For many years, the upsurge in freight shipping during the third and fourth quarter has been one of the most dependable elements of the freight industry. As retailers stock and restock their shelves for the Christmas shopping period, transport companies have come to rely on this upswing in freight volumes to reach their financial targets. Over the past two years, the length and character of this shipping period has been changing causing many industry observers to try to explain this new phenomenon.
This begs two questions. Is the fall shipping season changing? If so, why is this happening? Here are a few observations.
Is the Fall Shipping Season Changing?
At a recent logistics conference, one industry expert explained the changes this way. He commented that a few years ago when “baby boomers” sent their kids off to university, they loaded up the SUV with their stereo equipment and desktop computers. Now the student packs his iPod and laptop computer. This attests to the efforts that have been made in recent years to miniaturize and repackage products in much smaller containers. Think about how many iPods and Blackberrys can be loaded on a 53 foot trailer. While this may explain the reduction in shipments of technology based products, this does not explain the dips in other sectors of freight shipping.
According to the National Retail Federation, U.S. retailers are shipping fewer goods through the nation’s ports and onto their store shelves. The trade group is expecting a 4 percent increase in retail sales this holiday season, below the 10-year average of 4.8 percent. That would make it the slowest holiday sales growth in five years. Looking at hard shipping data, the actual volume of TEU’s through U.S. ports was 1.46 million in August, a 1.4 percent decline from the previous year. This trend is also supported by shippers’ expectations. Case in point: nearly half—or 46 percent—of the 495 logistics, supply chain, and transportation managers that responded to a Logistics Management magazine survey said that peak season would be less active.
What are the Triggers for the Slower Holiday Season?
Erik Autor, international trade counsel for the NFR stated that “retailers have a good sense of the economy and are planning their inventories accordingly.” Autor stated that the lower volume of goods moving through major ports in Los Angeles, Seattle, New York and Savannah, among others, shows that store owners are worried about being left with unsold goods and forced markdowns.
Is the Peak Season a Thing of the Past?
Paul Bingham, an economist with Global Insight, a Boston-based research firm said retailers were reacting to growing uncertainties in the economy. “With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending,” commented Rosalind Wells, the group’s chief economist. While it is hard to gauge peak season’s future, Paul Bingham says it is premature to talk about it in the past tense.
“Peak season is not becoming a thing of the past, because underlying seasonal consumption spikes such as back-to-school and holiday shopping are still very much with us,” explains Bingham. “It is just that under current conditions, consumption, growth…and port volume is subdued. Shippers and carriers have also done a good job managing supply chains to minimize seasonal peak congestion problems this year, but the longer-term risk remains for future-year seasonal peaks to cause congestion problems again if shippers become complacent.”
Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies, says another possibility for the lack of annual growth in peak season volumes could center on that what is now occurring is a change in order patterns by shippers or a change in the capacity being routed away from the Ports of Los Angeles and Long Beach.
The year-over-year volumes at these ports are relatively flat. “The question that I don’t have an answer for,” says Regan, “is if shippers are acting intentionally with the diversion of freight [from the West coast ports]?”
This year’s peak season does not look as if it will be much different from a year ago, says John G. Larkin, Managing Director of Stifel Nicolaus’ Transportation and Logistics Group. But Larkin notes that Regan’s theory may be correct, saying that shippers are starting to change their intermodal strategy, with more containers moving through east coast ports via the Panama and Suez canals. These shifts in strategy, says Larkin, tend to take domestic transportation movements out of shippers and carriers systems, which, in turn, reduce the amount of peak season volume. “I think the industry is beginning to see now that this [lack of annual peak growth] is more than a temporary phenomenon,” adds Larkin.