Wednesday, December 12, 2012

Inventory to Sales Ratio Tells a Grim Story

As my readers know I follow this very closely as this ratio tells us whether product is "backing up" in the supply chain or flowing as it should from manufacturer to consumer.  We are already hearing anecdotes of sales not being where they should be for the holidays, slow movements of imports, extended automotive shutdowns and now this... the inventories in the pipeline relative to sales are growing:

Inventory to Sales - Published 12/11/2012

The slope of the line looks very ominous and it certainly looks like it did back in the 2006 time frame.  Of course, we came out of that but only for a short period before we had a collapse.  This clearly leads us to believe freight will be very soft for Q1 and perhaps into Q2 as companies execute the "final mile" by selling what is inventory but not restocking until these inventories get back to normal. 

Some may look back into the '90's and say "we have a long way to go before we get to those levels". To this I say retailers and manufacturers learned their lesson during the "great recession" and I would not anticipate ever going back to those levels of inventory (At least until those who lived through the great recession die off then the new younger hip crowd says "this time is different" and go back to it - it is a generational cycle).

This data, along with the idea that we will have extended automotive shutdowns (at least with GM on the Cruze line) leads me to believe my prediction for soft freight in the first half of the year is very reasonable.  

As always, I hope I am wrong however I truly just let the data speak.  

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