Watching Los Angeles wholeheartedly, tariff impacts are imminent

Weekly chart: Outbound loading of rail containers international and domestic – Los Angeles, outbound tender index – Los Angeles, Ontario Sonar: oraiilintl.lax, oraildoml.lax, otvi.lax, otvi.lax, otvi.ont

Intermodal demand in the Los Angeles market continues to show strong annual growth, which is the share of the struggling truck load sector. As a gateway to goods arriving primarily from Asia in the United States, Los Angeles is expected to be the first region affected by new tariffs. While there has been no structural change in the region’s domestic freight model so far, changes are expected in the coming weeks. So, what should we look at and what can we learn from the current data?

The ports in Los Angeles and Long Beach, California, handle the largest share of the U.S., with 32% of the total. New York and New Jersey rank second in port complexes, about 15%.

As a result, the Los Angeles area has become one of the country's largest warehouse hubs and therefore the largest outbound transportation market. By analyzing the two intermodal container volumes of rail and truck demand, we can gain an in-depth look at how tariffs affect broader transportation trends and consumer demand in the United States

Cargo usually arrives at these ports in internationally sized containers (OrailIntl), which are usually 20 or 40 feet long. These containers can be transferred directly to the port's railings, providing efficient inland transport options. However, offshore shipping companies and freight forwarders that own or lease these containers do not always allow them to move inland. Instead, they are often loaded into oraildoml or shipped by consignment trucks.

Many of these goods are also placed in warehouses for future fulfillment. This “attractive” behavior has been rising over the past year as companies face increasing challenges in purchasing goods outside the United States

For companies and consumers heading to May, tariffs on Chinese goods are a major concern. Upstream booking data show that while the exact impact remains uncertain, a significant drop in container volumes from China to the United States is imminent.

Bookings for twenty-foot container equivalents in recent weeks have dropped by about 45%, according to Sonar's Marine Booking Index (via the container Atlas app). The index is based on booking dates, usually eight to 15 days before the container leaves the place of origin, giving us at least one month of delivery time before these goods arrive at the Southern California port.

Given this, we can expect China's demand for Chinese goods to decline in the coming weeks.

However, the situation is not that simple. Many companies have raised orders for alternative suppliers in countries such as Vietnam and Thailand. Although these countries lack the ability to completely replace China, they can help mitigate the impact.

Since the COVID-19 pandemic, supply chains have become more resilient. Many shippers now employ mitigation strategies to reduce exposure to supply shocks, such as those caused by aggressive tariffs. Larger companies, especially, have stored in their warehouses for several months and ordered good orders before they meet their needs.

So even though imports from China are severely damaged, many major retailers still have more than a month of inventory – probably enough to bridge the gap until a solution is reached.

But this brings new risks: the potential “whip” effect. If a trade agreement is reached, a sudden surge in orders could overwhelm the transportation infrastructure. The longer the current trade uncertainty continues, the greater the chances and impact of such rebound spikes.

Intermodal volumes that benefit from longer order lead times and active pull-in activities will be the first to feel the impact of tariff enforcement, which will make these strategies less efficient.

In the short term, truck freight may be due to the urgency of signing a contracted inventory, the urgency of gaining share from the rails. However, this rise will be short-lived unless conditions change and replenishment resumes.

It is difficult for any company to navigate this uncertainty. Although there is no reliable way to predict in the current environment, transportation providers must be prepared to respond quickly if the freight demand ROI is responding quickly. Maintaining staffing and infrastructure is critical to capitalizing in a turbulent market – but after three years of challenging conditions, how long can they last?

This week’s freight chart is a chart selection by Sonar, which provides an interesting data point to describe the state of the freight market. Charts were selected from thousands of potential charts of sonar to help participants visualize the freight market in real time. Every week, market experts post charts and comments on the homepage. After that, the charts will be archived on freightwaves.com for future reference.

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The Post is fully focused on Los Angeles, and the tariff impact is imminent, first appearing in the freight space.