Top North America Container Traffic Remains Strong Through November 2017

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

Summary

Top North America seaport TEUs were up 9.2 percent through November, slightly lower from October.

Collectively, November was up 4.5 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 remained higher from the previous year, expectations are set for 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 (OTC:HNJSF) bankruptcy served as a catalyst.

Port of Altamira, Mexico, Source: Google Images

Through November 2017, performance has remained strong with top North America seaports witnessing 9.2 percent growth versus last year. This performance was 40-basis points (bps) lower from the performance recorded through October. Results have remained robust across West, East, and Gulf coasts for the year, 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.

November's performance declined sequentially, recording the fifth lowest result over the past 16 months. This pattern has remained similar to the trends since March. Results have now been positive 14 out of the previous 16 consecutive months. Broader economic trends continue to drive demand as gross domestic product (GDP) improves - we are looking for three consecutive quarters of 3 percent growth.

For the year, TEU traffic has continued to substantially outpace GDP performance in the expectations for U.S. GDP growth is at or above the 3 percent level. As a leading indicator, TEU traffic has continued to sustain cumulative growth for 2017 above 9 percent. Comparable 2016 and early 2017 numbers will be tougher to beat over the next few months.

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 November remained stable across the board for many of the usual suspects, with the primary exceptions being the Northwest Seaport Alliance (NSA) and Oakland on the West Coast. On the West Coast, top performers included Prince Rupert, Vancouver, Lazaro Cardenas, Long Beach, Manzanillo, and Los Angeles with results at 71.9, 17.5, 14.7, 6.2 and 5.3 percent from last year. Canadian seaports have continued to see growth at the expense of the NSA. Combined positive performance from Canada and southern California have seemingly weighed on Oakland of late.

For the East Coast, top performers included Boston, Miami, New York/New Jersey, Savannah, Baltimore and Virginia, New York/New Jersey, and Charleston with results at 15.1, 6.2, 2.8, 2.2 and 1.9 percent. Gulf Coast performance was led by Altamira and Veracruz with results at 21.5 and 18.3 percent from last year.

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

Top laden import performers for West Coast seaports in November included Prince Rupert, Vancouver Long Beach, Manzanillo (total imported TEUs), Lazaro Cardenas (total imported TEUs), and Los Angeles up 68.5, 18.7, 18, 11.4, 7,8 and 6.1 percent year-over-year (YoY). Oakland and the NSA were down at -1.6 and -14.8 percent; clearly market share losses have been driven by both Canadian and southern California seaports.

Top laden import performers for East Coast seaports in November included Boston, Baltimore, Virginia, Miami, Charleston, Savannah, and New York/New Jersey up 26.9, 9.1, 8.7, 7.1, 3.6, 3.2, and 3 percent YoY. Montreal (total imported TEUs) was the laggard down at -6.8 percent.

Houston's run of consecutive double-digit monthly YoY performance was broken after 14 straight months, resulting from Hurricane Harvey. November witnessed double-digit performance at 10.1 percent YoY. Altamira (total imported TEUs) and Veracruz were both up strongly at 19.3 and 18.4 percent. New Orleans (total imported TEUs) was up 0.9 percent.

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

West Coast seaport laden export traffic continued to weaken YoY in November. Leaders included Prince Rupert, Manzanillo (total exported TEUs), Lazaro Cardenas (total exported TEUs), Long Beach, and Los Angeles, up 27.6, 18.9, 15.6, 4.5, and 0.3 percent YoY. Vancouver, Oakland, and the NSA were negative at -6.6, -10.3, and -20.1 percent.

For East Coast seaports, leaders included Savannah, Miami, New York/New Jersey, and Montreal (total exported TEUs) up 5.7, 5.2, 4.5, and 3.2 percent YoY. Charleston, Boston, Virginia, and Baltimore were negative at -2, -5.6, -6.9, and -14.2 percent.

Veracruz was up 4.4 percent from last year (this was the second month of below double-digit performance snapping eight consecutive months of greater than 16 percent performance and the 14th consecutive double-digit performing month). Altamira (total exported TEUs), Houston, and New Orleans were up 23.6, 1.8, and 0.4 percent from last year.

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 (NYSE: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 (JBHT) and Hub Group (HUBG). Many others in the freight sector also benefit including ocean freight forwarders like Expeditors International (EXPD), major truck brokers like C.H. Robinson Worldwide (CHRW), XPO Logistics (XPO), among others.

Source: Class I weekly container units carried

Performance in November was mixed with most Class I rail operators up from October. The top performers for the month were Canadian Pacific (CP), Kansas City Southern (KSU), Norfolk Southern and Canadian National (CNI) with 80, 70, 30 and 20-bps gains from the previous month. CSX, Union Pacific and BNSF (BRK.B) were all down from the previous month at -40, -30 and -20-bps.

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, which can be attributed to strong TEU traffic from Prince Rupert and Halifax.

Source: Class I weekly container units carried

Looking to December, performance has improved to close out the year, with Canadian National remaining as the leading outlier. For December, Canadian Pacific, Canadian National, Norfolk Southern, Kansas City Southern, BNSF and Union Pacific have all witnessed increases of 60, 50, 30 and 10-bps. CSX was the only Class I to not witness positive growth as traffic has been flat from November.

Summary

The uptick in weekly container units carried bodes well as a strong indicator for solid TEU performance for the last month of the year. Despite Canadian National's dominant growth during 2017, Canadian Pacific has witnessed very strong container performance over the past couple of months. At the same token, Kansas City Southern has also witnessed robust container traffic over the past couple of months.

Norfolk Southern has witnessed robust results over this same period, but all regions and Class Is have not benefited equally. CSX, Union Pacific, and BNSF have all seen a drop in traffic for November, despite improving trends, with CSX as the only exception. Overall, all signs point to a banner year for 2017 container traffic as evidenced by North America seaport and Class I data. Positive trends are expected to continue into 2018.

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