Survey indicates decline in peak season activity may be more than a trend

Jeff Berman, Senior Editor -- Logistics Management, 10/24/2007

WALTHAM, Mass.—While the freight transportation sector witnesses declining volumes during peak season for the second straight year, the time has come to wonder if peak season may be on the fast track to becoming a thing of the past.

And based on the findings of a Logistics Management survey report conducted earlier this month, the ongoing shrinking freight volumes heading into the fourth quarter and the beginning of holiday shopping season show the signs of  peak’s absence becoming more than a casual trend.

Case in point: nearly half—or 46 percent—of the 495 logistics, supply chain, and transportation managers that responded to the LM survey said that peak season would be less active. While the reasons for the continuing decline in peak season varied, many responses came back to the same reasons: the downturn in the housing and automotive markets, coupled with a drop in consumer spending and a fragile overall economy. Other reasons for the sluggish peak season environment include: declining volumes, inconsistent demand, and rising fuel prices, according to an Associated Press report.

While it is hard to gauge peak season’s future, Global Insight economist Paul Bingham says it is premature to talk about it in the past tense.

“Peak season is not becoming a thing of the past, because underlying seasonal consumption spikes such as back-to-school and holiday shopping are still very much with us,” explains Bingham. “It is just that under current conditions, consumption, growth…and port volume is subdued. Shippers and carriers have also done a good job managing supply chains to minimize seasonal peak congestion problems this year, but the longer-term risk remains for future-year seasonal peaks to cause congestion problems again if shippers become complacent.”

Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies, says another possibility for the lack of annual growth in peak season volumes could center on that what is now occurring is a change in order patterns by shippers or a change in the capacity being routed away from the Ports of Los Angeles and Long Beach.

The year-over-year volumes at these ports are relatively flat, with total containers handled at the Port of Long Beach, year-to-date through September, at 5,480,931 which are up 1.3 percent from last year. And at the Port of Los Angeles, total containers handled through September are 6,221,749.8, which is down 0.16 percent from last year.

“The question that I don’t have an answer for,” says Regan, “is if shippers are acting intentionally with the diversion of freight [from the West coast ports]?”

This year’s peak season does not look as if it will be much different from a year ago, says John G. Larkin, Managing Director of Stifel Nicolaus’ Transportation and Logistics Group. But Larkin notes that Regan’s theory may be correct, saying that shippers are starting to change their intermodal strategy, with more containers moving through east coast ports via the Panama and Suez canals. These shifts in strategy, says Larkin, tend to take domestic transportation movements out of shippers and carriers systems, which, in turn, reduce the amount of peak season volume.

“I think the industry is beginning to see now that this [lack of annual peak growth] is more than a temporary phenomenon,” adds Larkin.

While shippers have to make adjustments in their transportation planning due to peak season, it is often easier said than done. A cumulative 76 percent of respondents indicated that peak season has at least a significant impact on day-to-day operations. On the flip side, 24 percent describe peak season activity as having little impact on overall operations.

“We are a retailer, so a delay in merchandise getting in due to peak season, means that we don't have the product in the stores to sell,” explains Charlie Kantz, vice president of logistics and warehousing for specialty retailer Bakers Footwear Group. “And the following year we might have to bring it in earlier, which means having to carry the cost of that inventory for an additional month.”