Top North America Container Traffic Remains Strong Through October 2017

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Includes: BRK.B, CHRW, CNI, CP, CSX, EXPD, HUBG, JBHT, KSU, NSC, UNP, XPO
by: James Sands

Summary

Top North America seaport TEUs were up 9.6 percent through October, unchanged from September.

Collectively, October was up 8.3 percent versus last year.

Laden imports remain the driver for improved traffic as laden exports continued to lag performance.

Class I TEU traffic results remained stable, intermodal pricing has stayed higher from the previous year - expectations are set for a stronger performance in 2018.

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. The Hanjin Shipping bankruptcy served as a catalyst.

Port of Savannah, Source: Google Images

Through October 2017, performance has remained strong, with top North America seaports witnessing 9.6 percent growth versus last year. This performance was unchanged from the performance recorded through September. Results have remained robust across the West, East and Gulf coasts for the year, and the non-U.S., East and Gulf Coast seaports have continued to lead results.

*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, with the exception of Halifax, which is included quarterly.

October’s performance declined sequentially, recording the seventh-highest result over the past 15 months. This pattern has remained similar to the trends since March. Results have now been positive in 13 out of the previous 15 consecutive months. Broader economic trends continue to drive demand as gross domestic product (GDP) improves.

For the year, TEU traffic has continued to substantially outpace GDP performance in the U.S. If fourth-quarter GDP can be sustained at or above the 3 percent level, there is a good chance that TEU performance will remain in the high-single digit area.

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 YTD calculation.

Performance in October remained solid across the board for many of the usual suspects, with the primary exceptions being Los Angeles and the Northwest Seaport Alliance (NSA) on the West Coast for the second consecutive week. On the West Coast, top performers included Prince Rupert, Lazaro Cardenas, Long Beach, Manzanillo and Vancouver with results at 53.5, 16.8, 15, 5.8 and 4.4 percent from last year respectively. Canadian seaports have continued to see growth at the expense of the NSA.

For the East Coast, top performers included Savannah, Baltimore, Miami, Montreal, Virginia, New York/New Jersey and Charleston with results at 32, 29, 21.2, 13.2, 11.3, 9.7 and 7.9 percent respectively. Gulf Coast performance was strong led by Houston and Altamira with results at 21.1 and 20 percent from last year respectively.

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

Top laden import performers for West Coast seaports in October included Prince Rupert, Manzanillo (total imported TEUs), Long Beach, Lazaro Cardenas (total imported TEUs) and Oakland, up 42.1, 14.6, 14.3, 11.2 and 6.4 percent year over year (YoY) respectively. Vancouver was up 0.6 percent, while the NSA and Los Angeles were down -6.5 and -8.1 percent respectively. The NSA clearly has continued to lose market share from the Canadian seaports.

Top laden import performers for East Coast seaports in October included Savannah, Baltimore, Montreal (total imported TEUs), Miami, Virginia and New York/New Jersey, up 24.8, 24.4, 13.4, 10.6, 9.6 and 6.7 percent YoY respectively. Boston and Charleston were up 4.4 and 3 percent respectively.

Houston’s run of consecutive double-digit monthly YoY performance was broken after 14 straight months, resulting from Hurricane Harvey. October witnessed a sustained surge back, as performance was up 24.1 percent YoY. Altamira (total imported TEUs) was up 27.6 percent, while Veracruz and New Orleans (total imported TEUs) were up 4.5 and 1.9 percent respectively.

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

West Coast seaport laden export traffic weakened YoY in October. Prince Rupert and Manzanillo (total exported TEUs) were the only major leaders, up 17.7 and 10.1 percent YoY respectively. All other seaports, including the Long Beach, Lazaro Cardenas (total exported TEUs), Oakland, Vancouver, Los Angeles and the NSA, were negative at -0.5, -0.9, -4, -9.4, 13.3 and -13.9 percent respectively.

For East Coast seaports, leaders included Miami, Savannah, Montreal (total exported TEUs) and Charleston, up 33.1, 27.6, 13 and 8.2 percent YoY respectively. Baltimore and New York/New Jersey were up 3.6 and 1.3 percent respectively. Virginia and Boston were negative at -1.2 and -9 percent respectively.

Veracruz was only up 0.4 percent from last year (this snapped eight consecutive months of greater than 16 percent performance and the 14th consecutive double-digit performing month). Altamira (total exported TEUs) and Houston were up 13.9 and 9 percent respectively from last year. New Orleans (total exported TEUs) was down at -4.2 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 near 50 percent, Norfolk Southern 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) and XPO Logistics (NYSEMKT:XPO), among others.

Source: Class I weekly container units carried

Performance in October was strong, with most Class I rail operators up from September. The top performers for the month were Canadian National (NYSE:CNI), Kansas City Southern (NYSE:KSU), Canadian Pacific (NYSE:CP), CSX Corp. (NYSE:CSX), Norfolk Southern (NYSE:NSC) and Union Pacific (NYSE:UNP) with 80, 70, 40, 30 and 10 bps gains. BNSF's (NYSE:BRK.B) performance was flat from the previous month.

Canadian National continues to stand out as the closest correlating Class I rail operator to TEU performance and remains the outlier, with the next closest being BNSF. The substantial outperformance of all peers, and most notably Canadian Pacific, is an indication of sustained stronger market share growth for Canadian National.

Source: Class I weekly container units carried

Looking to November, performance has been mixed, with Canadian National remaining as the leading outlier. For November, Kansas City Southern, Canadian Pacific, Norfolk Southern and Canadian National have witnessed increases of 60, 50, 30 and 10 bps respectively. All other Class Is were negative, with CSX, BNSF and Union Pacific down at -30 and -20 bps.

Summary

Canadian National has continued to benefit tremendously from the strong market share gains by Vancouver and Prince Rupert of late. Halifax has also been a strong growth contributor to Canadian National’s exclusive access, while Montreal has continued to perform well. Canadian Pacific has shown some life of late, validating the strength of Canadian seaport performance in 2017.

In the U.S., BNSF continues to lead all rail operators for intermodal performance. Kansas City Southern’s improved results are directly related to increased capacity at Lazaro Cardenas and the recent partnership with BNSF. Both Norfolk Southern and CSX have benefited of late from strengthening East Coast seaport TEU growth, although CSX has waned in November. The balance continues to favor Canadian National, BNSF and Norfolk Southern for international, while all have benefited from improving domestic intermodal.

With increased truck spot market pricing and expectations for contract pricing to pick up in 2018, intermodal is set up to see improving rates as well. Select asset-based and asset light companies with exposure to intermodal have rallied, indicating that expectations have improved. I expect 2018 to see stronger pricing power, and in the near term increasing consolidation.

Disclosure: I am/we are long CNI, KSU, HUBG, JBHT, 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.