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SpaceKnow Nowcasting Newsletter (SNN) #14

Using SpaceKnow Supply Chain Indicators to assess US Inflation

Summary

SpaceKnow has several indices to observe activity and demand at US ports. These indices lead us to believe that the congestion at ports is easing.

The global economy was challenged by supply chain disruptions over the last two years. Congestion in ports caused delivery problems and product shortages. These supply-side bottlenecks were one of the reasons for high and persistent inflation.

More recently, inflation has begun to stabilize at high levels. Forecasters are divided on where core inflation will end in 2023. SpaceKnow’s supply chain indicators can offer some insights.

SpaceKnow has several indices to observe activity and demand at US ports.

The port container level index tracks the area covered by containers in ports, and it can be interpreted as a capacity/congestion indicator. The index increased above the 5-year historical average level in the second half of 2020 and it remained there until the beginning of November 2022. Recently, the index broke its resistance above this level and it has reached the lowest level seen over the last two years. Interestingly, the index dropped at a time when seasonal congestion rises. In this environment, the economy will be more sensitive to shifts in demand or supply.

Figure 1: Port Container Level Index

The port container activity index, which is a satellite activity index (SAI), tracks the changes in areas covered by containers as new imagery becomes available. Index activity levels are now almost at the average of 2017-2019. As congestion eases, activity at the ports picks up. The index has increased significantly since mid-August.

Figure 2: Port Container Activity Index

Inland container indices are created to observe the congestion from an alternative point of view. These indices track the activity of container areas that are not directly connected to a port. After the container reaches a port, they are stored at these inland locations before the goods in the containers are transferred to the logistic centers to stock shelves. Figure 3 shows the Inland Container Level Index and it is estimated as a 30-day rolling sum.

Figure 3: Inland Container Level Index

In Figure 4, we observed a simultaneously falling Port Containers Index and rising Inland Containers Index in the last few months. This is a result of the ports emptying while more containers are being stored in the inland storage facilities. While to a certain extent puzzling, we believe this difference could be explained by empty containers piling up in the inland locations. The inland locations are presumably cheaper and therefore preferred for storing empty containers. The need to keep empty containers can be another sign of the overcapacity in the US logistics chain we mentioned in our last SNN.

Figure 4: The comparison of Port and Inland Container Level Index

Bottom Line

The US inflation rate is still high and it is too early to assume that the trend has changed. We observe that the congestion at ports is easing, which could have a direct impact on imported inflation. Even though we see significant signs of easing in our logistics data, we cannot yet call for a significant persistent slowdown. While it is one factor potentially pointing to an easing in inflation, other factors are pushing inflation higher. To sum up, we continue to believe that inflation will be driven by underlying wage pressures, short-term supply shortages in goods and overall supply chain problems. We will continue to monitor our supply chain and logistics indices carefully.

SpaceKnow provides satellite activity data. We research and monitor hundreds of thousands of locations, spanning different industries, to create the world's most comprehensive activity datasets. We allow users to see an unbiased and near-real-time view of current levels of activity, inflection points, and trends for countries, companies, and commodities. Our customers include investors, quants, asset managers, traders, corporate strategists, banks, economists, and governments.