Supply Chain Management May Shift if Peak Season Fails to Arrive

Earlier in 2012, many economists, analysts, and pundits predicted a “solid” second half of the year for the economy. But with the curtain quickly closing on September—and any real signs of meaningful growth ostensibly slowed down considerably—it is fair to share the outlook has changed.

This is especially true when gauging the prospects for Peak Season in 2012, too.

What’s more, various economic headwinds which could impact Peak Season activity remain intact, too, including: still-high unemployment; sluggish GDP growth; flat retail sales; and decreasing manufacturing output, among others. During this time, freight volumes, with the exception of intermodal, have remained largely stagnant to various degrees in 2012, further reflecting the muddled economic outlook and Peak Season visibility.

On top of that a labor squabble between the International Longshoremen’s Association (ILA), the largest union of maritime workers in North America, and the United States Maritime Alliance (USMX), an alliance of container carriers, direct employers, and port associations serving United States-based East and Gulf Coasts, which stood as a significant threat to importing and exporting cargo out of these ports, was recently averted with the parties agreeing last week to a 90-day extension through December 29 to work out their differences.

In an interview with Logistics Management —SCMR’s sister publication—Paul Bingham, economics practice leader at CDM Smith, said that in the midst Peak Season, there are seasonal trends at work although the underlying demand factors are somewhat muted due to continued softness in consumer confidence and spending but even with that he said retailers are seeing sales that are “OK,” though not accelerating.

“A big factor in shipping this Peak Season not following normal patterns is the impact of the [potential] threat of the East and Gulf Coast port disruption,” said Bingham. “Because that threat was live and impending soon until last week, shippers had to already make decisions about their contingency plans, which affected routing and timing of some shipments going back earlier in the season.”

The consequence of that, he explained, has included acceleration of orders and shipments by some shippers and others selectively diverting cargo to West Coast port services instead of all water services to the East / Gulf Coasts. But that practice will quickly dissipate now although the impact on U.S. port volumes will carry into October given lead times for overseas shipment originations, according to Bingham.

A key metric for how Peak Season is shaping up is how much volume is moving into the Port of Los Angeles and the Port of Long Beach.

Both ports released August volumes earlier this month and the results were mixed, with POLB up 1.4 percent at 543,445 TEU (Twenty-foot Equivalents), with imports up 2.9 percent at 274,977 TEU. And over at POLA, total August volume of 706,669 was down 2.28 percent and imports were down 4.1 percent at 360,752 TEU.

In assessing these numbers, POLA said that August was down due to economic weakness and cutbacks in ship calls by various niche operators at the end of 2011 and early 2012. And POLB said that the modest rise in August points to a slight recovery during peak season and the second half of the year.

POLA Director of Communications Philip Sanfield said that it is too early to tell at this point as to whether or not a true Peak Season will come to fruition.

“August dipped a bit but it was up against August 2011, which was our best month of the year,” he said. “Other factors were the potential East and Gulf ports strike as well as general sluggishness in the economy. We are holding tight at the moment. If we see Peak Season activity, we expect it to be in the single-digit range and would be pleased with high single digits if that occurs over the next couple of months.”

Earlier this year, the National Retail Federation called for 2012 retail sales to hit $2.53 trillion for a 3.4 percent annual increase. This estimate dovetails nicely with Sanfeld’s hopes for low-single digit Peak Season-related growth.

And in the most recent edition of the Port Tracker report by the NRF and maritime consultancy Hackett Associates, which analyzes freight data for several U.S.-based retail container ports, including Los Angeles/Long Beach, Oakland, Tacoma, Seattle, Houston, New York/New Jersey, Hampton Roads, Charleston, and Savannah, Miami, and Port Everglades, is calling for total 2012 volumes to be up 4.2 percent annually at 16 million TEU.

In looking at volumes for August and subsequent months, the report expects August to be up 4.4 percent at 1.43 million TEU, and September is projected to see an 8.5 percent gain at 1.49 million TEU. October and November are expected to see 11.7 percent and 1.9 percent gains at 1.48 million TEU.

Hackett Associates President Ben Hackett explained in an interview that he expects to see a little bit of a Peak Season, ranging from the end of August into early October. “This is not something to be viewed as overly exciting, but it will be there,” he said.

A mild or heavily muted Peak Season will not come as a surprise at this point. This was also reinforced last week when two freight transportation bellwethers—FedEx and Norfolk Southern—both lowered future earnings forecasts based largely on a faltering economy, and especially in FedEx’ case, lower consumer demand.

“I think consumers are being very cautious,” said Charles W. “Chuck” Clowdis, Jr., Managing Director-Transportation Advisory Services, at IHS Global Insight. “The November election will be critical to how the consumer reacts. Without getting political, the unemployed getting extended payments, and the huge number of people receiving government assistance are hopefully spending on necessities. Still many are concerned the largesse from the government will stop sooner than later. Peak season may not start until after the election.

Clowdis added that China may get tired of loaning and the debt load is sustaining these support monies.  And if If gasoline hits $4 or more per gallon everyone becomes even more cautious, he added.

On a more positive note he said he believes there is a lot of restocking yet to occur, with the Tier II and III retailers knowing there will be some seasonal spending and much of it will be done at Wal-mart and other tier I and II retailers, rather than at high-end retailers.