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HD: DIY RE-PRICINGZIM: A RISING TIDE LIFTS ALL BOATSTSLA: CHINA THREATDAC: KEY REMARKSDAC: SURGING GM: SUPPLY CHAIN WOESMAERSK: ROTTERDAM TEMPORARY SUSPENSION OF OPERATIONSATSG: OWNERSHIP UPDATERXO: COYOTE FILLIP GONEGM: SUPPLY CHAIN HITBA: CUT THE FAT ON THE BONER: STEADY YIELDMAERSK: SELL-SIDE UPDATESDAC: TRADING UPDATE OUT SOONTSLA: FEEL THE PAIN IN CHINAWMT: GUESS WHATXPO: SURGINGAMZN: LOOKING FORWARD
HD: DIY RE-PRICINGZIM: A RISING TIDE LIFTS ALL BOATSTSLA: CHINA THREATDAC: KEY REMARKSDAC: SURGING GM: SUPPLY CHAIN WOESMAERSK: ROTTERDAM TEMPORARY SUSPENSION OF OPERATIONSATSG: OWNERSHIP UPDATERXO: COYOTE FILLIP GONEGM: SUPPLY CHAIN HITBA: CUT THE FAT ON THE BONER: STEADY YIELDMAERSK: SELL-SIDE UPDATESDAC: TRADING UPDATE OUT SOONTSLA: FEEL THE PAIN IN CHINAWMT: GUESS WHATXPO: SURGINGAMZN: LOOKING FORWARD
Freight markets are expected to soften – not least because of high inventory levels.
According to data from the US Census Bureau, retail inventories are on the rise. In fact, according to Sea-Intelligence, November inventory reached $30.2bn higher than the norm.
“The upward spike in July-August 2024 is not only very visible, but also the largest upwards deviation we have seen since the financial crisis,” explained Alan Murphy, CEO of Sea-Intelligence.
“The largest deviation was seen in September, at an excess of 3.1%, but in October and November this only very marginally declined to a level of 3%. It would, therefore, be correct to say that retailers are building inventory which is very excessive compared with the long-term trend.”
“There are several factors which could contribute to a softer market in the short term,” said Philip Damas, MD at Drewry, speaking to the Freight Buyers Club podcast today.
“One reason is Chinese New Year, the second reason is that there has been a cargo rush before the ILA strike, and the third reason is that inventories now, or recently, are higher than they were last year.
“So that’s quite a number, where the market in the short term is going to be soft, and the carriers in these circumstances are very fast at cancelling or isolating ships,” he added.
Tariffs are also likely to be part of this build-up of goods, noted Mr Murphy.
“For some retailers, inventory build-up may be a hedge against coming tariffs. On the other hand, a potential implication is that if consumer spending suddenly is reduced due to the inflationary effect of tariffs, the retailers might well have excess inventory on their hands.”
Last week, US retailer Target, which in 2022 announced a plan to right-size its inventory, issued a sales forecast which showed another build-up.
Brokerage Jeffries said the early inventory build-up – intended to mitigate against east coast port disruption – “may have continued to weigh on profits during its holiday quarter”, with the costs of preparing for the strike cutting profit margins by nearly one percentage point.
Alix Partners, in November, noted: “After the supply shortages of the early pandemic, retailers have overcorrected, with a dramatic increase in inventory levels that, in some cases, can be seen from space.
“Across the US, average ‘days on hand’ for retailers has increased by 12% since 2021, and the majority of retailers haven’t followed Target’s example of right-sizing, resulting in inventory remaining high.
“More recently, Target’s earnings missed expectations, partially due to the cost of having accelerated imports in advance of the potential port strikes. Even Target isn’t immune to the downside of being over-inventoried in these disrupted times.”
It added that for US retailers sourcing from outside the US, the problem “will only get worse in the short-term”, due to the new tariff threat.
“While the impact of these tariffs could be significant, and the right answer in some cases may be to pull forward purchases and build up inventory in anticipation of policy changes, it is crucial for companies to accurately assess the cost of holding this inventory and balance it against the benefits of accelerated purchases.
“Many companies have delayed taking action on their current inventory levels as they don’t realise the full impact of holding excess inventory, in part because the people making inventory decisions are siloed from those managing holding costs,” it explained.
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