The Disconnect

Anyone looking for signs from the retail world of greater strength in shipping demand has been looking in the wrong direction.

Right around the time various retail groups were issuing forecasts of modest holiday sales growth from 2.8 percent (the National Retail Federation) to 3 percent (ShopperTrak and the International Council of Shopping Centers), some of those retailers were providing even more modest forecasts.

The decisions by Lowe’s and the Gap last week to close many storefronts in North America (20 for Lowe’s, 190 for Gap over two years) were worth more than any other projections about U.S. consumer demand. They were also strong signals that the impact of the 2008-09 downturn is still working its way through companies as they adjust their models and operations to demand that is changing in scale and in quality.

Gap, for instance, isn’t only cutting back around 20 percent of its branded storefronts; it’s also adding more than 40 stores in China. And both Gap and Lowe’s are investing heavily in online sales, which will change the nature of their distribution networks.

Those are hardly the kind of actions shipping and transport companies were preparing for based on some of those projections for modest but growing sales at stores. The New York Times noted the disconnect this month in a story contrasting the various projections for broad retail industry improvement with the shipping numbers that have been, on the international side, thoroughly lackluster.

For carriers putting capital-intensive operations into motion, the costs of following the wrong lead can be enormous. FedEx Chief Financial Officer Alan B. Graf Jr., in a conference call with investment analysts cited by the Times, explained a shortfall in earnings in part by saying, “Simply stated, we put capacity out anticipating traffic that did not materialize.”

The U.S. trucking industry caught a break in that regard: Capacity that was cut back in the early stages of the downturn hasn’t come back in force, leaving domestic transport in some rough equilibrium. But that’s not true for international shipping, where analyst Alphaliner estimates capacity running some 12 percent ahead of demand.

But if shipping numbers are a sign of retail industry expectations of consumer demand, there is little optimism at the stores.

Containerized imports at the ports of Los Angeles and Long Beach fell in September from the same month last year and, more significantly, slipped back from August.

Furniture imports measured by PIERS, a sister company of The Journal of Commerce, not only fell 6.9 percent year-over-year in August, but also declined sequentially for the third straight month and were down 11 percent from April.

If the retail industry in general expects increased sales, it appears the individual companies are being much more cautious, keeping inventories tight and perhaps even allowing sales opportunities to pass by as a result.

Rodolphe Saade, CEO at CMA CGM, told The Journal of Commerce TPM Asia conference this month that he wants to be “very cautious” in adjusting capacity this year amid mixed economic signals. But the reality is that capacity adjustments for retailers are already under way.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com. Follow Paul Page on Twitter, www.twitter.com/paulpage.

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