Seko Logistics warns of a poor peak season for shipping

This year’s peak shipping season could be tenuous and later than normal as traders remain reluctant to pull the trigger on new import orders even after excess inventory has been cleared, freight transport providers are realizing.

Seko Logistics executives said during a virtual briefing with reporters on Monday that customers across all industries, including fashion, technology, defense and medical equipment, are very cautious about placing orders due to heightened uncertainty about the economy and consumer confidence.

That means the traditional wave of sea and air transportation that kicks off in the middle of summer to fill store shelves for the holidays is more likely to make waves. Meanwhile, production in major economies is contracting.

“Our customers are expecting a mild peak, unlike July, August and September, which will break through in the second half of the year unless there are disruptions that artificially limit capacity,” said CEO James Gagne.

Logistics experts and analysts were optimistic late last year that shipping volumes would recover from a sustained spring decline once retailers shed excess inventory of goods they were holding on as consumer spending shifted to services and supply chain congestion eased.

That didn `t work. The destocking has taken longer than expected and retailers are now cautious about placing new orders until there is more certainty about how inflation and a possible recession will affect consumer demand. Analysts say major retailers have finally brought inventories back to 2019 levels but aren’t ready for a full restocking campaign just yet.

Retailers are warning of weaker sales in the coming months as shoppers resort to discretionary and high-priced items.

Lowe’s lowered its full-year outlook on Tuesday, in part on forecasts that sales will fall 2% to 4%. Last week, Home Depot also lowered its forecast because people are spending less on home improvement, while Target and Walmart said sales are slowing.

“At least for the next six to seven months, there’s still a big question mark over underlying demand. “We’re actually seeing some of our customers just starting to cut more orders from overseas manufacturers,” Gagne said.

Stock replenishment varies by industry, although bulky items such as furniture and exercise equipment may take longer to become available.

“It remains to be seen which companies will participate in this potentially subdued peak season, or if they can wait until the Lunar New Year (in 2024) to review their inventories in any meaningful way,” Chief Commercial Officer Brian Bourke said.

Chicago-based Seko Logistics specializes in cross-border shipping, e-commerce fulfillment, heavy home delivery and returns management. It has more than 150 offices around the world.

Maersk recently said it doesn’t expect the destocking process to be complete anytime in the second half of the year, but management has no clear idea of ​​when exactly deliveries will begin. The Port of Los Angeles top official last week expressed the view that this year’s peak season will be later and shorter.

A sluggish peak season will hurt profit margins and disappoint freight hauliers who had hoped to offset first-half weakness, especially post-2022 when the slowdown in business growth also failed to materialize. The difference last year was that the first half was strong as retailers frontloaded their orders to avoid port congestion and delivery delays.

Green shoots

Despite the low expectations that demand for imported goods will increase sharply, there should be growth drivers, especially for newer products. For example, merchants may have too much inventory in one category but not enough in others for the holidays.

Gagne said new choices, particularly in fashion, will spark consumer interest.

“People are very tired of buying the same thing. If we see more new products coming out again, it will prompt consumer behavior that may not be as clearly reflected in today’s data,” he said on the conference call.

And new product launches could boost demand for air freight, which has been in a 14-month decline as companies try to meet customer expectations ahead of the holiday season.

According to market report agencies, global air cargo volume has declined by 10%, with rates 43% lower than a year ago, according to market report agencies, due to the slowdown in trade and more belly capacity for cargo as passenger planes return to service post-COVID .

Air freight bookings have remained surprisingly stable in many cases, said Brian Bourke, Seko’s chief commercial officer. Companies shifting some of their production out of China to mitigate risk need faster transportation until new supply chains are fully established, and others never switched to a just-in-case model during the pandemic and need faster replenishments , than sea shipping can offer. And “preighters” — passenger planes temporarily dedicated to cargo operations — are still operating in Asia, where many countries only recently reopened to travel and airlines are now working to reintroduce passenger networks.

According to industry experts, many pure-play freight companies, with the exception of FedEx and UPS, have been slow to ground out freighters, despite difficulties filling holds, because they need spare capacity when the market turns positive. Securing landing rights and permits is more difficult than in the past, particularly with rising geopolitical tensions in certain regions, and it is easier to keep those assets operational than to try to restore them, Gagne said.

In response to changing consumer demand and the slowdown in e-commerce sales, retailers have shown serious interest in outsourcing the fulfillment component of their supply chain since the beginning of the year, particularly in the United States, Seko’s CEO said.

Online retailers are asking for help from logistics companies to “make their inventory more fungible through wholesale, retail and then direct-to-consumer channels to make it more self-sufficient,” whichever distribution channel is being used, especially as warehouse rents across the country in skyrocket. he said.

For example, this month, freight forwarder Flexport acquired Shopify’s logistics resources and will now offer import services and last-mile delivery to sellers using the platform.

Hans Hickler, Seko’s Americas President, added that companies are also much more interested in redesigning their distribution networks to find locations that offer better efficiency and service.

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