Where Peak-Season Shipping Is Headed, In Charts

Date: Wednesday, August 30th, 2023
Source: Wall Street Journal

The period from late summer into fall is usually the busiest time of year in supply chains, as  retailers rush clothing, electronics and holiday-season decorations to consumer markets and freight operators look to boost profits on the surging demand.

This year’s peak shipping season is arriving with a whimper, however, as merchants and consumer-goods suppliers continue to burn off excess inventories built up during the Covid-19 pandemic and logistics companies cope with tepid volume and freight rates far below year-ago levels.

Goods landing at U.S. ports, which cascade across trucking and rail networks heading to distribution centers and stores, have been lagging behind 2022 levels all year and the National Retail Federation forecasts that imports may fall slightly in September and October.

Logistics companies base expectations for shipping demand on how much inventory retailers are holding and how quickly they expect to replenish their stocks. The Logistics Managers Index in July reached its lowest point in the six-and-a-half year history of the measure while inventories were in contraction.

Retailers including Walmart, Target and Home Depot say they have made progress in destocking but that they aren’t looking to rush goods to market without clear indications of demand from consumers. Target Chief Financial Officer Michael Fiddelke said on an Aug. 16 earnings call that the big-box retailer remains cautious as it benefits from “our efficiency efforts and lean inventory position.”

Jason Miller, interim chair of Michigan State University’s supply-chain management department, said inventories for retailers remain elevated, especially for items such as clothes, household appliances and smartphones. “There’s no doubt right now we are in for a weak peak season,” Miller said.

Americans are spending more on services and experiences, like vacations and dining out, while pulling back spending on a wide array of goods. Large retailers like Walmart also are seeing shoppers focus more on basics such as groceries rather than the consumer goods that fill the vessels, trains and trucks serving peak-season demand.

The shift in spending and uncertainty is prompting retailers like Macy’s and Dick’s Sporting Goods to pull back on orders.

“Consumers still have good savings, but they are being more judicious in how they spend,” Macy’s Chief Executive Jeff Gennette said this month.

Freight executives had hoped that this year’s peak season would prove to be a turning point after a year of lackluster import volumes. But inbound trade this summer has expanded only marginally, leading some ocean carriers to cancel trans-Pacific sailings and revise down their expectations for 2023.

Vincent Clerc, chief executive of one of the biggest container-shipping companies in the world, Denmark-based

A.P. Moller-Maersk, said on a recent earnings conference call that retail and lifestyle shipments are down double-digits compared with prior years.

”We do not see any sign of an expected volume rebound in the second part of the year,” Clerc said.

The peak season usually lands strongest at Southern California’s neighboring ports of Los Angeles and Long Beach, where trucks and trains ferry goods from Asia to nearby warehouses and into distribution networks fanning out across the U.S.

But the country’s busiest container port complex is seeing no peak this summer. Combined import volumes there fell more than 10% between June and July, to their lowest levels since December 2022, just as business should have been heating up.

In one potentially ominous sign for future volume, the ports are also sending fewer empty containers back over the Pacific because of weak demand from factories in Asia. Exports of empty boxes at the Port of Los Angeles in July fell 39% compared with the same month last year.

Fewer containers flowing into the country means fewer loads for truckers to haul from ports and rail yards to warehouses and distribution centers. The cautious optimism that some truckers had at the start of this year has given way to a sense that a recovery could be months away.

“While we’re not ruling out a market inflection in the next few months, we’re not calling for such a turning point,” David Jackson, chief executive of trucker Knight-Swift Transportation, said on a July 20 earnings conference call. “Our base case is for a modest seasonal uplift in the fourth quarter.”

Intermodal rail transport, in which railroads carry containers and truck trailers, often grows as importers and logistics companies load imported boxes for distribution from ports to inland destinations. This year, that circulatory system for supply chains is thinning.

Intermodal volumes have slipped this year to their lowest levels in several years and the Intermodal Association of North America says the business in July was barely ahead of levels this spring, providing no signals that more freight was in the pipeline.

”I don’t have any customers really predicting a significant peak season,” Darren Field, president of intermodal at J.B. Hunt Transport Services, said this month at a Deutsche Bank

 transportation conference. “I think it’s still just a wait-and-see on the economy in general.”

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