Thanks to the COVID-19 pandemic, the industry experienced a surge in demand across 2020-2021, as people dealt with lockdowns and restrictions. Supply chains meanwhile faced multiple disruptions in the form of delays, port congestion, and more. Finally in 2022, due to inflationary pressure, demand dropped, and the supply chains were able to regain a sense of order. Now in 2023 though, falling demand has become a concern for logistics players. In fact, freight companies are dialing back expectations that demand will recover strongly in the second half of the year amid growing economic uncertainty and signs retailers are growing more guarded about placing big orders in 2023.
The freight industry experienced a slowdown in mid-2022 as consumer spending shifted towards services, leaving big retailers with overstocked inventories. Transport companies, including truckers and container shipping lines, are hopeful for a rebound in the latter half of this year. They predict a return to pre-pandemic ordering patterns after working through excess inventories.
However, logistics executives are less optimistic now than they were a few months ago. The volumes of goods moving through supply chains have fallen more than expected at the start of the year, and declining retail sales figures have raised concerns about the economy.
As a result, retailers and their suppliers are exhibiting more caution and focusing on inventory management. The US retail sector has been unstable, with February’s 0.4% decline marking the third dip in four months. This trend is adding to the uncertainty for retailers and their suppliers.
The ports of Los Angeles and Long Beach, America’s busiest port complex, have seen a sharp decline in container imports, with a 38% decrease in February compared to the previous year. Meanwhile, the Association of American Railroads reports that US freight rail volumes were down by 5.2% in the first 11 weeks of 2023, with the intermodal truck-rail business taking the biggest hit. This sector, which includes a significant portion of retail traffic, saw a 9.6% decline during this period, with a significant 15.2% year-over-year slide recorded in the week ending March 18. These figures indicate a challenging time for the transportation industry, particularly for retailers and their suppliers who are feeling the impact of lower volumes.
Clearly, as we progress into 2023, retailers are re-assessing their demand predictions based on various economic factors as well as shifting consumer behavior. Retailers are reducing purchasing from suppliers as they expect demand to fall as compared to pandemic trends. As people return to the office, spending on services has increased. As a result, consumers are turning away from spending on consumer goods that they favored while working from home during the pandemic.
Responding to these shifts, retailers too are tightening purse strings. Many smaller firms are relying on existing stockpiles as they navigate shifting demand. For retailers, it’s better to understand what the customer wants and go after it than to buy it all upfront and hope it sells. Shipping figures too, as a result, are showing signs of weakening demand as companies hold back new orders and global trade volumes falter.