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The peak shipping season is fizzling as overstocked retailers cancel overseas orders and freight companies scale back expectations for heavy freight volumes heading into the holidays.
Typically in the last quarter of the year, cargo carriers from container lines to parcel operators bulk up their profits on strong demand. But a range of measures of shipping demand across the U.S. are sliding, freight rates are falling as a result, leading carriers to pull back capacity amid concerns a deeper downturn is coming.
The rapid reversal in a freight market that was booming earlier in the year, when tight capacity and rising shipping prices brought big profits to the transport and logistics sector, will loom over earnings starting this week. Operators are set to begin reporting results based on growth that is already showing signs of hitting the brakes.
Trucking bellwether J.B. Hunt Transport Services Inc. on Tuesday evening reported that revenue remained flat in the third quarter compared with the prior quarter at $3.84 billion and that the company anticipates a weakened peak season. Warehousing giant Prologis Inc. is expected to report earnings on Wednesday.
“The growth in U.S. import volume has run out of steam, especially for cargo from Asia,” said Ben Hackett, founder of Hackett Associates and the author of the Global Port Tracker report issued by the National Retail Federation. “Recent cuts in carrier shipping capacity reflect falling demand for merchandise from well-stocked retailers, even as consumers continue to spend.”
The NRF report is one of several measures showing shipping volumes slowing sharply from August to September, signaling waning demand rippling through supply chains even as retailers are lining up goods for the traditional sales season.
The Global Port Tracker report projects that imports into major U.S. seaports will be down 4% in the second half of the year after expanding 5.5% year-over-over in the first six months of 2022.
Descartes Datamyne, a data analysis group owned by supply-chain software company Descartes Systems Group Inc., suggests an even steeper decline based on its tracking of inbound trade volumes.
Their report earlier this month said September container imports, measured in 20-foot-equivalent units, were down 11% year-over-year and were off 12.4% from August, an unusually sharp falloff in the months considered the height of the peak shipping season. Container imports from China, where manufacturers of goods including furniture, toys and electronics stuff boxes bound for U.S. retailers, tumbled 18.3% from August to September.
Many retailers pulled peak season orders in early this year to avoid a repeat of 2021 when supply-chain congestion caused delays and product shortages during the holidays. Many merchants now are coping with overstuffed warehouses after consumers shifted their spending this summer and fall from household goods, electronics and furniture to travel and dining out.
The slowdown in imports is already hitting rail volumes. Average weekly loads carried in intermodal operations, a combined truck-rail service favored by retailers, fell 4.8% year-over-year in September, according to the Association of American Railroads. The volume was also 5.4% below August levels.
Trucking business, too, shows signs of moderating.
FTR Transportation Intelligence said in a report Monday issued through Truckstop.com, a load board matching truckers and available loads, that spot-market business on the West Coast recently fell to its lowest level since May 2020 and that demand in the Southeast “fell sharply after recent strength.”
The falling demand is sending freight rates into an unseasonable decline. DAT Solutions LLC, another load board matching truckers and loads, said the average spot rate for truckload vans fell from August to September for the first time since 2015.
Container shipping rates that hit record highs last year have also pulled back sharply, although they still remain above 2019 levels. That is providing relief to shippers after skyrocketing prices over the past year strained logistics budgets.
Tom France, vice president of logistics at Trane Technologies, which makes heating, ventilation, and air conditioning systems, said last month that truckload, ocean and air rates were falling rapidly. “We are breathing a sigh of relief because rates are coming down and capacity is available,” he said.
Mr. France said his ocean rates alone were down to about $5,000 from $15,000 a year ago. “Talk to me tomorrow,” Mr. France said, “it may be lower.“
Tim Smith, director of global transportation and logistics at Old Time Pottery, a Murfreesboro, Tenn.-based discount home-goods retailer, said ocean carriers are calling regularly to offer contracted rates for space on container ships through the middle of 2023.
“Not only are the steamship lines reaching out inquiring about contracts, but they’re aggressively following up when you don’t get back to them immediately,” Mr. Smith said.
The peak shipping season cascades down into package transport, as United Parcel Service Inc., FedEx Corp. and others typically handle growing volumes as the calendar counts down to Christmas. Even that high-profit business comes with warnings this year.
A Citi survey of shippers this month found many moderating their outlook, with 22% expecting to ship more this year than last year compared with 38% that expected to ship more at this time last year. Citi analysts say they expect a “weaker peak season and a large amount of uncertainty in terms of the magnitude of demand.”
Source: WSJ.com October 18, 2022 | By Paul Berger