

The market remains highly competitive between the trucking industry, IMCs and capacity providers, and Class Is. Despite the competition, Class Is have been the strongest benefactors due to their ability to increase the cost for third party operators and service providers to put equipment on their networks.

International TEU traffic has remained robust through the first four months of 2017. Combined with the increased traffic for May, and strong pricing power, Class Is are poised to see improving revenues and profits from this segment.

Disclosure: I am/we are long CNI, HUBG, JBHT, KSU, XPO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.