U.S. Imports Gained in March

U.S. Imports Gained in March

Imports gained in March. What do experts say about the future? 

Sales of imported products in the US in recent quarters have been declining, and businesses have been struggling to bounce back. Primarily, that decline has been driven by the huge volatility in consumer demand. First, we saw a tremendous spike in demand (to the point where bare shelves were common in the United States, something that hasn’t happened very often in recent years). Countless businesses stepped up their inventory order volume to meet the dramatically increased spending habits, but didn’t foresee the drop in demand that followed last year.  

This decrease in imported products kicked off, deepened, and has lingered over the US for months. Concerns over a potential recession and high inflation have helped keep consumer demand lower than expected. All of this follows not only a panicked spending spree (the Great Toilet Paper and Hand Sanitizer Rush of 2020, for example), but a sustained period during which middle class Americans not only kept their jobs, but suddenly found themselves receiving more than one stimulus check. Those stimulus checks were treated like windfalls by those fortunate enough to keep their current jobs at their current rate, and a great number of them rushed out and spent them on big ticket items. Televisions, furniture, vehicles, etc.—durable goods. That means that these people don’t need to replace them for several years, so demand for a huge portion of industries has dropped. As a result, businesses were stuck with warehouses full of products they had trouble selling, so they cut back on their inventory order volume to compensate while they clear out existing stock. That reduction has shown itself in stark detail for the past several months, as imports have been steadily declining.  

Does March mark a turning a point? 

This past March marks a bright spot for US import volume: month-over-month, imports are up 6.9% compared to February, and even up 4.2% over March of 2019 (before Covid). That’s still down 27.5% over last March, but it’s giving some analysts even more reason to hope that consumer demand is beginning to rebound.  

There was one additional interesting tidbit in this data from Descartes: the share of imports from China have dropped precipitously over the past year. In February of 2022, China’s share of US imports was 41.5%; as of last month, China accounted for only 31.6%. Whether this will hold or begin to revert in the future is unclear; the amount of uncertainty in the global economy makes it difficult to predict. 

Regardless of the nation of origin for US imports, a number of analysts and experts are predicting (maybe optimistically) that the volume will keep climbing for the next few months. One analyst forecasts a 26.7% increase over March’s volume by the end of August.  

What does this mean for US businesses? 

While everyone’s hoping for a return to normalcy and stability, there isn’t exactly a mountain of positive data to start popping champagne yet. It’s undoubtedly a good sign, however, and there is good reason to hope for a business rebound. If businesses are stepping up their order volume, that logically indicates that they have a good reason to do just that.  

Part of the reason for this volume increase might be the dramatically reduced freight rates. After a huge rate spike and the subsequent collapse last year, rates have been volatile, and businesses struggled to find shipping space at reasonable prices. Many of them were locked into long term agreements with carriers at much higher rates than were available on the open market just a couple of months after the ink had dried on their contract—and in some cases, it was less expensive to pay the penalty to break the agreement and go with spot pricing where they could find it.  

Recently, global shipping prices have been low—maybe not the lowest in history, but close enough that businesses might be taking advantage of discounted freight costs while they have the opportunity to do so.  

The second potential conclusion to draw from this is that businesses may have finally begun to chip away at their overstocked warehouses, to the point where they once again have ready space available for additional inventory. This could mean that consumer demand is beginning to rebound enough to free up more warehousing space, or simply that additional warehousing space has been made available at favorable rates—but experts are hinting that consumer demand has begun to pick back up, thankfully. 

While we aren’t completely certain what the rest of the quarter or the next will really bring, the past several weeks have had enough bright spots to give a lot of businesses better hope for the future. It’s possible that we’ve reached the beginning of the “return to mean” stage of the market cycle, during which supply, demand, and profitability lose some of the volatility and once again reach stable ground. That less shaky territory will likely be a lot closer to where the US economy was before Covid kicked off in the West in March of 2020. While some businesses might miss the early days of the pandemic—which brought many of them higher sales than they’d ever seen before—an awful lot more will be grateful for a return to pre-Covid stability instead.  

The Impact of Price Volatility

The Impact of Price Volatility

It’s been a perfect pricing storm for shipping and logistics companies. COVID-19 and subsequent rebounds, labor unrest, and supply chain disruptions have led to massive price volatility and wildly fluctuating shipping rates. For brands that rely on a steady supply chain, these pricing swings have been problematic—the trucking industry and other businesses that rely on a steady supply chain, for starters.  

For the trucking industry, recent Pacific labor unrest led to slowdowns for many trucking companies, as East Coast ports struggled to keep pace with overflow from West Coast ports. The more backed-up ports became, the longer vessels waited, with less immediate cargo being loaded onto and delivered via truck.  

Also impacted: shipping companies that launched amidst sky-high pricing in 2021 and 2022. With rates returning to a more comfortable mean, these teams can no longer afford to charter ships at above-average rates, even with full shipping loads.  

Beyond that, many of these businesses are sitting on massive inventories they overpaid for just a year or two ago. With each charter, they’re losing money on both the charters themselves and the often-reduced rates for their existing inventory. Layer in market common market delays—with them, narrower windows surrounding holiday shopping and other peak periods—and the problem compounds even more.  

Factors Impacting Shipping Rates

Labor considerations, price fluctuation, and inventory over-spends are just a piece of the volatility puzzle. Supply and demand naturally play a significant factor in shipping fees—the more in-demand a product, the more demand for freight services to move that product. As demand for space rises, so do prices. This constant push and pull between rising demand for specific goods paired with limitations on shipping capacity can impact volatility. During peak COVID-19 periods, decision-makers also needed to factor in lockdowns which disrupted cargo movement by delaying or reducing trips.  

Also impacting pricing volatility:  

  • Bunker Adjustment Factor (BAF) is a surcharge for shipping operators that compensates for fuel price changes. Implemented by the IMO, BAF was intended to cover all fuel charges—but the immediate trickle-down impacts overall price volatility.  
  • Carrier costs have been consistently on the rise. Many carriers are adding charges to account for port congestion and environmental considerations. With more and more ports experiencing significant delays, carriers potentially lose out on other opportunities. These increases protect businesses should mass slowdowns happen. 
  • Peak season surcharges happen during the holiday season. During these peak periods, carriers raise rates along with the spike in demand. In China, Chinese New Year is a major consideration for shipping fees—demand before and after this period tends to increase significantly, with people focused on getting goods to their final destinations as quickly as possible.  
  • Trade agreements, strikes, wars, and other political events can cause ports to close down or even goods to become increasingly scarce in specific markets. This, then, drives demand and shipping prices up.  
  • Global exchange rates can also impact pricing. In weaker currency countries, imports and exports become more expensive, while stronger domestic currencies readily increase international shipping and benefit from these less-expensive rates.  

The Volatility Winners: Agile Supply Chains

While many businesses struggled to keep pace—and keep profitable—during pricing swings, others found ways to accelerate their growth and profitability. These companies specifically adjusted operations to account for pricing fluctuations, making them more profitable and competitive. With agile supply chains, these organizations were better equipped to handle rapid changes without missing a beat.  

The takeaway, then? Price volatility will always be an X-factor in the shipping industry. To remain operational during these ups and downs, businesses must stay agile, rapidly adjusting to shipping rates and supply chain disruptions. This is especially true for trucking companies and other businesses that rely on a steady supply chain to remain profitable.  

Achieving this level of agility, though, doesn’t happen overnight. Organizations must reassess their inventory management practices to avoid overpaying for inventory during high-rate periods. New technologies and partnerships with more agile logistics providers can help companies navigate price volatility hurdles better. By being proactive and implementing these best practices now, organizations can be prepared—and remain operational—in the face of future disruptions.  

Durable Goods Sales Are Still Down. Will They Bounce Back?

Durable Goods Sales Are Still Down. Will They Bounce Back?

Products that people sell mainly fall into two categories: “durable” or “consumable.” They’re pretty much exactly what they sound like. Consumable goods are made, shipped, and sold to be used and discarded or recycled within a short period of time—things like paper towels, disposable cups, scented candles, and other products that don’t last very long. Durable goods, on the other hand, are intended to last; TV sets, office furniture, laptops, kitchen appliances, and other products that don’t need to be replaced for years are all “durable.”  

Last week, the Census Bureau released their Monthly Advance Report on Durable Goods Manufacturers’ Shipments, Inventories, and Orders (PDF link), and once again, durable goods are down across the board. New orders are down, shipment totals are down, and while existing inventories increased. That indicates wholesale and retail businesses are still having difficulties moving the product they have, and are decreasing new orders as a result. This report is similar to what we’ve seen in most recent months, mainly representing a continuing trend rather than a change in circumstances. 

Why Is This Happening?

We know we’ve talked about this a lot recently, but Covid and government responses to it caused all sorts of market imbalances in ways that weren’t easily predictable. What we saw during the early days of Covid was unexpected by most.  

First, there were lockdowns in many states—in some cases, we’ll call them “strong suggestions” that everyone stay home as much and for as long as possible. This was the “two weeks to flatten the curve” campaign that was extremely effective at convincing people to stay home. This resulted in tremendous numbers of employees switching directly to remote work in a very short time, a historic shift that still continues to this day.  

Second, the US government responded with the largest spending bill in history. The part of that massive bill that most directly concerns this topic is the Paycheck Protection Program. This plan provided businesses with the opportunity to apply for extraordinarily cheap loans, which were surprisingly forgivable if the recipient of the loan followed the eligibility requirements—namely, that they continued to keep everyone on their payroll, maintain the same rates of pay, and that at least 60% of the loan be used to accomplish those two things. The long and short of it is that employees who otherwise would have been laid off or furloughed without pay for untold lengths of time kept drawing their same paychecks.  

Then the final piece of the puzzle: stimulus checks were sent out. Everyone who met the eligibility requirements began receiving payments directly from the government. The first round went out quickly after the initial lockdowns started. Putting everything together, the typical American household had the following circumstances:  

  1. They were, for the most part, staying home and only venturing out for necessities; 
  1. They (thankfully) kept their jobs, with some exceptions, and still received the same paychecks they were accustomed to, though they were now usually working remotely; 
  1. They were suddenly given an unexpected windfall of thousands of dollars they hadn’t planned on receiving. 

What you had here was a recipe for a spending spree unlike anything else we’ve seen in history. Stimulus checks aren’t anything new; the government has used them as a tool to add a little juice to a flagging economy before. However, they were typically sent out during times of high unemployment or particularly low consumer spending. This may have been the first time they were sent out to virtually every citizen before unemployment began rising, and on the heels of a previous spending spree. 

Because we can’t forget what had happened right before the lockdowns: stores were stripped bare of all sorts of consumable goods. Paper towels, toilet paper, tissues, hand sanitizer, cleaning solutions, and all kinds of other basic necessities were nearly impossible to find in March/April of 2020. The rumors of a lockdown and fear of Covid drove people to panic buying everything they could get their hands on, partially because people were anticipating that they wouldn’t be able to casually head to the store for an unknown length of time. 

So, to recap: you had an American middle class still mostly gainfully employed, with windfalls of cash, already overstocked on basic household necessities, and spending a lot of time at home. What do you get when you add these things together? Big ticket item shopping! 

Yes, people started buying all sorts of durable goods during this period. Television, computers, game consoles, and furniture sales all increased. But probably the most surprising sales spike was for even more expensive items—Recreational Vehicles. That’s right; RV sales skyrocketed. It makes sense if you think about it: families knew they weren’t going to be going away on vacation for a while, so what’s left if you want to get away? Camping trips, of course. Combine the higher than usual amount of available cash with the fact that loans were extremely cheap at the time, and suddenly a luxury RV sounds a lot more feasible to the average family than it did in years past.  

The Problem

Unfortunately for businesses in these industries, these products last a very, very long time. How often do you replace your TV? Maybe once every five years? This early Covid spending spree compressed years of demand into a period of a few months. Now you have an American middle class that has just recently bought the TVs, RVs, computers, and furniture they wanted, and doesn’t need to replace most of it for another few years.  

In short: because the middle class went on a shopping spree, they already bought most of the durable goods they wanted, and since they last for years, they aren’t replacing them quickly enough. 

There is one other complication here: since the Federal Reserve raised the prime interest rate, loans are no longer as cheap as they were a couple of years ago. We went through close to a decade of very low (in some cases, borderline nonexistent) interest rates, and for Generation Z, those are the only interest rates they have life experience with. Now they’re spiking upward. That’s pumped the brakes on a lot of the higher-ticket products—like the RV industry, for example—and those sales are going to take some time before they bounce back. 

The Future

Nobody knows what the future will hold, but this Census report is not full of good news for the next quarter. We expect this period of low sales to be mostly transitory; the pendulum will swing back eventually. What we don’t know is how long it will take. Until consumers renew their faith in the economy, we expect the current trend to hold. That said, uncertainty cannot last forever, and once people get the clarity they need on what’s coming, we expect this to turn around, and fast.  

Until then, businesses should work with logistics partners who can help them get the most out of the products they do sell. You should focus on top-to-bottom efficiency within your existing supply chain, with the lowest possible shipping costs, removing unexpected warehousing fees, and handling last-mile delivery as easily as possible. Contact us to learn more about what we can do to help you.  

Five Long-Term Changes Covid Caused for Shipping and Logistics

Five Long-Term Changes Covid Caused for Shipping and Logistics

Remember back in March and April of 2020 when nobody could find toilet paper? That was the first nationwide supply chain crisis most of the United States can remember since the Gas Shortage from the seventies. Slowly, over the past couple of years, we’ve started to “get back to normal,” though we’re not quite there yet—and, to be blunt, “normal” heading into the future is going to look less like “normal” from 2018 than most of us hope. Some of the changes made to shipping and logistics processes in response to Covid will be felt for a long time—and they might be permanent. Here are some we think will stick around for years to come.

1. Companies are prepared to spend more to keep their doors open

The earliest days of Covid were tough for just about everybody—it was notoriously difficult for those in the service industry, but retailers were also severely impacted. The first wave of Covid shortages happened during the first few days—the famous Toilet Paper Mania, alongside the Hand Sanitizer Drought. While some of us can look back and shake our heads at how absurd it seems now, the fact remains that people were scared. The fear that gripped most of the population drove them to stockpile the types of supplies they thought they’d need to stay put for weeks at a time—and there was a lot of conflicting information in many US state governments, too. Which businesses were “essential?” Which were going to stay open, and which were going to be closed? The rampant uncertainty and fear triggered an inventory shortage like we haven’t seen in decades in the United States.  

The biggest impact was dramatic for many smaller retailers. While the biggest corporations—Wal-Mart, Walgreens, Stop & Shop, etc.—had enough resources to weather the inventory crunch due to almost astoundingly well vertically integrated supply chains, smaller retailers did not. They were used to dealing with a variety of wholesalers and transportation businesses to get what they needed, but suddenly that wasn’t enough. They found themselves faced with only a few tough options: tighten their belts, shut down, or sacrifice margin.

What we’ve seen is that the businesses who narrowed their profit margins to acquire the inventory they needed are, by and large, the ones who are still standing today.

This isn’t only true for the smaller retailers, either. Many of the massive brands went in the opposite direction from their traditionally effective practices. Most businesses have spent the past several decades laser-focused on cutting costs and increasing productivity to maximize their returns. Wal-Mart, for example, had infamously granular inventory management processes. But in the inventory and shipping crunch that started in 2020 and still, in some cases, continues today, they slowed down that granularity and instead began stocking up.

The simple truth is that nobody knew what was coming next. Would there be a Coca-Cola shortage? Better stock up, just in case. Same with Adidas sneakers. And paper towels. And motor oil. And, and, and… In short: businesses started stockpiling rather than relying on smaller, just-in-time shipments. And there’s no sign that that’s going to stop anytime soon. Nobody knows what’s just around the corner, and uncertainty is best countered with caution.

2. “Supply Chain” is finally getting the attention it’s always needed

If you look back at news articles from, say, 1990 through 2020, you won’t find many using the term “supply chain.” Executives didn’t have all that much visibility into what went on within their supply chain, either—for them, it was just shipping and delivery. What could possibly be so complicated about that?

It turns out, it’s extremely complicated. That won’t be news to those of us in this industry, but it seems like it was to executives in other industries.

Supply chain visibility became murkier and murkier to high-level executives as the world economy became more and more globalized. When you’re dealing with production and procurement that’s spread across dozens of countries, it became extremely difficult to closely monitor each stage individually. Instead, they tended to have a more general, higher-level view of their overall supply chain, because it wasn’t thought to be all that practical to keep a close eye on the dozens, hundreds, or thousands of moving parts.

A small bright spot from the Covid pandemic is that businesses have changed that attitude. Executives have learned that hard lesson over the past two and a half years, and are investing heavily into their own supply chains—and their level of visibility. They’re building or acquiring software to help automate and track these massive cogs in the machine, naturally, but they’re also partnering with logistics organizations who have the best insight and real information to work with.

3. Inventory practices have changed forever

It used to be all about “buy only what you need when you need it,” because businesses got used to hitting a button and getting rapid delivery—and their customers got used to it, too. Now, manufacturers and retailers are stocking up in advance, making sure they’re ready for the next shortage or slowdown. That’s a big adjustment for most industries, and some businesses who attempted to make this change early on made some crucial missteps.

The initial panic-buying in the early days of the pandemic gave some businesses the wrong idea, and they overstocked. That’s not quite the same thing as stocking up, though the difference can be hard to spot. Lots of businesses watched their inventory shrink during the early days of the pandemic (around March and April of 2020) and started rapidly refilling it as quickly as possible. Some were able to secure advantageous financing options open to many businesses. For those who took them, these low-interest funding options took some of the pressure off, which helped many of them focus on meeting customer demands without cutting payroll. That worked out for them for a few quarters. Furniture, sporting goods, building materials, exercise equipment, camping and RV suppliers—many of these suppliers filled up their warehouses to meet the increased demand.

Unfortunately, the increased demand that continued through much of 2021 began to drop off in early 2022. Few anticipated the length and severity of the lockdowns—and how deeply it has impacted the market. But many continued their overordering, and are now left with full warehouses and fewer people to sell their products to. 

This is impacting the old playbook for shipping product across the world. Shipping space went through a tremendous crunch, but it’s gradually improved over the past year or so, and rates are plummeting as a result. That’s had a huge impact on carriers and logistics providers, as they’ve had to anticipate significant rate swings during this upheaval. Probably the most enduring impact from Covid is that noticeable changes in these processes are becoming more common, in both directions, and that can be tough to deal with in day-to-day business. Ideally, you should work with a partner who has a network of resources to help get you what you need at a price you can handle.

4. Bigger networks are more resilient

We know bigger isn’t always better, but numbers do matter. Before Covid, most businesses worked with a relative few shipping partners to get their products and materials. Maintaining a handful of relationships was much simpler than the alternative. But, once again, Covid shone a spotlight on that practice, which was adapted in the name of “efficiency.” Slowdowns and shortages pointed out the weakness in that approach. Now, organizations are working with much bigger networks, because the businesses with redundancy suffered far fewer problems than the ones who didn’t.

It’s a simple approach to what amounts to a pretty simple pitfall. The more partners you can get into business with, the likelier it is that you’ll be able to get what you need when you need it—and yes, it really is that straightforward.

The problem with this approach is the opposite of the efficiency argument in favor of fewer partnerships: managing relationships is time-consuming, not to mention distracting. Most businesses don’t have the time or labor available to keep a close eye on dozens or hundreds of shipping partners, especially when other costs are rising rapidly. That’s where logistics providers can make a tremendous difference. It’s much more cost-effective to work with one partner who will handle the relationships with a wide network of other partners for you. You work with a single point of contact, and let them worry about managing the rest of it.

5. Environmental changes

Green initiatives aren’t going away—in fact, there are a rising number of environmental mandates and regulations every year. Nations across the world have decided that the market changes sparked by Covid is a chance for them to guide industry down a more environmentally friendly path forward. While the biggest focus of these initiatives is always going to be on energy production, that alone has significant impacts across a huge swath of other industries, including—you guessed it—shipping and logistics.

Even assuming direct regulations will apply only to energy, that has a follow-up effect across basically every other industry sector. Everybody needs energy, and the more regulations apply to energy, the more the price will be impacted. The price of fuel alone is going to affect shipping costs, which can shave away more margin from sellers at a time when they’re already shaving margin to stay open. There is tremendous uncertainty about energy costs even a year from today, but most will agree on one point: it will be higher than it is now. The only real question is how much higher. Unless there’s another energy revolution, fuel costs are going to increase. The environmental initiatives—though they may help save nature—are going to speed up these increases, no matter how you slice it. You need to plan ahead.

Though there are some other methods you might use to help defray increased shipping costs over the next few years, they’re all time-consuming or expensive in one way or another. It is far simpler and efficient to work with a partner who can find you the best rates with the most reliable carriers. Shipping and logistics providers are a huge force multiplier when it comes to this process, because they have access to a wide network of global shipping partners to work with, and a big part of their value is finding the best rates for their customers Covid has certainly changed the way business operates around the globe, and shipping and logistics in particular. The worldwide upheaval has shown us where our biggest weaknesses are, so now businesses are getting creative to overcome them. OL-USA has helped countless businesses during the Covid pandemic and beyond. We understand these problems, and, more importantly, we have the experience and resources necessary to help you solve them. Don’t wait for the next crisis—plan ahead. Reach out to us, and we’ll consult with you, find out your goals, then build a comprehensive solution that addresses your specific needs.

2022 Shipping Reform Act Addresses Rail Delay Causes

2022 Shipping Reform Act Addresses Rail Delay Causes

Early return dates (ERDs) can give anyone the chills. For example, imagine you just successfully finished a grueling negotiation to deliver a large shipment to an overseas buyer. Your company organized a trucking company to transport goods to the port over the next week. You even paid for the storage costs of your goods before they get loaded onto your vessel.

But as soon as all this was finalized, you were told your early return date (ERD) shrunk from a week to only 2 days. Sound familiar?

The unfortunate reality is that situations like this happen far too regularly. Suddenly, all your careful planning is for nothing, and you face extra costs at every turn. The ERD nightmare is real.

There is no easy fix to problems stemming from changes in ERDs. It is an industry-wide problem that plagues all shippers and is the source of many sleepless nights for shipping coordinators.

What can you do to manage the risks of changes to ERDs better?

What Is ERD?

An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no advanced notice for shippers.

ERDs- A Multi-Layered Challenge for Ocean Exports

The importance of ERDs for shippers is that they need to make sure their containers don’t arrive too early at ports. Otherwise, they face demurrage penalties, storage fees, chassis rental costs, and other charges. But if their containers arrive late, their cargo may miss the opportunity to get loaded onto the vessel.

This balancing act isn’t always easy. During the pandemic, more than one-quarter of shippers reported that they experienced ERD changes, with about 7% reporting that these changes cost them $1000 or more.

What compounds these difficulties is that many ocean carriers reduce sailings in response to the negative economic impacts of events like Covid-19 and the Ukraine conflict. The net result is that companies looking to transport goods experience even greater headaches.

The worst part is that ERDs can, and all too often, change with little notice. Almost always, these schedule changes cost shippers more money. When profit margins are already tight, these unexpected charges can cause many sleepless nights.

So, in the face of such a tumultuous environment, how can shippers manage these risks and better operate under the constraints of ERD?

Hope for the Future

OL USA strives to help eliminate problems in global trade. We know the challenges you face and the hardships brought about by changes in ERDs.

OL USA is dedicated to transparency through the use of our proprietary track and trace system. We are a full-service transportation partner that can help your business face challenges in transporting goods worldwide.

And there are other reasons for optimism moving forward. Governments in the U.S. and worldwide have responded to the surge in shipping by addressing industry shortcomings. And the scope of financial resources made available with the surge in shipping activity means that there are powerful incentives in place to improve the current system.

With advances in technology and the surge in stakeholder interest in creating a more efficient flow of goods, ERD nightmares can soon become a thing of the past.

Together We Can Succeed

We all know the importance of providing goods and services to markets around the world. It is in everyone’s best interest to work together to find workable solutions to today’s problems.

So don’t worry. We’re all in this together.

Follow us on social media to stay updated on our latest efforts.

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An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no notice for shippers. But OL USA can help.