Peak Season prospects are solid but capacity concerns remain intact

LM reader survey points to promising Peak Season, with strong economy and tariffs top of mind. 

Looking at 2018 Peak Season prospects, it stands to reason that this year, in a few ways, is much different than others, especially when it comes to gauging its prospects.

This is apparent in a few key areas, including improving GDP, solid retail sales buoyed by e-commerce, strong manufacturing output, and a solid economic outlook overall on the plus side, which is countered by the potential impact of recently- and soon to be –implemented tariffs, which could have a major impact on global trade and supply chain planning.

Against this backdrop, though, are strong United States-import numbers, which are up 6.5% annually through the first six months of the year, according to data from global trade intelligence firm Panjiva. This is ahead of a 3.5% annual gain in imports for the same period a year ago.  Many industry stakeholders maintain that the gain in imports is a byproduct of a combination of a strong economy and the tariff crunch.

Logistics Management reader survey of more than 220 logistics and supply chain professionals found that 2018 Peak Season prospects are robust, with 61% of respondents expecting to be more active than last year (up from 58% last year), with 10% expecting it to be less active, and 29% indicating they are not expecting a change (down from 35.5% last year). Seventy nine percent indicated that Peak Season impact’s their companies’ day-to-day operations

Even though import data is only available through the first half of 2018, many signals indicate that the second half of the year will be strong and reflect meaningful Peak Season activity.

The Port Tracker report issued by maritime consultancy Hackett Associates and the National Retail Federation, estimates that July will hit 1.87 million TEU for a 3.8% annual uptick. August and September are expected to hit 1.91 million TEU (which would set a new record) and 1.82 million TEU, respectively, for annual gains of 4.2% and 2.1%. October is estimated to be up 5.3% annually at 1.89 million TEU.

While both the year-to-date and forward-looking estimates are encouraging, Chris Rogers, Panjiva research director, said that the White House’s recent announcement that it plans to add tariffs on 10% on an additional $200 billion of Chinese imports creates additional uncertainty in the middle of Peak Season.

“The supply chain question for shippers with this really is do I rush my imports to try to beat the tariffs or do I run the risk that it never happens and don’t end up with inventory I don’t need?,’” said Rogers.

What’s more, Rogers added that many companies have already indicated they will need to raise prices to counter the tariff impact, especially those in similar industries so that it is not just a few companies raising prices.

“On one hand, Peak Season will be earlier than normal,” he said, “ and on the other hand, it remains to be seen if companies will play chicken with President Trump and maybe consumers pay the price. We will have a better idea of how that plays out in the coming weeks, and that is important for logistics services providers, freight forwarders, and ocean cargo carriers. They need to be ready for an early Peak Season, but it may be one that does not come. This really cannot come at a worse time for the container lines that are struggling with profitability and are talking about cutting routes and making potential alliances. This uncertainty is not going to help.”

Rogers’s concerns regarding ocean capacity as it relates to Peak Season were supported by comments from Larry Gross, president of Gross Transportation Consulting.

“I have some concerns over the Peak Season, not in terms of if it will arrive-it is going to arrive-But in terms of the industry’s positioning to meet demand,” he said. “I think, is a little bit questionable. Ocean capacity is not an issue. If anything, the sector continues to struggle with too much capacity. In trying to match capacity with demand, you get a lot of volatility in schedules, with ship sailings being blanked [cancelled]. I think the bigger problem is what happens after the container arrivers for the large percentage of shipments that are purely domestic.”

The reason for this, explained Gross, is that shippers have always had an option in their pocket for domestic capacity, whether it was truckload, intermodal, or both. But that is not the case now, with both truck and intermodal capacity both very tight, which Gross said creates a vexing situation for shippers.

“I am definitely advising folks to move volume earlier,” he said. “You just will not be able to count on, unless you line it up, having capacity sort of available when you need it.  It is not a question of price….it is whether or not capacity is available for the timeframe you are looking for it at any price. So you better be flexible with what you are looking for unless you have it all lined up already. If you don’t have everything lined up already, I think you are going to be in a hurtful position for Peak Season.”