U.S. commodity inventories hit a record low and demand is strong. Importers are starting to prepare for Christmas
There are still more than seven months before Christmas, but American importers have begun to worry about whether holiday goods will be blocked on the road.
Despite the shortage of congested containers in ports and the unprecedented prosperity of container imports in recent months, the ratio of US retail inventories to sales has fallen to a record low. Moreover, as retailers try to catch up, imports in the next few months may be restricted by the trans-Pacific shipping network that has reached its limit.
In turn, this means that importers have to spend more time and even more expenses.
▍U.S. commodity inventories still hit a record low
The U.S. consumption level of Asian furniture, electronics, and construction products is still so high that the goods are sold out and suppliers cannot build stocks in time.
According to the latest data from the U.S. Census Bureau, although the demand for the container market continues to grow, the U.S. commodity inventory is declining. The March data released last Friday showed that the inventory-to-sales ratio of all market segments has fallen to the lowest level since the data was first released in 1992.
The growth was particularly driven by retail consumption, which was 1.10 (seasonally adjusted) in March.
Lars Jensen, Vespucci Maritime CEO and container shipping analyst, estimates that from 2015 to early 2020 before the new crown epidemic, the ratio is usually between 1.44 and 1.50. The lowest rate so far is 1.34 in 2012.
"There is no other explanation. American consumers continue to buy goods in large quantities like at the end of last summer. This is the money they spend on goods, not services." Jensen said.
"There is no data to show that this situation is changing. Usually, when we see such a high growth rate of freight to the United States, it is related to the increase in inventory. But this is not the case now, because everything seems to have been sold."
Jensen believes that at some point, the growth of US consumption will gradually decrease, but it will not cause a sudden collapse of container market demand.
"At some point, consumers may stop spending extra money on goods, and then we will see a more normal level. When this happens, there will still be many suppliers who need to increase their inventory. It shows that the freight volume will not suddenly plummet." He said.
▍Retailers have to increase replenishment
Jason Miller, associate professor of supply chain management at the Eli Broad College of Business at Michigan State University, estimates that it is assumed that the retailer hopes to restore the inventory-to-sales ratio to that of 2019 by the end of this year. Level, they need to increase inventory to 467.72 billion US dollars, an increase of 30.62 billion US dollars from the seasonally adjusted nominally 437.1 billion US dollars at the end of March.
This is the meaning of Christmas. "Retailers need to build inventory by October to prepare for the holiday shopping season," Miller pointed out. If the inventory-to-sales ratio needs to be restored to the level of 2019 before the end of October, demand will be loaded in advance.
Miller calculated that retailers would need to add $65.11 billion in inventory to reach the 2019 inventory-to-sales ratio by the end of October.
Then, he compared the peak season of this year with the peak season of 2019. Between the end of March and the end of October 2019, the total inventory before the new crown pneumonia was 35.12 billion U.S. dollars. Therefore, to reach the inventory-to-sales ratio around 2019 this year, inventory will increase by 85.4% over the same period in 2019.
▍Inventory level trend in peak season
Miller said: "Even if we subtract a few dollars from it to account for inflation, this is still an incredible number." He continued, which means that "the demand for inventory replenishment will be huge in the coming months."
This is the collision of calculations on paper and reality. The trans-Pacific container transportation system was full in May, which raises a question: how to build all these stocks in time before the holidays.
Miller said: "Given the current situation is so severe, I don't see how to achieve the figure of 65.11 billion US dollars. What I think is: every available container space will be used up."