Peak Season Outlook is Tempered Compared to a Robust 2018

By Jeff Berman / www.logisticsmgmt.com / July 29th, 2019

A year ago at this time, optimism filled the air in freight transportation and logistics circles, especially when it came to 2019 Peak Season prospects.

There were myriad reasons for this optimism, including things like strong GDP growth, solid manufacturing output, and strong economic undertones overall. But, now, things have reversed course to varying degrees, due to things like the ongoing trade tension brought on by the United States-China tariff-related trade war, signs of a manufacturing slowdown, and general wariness over the current state of the economy compared to a year ago.

This wariness is not anecdotal by any stretch either. It becomes very apparent, in fact, when looking at year-to-date United States import numbers through June, which are up 1.6%, according to data from global trade intelligence firm Panjiva, as opposed to a solid 6.5% increase at this time a year ago.

The findings of a Logistics Management reader survey of roughly 120 logistics and supply chain professionals regarding 2019 Peak Season prospects was tempered compared to last year, with 33.3% expecting it to be more active than last year (down from 61% last year), 34.8% expecting it to be less active (up from 10% last year), and 31.9% saying they are not expecting a change (up from 29% last year).

While import data is only available for the first half of 2019, there are indications that the second half of the year could see similar volume levels as the first half, and, in effect, result in lower Peak Season output than 2018.

The Port Tracker report issued by maritime consultancy Hackett Associates and the National Retail Federation estimates that July will hit 1.93 million TEU for a 1.3% annual gain. August and September are pegged at 1.96 million TEU and 1.89 million TEU, respectively, for gains of 1.3% and 3.4%.

While it is too early to tell if these numbers come to fruition, these projections are in line with ongoing concerns over both the threat and actual implementation, of tariffs, which has been front and center in the ocean shipping sector going back to March 2017.  And Port Tracker’s projections speak to the uncertainty that trade tension and tariffs have posed for supply chain stakeholders.

“The story we saw develop in 2018 was retailers forwarding goods to beat tariffs,” said POLB Executive Director Mario Cordero. “For 2019, it seems that the cargo is all here and warehouses are filled. That’s disrupting container movement and the growth we would normally see this time of year.”

Beacon Economics’ International Trade Advisor Jock O’Connell said that the tariff pull-forward, which has led to higher inventories, remains a major supply chain concern.

“I keep wondering where all the peak-period imports will go, given the stories I continue to hear of companies still storing goods they brought in late last year under tarps out in the employee parking lot,” he said. “There appears to be a huge amount of unsold inventory in the supply chains. It bears repeating that people should not assume that all imported goods go directly into the consumer market. Importers of machine parts or intermediate goods or institutional cleaning supplies who stocked up in the last quarter of 2018 may not be big importers this summer and fall.”

Chris Rogers, research director for global trade intelligence firm Panjiva noted that the race to beat tariffs should slow, given the de-escalation of tension, though the risk of a sudden increase in tariffs - seen in both May and in September 2018 on prior breakdowns of talks - may see buyers take a conservative stance, which could result in an earlier than normal Peak Season surge in July and August.

While trade and tariffs are front and center in addressing Peak Season, Larry Gross, president of Gross Transportation Consulting, observed that with consumers still feeling relatively optimistic, Peak Season should be fairly normal, in terms of seasonality, but that comes with a few caveats.

“The annual comparisons will be very difficult, due to some special situations,” he said, “one being that last year there was a pull-forward that will make later in the year comparisons more difficult. With tariffs up in the air, it is hard to see a pull-forward like last year. But I think there will be a pull-forward from IMO 2020 [the 0.5% sulphur cap on fuel content for the global maritime industry mandated by the United Nations’ International Maritime Organization, set to take effect on January 1, 2020], which may be a bit earlier in the season, when fuel surcharges start to take effect.”

Gross said any IMO 2020-related pull forward would essentially mean that increased fourth-quarter volumes would result in lower first-quarter volumes.

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