Logistics companies had hoped for increased business in the last half of this year, but retailers are cautious about placing orders after being overstocked for months last year and earlier in this one, The Wall Street Journal reported.
“There was more optimism a few months ago than there is now,” Paul Svinland, CEO of STG Logistics, confirmed to the WSJ.
The volume of goods freight handlers are seeing has dwindled more than expected this year as consumers spend more dollars to buy less stuff, as we have documented in “Freight Rates Slip on Slowing Demand” (19 Jul 2022) and “After Boom Year in 2022, Shippers Now Poised for Price War” (7 Mar 2023), among other articles.
Freight volumes began shrinking around mid-2022 as consumers shifted spending from goods to services, leaving retailers with bulging inventories that built up as supply chains reopened and back orders flooded stores’ supply rooms.
Logistics executives had expected the imbalance to correct itself by mid-year.
Instead, they now see consumers spending more cautiously as inflation and economic uncertainty persists.
Nike has cut its inventory on hand from 40 percent during the previous two quarters to 16 percent and, as a result, is buying smaller volumes of materials from its suppliers.
That translates to $400 million less in inventory ready to ship.
Containers arriving at the ports of Long Beach and Los Angeles, the busiest U.S. ship terminals, were 38 percent fewer in February than a year earlier, the WSJ noted.
U.S. freight moving by rail was down 11 percent during the first 11 weeks of this year compared to the same period in 2022. During the same period, goods moving by a combination of rail and truck were 9.6 less, accelerating to a 15.2-percent slump in the week ending 18 March.
TREND FORECAST: A rebound in China’s economy will not necessarily translate to greater retail demand in mature economies, where persistent inflation and higher interest rates are making consumers thrifty – especially now they have maxed out their credit cards and drained their savings accounts, as we reported in as we have reported in “Americans Drain Their Savings to Keep Spending” (12 Oct 2022) and “Credit Card Debt Nears $1 Trillion, Sets Record” (7 Feb 2023).
Therefore, the shipping industry is in the process of returning to normal rates and margins.
Freight haulers who reaped windfall profits during the COVID War will use their cash hoards to buy weaker competitors, reducing competition in the industry in an attempt to avoid cutthroat competition.
TREND FORECAST: The job market has peaked or is close to it.
With consumer spending tightening, especially in tech and other merchandise, layoffs will increase and the U.S. will move closer to recession.