Will warehousing be in the vanguard driving the next worldwide recession? Some people think that will happen by early next year after shippers end up overfilling their inventories with more safety stock than they immediately need.
At present, however, the warehouse-based third-party logistics industry is still in great demand. First, the industry boomed during the pandemic-driven explosive growth of ecommerce. Now it is under even greater pressure stemming from the economic recovery and breakdowns in other parts of the supply chain, especially when it comes to congested port facilities and an inadequate and erratic supply of chassis and containers.
One major difficulty is that no one really has a handle on just how bad the situation is in the totality of the supply chain. We do have bits and pieces of the total picture, and it’s generally agreed that pressures exerted on transportation links created inventories that are much too low at this time.
Chief among these supply chain pressure points are the nation’s ports. It’s projected that imports will rise no less than 21% this year. Port congestion will continue to have an impact for some time.
The situation has gotten so bad that earlier this year the National Retail Federation sent a letter to President Biden requesting a meeting with him about what is happening at the ports.
A short time later, Biden instructed the Federal Maritime Commission to address the issue in his executive order seeking to improve competition in a
wide range of industries, including railroads.
Adding to the headaches for shippers and 3PLs — like warehouse operators — is that ocean lines carriers are now emulating the railroads rapacious demurrage practices. (In spite of a lot of ink spilled on Surface Transportation Board decisions, the railroads’ own demurrage practices reportedly have not improved much either.)
The situation has gotten so bad that Home Depot earlier this year chartered its own ship to transport goods from Asia and has turned to air cargo bring in power tools, faucets, electrical components and other shipments needed to help keep its shelves stocked.
According to the NRF’s Global Port Tracker, U.S. ports handled more than 2.3 billion TEUs in May, which was up 8.6% from April and 52% from the same month last year.
Although all the numbers aren’t yet in, the Port Tracker also projects that June will see another 2.15 million TEU, which would be up 33.8% from the same time last year. That also would. bring the first half of 2021 to a total of 12.8 million TEU, up 35.6% from the same period last year.
“Operational constraints brought about by the Covid 19 pandemic combined with the surge in consumer demand have severely strained the logistics supply chain,” observed Ben Hackett, founder of Hackett Associates, which generates the port tracker data for the federation each month.
“The level of growth in the last year has put unprecedented pressure on importers, carriers and domestic transportation providers alike.”
July is forecast at 2.21 million TEU, up 15.1% year-over-year; August at 2.3 million TEU, up 9.4%; September at 2.16 million TEU, up 2.5%; October at 2.13 million TEU, down 3.7% for the first year-over-year decline since July 2020; and November at 2.06 million TEU, down 2%.
In addition, NRF is continuing to project that retail sales will grow between 10.5% and 13.5% to more than $4.44 trillion for this year.
Shortages of computer chips and batteries created a shortage in cars available for sale, but that appears to have little to do with transportation issues. New car sales in June were down 14% versus 2019. At the same time, U.S. automakers’ profits are up.
We do know is that one-to-one inventories have become alarmingly common, according to analyses of the findings of the most recent annual State of Logistics Report (AA, 7-15-21, P. 1).
JLL predicts that industrial tenants will need the addition of 664 million square feet (msf) of new space this year, and one fifth of this demand – about 120 msf — involves ecommerce and logistics.
JLL projects 3PL growth this year will be 14.3% over 2020. It also says that ecommerce demand is only going to continue to grow, with a particular focus in urban logistics markets.
Safety stocks do possess one inherent danger. There is a distinct possibility that this we could see a recession driven by an inventory glut beginning next February, according to Financial Times columnist John Dizard.
“All of that fitfully tracked and delayed stuff, when it finally lands where it is supposed to, looks as though it will be big enough to trigger a bad inventory recession, where demand for goods drops while accumulated stockpiles are run down,” he wrote recently.