Cause and Effect
LTL, less than truckload, is a mode of transportation which only uses a partial portion of a truck trailer. It’s cheaper and carries a whole load of other benefits. Additionally, LTL has had a huge boost in usage in the past few months. The US and China trade war, which we have continuous coverage of in another blog entry, has pushed inventories. Many companies have much larger inventories than they have historically had. Companies that usually stored six weeks worth of inventory have six months. This is thanks to the tariffs scaring many shipments to go early. It’s part of a large push to move product before it becomes more expensive. However, that’s not going to pass. The US and China are in the middle of a trade war truce. The expected tariff increases on January first are not going to happen. Many companies are now breathing sighs of relief. They believe that the worst has passed. However, some companies believe that this is the calm before the storm.
Calm Before the Storm
The tariff increases may not be launching on Jan. 1 but they will be launching on Mar. 1. Inventories are going to be lessening. People are going to need to reorder the inventory that they’ve gone to. That means that there might be another huge boost in LTL shipping if people are already steadily ordering. “As they burn off that inventory, they have to reorder. If this is true, you could see a surge in demand.” Echo Global Logistics CEO Doug Waggoner said. “With so many adjustments being made [to supply chains], it’s hard to tell what’s changing,” Waggoner said. “It’s hard to say, ‘This is what’s happening,’ because 30 things are happening at once.” Furthermore, to expand upon the “30 things”, on top of the tariffs there was a rework in fulfillment speeds and the ELD Mandate. Those both contributed to the speed of the inventory movement.
Among the previously mentioned factors, there are more reasons behind recent inventory growth. Tariffs, aside, Black Friday and Cyber Monday saw a surge of growth and movement during the end of November and beginning of December. “We wanted to make sure we had the inventory in our system to meet the very strong demand we're anticipating for the fourth quarter,” Target CEO Brian Cornell told Wall Street analysts during a Nov. 20 earnings call. Waggoner goes on to say that he thinks the industry is fine. Tariffs and the trade war are making murky waters out of what is a steady and strong industry.
Demand was high during Black Friday season but as the holiday season ends there might be a change. With the ever-looming tariff threats supply starts to bleed slightly. The numbers might not be as large as businesses would like them to be. But, supply and demand is a continuous cycle. “We’re not expecting doom and gloom for 2019,” Waggoner said. “[Spot] prices will subside, but it will be a healthy freight market. I don’t see any sign of a recession lurking around the corner.”