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US retailers content with size of inventories, little reason for box rates hike

WITH inventories remaining high and the front-loading of Chinese imports coming to an end in the third quarter, the conditions required to lift spot rates for container shipping in the US appear to be lacking

30 August 2019 - 19:06

WITH inventories remaining high and the front-loading of Chinese imports coming to an end in the third quarter, the conditions required to lift spot rates for container shipping in the US appear to be lacking.

This is despite North America's biggest shippers being upbeat about the outlook for consumer spending in the second half of this year, American Shipper reported.



As FreightWaves chief economist Ibrahiim Bayaan reported, retail sales in July registered a month-on-month increase of 0.7 per cent. Annual sales growth of 3.4 per cent in July accelerated from June's annual rate of 3.3 per cent.



Major retailers expect that growth rate to hold steady for the rest of the year. Walmart, the top importer of containerised goods in 2018, according to Susquehanna Financial Group, raised its full-year guidance on US same-store sales.



Chief financial officer Brett Biggs said on the company's earnings conference call: 'The strong first-half results lead us to increase our full-year expectations - to the upper end of the original guidance of up 2.5 per cent to three per cent.'



Target, the second-largest importer of containerised goods, said on its second-quarter conference call that it foresees comparable store sales growth of 3.4 per cent for 2019.



Mr Bayaan wrote that despite the weaker outlook in the manufacturing sector and the uncertain trade outlook, 'retail continues to be a consistent source of strength in the freight economy, particularly as it relates to trucking and parcel demand.'



But not so much for ocean shipping. The Freightos Baltic Daily Index for China-North America West dropped to US$1,326 per FEU on August 21, putting the rate at its lowest level since the start of June and one-third below the level recorded at the same time last year.



Freightos chief marketing officer Ethan Buchman said the August rate weakness reflects a bit of front-loading that took place in July. Shippers brought in goods ahead of a September 1 deadline for 10 per cent tariffs on a portion of $300 billion in Chinese-made imports.



Heading into what is traditionally the peak season, many retailers appear to be sitting on adequate inventories, limiting further the need to accelerate containerised imports.



Walmart expanded its US inventory by four per cent in the second quarter. Mr Biggs said the retailer, which imported 940,000 TEU in containers last year according to Susquehanna, feels 'good about the quality of the inventory position as we enter the back half of the year.'



Target grew inventory three per cent. Chief executive officer Brian Cornell told analysts on the company's conference call that 'based on the health of our business right now and the momentum we have going into the back half, we feel very good about our inventory position'.


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