Ocean carriers and retailers had plenty to say about the outlook for the global economy in releasing their financial reports for the most recent quarter, but they sounded for all the world like they were on different planets.
To container lines reporting a troubling series of losses and profit setbacks, the future looks cloudy at best.
Orient Overseas (International), the parent of Hong Kong-based OOCL, pretty much summed up the general view for shipping lines in general in describing its own sober view of the market: “Trading conditions in the first half of the year have been difficult and the outlook for the full year is disappointing,”
There is little of the grim outlook among the carriers’ largest customers, however, even in a general economic climate that remains fragile and producing few strong sentiments for earnings momentum.
The world’s largest retailers are showing surprising confidence in a generally dour economic environment. That’s partly because their sales outlook is relatively positive, but also because companies have grown far more efficient at handling the flow of goods across supply chains and in withstanding fluctuations in transportation costs.
“We are very pleased with our supply chain performance, and it’s exceeding our expectations,” Carol Tome, chief financial officer at Home Depot, told investment analysts on a conference call after the home improvement retailer released its earnings last week.
Home Depot should be pleased. The company’s sales increased 4.2 percent in the three months ending July 31, but net profit grew even faster, expanding 14.3 percent to $1.36 billion. And inventories on Home Depot’s balance sheet actually fell slightly from last year, and since the Feb. 1 start of its fiscal year.
And Home Depot isn’t done. “Our supply chain efforts are delivering significant benefits to the business as we leverage supply chain expenses even in the face of increasing fuel costs. We have more opportunities to pursue, particularly in optimizing our supply chain goal of international product,” said Francis Blake, the company’s CEO.
In fact, a broad range of retailers pointed right to their supply chains as important pieces of their profit puzzles.
Wal-Mart Stores said its transportation optimization efforts helped the company mitigate two-thirds of the impact of rising fuel costs in the July quarter.
By contrast, bunker costs at the container shipping unit of A.P. Moller-Maersk, grew 26 percent in the first half of 2011 while freight rates that included bunker surcharges fell 3 percent from a year earlier.
The improved efficiency among retailers is breeding confidence in that market.
Wal-Mart expanded its inventory holdings 6.4 percent during the first half of the year, adding about $2.3 billion worth of goods since January. That’s greater than the 5.5 percent increase in sales in the fiscal second quarter and far ahead of the flat sales the company predicts for the rest of the year, but the world’s largest retailer is hardly worried.
“Inventory is moving back in line with where we’d like it to be,” said Bill Simon, president and CEO of the U.S. operation.
Wal-Mart, in other words, has more confidence in its own efficiency than in the overall market.