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Retail imports continue to slow as supply chain issues resolve
NRF's Global Port Tracker said brands and retailers stocked up early for the holidays.
The nation’s largest ports are expected to slow down for the holiday season.
Imports remained off their record pace from earlier this year in the fall, as retailers ordered ahead for the holidays this year and consumer demand fell back from its mid-pandemic peak. That’s according to the latest data from the Global Port Tracker report released this week by the National Retail Federation and Hackett Associates.
Consider this: The ports covered by the Tracker handled a record 2.4 million Twenty-Foot Equivalent Units (TEU) in May.
In September, the import levels were down to 2.03 million TEU. That was a decline of 10.2% from the previous month, and a drop of 4.9% on a year-over-year basis.
September is the latest month for which data is available. In October, the report projects that ports will receive 2.02 million TEU, while in November they are expected to handle 1.92 million TEU, which would be the lowest volume since February 2021.
The pullback comes after a year of supply chain snarls that left a lineup of cargo ships at ports. Now, the backup at the Port of Los Angeles and Long Beach that peaked at 109 ships is down to four, the Wall Street Journal reported.
The Global Port Tracker’s latest readings offer evidence that this is in part due to fewer goods being shipped from Asia. There are signs in holiday forecasts that demand is coming down, too. NRF projects that holidays sales are expected to grow 6-8% on an annual basis in 2022. That would be above-average growth in any year before 2020, but it would be down markedly from 2021’s record growth of 13.5%.
In part, this is the result of a year in which the typical cadence of shipping flows were flipped on their head.
“Cargo levels that historically peak in the fall peaked in the spring this year as retailers concerned about port congestion, port and rail labor negotiations and other supply chain issues stocked up far in advance of the holidays,” said NRF Vice President for Supply Chain and Customs Policy Jonathan Gold, in a statement. “With a rail strike possible this month, there are still challenges in the supply chain, but the majority of holiday merchandise is already on hand and retailers are well prepared to meet demand.”
Retail imports, 2004-2022. (Courtesy photo)
The move to stock up has created inventory issues at some of the largest retailers. Most recently, Nike executives said that multiple seasons of inventory arrived at once, as transit times ebbed and flowed, while the brand sought to get an early jump on the holidays. Now, alongside getting peak season underway, it is embarking on a markdown campaign to move the excess merchandise.
“This reflects the combination of late delivery for the past two seasons, plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia,” Nike CFO Matt Friend said on the company’s September earning call.
Looking beyond the holiday season, the first months of 2023 are also projected to see import declines from the year prior. February is projected to be the slowest month since June 2020, when demand for goods was just ramping up, according to the Global Port Tracker's forecast.
“We expect the flattening of demand that began around the middle of this year to continue into the first half of 2023,” said Hackett Associates Founder Ben Hackett, in a statement. “This will depress the volume of imports, which has already declined in recent months. Carriers have begun to pull services and are looking at laying up ships.”
In a silver lining, the price of shipping a container has fallen significantly. According to the World Container Index from Drewry, the price of a 40-foot container was down 67% year-over-year on Nov. 3 to $3,050. The September 2021 peak was $10,377.
We'll see if these conditions translate to less ordering ahead among brands and retailers, or if the behaviors learned during these unprecedented times become normalized, and alter the calendar more permanently.
Trending in Economy
The US economy added 311K new jobs in February
The labor market is hot. Will the Fed do more to cool it off?
The U.S. economy continued to add new jobs in February, as the unemployment rate ticked up to 3.6%.
Data from the U.S. Bureau of Labor Statistics for February 2023 showed the following:
The economy added 311,000 new jobs, driven by gains in leisure and hospitality, retail trade, government, and health care.
Retail trade added 50,000 jobs in the month, driven by employment gains at general merchandise stores of 39,000.
Unemployment edged up to 3.6%.
Average hourly earnings rose by 8 cents, or 0.2%, to $33.09.
What it means for brands and retailers: In short, jobs are a key indicator of consumer demand, and they remain robust.
While the number of new jobs added was slightly below the 6-month average of 343,000 and January’s whopping gains of 504,000, the data provides another indication that the job market remains hot. Unemployment remains at historic lows, and has changed little over the last year despite ticking up slightly this month. Wages are still increasing, as well.
Overall, the jobs report keeps the narrative about the consumer picture the same: A healthy labor market is providing fuel to keep consumers spending, even as concerns about higher prices from inflation continue.What it means: In short, jobs are a key indicator of consumer demand, and they remain robust.
What it means for the Fed: This report could also influence how the Federal Reserve moves on interest rates, which are being hiked to bring inflation down and have the side effect of cooling demand.
The jobs report underscores the dual nature of any economic news at a time when high prices are continuing to put pressure on the economy as a whole. Economists are particularly concerned about data that showed consumer spending was up in January and global manufacturing output picked up in February. Put that together with the strong jobs report, and there are concerns that inflation will remain too hot, and the Fed will have no choice but to keep tightening to bring it down.
“Normally, a strong jobs report would be cause for celebration, but it can be hard to distinguish between ‘bad’ and ‘good’ economic news right now," said Joel Beal, CEO and CPG analyst at Alloy.ai. "Interest rate expectations are currently driving everything, so good economic numbers only increase the likelihood of higher interest rates, which escalates pessimism about future growth.”
In testimony before Congress this week, Chairman Jerome Powell said the central bank may consider returning to a faster rate increase of 0.5% after slowing down to 0.25% in February.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Mr. Powell said before the Senate Banking Committee on Wednesday. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Another hot jobs report could bolster that case, but Powell said no final decision has yet been made.
In the bigger picture, Powell has suggested that it may be possible to bring down inflation without seeing unemployment rise. We'll get more data on whether that scenario is playing out when the government releases the latest Consumer Price Index next week.