Carriers Expect Weak Volume During Usually Strong Season
By Daniel P. Bearth, Staff Writer
This story appears in the Aug. 25 print edition of Transport Topics
Freight carriers are preparing for a relatively weak peak shipping season this year as major retailers react to sluggish economic growth by cutting back on imports and reducing the volume of goods that typically move by truck and rail during what is usually the busiest shipping period in the third and fourth quarters.
A forecaster for the National Retail Federation said cargo volume at 10 major retail container ports in the United States will likely fall 4% this year to 15.8 million 20-foot equivalent units, a cargo container measurement, compared with 16.4 million TEUs in 2007, the first such decline since 2001.
“We see no sign of any rebound in the strength of the economy,” said Paul Bingham, managing director of Global Insight Inc., a research firm in Cambridge, Mass., that provides freight forecasts for the NRF and American Trucking Associations.
“If anything, we have a ways to go,” Bingham told Transport Topics. “We could stretch into 2009 before we hit the bottom of the cycle.”
U.S. retail sales dipped 0.1% in July, the Commerce Department reported on Aug. 13. Analysts said higher gas prices cut into consumer spending and many economists expect spending to fall in the third and fourth quarters for the first time since the early 1990s.
Ocean shipping volume normally begins to build in early August, followed by a surge in demand for rail and trucking services to move goods to inland distribution centers and retail stores for the year-end holiday shopping season.
The number of loaded containers coming into the nation’s two biggest container ports in Los Angeles and Long Beach started to decline last year and is down more than 10% in the first six months this year, according to data from the ports.
“Cargo volume reflects consumer demand as retailers work to keep inventory as tight as possible to keep supply and demand in balance,” said Jonathan Gold, vice president for supply chain and customs policy for the NRF.
“If merchants can avoid having excess merchandise on hand, it means they can avoid the need for unplanned markdowns to clear their shelves, especially after the holiday season,” Gold said.
Bingham said the decline in cargo volume into Los Angeles and Long Beach reflects not only the decline in imports from China but also a shift of ocean freight to East Coast and Gulf Coast ports.
Even so, the ports Global Insight surveyed are expected to handle fewer containers during the peak shipping season this year compared to 2007. Bingham said he projects container volume of 1.46 million TEUs will come into the 10 U.S. retail ports in October, a slight increase from October 2007 but short of the peak of 1.48 million TEUs reached in September a year ago.
The ports surveyed, besides Los Angeles and Long Beach, include: Oakland, Seattle and Tacoma on the West Coast; New York and New Jersey, Hampton Roads, Va., Charleston, S.C., and Savannah, Ga., on the East Coast and Houston on the Gulf Coast.
With import volume lagging, industry executives said shippers should have little trouble finding enough truck or rail capacity to haul goods during the peak shipping season this year.
“When freight demand was booming a few years ago, shippers were concerned about capacity,” said Steve Branscum, group vice president of consumer products for the Burlington Northern Santa Fe Railway in Fort Worth, Texas. “One of the ways to deal with it was to spread out peak shipments.
“No one’s talking about that now,” Branscum said. “There’s no need.”
In fact, some shippers would like to shorten the peak shipping season “so they don’t have possession of goods longer than necessary,” Branscum said.
Another factor that could affect deliveries and peak shipping volume is the cost of fuel, as shippers move more goods via slower ocean and ground transportation services to avoid paying much higher surcharges associated with air freight.
“There is a tremendous movement of the lower value-added traffic off of traditional freighter airplanes onto the water,” FedEx Chairman Frederick Smith said in a teleconference with investment analysts in July. “We pick up that traffic as it comes into the United States. And that is one of the reasons we bought Watkins [Motor Lines] and converted it into FedEx National.”
Parcel carriers, which typically see the biggest shipment volume in late November and December, could get a further boost this year from an increase in purchases from online retailers.
“We see a significant increase in online sales,” said Dan O’Connor, director of the retail marketing group for UPS Inc.
Online sales are projected to increase to $335 billion in 2012 from $175 billion in 2007, according to Forrester Research.
O’Connor said the traditional peak shipping season is becoming more “compressed” as more companies deliver products directly to consumers.
“It gets shorter and shorter,” O’Connor said of delivery times.
Rich Corrado, executive vice president of AFMS, Portland, Ore., a firm that provides strategic planning and other services to freight carriers, said most package and freight carriers expect demand in 2008 to be down a bit from last year.
“We’ll still see a peak; I’m just not sure how much,” Corrado said.
