The Import Armageddon Narrative Looks Overblown

The Import Armageddon Narrative Looks Overblown

• Port of Los Angeles inbound container data shows a rebound starting next week.
• Port of Long Beach data looks the same.
• A supply chain collapse doesn’t appear imminent.

It doesn’t look like west coast container traffic is falling off a cliff…

After spending many years observing investment markets, patterns and trends become noticeable. One of those tendencies is for the media to rehash doomsday scenarios. Especially while they’re still fresh in investor’s minds. The tactic is used as a way to get try and get lots of clicks.

In the years following the financial crisis, there was always someone trying to spin why the next housing crisis was right around the corner. Those doomsdayers knew investors on Wall Street and Main Street were both worried that the rug could be pulled out from under them at any minute. Yet, instead, households recovered, readjusted, and the economy powered forward.

Well, ever since the pandemic, inflation has been a word at the front of every Americans’ mind. At the time, companies couldn’t keep up with consumer demand. Inventories were quickly depleted, and global supply chains were overwhelmed. The dynamic caused prices to explode higher as manufacturers scrambled to find raw materials to make goods, passing the increases along to individuals.

To see what I mean, take a look at the above chart of the New York Fed’s Global Supply Chain Pressure Index. It measures how easily goods are able to move around the world. From early-2020 to mid-2022, the index rose to four standard deviations above normal. That’s an almost statistically impossible event and is one of the major drivers of higher prices. So, Wall Street and Main Street are worried it could happen again.

Recently, the media has stoked those fears. In late-April, outlets like The Los Angeles Times and CNBC said America was facing another supply chain crisis. They said shipping traffic in the vital California ports of Los Angeles and Long Beach would see shipment volumes fall off a cliff. They implied that retailers could run out of inventory, killing economic growth and pushing prices higher. However, based on recent data, inbound freight traffic looks like it’s rebounding, That should keep prices contained, supporting domestic output and a steady rebound in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

In early April, the White House introduced its reciprocal tariff plan. Following the negative reception of the plan, it began to dial back its hardline rhetoric. Yet, during the process, one thing became very clear… the primary goal was to isolate China. The administration of President Donlad Trump wanted to curb what it considered as bad practices, like intellectual property theft and flooding markets with cheap goods. So, it slapped high tariffs on Chinese imports. And after a brief back-and-forth with the government in Beijing, the levy wound up at 145%.

Retailers, worried about the potential for such an outcome had already pulled forward demand for goods from China. That way, they’d have roughly six to eight weeks’ worth of inventory to try and ride out the fight. And once the announcement was made, orders from China started to see cancellations.

But it takes time for the slack in demand to show up. It wasn’t until last week and this week that shipments began to slide. That’s the part the media picked up and reported.

Yet, retailers weren’t going to take this lying down, In mid-April, executives from Home Depot, Target, and Walmart met with Trump at the White House. The talks were reportedly focused on the pain those businesses were about to experience.

On the heels of the discussion, the companies and the White House said everything went well. And within a matter of days, Chinese media reported U.S. retailers like Walmart had re-engaged with their exporting counterparts in China. The U.S. companies had requested they start sending goods to the states once more. That meant port data should soon show a rebound. And based on recent numbers, traffic should pick back up over the next couple of weeks.

The ports of Los Angeles and Long Beach are an important part of the equation because they make up about 40% of all import traffic in the U.S. The combined entity is the largest container port complex in the Western hemisphere and the most direct route stateside from China.

To see what I’m talking about, look at the following table from the Port of Los Angeles…

The above data tracks the port’s inbound cargo traffic. As you’ll notice, it measures the number of vessels scheduled to arrive at port for the stated week. Yet just below that number it tracks the percentage changs compared to the week and year prior. Based on those figures, the number of ships arriving right now is down. But over the next two weeks, incoming traffic will see a sizeable rebound.

You’ll also notice the import data is also tracked in Twenty-foot Equivalent Units (“TEU”). That is a standard measure of capacity used for container ships and ports, according to package-delivery company Unite Parcel Service. TEU represents the volume equivalent to one 20-foot-long standard shipping container. So, a regular container is considered 1 TEU, while a 40-foot container is 2 TEUs.

Observe the weekly volumes at the Port of Los Angeles…

The above table tracks the TEU data in Los Angeles by the week. However, it’s backward looking compared to our prior table which is forward looking. It overlays traffic from 2024 (blue line) against the year-to-date activity. As you can see the two numbers have held relatively close to one another throughout this year.

Now, let’s look at similar metrics from the Port of Long Beach…

Like the Los Angeles data, you can see traffic is expected to remain pretty steady into June.

If we go back to the Global Supply Chain Pressure Index chart at the start, we see data confirming the trend. According to the New York Fed’s gauge, the transit of goods became easier in April compared to March. That doesn’t sound like a supply chain that’s experiencing hangups. In addition, the Financial Times reported yesterday that Chinese manufacturers are willing to pick up levy costs in addition to marking down the value of inventories to get around the U.S. tariffs.

So, like I said at the start, it’s easy to prey on investor’s fears due to the recentness of the COVID pandemic. But based on the data we just looked at, the primary destinations for importing Chinese goods in the U.S. don’t appear to be seeing a drop off in traffic. That should mean business as usual, helping to keep a lid on prices, and underpinning a steady rally in the S&P 500.

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