US importers face inventory replenishment quandary

Many US companies, including big retailers, were successful over the course of 2023 in clearing out the stockpiles of inventory, that they built up during the pandemic to cope with shipping disruptions and changing buying patterns.

During the pandemic many retailers and manufacturers flipped from a “just-in-time” strategy to a “just-in-case” strategy of hoarding inventory to avoid losing sales.

The broad measure of inventories to sales ratio across US retailers stood at 1.30 for the last three quarters of 2023 and while this is still relatively high by historic levels it does suggest retailers have achieved some stability after the roller-coaster pandemic years.

With most inventories back to pre-pandemic levels, importers are pulling in fresh orders, but high interest rates make it more expensive to carry large inventories and could push some companies back toward a ”just in time” strategy, even as supply risks grow.

US holiday sales were up over 3% and many retailers have reported leaner inventories that reflected restraint rather than a rush to restock, but many now want to quickly adjust to new trends.

However the persistent lack of rainfall in Panama since early last summer has been forcing authorities there to reduce the number of vessel transits on the Panama Canal, a key corridor for trade between Asia and the US East Coast.

The Houthi rebel attacks on commercial shipping, that began last December continue, with container shipping lines diverting away from the Suez Canal, which also feeds routes to the US East Coast, with around 12% of US-bound cargo moving through the Canal.

The diversions past the Cape of Good Hope to avoid Red Sea attacks extend voyages by almost two weeks, and although the reroutings are having an impact on inventories, the situation will become increasingly manageable as schedule reliability recovers.

These disruptions are already reshaping inbound US freight flows, and the domestic supply chains that move goods from ports to factories and retail markets.

The National Retail Federation forecasts that US imports in February will increase 20.4% over February 2023, with March expected to grow over 5% and April up 3%.

Cargo volumes surged into West Coast ports during the final months of 2023, posting double-digit year on year gains as shipments into East and Gulf Coast gateways sagged.

West Coast ports in October handled almost 34% of worldwide container trade into the US up 3% on 2022.

That share could accelerate in 2024. The head of the union representing dockworkers at East Coast and Gulf Coast ports has warned members to prepare for a possible strike unless a new labor agreement can be reached to replace the current contract which expires in September.

If you have any questions or concerns about the issues raised in this article, we can review your situation and explain your options, including alternative carriers, ports and routes.

To discover how we can support your transpacific or transatlantic trade, or to learn more about our ocean solutions, please EMAIL Metro’s Chief Commercial Officer, Andy Smith.