It’s tough to say that we are hitting that lull in the season where information is not quite keeping up with the activity on the street. Frankly, analysts are trying to decipher what appears to be a varied holiday retail shopping season on the broader market. By that, what we see is that some retailers are experiencing significantly strong sales coupled with light inventory levels – creating a bit of a “scramble environment” for these companies. Keeping in mind that more than 40% of the entire seasonal shopping volumes will come in the last 10 days before Christmas, there is still some time for companies to do some short-term ordering of merchandise that is stocked out.
Yet, we also see those retailers that went into the holiday season with an adequate amount of inventory, and sales thus far in the year have been a little better than 2009, but nothing to get them scrambling for merchandise. These companies are still going to be moving products, but it is more for load balancing purposes (moving overstocks from one store or region to another to try and balance inventories without incurring additional inventory costs – aside from the transportation costs to move it around).
As mentioned last week, the rail sector is still feeling strong volumes even as it slows a bit into the latter part of the year. By this time in 2009, freight volumes were starting to pick up going into what was a fairly strong first quarter of 2010. So, we are arguably going up against some of the tougher comparison figures for the season. That will be important perhaps more so in the first quarter of 2011 as we start to look at the real strength of the economic recovery – but it also says something strongly about the 6-10% growth rates in freight rail at the end of this year. The sector can still feel good about the current volumes and indicators for the bulk commodity sector would suggest that those volumes will pick up even further in the first part of 2011 as manufacturers ramp up for inventory replenishment activity.
For the trucking sector, there is slightly changing dynamics – but it appears to be normal seasonality sorts of moves. Shipments will steadily get smaller with more urgency as we get closer to Christmas, followed by a remarkable drop in the last week of the year and first week of January. But for now, leading up to the 10-day Christmas rush shopping, the volumes remain brisk and steady for most providers.
Parcel companies will likely see some of the best demand throughout the season. Value shoppers are going online at record numbers to take advantage of free shipping offers and significant discounts. As a result, there are some really strong volumes that will come out of the parcel sector – continuing right through the first of the year. And, for these companies, the global demand for expedited parcel services has continued to boost their business – driving much stronger profits than other sectors of the globe. Going along with the parcel sector, the expedited air cargo market is expected to remain strong up and until the last week before Christmas. But, there may not be as many companies trying to use air cargo for immediate emergency inventory replenishment activities as we had thought early in the year. Many companies seem to have opted just to remain out of stock – instead of paying for the extra costs to get merchandise air-shipped. Some of that many have also been a reluctance to ship via air cargo over fears of a security delay for those shipments. A worst case scenario for a shipper is that inventory ordered to be here prior to the 10-day Christmas shopping window gets to a retailer after the Christmas holiday.
Lastly, the maritime sector has been hit with some interesting news over the last couple of weeks that has many analysts slightly worried. The same patterns of over-capacity are starting to show up that we saw prior to 2009. A number of maritime companies have taken (or will take) delivery of new ship assets over the next year – enough so that there are concerns of overcapacity showing up in the industry. That has hurt pricing and has sent the Baltic Dry Index into the low 2,000’s (during the summer of 2008 – the index showed a reading of over 11,000). So, there is some trouble in the maritime sector between the balancing of capacity and demand.
In summary, the biggest story for the last few weeks of 2010 is the deceleration of volume going into January. That’s typical. What we will be looking for as a strong indicator of strength for the freight sector in the next quarter is the business inventory readings – especially retail to try and gauge how strongly the inventory rebuilding story will be going into the latter part of the year and spilling over into January.