Peak Season plans fail to materialize

While hopes were high for a return to a “traditional” Peak Season earlier this year, things have not gone according to plan based on freight trends, volumes, and insight from industry stakeholders.

Reasons as to why a traditional peak would return after what has been an absence from the norm for the past four years vary, but the general consensus had to do with the basic premise that freight volumes and economic trends were largely encouraging throughout the first half of the year and—should that continue—prospects for peak season activity could be quite realistic.

This was reflected in a June Logistics Management readership survey, which found that 78 percent—or 367 of the 469 respondents expected a Peak Season this year, with another 45 percent—or 195 respondents—whom expected it to be more active than a year ago, followed by 20 percent (87 respondents) calling for it to be less active, and 34 percent (147 respondents) expecting it to be the same as last year.

Among the many reasons respondents expected this year’s Peak Season to be more active than a year ago included a slowly improving economy, increased demand, a healthy manufacturing sector, and tight capacity, especially in the trucking sector, among other drivers.

But fast forward roughly four months later, that no longer appears to be the case, with unemployment still high, retail sales mostly flat, and consumers remaining cautious.

This has also played out with U.S.-bound imports. At the Ports of Los Angeles and Long Beach—the two largest container ports in the country— September volumes were flat or down, with Long Beach imports down 8.9 percent and Los Angeles imports down 0.16 percent. This has also played out in other modes of freight transportation, with railroads and trucking carriers indicating volumes from July through September were mostly flat on an annual basis.

“On the [import] side, we are not seeing much of a Peak Season,” said POLA Director of Communications Philip Sanfield. “We were pretty much flat in September, and there was some hope among retailers and others that there would be a bigger volume surge in September, which is not happening yet.”

In terms of traditional Peak Season shipping volumes, Sanfield said it is possible volumes have already hit a plateau and did not materialize, leaving open the possibility that October could see some gains but not at a peak level.

Ben Hackett, president of Hackett Associates and author of the monthly Port Tracker report his firm publishes with the National Retail Federation (NRF), said that despite evidence of some growth, “the Peak Season is gone, never came and is not here” with flattish trade activity. Hackett defines Peak Season as typically running from mid-or late-July through late September.

And unlike a year ago when shippers were leery of tight capacity and brought merchandise into the U.S. well ahead of the traditional Peak Season timeframe, the same activity did not repeat itself a year later, based on the abundant supply of ocean capacity, coupled with less-than-needed demand to fill those vessels.

In many respects, the lack of a true Peak Season is directly tied to consumer spending, which accounts for about 70 percent of total economic activity in the U.S.

This has been made clear this year, with retailers postponing their order commitments and are holding off on them until things become clearer regarding the overall health of the economy, while they are risking stock outages by having very lean inventories according to Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast.

“There is no locomotive that is pulling the U.S. economy forward,” explained Leamer. “And we have a frugal consumer. In the past consumers spent money they were never going to earn and used their homes as ATM machines before coming to the realization that was not a good idea.”

Even though imports are down at major U.S ports, Stifel Nicolaus analyst David Ross wrote in a research note that port data reflects retailers’ view of holiday demand and has little correlation to actual demand.

“2008 was bad for retailers,” Ross wrote, “because they got caught with too much inventory. In 2009, retailers had too little inventory, causing stock outs and a surge in airfreight. Then in 2010, retailers feared a peak season capacity crunch and moved ocean volumes early, which proved unnecessary. So…in our opinion, retailers are just being smarter this year—better to have too little inventory than too much.”