Did you know? You can easily compare the all-in shipping costs from China to Chicago via the West Coast ports and the East Coast ports?
What is it?
Intermodal Spread (IMSPRD.PANA) – Intermodal spread is the difference in the cost to ship one container from China to Chicago through the U.S. East Coast ports and the cost to ship one container from China to Chicago through the U.S. West Coast ports.
While shippers and carriers may have different costs based on specific terms contained in contracts, the intermodal spread contained in SONAR should be used as a point estimate of current market conditions as seen in daily rates and an indicator of where contract rates are headed.
Intermodal spread (IMSPRD.PANA) is calculated as:
(((Shipping costs from China to U.S. East Coast) + ((intermodal spot rate from Savannah to Chicago) x (964 miles))) – (((shipping costs from China to the U.S. West Coast) + ((intermodal spot rate from L.A. to Chicago) x (2,015 miles)))
The same formula, using SONAR tickers:
(((FBXD.CNAE) + ((INTRM.SAVCHI) x (964 miles))) – (((FBXD.CNAW) + ((INTRM.LAXCHI) x (2,015 miles)))
The calculation for the all-water option does not include fees to traverse the Panama Canal.
In the seasonality chart above, SONAR users can see that the latest spot rate data suggests that shipping a container from China to Chicago through the West Coast ports is more expensive by $179 per container, a premium that many shippers are willing to pay for faster transit times.
Who needs it?
Analysts: Shippers are able to adjust supply chains for changes in market conditions, particularly over an extended time horizon. Elevated shipping rates on a particular lane encourages shippers to use a less expensive option. That is important for analysts following the U.S. publicly traded railroads given their geographic concentration in certain regions of the country. In addition, a larger portion of containerized imports on the West Coast become intermodal traffic (~60%-65%) than containerized imports on the East Coast ports (~25%) because the East Coast ports are more often within a one-day truckload move to local consumption centers. Therefore, an intermodal spread that encourages containerized imports to travel to the West Coast ports positively impacts overall intermodal volume, which is a favorable indicator for the western railroads and the truckload-based intermodal providers, such as J.B. Hunt and Hub Group.
Carriers: Intermodal spread is one of many SONAR data series centered around the ports that will enhance carriers’ understanding of demand by region. In addition to being an indicator for intermodal volume, an intermodal spread that pushes volume to a particular port also creates outbound truckload opportunities from the same port that are not compatible with an intermodal network. Truckload may not be compatible with an intermodal network due to short lengths of haul or expedited service requirements.
Brokers: Brokers that primarily broker truckload shipments should monitor the SONAR intermodal spread for changes in market conditions that will impact the volume of outbound freight demand that is coming out of the port cities that are attractive to shippers. For instance, an increasing volume of shipments to Savannah will also create truckload volume from Savannah to cities in the Southeast for destinations that do not fit well into an intermodal network. Brokers that arrange intermodal shipments should follow the intermodal spread to better understand equipment needs by region.
Shippers: Shippers are the category of SONAR user that the FreightWaves team had most in mind with the intermodal spread data series. When adjusting and managing global supply chains, shippers must take many factors into account such as transit time, cost and geographic diversification. As for the question of importing through West Coast ports or through East Coast ports specifically, the decision often comes down to speed versus cost. Shipping through the West Coast ports to midwestern consumption centers is faster, but typically more costly since the per-mile cost of shipping on the water is lower than the per mile cost of shipping by rail. While global supply chains cannot be overhauled quickly, and the daily rates contained in SONAR vary widely from negotiated private contracts between shippers/carriers/3PLs, the intermodal spread is intended to provide a point-estimate comparison based on daily market conditions as well as provide daily insight into the direction that contract rates are likely headed.
What can I do with it?
Landbridge or all-water? Using the intermodal spread (IMSPRD.PANA) data series, SONAR users can quickly see whether the daily rate data suggests the landbridge is less expensive (moving containerized freight from China to Chicago through the Ports of L.A. and Long Beach) or whether an all-water route is more economical (moving containerized freight through the Panama Canal to the U.S. East Coast). That saves SONAR users the time that would be spent performing those calculations themselves.
Freight in those ocean and rail intermodal lanes may be moving under contracts containing vastly different terms than is shown in the SONAR daily rates (which are daily spot rates), but changes in daily rates influence how contracts are renegotiated. All-in shipping costs also have implications for port market share and demand for truckload demand outbound from port cities.
Show me how!
1) Click intermodal spread to bring up the latest intermodal spread between shipping a container from China to the U.S. East Coast and the U.S. West Coast. Remember that a positive number indicates that it is more expensive to ship via an all-water route to the East Coast and a negative number means it is more expensive to ship via the landbridge option using the West Coast.
2) Alternatively, type “IMSPRD.PANA” in the “Enter Symbol” box after creating a new chart in SONAR.
Pro Tip: Use the intermodal spread in combination with maritime import shipments for the ports of Los Angeles, Long Beach and Savannah (SONAR tickers ICSTM.USLAX, ICSTM.USLGB, ICSTM.USSAV, respectively) to gain insight into how ocean and rail rates are impacting port activity and port market share.