Delivery times for orders decrease as inventories grow and demand uncertainty increases

Shipping lead times are reduced by 23% as businesses order fewer goods more often

Chart of the week: Ocean TEU Booking Lead Times – All Ports to the USA SONAR: Container Atlas

Order lead times — the time between order placement and estimated ship date for containerized imports — have fallen 23% since late April as supply chain managers are forced to change strategy in an economic environment that is once again in a state of transition.

Last week, Target reported that it was essentially stocking too much inventory and needed to “right-size” its inventory. This was inevitable for many retailers who are struggling to accurately predict what the consumer will be doing in the post-pandemic era.

Lots of macro numbers like unemployment and retail sales still suggest the economy is doing reasonably well. The difficulty comes from trying to predict when consumption will slow down and at what rate.

If you look at traditional macro numbers like the ones mentioned, you’d think the consumer is still doing fine. However, if you look at near real-time data such as Tender Volumes (OTVI) and the monthly reported Logistics Managers Index, which measures inventory growth, you’ll see that shippers are slowing domestic transportation, partly due to record inventory growth that started in January.

The macro data isn’t inaccurate, it’s just slow. Since the beginning of the pandemic, forecasting demand has become almost impossible. The most sophisticated algorithms have broken down as traditional relationships between data points have fallen apart due to shifts in societal and personal behavioral patterns.

Combine demand-side uncertainty with production and supply inconsistencies, like the current shutdown in Shanghai, and you’re struggling through a supply chain management hellscape, especially at scale.

The global environment is riddled with “black swan” events that are relatively unpredictable, especially over the long term. Even if you can predict them, their economic impact is even more uncertain. The only real solution is to become more flexible, which is reflected in import lead times.

With increased inventories, businesses have some buffer to place smaller and more frequent orders.

Earlier this week Henry Byers, Head of Ocean Intelligence at FreightWaves, wrote about import volumes falling off a cliff. This is reflected in the Inbound Ocean TEUs Index (IOTI). The IOTI shows a fall of over 30% in TEUs over the last month, suggesting that companies are ordering far fewer goods by volume.

When you combine this index with the Inbound Ocean Shipments Index (IOSI), which measures bills of lading, you see only a minor drop in comparison. This shows that shippers are ordering less volume per order.

No one has a crystal ball, and many forecasting algorithms have, to some extent, ingested pandemic-era data that is no longer applicable. Until the global environment settles, the best many supply chain professionals can hope for is to monitor the environment more frequently and work toward a diversified approach to supply management.

In this week’s Freightonomics episode, supply chain experts Dale and Zac Rogers predicted consumers would be resilient and return to their old ways this fall and winter, but also warned that volatility would persist. Inflation rose this May at the highest rate since 1981, which any economist will tell you is unsustainable. Cloudy, the future remains.

About the chart of the week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point for describing the state of freight markets. A chart is selected from thousands of possible charts on SONAR to help participants visualize the freight market in real time. Each week a market expert will post a chart live on the front page along with commentary. Thereafter, the chart of the week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presents the data in charts and maps, and provides real-time commentary on what freight market professionals want to know about the industry.

FreightWaves’ data science and product teams release new data sets every week and improve the customer experience.

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About Christine Geisler

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