Across thousands of retailers, the holiday shopping outlook looks sluggish

Across thousands of retailers, the holiday shopping outlook looks sluggish

A shopper in the seasonal aisle of a Target store on Black Friday in Chicago, Illinois, U.S., Friday, November 25, 2022. U.S. retailers are bracing for a slower-than-usual Black Friday as high inflation erodes and consumer sentiment declines. American demand for physical goods. Photographer: Christopher Dilts/Bloomberg via Getty Images

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As the holiday shopping season begins, a shortage of large orders from retailers is the norm amid fears of weak consumer spending, according to a new supply chain survey by CNBC.

in C. H. RobinsonCustomers are generally cautious, with inflation still an issue and continued uncertainty about the U.S. economy and the risk of a recession, said Noah Hoffman, vice president of Surface Transportation for North America, which serves 7,500 retailers.

“Large retailers have over-worked through their excess inventories, but are careful not to over-order,” Hoffman said, while some small and medium-sized retailers are still reducing inventory.

The national inventory-to-sales ratio, which on the surface appears to have returned to its pre-pandemic level, is being distorted by larger retailers, he said, adding that “with further advances in the retail supply chain, many wholesalers are also still carrying excess inventory.” ”

C. H. Robinson’s economic team believes the economy is approaching an inflection point in consumer spending as Americans exhaust the savings they amassed from the pandemic stimulus.

“We’re already seeing this show up in some of the key indicators like delinquent loans and credit cards,” Hoffman said.

During the earnings call period, major US banks presented a more resilient consumer picture. “Where do I see weakness in (consumer) credit?” said Jeremy Barnum, JPMorgan’s chief financial officer, repeating an analyst’s question on the bank’s earnings call. “I think the answer to that is actually nowhere.”

But the latest message from retailers and shippers has been more pessimistic. At the CNBC Evolve Global Summit last Thursday, Goal CEO Brian Cornell said the company is doubling down on its cautious outlook for the holiday season. In the same event, fedex Although the unloading period has ended for retailers, restocking has not been widespread, CEO Raj Subramaniam said.

A majority of logistics companies (67%) say the products moving into stores this holiday season are more promotional items and less expensive in-store. A larger majority (83%) indicated they do not move more higher-priced items.

Products that saw the biggest declines, ranked in order: appliances, furniture, home goods, luxury goods, and aspirational luxury.

The CNBC Supply Chain Survey was conducted from October 21 to October 31 among logistics executives who manage shipping and transportation manufacturing orders, including those at CH Robinson, DHL Global Forwarding Americas, SEKO Logistics, Kuhne + Nagel, OL USA and ITS Logistics.

The current situation is the result of the Federal Reserve’s aggressive policy of raising interest rates that has hit the housing market particularly hard, discouraging new home purchases, said Paul Brashear, vice president of transportation and intermodal at ITS Logistics.

Discounts on popular items are limited by costs absorbed by retailers.

“Retailers are finding that the items they rely on to bring people into the store and boost sales are costing them more,” Hoffman said. “This limits the amount they can deduct, so we work with them to find savings elsewhere in their supply chains.”

Purchase orders are sought that can be maintained and consolidated into the retailer’s transportation schedule, potentially saving shippers 10-15%.

“They can also bring products to a different port or multiple ports closer to their fulfillment centers, reducing the travel distance for those products,” Hoffman said.

“All eyes will be on the American consumer over the next eight to 10 weeks,” said Tim Robertson, CEO of DHL Global Forwarding Americas.

Lunar New Year and order sizes

CNBC’s supply chain survey underscores the general climate of uncertainty that defines the market at the moment.

The mixed outlook for rates and volumes suggests companies are making different bets with their inventory strategies, which Robertson said is typical in an uncertain economy and will produce winners and losers. Clarity of demand and flexibility in responding to it will be a key factor in determining the winners.

Amazon announced in September that it plans to hire 250,000 seasonal workers, a significant increase from last year.

Starting in November, logistics companies begin receiving orders from shipping companies before the Lunar New Year. Traditionally, manufacturing plants in China are closed for about a month, so shippers bring in products early to avoid delays. The survey found that there was a similarly muted outlook for orders surrounding the Lunar New Year, which falls on February 10, with the majority of respondents (67%) seeing no increase in demand.

Products leading the decline are household goods, luxury goods and aspirational luxury goods, such as handbags, clothing, athletic shoes, mid-priced goods, furniture and appliances.

The survey found that respondents were divided in their expectations for 2024. In the first half of 2024, 34% expected freight volumes to decline by either 5% or 10%; 33% of participants said that it would not change. An equal percentage expects an increase of 5%.

The survey shows expectations of a shift in freight volume in the second half of 2024.

Half of the participants expect a 5% increase; 33% expect a 10% increase; Of the 17% who were the most optimistic, a 15% increase is expected.

“With so much uncertainty about consumer demand, interest rates and the global economy, most people don’t have a positive outlook on freight volumes in the first half of next year, but we could certainly see a rebound in the second half of next year,” said Brian Burke, Commercial Director. Global at SEKO Logistics: “Importers and exporters should be careful when considering long-term contracts versus tapping into the spot market when planning transportation budgets between now and the negotiation season early next year.”

In addition to the amount of freight transported, water, road and air logistics companies generate revenue based on the prices they can charge.

The majority of respondents believe that sea freight rates for the first and second quarters will not change or decrease. Looking at air freight, most expect rates to remain unchanged and fall by 10% to 20%.

Last Friday, the international shipping company Maersk announced the layoff of 10,000 workers amid poor results.

Shippers are currently in contract negotiation season. It is the process of trading and trading during this time that can help increase a company’s revenue stream or add to inflationary operating costs.

Freight trucking stagnates

Trucking companies get paid per load, and lower forecasts for orders suggest revenues are likely to decline this holiday season. Logistics executives were split on LTL (less-than-truckload) freight rates for the first quarter, with half expecting a 5% rise and the other half expecting rates to remain unchanged to decline as much as 15%.

The majority believe that prices for full truck loads will not change or decrease, while 33% expect prices to rise marginally by 5%.

This year has seen several trucking company bankruptcies. Yellow, one of the largest trucking companies in the United States, filed for bankruptcy on July 31. Forty-year-old Montana trucking company SELSCS and Elmer Buchta Trucking, an Indiana company in business for 80 years, have also filed for bankruptcy. . A “massive downturn in shipping” contributed to the closure of Convoy, a trucking startup backed by Jeff Bezos.

According to Tank Transport, rising fuel costs and falling freight rates have led to a total of 31,278 trucking companies closing or converting their services to larger fleets.

“For peak season ocean and holiday warehousing in the U.S., there has been a slight uptick in freight volumes,” Hoffman said. “But we expect the peak retail season for trucking to be slow.”

Uber Freight’s CEO recently told CNBC that fuel prices will lead to a “new tipping point” in the freight industry’s shakeup with less diversified business models unable to operate on a cost-effective basis.

“Unfortunately, we will see significant volume challenges, and this will continue to push more providers to exit the market or undertake significant layoffs,” Brashear said. “This is not the 2008-09 season by any means but it sure feels like it.”

The Panama Canal dried up and the West Coast port functioned

The drought affecting the Panama Canal and reduced daily ship crossings have affected trade flow, according to the survey, with 60% of respondents saying shipping companies are moving more cargo to the U.S. West Coast as a result.

The Port of Los Angeles reported two consecutive months of improvement in container volumes, with September imports up 14% year over year. The additional freight should be a boost to the railroad’s bottom line Union Pacific and BNSF, a subsidiary of Berkshire HathawayWhich transports containers from West Coast ports.

The recent shift to intermodal trade of bars incl Norfolk South And CSX Container imports to US East Coast ports appear to be diminishing. This logistics approach has flourished during the Covid crisis, amid historic congestion off West Coast ports and labor issues. Now the majority of respondents (67%) say they do not use this strategy.

The results suggest that the market will see little to no growth during the first half of 2024, thus promoting stable to downward prices, with the hope that volume will increase during the second half of 2024, according to Alan Baer, ​​CEO of OL USA. . “Without more freight traffic, 2024, and perhaps 2025, will continue to see low prices as capacity outpaces demand,” he said.

What is the Panama Canal doing to meet the challenge of severe drought?

Correction: Tim Robertson is CEO of DHL Global Forwarding Americas. Due to an editing error, a previous version of this story misstated the company.

    (Tags for translation) Transportation and Shipping 

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