The implications for the logistics industry
Reports indicate that imports are sinking yet again. This was released while wholesale inventories are still as bloated as ever. According to the National Retail Federation (NRF), there was only a modest import rebound from last month. Descartes has also reported that imports to Houston fell by 17% in February compared to the previous month. We already know that February has typically been a bad month for US imports, but this year, the situation has been particularly dire because of the effects of the early Lunar New Year holiday, which collided with a giant US inventory overhang.
Dealing with mixed signals about the future of imports in the short term
The market sends mixed signals about where imports are moving following this slump. The data from NRF indicates nothing more than a moderate rebound which is anticipated. This is somewhat more optimistic than the data from the Census Bureau concerning the wholesale inventory-to-sales ratios in January, heralding even a bigger slump soon. Some argue that these reports are in line with pre-Covid19 volumes.
On Tuesday, data coming out of Descartes showed that February imports to the USA came to 1,734,272 twenty-foot equivalent units (TEUs). That represents a fall of 16.2% compared to January 2023. In fact, this statistic represents a 25% fall compared to the same month in 2022. However, it is only a 0.3% drop from what we saw in February 2019 before the pandemic hit its stride. Therefore, it could be argued that these figures are merely returning to what they were before the disruptions of Covid-19.
Imports from China are very weak
One of the weakest points in the market was the imports from China, which is not entirely unexpected given the remaining Covid-19 challenges that China is dealing with. Moreover, the country has the Lunar New Year break to contend with, which has the effect of halting operations. The statistics from Descartes indicate that imports from China fell by 118,442 TEUs. This represents a fall of 32% in February 2023 when compared to the previous month.
It is important to note that US ports have yet to release their February numbers. However, the differentials may not change much when Descartes is already reporting port-level data with double-digit declines in February compared to the previous month. The month-on-month slump in Los Angeles was 32%. Baltimore reported a fall of 22%, while Norfolk in Virginia fell 18%. Both Oakland (California) and Houston experienced a drop of 17%. Long Beach (CA) fell by 15%, while Savannah (Georgia) fell by 14%. The rear end in declines comprised Charleston (South Carolina), falling by 11%, and New York/New Jersey, falling by 9%.
Wondering whether we are heading back in the right direction or not
One of the key indicators of the implications of these trends is the Global Port Tracker, published by Hackett Associates and NRF. They predict that the import trend will eventually turn positive in March 2023. Their data is well-respected in the industry as it covers 12 ports based in the USA. On Wednesday, the Global Port Tracker released its February statistics, which indicated imports worth 1.56 million TEUs. If that holds true, it will represent a fall of 13.6% compared to final port statistics released in January 2023.
Notably, the Global Port Tracker projects that in March, imports will hit 1.74 million before reaching 2.13 million TEUs by July 2023. This is based on predicting a volume rebound that exceeds what we saw before Covid-19. Yet, Jonathan Gold (Vice President of supply chain and customs policies at NRF) still highlights economic uncertainties. Hence, the expectation is that imports will show modest gains over the coming months.
The headwinds of wholesale inventory
Another factor to consider is the wholesale inventory headwinds that have been predicted by some experts. Executives from Maersk and Hapag-Lloyd recently presented their quarterly calls in which they blamed weak import demand on the trend towards destocking. This will continue to be the case until the excess inventory accumulated in 2022 is offloaded. The implication is that import demand will lag consumer demand in the short run. The inventory overhang will eventually whittle down if current consumption rates hold steady.
Additionally, demand is expected to come up again in 2023. This is more likely to happen in the second half of the year. However, on Tuesday, the Census Bureau released data indicating wholesale inventory-to-sales ratios for January 2023. These herald that destocking will remain the prevailing trend in the short term. Specifically, ratios remain high and little progress has been made in January. The more heavily containerized categories are a concern. For example, the seasonally adjusted wholesale inventory-to-sales ratio for electronic goods and household appliances stood at 1.29 in January. This represents a rise of 11% when compared to the same month in 2019 before the pandemic.
The trends are not encouraging for imports
Notably, the wholesale inventory for home furnishing was double the sales amounts in January 2023. This represents an increment of 13% when compared to the position in January 2019. Heating equipment, plumbing, and hardware reported even worse inventory situations. For example, this category reported a 2.66 inventory-to-sales ratio in January. This is higher than in December 2022 and not too far off the peak ratio of 2.68, which was reported in September 2022. In fact, the ratio for January this year is 25% higher than in the same month of 2019.
Apparel faces challenging predictions, which is important given its role as a major containerized type. The seasonally adjusted ratio for January was 2.95. This is close to the recent high of 3.1 in December 2022. That comparison does not include the spike of 2020 during the Covid-19 lockdowns when sales were crashing, and the ratio was significantly inflated. Moreover, imports from China continue to fall despite the efforts to lift the recent Covid-19 restrictions. Some experts argue that this reflects the fact that the market failed to anticipate a slower pace of infrastructure recovery.
Overall, the USA is importing less and even less from China. Inventory built up in 2022 is proving harder to sell than expected. The experts are reporting and predicting mixed signals. This comes at a time of economic uncertainty. China, a major trading partner, is dealing with the after-effects of recent Covid-19 lockdowns while the global economic situation does not portend a significant rise in imports, at least in the short run. This is a time to tighten belts and plan carefully.