Concerns are growing regarding the current holiday surge period after recent reports regarding inbound and outbound transportation movements. Once more, there are concerning questions whether there is too much inventory overhang.

Earlier in the week, data compiled by The Wall Street Journal and trade research group Zepol Corp. indicates that for the first time in over ten years, imports recorded among the three busiest U.S. seaports, Los Angeles, Long Beach and New York harbor, fell by over 10 percent between August and September.  As our readers are aware, this is traditionally the busiest shipping period by volume as holiday focused inventories make their way to wholesalers and retailers. However, imports among the nation’s busiest ports for the first 10 months of this year is reported as being up 4 percent from last year. Railroads and trucking companies that normally scale-up for this peak period report concerning reductions in volume.

Similarly, in Europe, container throughput volumes are down. Container volume for the first nine months of this year at the Port of Rotterdam increased just one percent over 2014 levels.  Volume numbers for the Port of Hamburg are down 9.2 percent from levels of a year ago. Decreases at both ports are attributed to lower Chinese exports, slowing growth among emerging markets and the deterioration within the economy in Russia.

In its reporting, The Wall Street Journal concludes by these numbers that more businesses have been stocking up throughout the year and holding on to inventories far longer. Two further questions are posed: does this trend represent the start of a sustained period of weakness driven by concerns by businesses of a weak economic outlook, or is the slump a side effect of a massive inventory buildup that occurred earlier in the year? The WSJ cites U.S. Census Bureau data as indicating that the inventory-to-sales ratio in September stood at 1.38, up from 1.31 in the year earlier period.

Supply Chain Matters is of the view that the current situation stems from both of these described trends.  Retailers and manufacturers were burned badly from last year’s disruption and dysfunction among U.S. West Coast ports. The digging out from the backlog of unloaded container vessels extended into February and March, leaving retailers with unsold holiday goods. Similarly, exporters missed their holiday selling period because goods could not be shipped in time, in some cases, losing out to domestic competitors. Another factor is that with far lower fuel and energy prices, retailers are assuming a robust holiday selling period, and wanted to bulk up on certain in-demand products to insure a successful season.  Rather than risk last year’s transportation and logistics snafu’s, retailers more than likely exercised buying activity that spread out inbound activity and balanced receipts among both U.S. east and west coast ports as a risk hedge.

As noted in our recent Q3 quarterly newsletter, global supply chain activity thus far this has been trending downward, edging closer to contraction. The J.P. Morgan Composite Global Manufacturing PMI averaged 50.9 in Q3 with forward indicators such as New Orders, Export Orders and Inventories indicating further contraction.

Thus, the current holiday fulfillment period will be crucial for industry and global supply chains. How much inventory gets sold and how global retailers and wholesalers fare from a financial perspective will provide key indicators for 2016 and beyond.  Network-wide inventory management correlated with sales has once again, taken on an important dimension.

We want to hear from readers- how do you view current trends?  Are global supply chains inching toward overall contraction in 2016 and beyond?

Supply Chain Matters will provide further observations and insights as we publish our 2016 predictions in the December time period.

Stay tuned.