Shipping data shows that mid-range retail is the new sweet spot for consumer prices

Trucks wait to enter the Port of Los Angeles in Los Angeles, California, U.S., on Monday, December 4, 2023. The U.S. Census Bureau is scheduled to release trade balance figures on December 5 12. Photographer: Eric Thayer/Bloomberg via Getty Images

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According to CNBC’s exclusive Supply Chain Survey, the latest shipping data is starting to reveal what US retailers expect from shoppers during the peak season – a discerning American consumer is looking for Find deals and discounts in the mid-range price segment.

This is the time of year when most freight orders begin to be placed to handle inventory for back-to-school and holiday shopping, and feedback from survey respondents in the supply chain suggests a healthy, if cautious, consumer base and a holiday season. The season is shaping up to be normal.

According to respondents, based on the shipping orders they expect to ship during the peak season, American companies will import slightly more items for the holidays this year than last year. .

The CNBC survey, conducted from April 16 to May 3, included responses from the National Retail Federation, American Apparel and Footwear Association, and National Consumer Electronics. of the United States, CH RobinsonOL USA, ITS Logistics, Kuehne+NagelDHL and Uber Freight, a subsidiary of Uber technology.

The survey found that nearly 80% of current freight orders received during the peak season are for mid-range priced items. Similar to last year, respondents expect less consumer demand for imported premium and luxury goods.

Noah Hoffman, head of retail logistics at CH Robinson, told CNBC that the economy is at an inflection point with consumer discretionary spending.

“We’re seeing it in clothing and jewelry, in electronics, home and garden,” Hoffman said. “Consumers are also becoming more value-conscious in their purchases. Instead of going to a store and stocking up on no matter how much toilet paper is in the garage, they’re trying to avoid paying a bill.” bigger. They’re shopping more closely.” , don’t throw multiple impulse purchases into your cart and shop around for the lowest price.”

Participants indicated that they received fewer orders shipping cheaper, promotional items, compared with 79% of those surveyed who said they expected consumers to shop for bargains in the segment. Average price.

According to Hoffman, the general lack of caution among retailers continues.

“The past few years have caused many shippers to become overly sensitive to the highs of highs and the lows of lows,” he said. “They are wondering when the next shoe will drop – whether it could be geopolitics, a new trade policy or another physical disruption like low water levels in the Panama Canal. But for retailers in particular, they may be waiting to see how the economy shakes out.”

The world’s second-largest shipping company, Maersk, recently told CNBC that it expected a “normal” peak season. “There is nothing to suggest the peak season will be slower or the peak season will be larger,” said Charles Van der Steene, president of Maersk North America. in a recent interview with CNBC. “We believe in a normalized peak season. … Of course, depending on the industry there could be more skew, retailers will be skewed more than others in the second half of that year. “

Walmart’s executive team said after Income exceeded expectations on Thursday that they are winning more with “higher income” consumers. “We have customers coming to us more frequently than before and newer customers that we traditionally haven’t had, and they’re coming to Walmart whether it’s an online virtual store or a physical store.” our economy.” stores,” said CFO John David Rainey.

Although volumes are expected to be slightly higher and items to have slightly higher price points, participants are not optimistic about consumer shopping demand, with 56% of people respondents are still concerned about consumers returning later this year.

Walmart reported that while the number of transactions increased 3.8% in the most recently completed quarter, average ticket prices were unchanged from the previous quarter. “Wallets are still tight,” Rainey said.

“Consumer spending has rebounded from the winter slump — but the market could still change later this year,” said D’Andrae Larry, head of intermodal at Uber Freight. Consumer spending is expected to decline this holiday season.”

“We will move more mid-market luxury goods,” noted one survey participant. “Think Home Goods versus Bloomingdale’s.”

Hoffman said this will promote competition on shelves and between stores, and could result in incomplete data on where consumers are heading.

A feared port labor strike could affect shipping

One of the lead-time issues this year involves concerns about a strike by the International Longshoremen’s Union at East Coast and Gulf ports. ILA’s six-year contract with the U.S. Maritime Alliance, which represents port operators and ocean carriers on the East Coast, expires on September 30.

The union has set an end date of May 17 for local contracts to be agreed upon so that a master contract can then be negotiated for the largest port workers union in North America. This is the opposite tactic used by the ILWU when negotiating the main contract first.

“As we prepare for the peak shipping season, many are predicting another busy holiday season and are now doing so,” said Jon Gold, the company’s vice president of supply chain and customs policy. Take steps to ensure holiday goods arrive on time and where they need to go.” National Retail Federation.

“Brands are cautiously optimistic about the important holiday season but are hedging their bets by bringing products in earlier and weighing them down,” said Nate Herman, senior vice president of policy at by shipping between the East and West Coasts amid ongoing crises and concerns about future crises.” American Apparel and Footwear Association. “In times of such uncertainty, logistical challenges and inflationary pressures, it’s important to [Biden] managed to ensure we do not see further disruption due to ongoing labor negotiations on the East Coast.”

Only two months ago, Fears of an ILA strike at East Coast and Gulf ports have prompted some logistics managers to tell CNBC they will push back peak-season cargo shipments to June, which is early. a month to avoid any containers getting stuck at the port. Now, that plan has changed. The majority of those surveyed said the peak season will fall within the normal delivery times of July and August. The reasons behind this decision reversal are based on the most recent strike to occur. in 1977, given the 44-day shutdown and the hushed nature of the negotiations.

The bulk of the peak season typically occurs between July and August, with additional holiday orders in September and October.

Not all logistics industry respondents agreed on the timing of peak orders this year.

“Currently, the 7,500 retailers we serve are trying to maintain a rich selection and variety of SKUs, but at the same time trying to avoid holding safety inventory because of slow consumer demand,” said Hoffman. Certainly in the coming months.” “We believe this could result in the peak season being slightly later than usual, causing retailers to pause holiday ordering.”

Ali Ashraf, CH Robinson’s director of ocean freight, said the industry could see a lull in June, as shippers haul as much cargo as possible ahead of the Chinese holiday and carriers Higher rates apply May 1.

“We expect it to pick up again in July, August and September,” Ashraf said. “It remains to be seen how fast it will grow.” We anticipate an active shipping season this summer. It’s just a matter of whether these holiday retail orders might arrive late.”

If retailers postpone orders during the holidays, Ashraf said they will have to consider longer delivery times to receive their goods.

More commercial activity is returning to the West Coast

While a product’s price gives a good indication of consumer expectations, for the logistics industry, the volume of goods shipped is critical to generating revenue.

“Signs of recovery in the ocean market are encouraging,” Ashraf said. “Industry-wide shipping volumes so far this year have increased by double digits, compared to last year when many shippers are still clearing inventory. Another indicator is the number of bookings that have been sold out three times.” week.”

Based on import volumes at U.S. ports, more transactions are occurring and also returning to the West Coast.

Due to the West Coast push, Paul Brashier, vice president of corporate accounts at ITS Logistics, told CNBC that they have begun to see congestion at terminals at the Port of Los Angeles handling cargo going from Inland United States via inland intermodal rail point.

“Between the survey and other data we monitor closely, there will be significant pressure on the rail infrastructure that is moving this diversion volume to the U.S. East Coast,” Brashier said. . “It looks like for the first time in two years we could be looking at the traditional high-volume retail peak season on the West Coast, albeit a little earlier in June and July.”

The possibility of an ILA strike, drought restrictions in the Panama Canal and Red Sea diversions are all driving increased shipping volumes to the West Coast.

“As we prepare for the peak season, we are proactively addressing these challenges by diversifying our shipping strategy and increasing availability,” said Tim Robertson, CEO of DHL Global Forwarding Americas. depends on the railway network. “Our focus is on ensuring supply chain integrity and responsiveness, even during periods of high demand.”

For goods diverted from the East Coast to the West Coast, the preferred mode of transportation to move back to the East Coast is rail (77%). This will be the motivation for Pacific Alliance and BNSF, a subsidiary of Berkshire Hathawayas well as trucking companies engaged in truck-to-rail or rail-to-truck strategies.

Any increase in incoming freight will be welcome for trucking companies still caught up in the freight recession. JB huntsThe missed first-quarter earnings are just one example of how the decline in manufacturing orders has affected the industry.

Loadinga popular method of moving goods, combining both rail and trucking, during the Covid supply chain shock, expected to be an attractive strategy during the peak season This.

Larry said shippers need options to handle unexpected crises.

According to Uber Freight’s latest market analysis, rail utilization is improving and remains near the five-year average. “Similarly, dwell times at railway stations continued to decrease compared to the same period last year,” he said. Except for the impact of weather events in January, the rail network was generally free of delays and congestion.”

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