Logistics news: Another “weak Peak” is likely

Continuing in economic conditions, low volumes cited for third consecutive year of a muted peak season

Jeff Berman, Group News Editor and John D. Schulz, Contributing Editor -- Logistics Management, 9/22/2008

WASHINGTON and WALTHAM, Mass.—With a downtrodden economy, a declining dollar, housing and automotive market slumps, and economic tumult on Wall Street, it is not a stretch to say the domestic economic landscape is not pretty.

Add declining freight transportation volumes for the third consecutive year to the mix, and it is abundantly clear that “Peak Season”—as we once knew it—may officially be a thing of the past.  

This notion is corroborated by the findings of a Logistics Management reader survey and interviews with shippers and carrier executives. Nearly half—or 44 percent—of the 412 logistics, supply chain, and transportation managers that responded to the survey said that peak season would be less active than last year. As in past years, the reasons varied, ranging from the weak dollar, low imports, a slower pace in orders and higher inventories, a consumer spending slowdown, and fuel prices, among others.

“This year's peak season will turn out to be weak, with import levels below last year's,” said Global Insight economist Paul Bingham. “The outlook is for continued absolute declines in same-month year-ago comparisons of volumes for imports through the rest of the year and overall containerized import volumes down for the peak season and the year as a whole.”

Bingham’s assessment is highly accurate on multiple fronts, as evidenced by:

• the usual flood of container off ocean ships at West Coast ports has been smoothed with shippers spreading out those shipments over a long cycle in order to avoid paying exorbitant ocean fees; and
• port diversion—some shippers are eschewing the more crowded ports of Los Angeles and Long Beach in favor of Canada-based Port of Vancouver and Port of Prince Rupert, as well as along the Gulf Coast in some instances.

What’s more, trucking executives accustomed to being able to generate higher rates during the usual September-to-December surge in freight demand also maintain the peak is weak, noting that peak season has not occurred over the past three years the way it historically has.

“We haven’t had a peak season last two or three years,” Pat Quinn, co-chairman of U.S. Xpress, Chattanooga, Tenn., a major truckload carrier, said in an interview. “The period between August 15 and December 15 is still our busiest time. But it’s flattened now. It’s spread a little wider, which is better. It’s very different.”

From a freight operations planning perspective, John Labrie, President of Con-way Freight, said that for the remainder of the year Con-way Freight is preparing for the possibility that the rest of 2008 could be very soft because of what is happening in the economy. Should there be an uptick, though, Labrie said Con-way is well-prepared from a capacity standpoint with assets and people should a bounce in business activity occur.

“It would be nice to see it happen, but we are pretty realistic in our thinking and forecasting, regarding what is going to happen,” said Labrie.

Although nearly half of the LM’s survey respondents indicated this year’s peak season will be less active than last year, it also revealed that peak season has a significant impact on their day-to-day operations, with 36 percent and 33 percent saying peak season was “somewhat significant” and “very significant,” respectively. Another nine percent indicated it was still “extremely significant.”

If peak season remains muted, as expected, shippers told LM that there are areas in which operational improvements are possible.

“The lack of a peak season surge allows us to not pre-order and speculate as much on future sales as in years past,” said Richard Matthews, logistics manager at Lund International Inc., an automotive accessory manufacturer in Suwanee, Ga. “With the economy fluctuating, this is a good safety valve for our company. It has allowed our production facilities and container companies to move business as usual, with little to no up charges other than fuel.”

Matthews also said that a slow peak allows Lund to now have to place orders early to cover slow movements during the typical peak season crunches that have occurred in past years.

Along with re-adjusting operations processes, a slow peak can allow shippers to focus on increasing customer service, according to Kurt Gulder at  Sport Obermeyer, an Aspen, Colo.-based skiwear provider.

“[A weak peak] affects staff planning, packaging materials purchases,” said Gulder, “and more focus is put on meeting or exceeding customer expectations on ship windows.”