Prospects for Peak Season appear to be cautiously optimistic

When examining prospects for the 2017 Peak Season, it is apparent many factors come into play in order to assess what may or may not happen.

As is always the case, there are multiple economic factors that come into play. And, like in past years, these indicators are somewhat of a mixed bag, including sluggish GDP, decent job growth, flattish retail sales, and lower inventory levels compared to a year ago, among others.

But unlike a year ago, import numbers through the first six months of 2017 are up around 3.5%, whereas they were flat for the same period a year ago. Other positive signs include healthy manufacturing output, and, as has been the case in recent years, continually improving business-to-consumer conditions, due in large part to ever-increasing e-commerce activity.

Economic conditions aside, determining whether or not there will be an actual Peak Season, to a large degree, can be viewed as tricky to be kind, especially when taking into account which part of the supply chain a person participates in.

For example, Chuck Hammel, president of Pittsburgh-based less-than-truckload carrier Pitt Ohio, commented: “I am not so sure there is even a Peak Season anymore.”

But an informal LM reader survey of 60 logistics and supply chain professionals told a different story, showing that 58% expect this year’s Peak Season to be more active than last year (up from 39.8% last year), with 6.5% expecting it to be less active (down from 19.4% last year), and 35.5% not expecting a change (down from 40.7% last year).  

While import data through July does not truly paint a definitive picture of what may be in store for this year’s Peak Season, there appears to be a feeling of optimism among many supply chain stakeholders for how this year may unfold.

That was evident in the Port Tracker report issued by maritime consultancy Hackett Associates and the National Retail Federation, which is calling for United States-bound retail container volumes to hit an all-time high this summer and maybe beyond.

Port Tracker is projecting July to hit 1.71 million TEU (Twenty-Foot Equivalent Units) for a 5.1% annual increase, with August expected to be up 2.2% annually at 1.75 million TEU. Should the August figure come in as projected, the report said it would stand as the single highest volume month since the NRF initially started tracking import volumes in 2000, ahead of the 1.73 million TEU recorded in March 2015.

Looking back at the 2016 Peak Season to get a handle on the 2017 Peak Season is somewhat of an inexact science, explained Chris Rogers, research director for New York-based global trade intelligence firm Panjiva.  

“Optically, 2016 was a flatter peak season than 2015. Normally we see a peak in shipments around August followed by a bit of a tail off and then heading up again in October as retailers fine-tune their inventory in advance of the holiday season,” he said. “The reason it changed last year was due to the August 31 Hanjin Shipping bankruptcy so things were not typical. And last year in the fourth quarter we saw retailers run down their inventory and not really working on as much of a just in time process as inventories were pretty high. That was maybe a result of being squeezed on cash flows and having to become more efficient and is not necessarily a long-term change.”

With the ongoing advent of e-commerce, Rogers said it is expected to see a bit of a flattening in certain sectors, such as apparel, as items are moving from the design table to the customer more quickly. But he stressed one needs to remember Amazon is essentially a storefront taking business away from shopping malls, rather than containerships.

And like the Port Tracker report showed, U.S.-bound imports are showing promise, with both the Port of Los Angeles and the Port of Long Beach posting impressive import growth for the period up a cumulative 5.7% annually in June at 707,600 TEU.

“We expect volumes to benefit from leaner inventories throughout the supply-chain, and build sequentially before peaking in August, consistent with normal seasonality,” wrote Todd Fowler, KeyBanc Capital Markets analyst. “On a full-year basis, we anticipate volumes to increase mid single digits when considering historical sequential trends.”

Another thing to consider when assessing Peak Season, according to Brooks Bentz, President, Supply Chain Consulting, for Transplace, is how Beneficial Cargo Owners are getting progressively better at S&OP (Sales & Operations Planning), forecasting and order management as newer, better, smarter technology gets more traction. 

“That won’t fully alleviate the seasonal surge, since inventory watchdogs will resist building large inventories too far in advance of demand and stock-outs in prime time is especially egregious,” he explained. “There seems to be a more measured, less-frantic pace to move product than in years past. “

Bentz also observed that one of the intriguing and interesting unknowns is the impact of Amazon’s foray into the space formerly dominated by the carriers and forwarders, noting that the injection of more air cargo capacity is bound to have an effect on the competitive landscape, at least in airfreight.  On the ocean side, he said things remain tumultuous, but less so even though long-sought stability remains as elusive as ever.