Wednesday, December 26, 2012

Holiday Sales Disappoint - Leading to Inventory Issues?

First, Merry Christmas and my wishes for a very happy holiday season.  Regardless of what you celebrate at this time of the year the messages all are the same: Happiness to all of you and your families!

Unfortunately, it was not a happy retailing holiday season.  As ABC and others are reporting, holiday sales have disappointed and have actually had the lowest year over year increase since 2008.  That is a haunting statistic yet not one my readers would be surprised about.  The impact on transportation can be summed up in two words: Excess Inventory.

Normally, after the holiday season the transportation industry prays for an "inventory restocking" cycle. However given the dismal sales, and the fact inventories were already elevated (as measured by the inventory to sales ratio), my estimation is the restocking cycle will not even be noticeable.   Transportation rates will remain somewhat depressed and my predictions of the transportation industry continue to hold:  
  1. Rates are somewhat elevated (relative to the true capacity and demand picture) and the buyer who holds their ground should be able to negotiate good contracted rates.
  2. The buyer needs not "fear" the capacity issue (which has been discussed since about 1980) until deep into 2013 at the earliest. 
  3. Great rates favor those who do their homework, understand these macro trends, and are prepared to discuss them at "the table".
Going into last year, FTR predicted a potential for a 10% increase in rates which was very far off the mark.  I saw some "panic buying" (i.e, shippers accepting large increases using this prediction as justification). Going into this year we continue to hear "this is the year of the capacity crunch" and while shipping conditions are "benign", "shippers can expect to see increases in 2013" (again, have heard that since 1980).  However, the macro economic data, along with the data around the digitization and miniaturization of products, leads me to believe demand is being pulled faster than capacity and shipping conditions will favor the shipper for the vast majority of 2013.

Update 12/26/2012 10:15AM: More reports of slow holiday sales: "This Was Definitely Not A Merry Christmas for Retail" - Business Insider

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