Rising retail inventory levels ‘being managed pretty well,’ carriers, analysts say

Rising levels of inventory, particularly in some areas of the retail sector, could warrant some worries about an economic slowdown if it weren’t for the fact those inventory levels are being managed “pretty well,” analysts and trucking executives say.

“It’s hard to generalize about that (inventory to sales ratio) because it’s so customer and shipper specific,” Mark Rourke, CEO and president of Schneider, the nation’s second-largest truckload carrier, told LM in an interview.

Rourke said some Schneider shippers had “a great deal” of capability to acquire their products this year, although they might not have arrived in the usual seasonal cycles.

“Other folks in different sectors of the retail environment had no problems with inventory and so they’re not out of whack,” Rourke said. “But in general, there has been a correction in inventory.”

Rourke said Schneider has customers who “are not yet back to pre-pandemic inventory levels of 2019. “They would love to have product in the spring that was stuck in warehouses,” he said. “It all has to be worked out of the system. What the implications are we will see in each of the following quarters.”

The monthly figures from the U.S. Census Bureau show a slight increase in inventory levels. What inventories to sales ratios show is the relationship of the end-of-month values of inventory to the monthly sales. For example, a ratio of 2.5 would indicate that the retail stores have enough merchandise on hand to cover two and a half months of sales.

For June, the latest month available, the inventories to sales ratio rose to 1.22. That’s a slight rise from the 1.09 level in June a year ago, according to the Census Bureau.

By comparison, in the depth of the American economic slowdown due to the pandemic, the inventory index jumped to 1.69 in April 2020.

The American Trucking Associations’ advanced seasonally adjusted for-hire Truck Tonnage Index fell 1.1% in July after rising 0.5% in June.  

“Tonnage declined sequentially in July for only the second time during the last twelve months,” ATA Chief Economist Bob Costello said in a statement. Despite the dip from June, Costello added, tonnage remains at “elevated levels” and increased significantly from a year earlier.

“While tonnage is much stronger than a year ago, the monthly gains have moderated as the year has gone on,” Costello added. “The combination of softer consumption of goods, home construction falling and slower manufacturing activity are the main reasons.”

The Institute for Supply Management (ISM) index, another key barometer of American manufacturing, held steady at 52.8% in August, as new orders and employment turned positive again and inflation waned slightly at the producer level.

The latest ISM report signals the economy is still growing at a steady if slower pace. It was better than some economists had been predicting. Some said they had forecast the index to slip to 51.8% from a 25-month low in July.

Numbers above 50% signify economic growth. The ISM report is viewed as a window into the health of the U.S. economy.

“We’re steady,” said an upbeat Timothy Fiore, chairman of the ISM survey, in a conference call with reporters.

But some executives warned they thought inventories are too high. They worry companies could get stuck with excess goods on their shelves if or when the economy slows.

What’s ahead is highly uncertain.

“Inventories are continuing to go up,” Avery Vise, vice president of trucking for Indianapolis-based consulting firm FTR, told LM. “In the core market, excluding autos, inventory-to-sales ratios have ticked up incrementally.”

Vise described the ISM index as “still low, but not that low.” But he saw that as a positive for most trucking companies.

“It reduces the chances of inventory cutbacks later,” Vise said. “That will avoid a big bloodletting in inventory. I think inventory levels are being managed pretty well.”

Vise said his analysis currently is “not showing a glut of capacity” among truckload carriers. “We’re heading back to stability but stability at a level where shippers are happy about it. Rates will still be sticky because of limitations in capacity. That’s because we’re not producing as many Class 8 trucks as we need. But that is slowly getting better.”