Bloomberg News

Your Presents On Way Offer Holiday Sales Clues: EcoPulse

August 20, 2014

Your Presents On Way Offer Holiday Sales Clues

The Port of Los Angeles in San Pedro, California. Photographer: Patrick T. Fallon/Bloomberg

Holiday presents are en route to U.S. retailers, and the supply chain is hinting at stronger November-December sales this year than last.

While inbound-container volume at the Los Angeles and Long Beach, California, ports fell a combined 0.7 percent in July from a year earlier, it rose almost 13 percent the prior month, according to data compiled by Bloomberg. In February-July, the increase averaged 7.1 percent, compared with 3.4 percent in the 2013 period. That longer-term pace of activity reinforces a forecast of “rather robust” sales, according to Charles Clowdis, managing director of transportation advisory services at IHS Global Insight in Lexington, Massachusetts.

Retailers have tried to get many products into ports earlier this year, partly because of the prospect for a good selling season. Some companies also timed shipments in anticipation of a possible dockworker strike, Clowdis said. Several large retailers already have signed contracts with carriers to assure trucks are available during the busiest weeks leading up to the holidays, he said, adding that a shortage of available drivers could be an influence. He declined to identify the businesses involved.

“The fact that some companies are so concerned about capacity suggests we’ll have a much better holiday season than in the past few years,” Clowdis said. Such an improvement is consistent with the “economic recovery we’ve been experiencing this year.”

Stronger Gains

Retail sales -- excluding automobiles, gasoline and spending at restaurants -- will grow 4.2 percent in November and December on a non-seasonally adjusted basis compared with a year ago, according to Chris Christopher, director of U.S. macroeconomics and global consumer markets at the IHS economics unit. This would be stronger than gains of 3.1 percent in each of the past two years, he said.

Los Angeles and Long Beach ports account for almost 50 percent of all U.S. container imports, according to Todd Fowler, transportation analyst and director in Cleveland with KeyBanc Capital Markets Inc., the investment banking arm of KeyCorp.

Tracking their inbound activity for July-October provides “a good read of the U.S. economy” ahead of the holidays, said Walter Kemmsies, chief economist for Moffatt & Nichol Inc., a Long Beach-based infrastructure-advisory company. Planning began as many as 18 months ago for cargo arriving onshore now, which suggests retailers have confidence “consumers are likely to open their wallets a little more this year.”

‘Gaining Momentum’

A.P. Moeller-Maersk A/S (MAERSKB)’s Maersk Line, which transports about 15 percent of the world’s containers, raised its full-year profit forecast on higher freight volumes and lower costs. Global container demand is gaining momentum as economies gradually improve, and net operating profit after tax will “significantly” exceed last year’s $1.5 billion, the Copenhagen-based company said yesterday.

September historically has been the peak month for shipments, so June’s surge is early, Kemmsies said.

July’s “soft patch” could be followed by another month of subdued container volume, Fowler predicted. Even if shipments return to modest growth this fall, it’s important to track other components of the supply chain to gauge whether there’s a merrier Christmas ahead.

“You want to see port, truck and railroad volumes moving in sync,” Kemmsies said. Watching intermodal shipments -- products sent by more than one means of transportation -- can provide “confirmation that there a lot of goods coming through the ports.”

July Growth

Total U.S. intermodal volume rose 4.6 percent in the first two weeks of August compared with a year ago, following July’s 5.4 percent growth, according to figures from the Washington-based Association of American Railroads. Clowdis forecasts gains will average about 4 percent to 5 percent this year as the pace of economic growth favors the cost savings that come with service that takes about two days longer.

U.S. gross domestic product expanded at a 4 percent annualized rate in the three months ended June 30 after contracting 2.1 percent in the first quarter, Commerce Department figures show.

Rising shipments through the Los Angeles and Long Beach ports bode well for truckers because “the same retailers that bring goods into the country typically are big customers” of these companies, Fowler said. The port activity provides a “primary leading indicator” of domestic transportation data by about two to three months, he said.

Truck-Loading Increase

An index of U.S. truck loadings rose 3.1 percent to 125.63 in June from a year earlier, following a 3.5 percent gain the prior month, based on data from FTR Associates, a Bloomington, Indiana-based transportation-forecasting company.

For-hire trucking businesses -- including Swift Transportation Co. (SWFT:US), Werner Enterprises Inc. (WERN:US) and J.B. Hunt Transport Services Inc. (JBHT:US) -- will benefit from improved demand because they transport goods for big-box retailers such as Wal-Mart Stores Inc. (WMT:US), Target Corp. (TGT:US), Home Depot Inc. (HD:US), Lowe’s Cos. (LOW:US) and Sears Holdings Corp. (SHLD:US), Fowler said.

Home Depot, TJX Cos. (TJX:US) and Dick’s Sporting Goods Inc. delivered better-than-projected earnings yesterday, fueling investor optimism. That followed a series of disappointing earnings reports as Bentonville, Arkansas-based Wal-Mart, the world’s largest retailer, posted stagnant U.S. same-store sales last week and the Commerce Department said retail sales were little changed in July.

Overly Optimistic

It’s useful to track transportation data to gauge retailers’ expectations, though overly optimistic sales forecasts could result in a glut of inventory, said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. If economic growth accelerates in the second half of the year, then “consumers probably will be in the mood to spend more money.”

Just how generous Americans feel in December will depend on the primary drivers of consumer spending: confidence and incomes, Hellwig said. While sentiment has improved this year, disposable income growth still lags behind, which underscores why holiday sales may be “positive, but not a home run.”

This year’s import activity could be thrown off slightly by two unusual events: “crummy” winter weather that had a ripple effect on freight routes and the continuing threat of a longshoreman strike in Los Angeles and Long Beach, Kemmsies said. West Coast ports were closed for 10 days in a 2002 labor dispute that cost the U.S. economy at least $10 billion.

Hard Lessons

Many retailers and transport companies also learned hard lessons in 2013. Amid tightened truck capacity and the harsh weather, some trucking businesses missed Christmas-time deliveries after a late surge in online orders, Fowler said. United Parcel Service Inc. (UPS:US) said July 29 that it plans to spend $175 million to improve shipping during the holiday crush.

While Black Friday will provide “final confirmation” for how sales will fare this year, it will be too late to make money investing in transportation companies then, Hellwig said. The day after Thanksgiving marks the kick-off to the traditional holiday shopping season.

In the next few months, Kemmsies will continue piecing together data from railroads, truckers and air-cargo terminals to complement import figures he regularly tracks for U.S. and some Canadian ports. If he sees the surge in inbound-container volumes trickle through the rest of the supply chain, this will be especially encouraging.

“If truck activity moves with ports, that’s likely an indication retailers are bringing merchandise in early and are pretty bullish about Christmas sales,” Kemmsies said. “I think the holiday season is going to surprise some people.”

To contact the reporters on this story: Anna-Louise Jackson in New York at ajackson36@bloomberg.net; Anthony Feld in New York at afeld2@bloomberg.net

To contact the editors responsible for this story: Anthony Feld at afeld2@bloomberg.net Melinda Grenier, Gail DeGeorge


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Companies Mentioned

  • SWFT
    (Swift Transportation Co)
    • $20.55 USD
    • -0.43
    • -2.09%
  • WERN
    (Werner Enterprises Inc)
    • $24.57 USD
    • -0.63
    • -2.56%
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