This year’s peak shipping season could be anemic, and arrive later than normal, as merchants remain shy about pulling the trigger on new import orders even after clearing out excess inventory, freight transportation providers are realizing.
Executives at Seko Logistics said during a virtual briefing with reporters on Monday that customers across industries, including fashion, technology, defense and medical devices, are being very cautious about placing purchase orders because of elevated uncertainty about the economy and consumer confidence.
That means the traditional wave of ocean and air shipments that starts mid-summer to fill store shelves for the holidays is more likely to be a ripple. Meanwhile, manufacturing in major economies is contracting.
“Our customers are expecting a mild peak that breaks toward the back half of the year unless there is some disruption that artificially tightens capacity, versus July, August and September,” said CEO James Gagne.
Logistics professionals and analysts were optimistic late last year that shipping volumes would start to recover from a sustained downturn in the spring once retailers got rid of overstocked goods they were stuck with when consumer spending shifted to services and supply chain congestion eased.
That hasn’t panned out. Inventory destocking took longer than expected, and retailers now are wary about placing new orders until there is more certainty about how inflation and a potential recession will impact consumer demand. Analysts say big-box retailers have finally brought inventory back to 2019 levels but aren’t ready for a full restocking campaign.
Retailers are warning of slower sales in the coming months as shoppers pull back on discretionary and big-ticket items.
Lowe’s on Tuesday cut its full-year outlook, in part due to projections that sales will decline 2% to 4%. Last week, Home Depot (NYSE: HD) also lowered its guidance because people are spending less on home improvement, while Target (NYSE: TGT) and Walmart (NYSE: WMT) said sales are cooling.
“There’s a huge question mark still out there in terms of underlying demand, at least in the next six to seven months. We’re actually seeing some of our customers just getting started to cut more orders” with overseas manufacturers, Gagne said.
Restocking will vary by industry, with bulky items such as furniture and exercise equipment potentially taking longer to bounce back.
“It remains to be seen which ones participate in this potential muted peak season, or whether they’re going to be able to wait until the Lunar New Year [in 2024] to revisit their inventory levels on a significant basis,” said Chief Commercial Officer Brian Bourke.
Chicago-based Seko Logistics is specializes in cross-border shipping, e-commerce fulfillment, heavyweight home delivery and returns management. It has more than 150 offices around the world.
Shipping line Maersk recently said it doesn’t expect the inventory clearance process to be complete until some point in the second half of the year, but management doesn’t have a clear sense when exactly shipments will pick up. The top official at the Port of Los Angeles last week echoed the notion that this year’s peak season will come later and be shorter.
A feeble peak season will hurt profit margins and disappoint freight transportation companies that had hoped to make up for first-half weakness, especially on the heels of 2022 when the fall spike in business also failed to materialize. The difference last year was that the first half was strong as retailers pulled forward orders to avoid port congestion and delivery delays.
Green shoots
Despite low expectations for a widespread surge in demand for imported goods there will likely be pockets of growth, especially for newer products. Merchants, for example, may have too much inventory in one category but not enough in others for the holidays.
Gagne said a fresh assortment of choices, especially in fashion, will spur consumer interest.
“People are very tired of buying the same old thing. When we start to see more new products coming back into the market, that’s going to drive a behavior with a consumer that we may not see as much manifested in today’s data,” he said on the conference call.
And new product introductions could jump-start demand for airfreight, which has been in a slump for 14 months, as companies try to meet customer expectations in the holiday run-up.
Global air cargo volumes are down 10%, with rates 43% lower than a year ago, according to market reporting agencies, because of the cooldown in trade and more belly capacity for cargo as passenger aircraft return to service after COVID. Asia-to-North America rates are 70% lower than last May, according to the Freightos Air Index.
Air cargo bookings have remained surprisingly resilient in many cases, said Brian Bourke, Seko’s chief commercial officer. Companies shifting some production away from China to minimize risk need more quick transport until new supply chains are fully established, and others never transitioned to a just-in-case model during the pandemic and need faster replenishment than ocean shipping can provide. And “preighters” — passenger aircraft temporarily dedicated to freight operations — are still being used in Asia where many nations only recently reopened for travel and airlines are now working to reintroduce passenger networks.
Many all-cargo operators, outside of FedEx and UPS, have been slow to sideline freighters despite difficulty filling holds because they want ready capacity when the market turns positive, according to industry experts. Securing landing rights and permits, especially with growing geopolitical tensions in certain regions, is more difficult than in the past, and it’s easier to keep those assets in service rather than try to reinstate them, Gagne said.
Retailers, in response to shifting consumer demand and the slowdown in e-commerce sales, have shown serious interest since the start of the year in outsourcing the fulfillment component of their supply chain, particularly in the United States, Gagne said.
Online merchants are asking logistics companies for help to make their “inventory more fungible across wholesale, retail and then direct-to-consumer channels, to make it more agnostic” about which distribution channel is used, especially as warehouse rents skyrocket around the country, he said.
This month, for example, freight forwarder Flexport acquired the logistics assets of Shopify and will now offer import services as well as final-mile delivery to sellers using the platform.
Hans Hickler, Seko’s president of the Americas, added that businesses are much more interested, too, in redesigning their distribution networks to find locations that offer better efficiency and service.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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