Something is Happening: Baltic Dry Index Rebounds Sharply in February
RedStone Resource
March 1, 2023
Inside This Edition
CDL Driver Drug Failures Continue to Rise
Among those in prohibited status, 24% never go into the return to duty status and only 38% successfully move out of prohibited status and return to work. Fifty-seven percent of the failures are marijuana related and the national trend of legalizing marijuana will continue to add to the pressures on some drivers. Using hair-follicle testing, traces of the drug can remain in the body for up to an estimated 90 days.
Inbound Port Volumes into West Coast Significantly Lower
Just using the Port of LA data alone, in the three weeks from February 26th projected through March 18th, the three weeks are projected to be down 58.4%, 31.7%, and 43.4% respectively versus the same weeks in 2022. Looking forward, the port is reporting 69 inbound vessels with an estimated 135,137 containers based on a 30-day rolling average.
Pockets of Shipping Activity in the Durable Sector Continue
Total shipments of durable goods were still 7.6% higher year-over-year versus January of 2022. They were essentially flat between December and January. Actual shipping activity was mixed across many sectors, but on a year-over-year basis, only the communications equipment sector was contracting.
ECONOMIC BRIEFING
Something is Happening: Baltic Dry Index Rebounds Sharply in February
The Baltic Dry Index (BDI) is one of the oldest indexes in the world, and it tracks the cost of moving bulk materials in the world’s busiest maritime trade lanes. The index has surged by 45.6% in February alone (despite the index still remaining 52% weaker than last year). The BDI was near all-time lows late in January and in early February, but global inventories of many materials are sitting at multi-decade lows and this could be a signal that global production is about to ramp up.
In previous historical cycles, a movement in the BDI typically leads to increases in manufacturing activity and other supply chain activity within 4-6 weeks. Now that more manufacturing is beginning to take place in the US, there is some expectation that there will be a closer connection between indexes like the BDI and an increase in US domestic transportation demand. Durable goods new orders were stronger than expected in January across multiple sectors. But overall manufacturing was still decelerating in February according to PMI reports, and businesses are still sitting on a lot of inventory. Freight demand in the US is showing some slight improvements as the last part of Q1 begins, but compared to last year the environment is still noticeably weaker.
CDL Driver Drug Failures Continue to Rise
The National Drug and Alcohol Clearinghouse tracks drug failures in the trucking industry. The program was implemented in January of 2020 and since then, 166,296 drivers have failed at least one drug test and 120,345 have failed a second test and have gone into prohibited status (unable to drive using their CDL license).
Among those in prohibited status, 24% never go into the return to duty status and only 38% successfully move out of prohibited status and return to work. Fifty-seven percent of the failures are marijuana related and the national trend of legalizing marijuana will continue to add to the pressures on some drivers. Using hair-follicle testing, traces of the drug can remain in the body for up to an estimated 90 days.
Regardless of the debate over marijuana and reclassification of the drug, the number of drivers failing monthly tests is still rising at a rate of approximately 5,000 a month. At some point in time, this will be impacting the number of drivers eligible to drive, and it will continue to tighten CDL capacity. Today, based on various measures, the failures listed in the clearinghouse could account for as much as 5%-10% of the US private for-hire driver pool.
TRANSPORTATION BRIEFING
Inbound Port Volumes into West Coast Significantly Lower
There is no secret or surprise to suggest that maritime volumes are lower entering the United States. What might be a bit staggering, is the degree to which they are lower than last year. Just using the Port of LA data alone, in the three weeks from February 26th projected through March 18th, the three weeks are projected to be down 58.4%, 31.7%, and 43.4% respectively versus the same weeks in 2022. Looking forward, the port is reporting 69 inbound vessels with an estimated 135,137 containers based on a 30-day rolling average.
Looking at week 9 of 2023 alone, inbound TEU volumes at the Port of LA are expected to be down 82,000 TEUS versus the same week in 2022 (down 140% Y/Y). There has not yet been a week this year in which volumes were higher than in 2022 (although 4 of the weeks had volumes close to prior year comparable data). China is starting to see some slight improvement in its manufacturing sector and this is likely to translate into some slightly improving Q2 inbound activity. But it will not likely stand up to 2022 volumes and this trend that was seen in Q1 is expected to continue into the second quarter of the year.
Pockets of Shipping Activity in the Durable Sector Continue
Total shipments of durable goods were still 7.6% higher year-over-year versus January of 2022. They were essentially flat between December and January. Actual shipping activity was mixed across many sectors, but on a year-over-year basis, only the communications equipment sector was contracting. All other sectors were shipping more goods than they were a year ago, and computers, electrical equipment, motor vehicles, commercial aircraft, and defense aircraft had double-digit growth rates in shipments versus a year ago.
On a sequential basis between December and January, shipment activity grew the fastest in the machinery and computer sectors. New order activity can be used to predict what sectors will have the most active shipping needs in the next 4-6 weeks, and the strongest new orders activity was in machinery, computers, electrical equipment, motor vehicles, and defense sector aircraft and other equipment.
These durable goods sectors will not carry the broader supply chain and logistics sector. But there are other pockets that are also creating freight activity. Essential fast-moving consumer goods, food and beverage, and even some commercial construction materials are still strong and will likely continue to be so in the next several quarters.
