By Erica E. Phillips and Robbie Whelan
This summer, dockworkers, truckers and railroads geared up for a
surge of retail goods passing through U.S. ports that hasn't
occurred.
Imports are flat at major seaports on both coasts heading into
peak shipping season, the stretch in late summer and early fall
when retailers usually load up on imported toys, clothing and other
merchandise to sell to holiday shoppers. If the trend holds, it
will be the second year in a row without a traditional peak.
Economists say subdued activity on the docks is a sign of how
retailers are slimming down their supply chains as more of their
customers shop online. Companies such as Target Corp., Lowe's Cos.
and J.C. Penney Inc. are pivoting away from maintaining stores
brimming with merchandise. Instead, they are housing fewer goods in
warehouses where they can quickly ship to stores or fulfill online
orders.
It is a shift that has caught the transportation sector off
guard. Ports from New York to Georgia to California have spent
billions of dollars to upgrade equipment and deepen harbors to
handle an expected flood of imports that has yet to materialize.
Shipping lines are scrapping vessels and cutting back service on
unprofitable routes. Trucking companies bought tens of thousands of
new big rigs as recently as 2015, many of which sit idle today.
"My drivers say, 'Boy, we've never seen it so slow,' " said Fred
Otterbein, who heads the Savannah, Ga., office of port trucking
company First Coast Logistics Inc. "It may be the new normal."
U.S. ports are on pace to handle 2.2% more imports this year,
the slowest rate of growth since 2011, according to Hackett
Associates LLC, a consulting firm. In July, when shipping volumes
typically start their peak-season ramp-up, imports fell at the
nation's two busiest port complexes, in Southern California and New
York. The National Retail Federation estimates that August and
September will continue the trend, with import volumes down
slightly for both months from the same period last year.
The slowdown extends to the nation's highways and railroads.
Freight carried by road and rail fell 2.6% in July compared with
the same month in 2015, the 17th consecutive month of
year-over-year declines, according to data company Cass Information
Systems Inc.
"The running joke going around is that flat is the new growth,"
said Jett McCandless, chief executive of transportation-technology
startup project44.
Freight volumes are stagnating despite strong consumer spending,
which rose for a fourth-straight month in July. The problem for
traditional retailers: More of those dollars are being spent
online, or on entertainment and services such as health care.
Many retailers are stuck with large amounts of unsold goods as a
result, reducing their need to import more merchandise. Even after
a year of attempting to slim down inventories, retailers' ratio of
inventories to sales, a measure of excess stocks, touched 1.5 in
June, close to a seven-year high, according to the Census Bureau.
In their most recent earnings reports, Target and Lowe's reported
inventories up more than 4% over the same period last year.
J.C. Penney is placing "slightly smaller orders...or holding
back quite a bit" to reduce inventories, Mike Robbins, J.C.
Penney's executive vice president for supply chain, told investors
in June. The company has reduced the size of some orders at the
beginning of major shopping seasons by as much as 70%.
The focus on reducing inventories is proving to be a drag on
growth because it signals that businesses are spending less, and
might be pessimistic about future demand. Inventory drawdowns cut
second-quarter growth by 1.26 percentage points, to just 1.1%.
Shipping lines are struggling to plan their routes as order
volumes become more difficult to predict, said Niels Erich,
spokesman for a group of 15 major shipping lines known as the
Transpacific Stabilization Agreement. In the past, carriers could
count on the peak summer months to make up for slower winter
trade.
"Now that doesn't exist in the same way, it's all kind of flat,"
he said.
Some analysts expect retailers to place last-minute orders
closer to the holidays, which could make up for some of the
softness in imports that ports are experiencing now. J.C. Penney,
for one, expects to place smaller orders for certain products that
typically sell strongly throughout the holiday shopping season, Mr.
Robbins said.
If those orders materialize, they could come in via air, usually
the fastest mode of freight transportation, analysts say.
Long term, retailers will need to step up imports as they run
through inventories, particularly if consumer demand stays strong.
But a return to double-digit percentage growth at the ports appears
unlikely, said Jock O'Connell, an international trade
economist.
"What's really going to drive import trade is simply the
domestic demand for goods," he said.
Write to Erica E. Phillips at erica.phillips@wsj.com and Robbie
Whelan at robbie.whelan@wsj.com
(END) Dow Jones Newswires
August 29, 2016 16:27 ET (20:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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