Latest report: What is the current inventory situation in the US consumer market?

Persistent inventory surplus due to inflation will hit bottom during economic weakness


The expensive pressure caused by bloated warehouse inventory is eroding the profits of many companies, and for them, oversupply and related storage costs will not decrease this year


. • According to a new supply chain survey by CNBC, only about one-third of supply chain managers believe warehouse inventory will return to normal by 2024.


• Slightly more than a quarter (27%) of companies said they are selling excess inventory on the secondary market because high storage prices are touching their alarm line, and their impact will be reflected in upcoming quarterly performance.


• As Wall Street is expected to lower profit estimates in the case of economic weakness, nearly half of the respondents said their most significant inflation pressure is warehouse costs, followed by other rents and labor, and many are continuing to pass these costs on to consumers.


A total of 90 logistics managers participated in this survey, representing the American Apparel and Footwear Association, ITS logistics, WarehouseQuote, and the Council of Supply Chain Management Professionals (CSCMP), providing information on their current inventory and the most significant inflation pressures they face, and generally passed on to consumers.


inventory situation


What’s in the warehouses, and what are companies doing?


Logistics experts say that 20% of the excess inventory in their warehouses is outdated in terms of product nature.


• Many customers with perishable goods are selling them on the secondary market to avoid damaging the products.


• If they cannot enter the secondary market, they must dispose of the products.


• If they are consumer goods, they will donate these products to get some tax breaks.


Mark Baxa, CEO of CSCMP, said, “Driven by inflation pressure and shipping delays, inventory holding costs continue to rise. This means three things will happen daily: growing sales risk, profit margin pressure, and D&O (deterioration and/or obsolescence).” ITS Logistics said that due to the fullness of distribution centers, many customers from various industries have been using shipping containers, rail containers, and 53-foot trailers for storage. Paul Brashier, Vice President of Towing and Intermodal at ITS Logistics, said, “These costs will begin to appear in the financial performance of the second or third quarter.” The survey found that 50% of respondents said they had stored shipping containers for more than four months on average.


Consumers Will Bear More Inflation Costs


Traditionally, warehousing costs and related labor costs have been passed on to consumers. Nearly half (44%) of respondents said they are passing on at least half (or more) of the cost increases to consumers. President and CEO of the American Apparel and Footwear Association, Stephen Lamar, said, “It is clear that supply chain challenges and their associated costs continue to exacerbate inflationary pressures.” His organization called for swift completion of labor negotiations at West Coast ports and urged the government to “actively eliminate other cost pressures,” referring to the 301 tariffs on Chinese imports, which he said continue to make the supply chain more expensive.


Manufacturing Orders and Economic Outlook


Recent manufacturing data shows economic deterioration, with the ISM Manufacturing Index in March indicating contraction. According to the ISM Services Index, released this week, the US service sector was closer to the contraction in March, with new orders, exports, and prices all declining significantly.


When looking at the health of manufacturing orders in the next three months, 40% of logistics managers surveyed said they would not cut orders, while slightly less than one-fifth (18%) said they would cut 30% of their orders.


The intelligence from FreightWaves SONAR shows a slight increase in ocean shipping orders, recovering from a significant decline prior to the lunar new year, but the longer-term trend is still a decline in ocean shipping orders.


The excess inventory is affecting trucking logistics in multiple ways: not only are fewer containers being transported from the ports by trucks, but also fewer containers are being transported from warehouses to retail stores. Data from Motive, which tracks freight volumes of the top five North American retailers, shows a decrease in trucking volume leaving the warehouses.

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