Regardless of what you’ve read about how things are improving, the retail landscape continues to be incredibly challenging. Skyrocketing supply chain costs paired with a significant retreat in consumer demand have led to bare store shelves. Neil Saunders, managing director and retail analyst for GlobalData, focused on the possible tampering with inventory to be expected. He explained that multiple market factors are coming together, which will have a dramatic impact on availability for consumers. His insights reflect a broader concern among industry experts about the implications of these disruptions on both businesses and shoppers.
Recent data highlights a troubling trend in logistics, with ocean container bookings from China to the United States plummeting by more than 60%. When I first saw this decline, reported by Flexport, a logistics platform, my alarm bells began ringing about the future availability of imported goods. Trucking activity out of Los Angeles is down 23% from last year. This sudden and drastic downturn is worrisome to industry stakeholders who depend on these transport corridors to maintain their supply chains.
Bob Elliott, CEO of Unlimited Funds investment group, noted how the current economic dynamics are shifting the impacts on supply chains. “Anecdotally, producers are rushing to get production done before supply chains get wrecked,” he stated. As he stated, companies are in the middle of massively stockpiling. They wish to insulate themselves from possible future whipsaws in the tariff landscape.
There’s no denying it, companies are trying to find their way through an industry minefield. If tariffs are inflating inflationary pressures themselves, tariffs will raise consumer prices in the process. Jon Moeller noted, “There will likely be pricing — tariffs are inherently inflationary — but we’re looking at sourcing options.” PepsiCo CEO Ramon Laguarta seems to feel this way, too. He anticipates that global trade developments will introduce even greater volatility and uncertainty, driving supply chain costs even higher.
Industry players are starting to realize that it may no longer be economically feasible to import goods from China. Saunders emphasized the tough choices retailers face. “They have to make a decision as to whether it is worthwhile importing products from China to put on the shelves, because the prices might need to go up by so much that actually no consumer would really be interested,” he explained. You can already start to picture the effects of these decisions. Gaps are now beginning to show on store shelves as some retailers opt out of carrying specific products due to increased costs.
Beyond these logistical challenges, consumer behavior is changing drastically as well. Over half of shoppers (56 percent) say they are using one or more alternative forms of credit to balance their budgets as prices continue to climb. A recent survey revealed that at least a quarter of borrowers now use installment loans for groceries, up from 14% previously.
The Labor Department just announced another low week for initial unemployment claims, going up a whole 6,000. The four-week moving average isn’t indicating a big increase. Despite this stability in jobless claims, observers like Craig Fuller, founder of FreightWaves, have noted that “Trucking volumes have collapsed to near pre-Covid levels,” highlighting ongoing challenges in the logistics sector.
Businesses are rethinking their projections for adjusted eps. They note softer consumer demand and the immediate effects of tariffs as major factors behind this decision. As we turn the corner into 2023, executives are preparing for an uncertain, and likely stormy, economic period. Ryan Marshall pointed out that “Whether it’s the volatility in the stock market, concerns about tariff-induced inflation, the fluctuation in interest rates or the growing talk of recession, demand in April has been more volatile and less predictable day-to-day.”
Guy Berger, the director of economic research at the Burning Glass Institute, has observed a remarkable increase in businesses considering layoffs. They are under deep economic pressures that are driving them to act.