The holiday spending outlook is sluggish across thousands of retailers: CNBC Supply Chain Survey

• Logistics companies do not expect a surge in demand during peak holiday shopping season, according to the CNBC Supply Chain Survey.
• The U.S. economy is "approaching an inflection point in consumer spending," according to C.H. Robinson, and across thousands of U.S. retailers, it says inventory decisions are being made with caution.
• Big box giant Target told CNBC last week it sees shoppers cutting back on even groceries, and within the freight market specifically, trucking firms are operating under conditions that resemble severe recession.

As holiday shopping season begins, lack of big orders from retailers is the rule amid fears that consumer spending will be weak, according to a new CNBC Supply Chain Survey.

At C.H. Robinson, which serves 7,500 retailers, customers are generally being cautious, said Noah Hoffman, vice president for North American Surface Transportation, with inflation still an issue and ongoing uncertainty about the U.S. economy and risk of recession.

"The largest retailers are past working through their excess inventories, but careful not to over-order," Hoffman said, while some of the small- to medium-sized retailers are still destocking.

The national inventory-to-sales ratio, which on the surface appears to have returned to a pre-pandemic level, is skewed by the largest retailers, he said, adding that, "further upstream in the retail supply chain, many wholesalers are also still carrying excess inventory."

C.H. Robinson's economics team believes that the economy is approaching an inflection point in consumer spending as Americans deplete savings they built up from pandemic stimulus.

"We're already seeing this emerge in some leading indicators like loan and credit-card delinquencies," Hoffman said.

During earnings, major U.S. banks have presented a picture of the consumer that is more resilient. "Where am I seeing softness in [consumer] credit?" said JPMorgan chief financial officer Jeremy Barnum, repeating an analyst's question on the bank's earnings call. "I think the answer to that is actually nowhere."

But the recent message from retailers and shippers has been more pessimistic. At the CNBC Evolve Global Summit last Thursday, Target CEO Brian Cornell said the company is doubling down on its cautious outlook for the holiday season. At the same event, FedEx CEO Raj Subramaniam said that while the destocking period has ended for retailers, restocking has not been widespread.

A majority of logistics firms (67%) say that products being moved into stores this holiday season are more promotional, lower-cost items into the store. An even larger majority (83%) indicated that they are not moving more higher-priced items.

Products experiencing the biggest pullback, ranked in order: appliances, furniture, household goods, luxury items, and aspirational luxury.

The CNBC Supply Chain Survey was conducted October 21-October 31 among logistics executives who manage freight manufacturing orders and transportation, including those at C.H. Robinson, DHL Global Forwarding Americas, SEKO Logistics, Kuehne + Nagel, OL USA and ITS Logistics.

The current situation is a result of aggressive Fed policy to raise interest rates which has hit the housing market especially hard, dampening new home purchases, said Paul Brashier, vice president of drayage and intermodal at ITS Logistics.

Discounts on popular items are being limited by the costs retailers are absorbing.

"Retailers are finding that the items they rely on to bring people into the store and boost sales are costing them more," Hoffman said. "That's limiting how much they can discount so we're working with them to find savings elsewhere in their supply chains."

Purchase orders that can be held and consolidated in a retailer's transportation schedule are being sought and can potentially save shippers 10-15%.

"They can also bring products into a different port or multiple ports closer to their fulfillment centers, cutting the travel distance for those products," Hoffman said.  

"All eyes will be on the U.S. consumer over the next 8-10 weeks" said Tim Robertson, CEO of DHL Global Forwarding Americas.

Lunar New Year and order volumes

The CNBC Supply Chain Survey underscores an overall climate of uncertainty that is defining the market right now.

Mixed expectations for rates and volumes indicate that companies are making different bets with their inventory strategies, which Robertson said is typical in an uncertain economy and will produce winners and losers. Visibility of demand and the flexibility to respond to it will be key in determining the winners.

Amazon announced in September it plans to hire 250,000 seasonal workers, a significant increase over last year.

Starting in November, logistics companies start to receive orders from shippers ahead of Lunar New Year. Traditionally, manufacturing plants in China shut down for around a month, so shippers bring products in ahead of time to avoid delays. The survey finds that there is a similarly muted outlook for orders surrounding Lunar New Year, which falls on February 10, with a majority of respondents (67%) not seeing an order increase.

Products leading the decrease are household goods, luxury items and aspirational luxury items, such as handbags and clothing, sneakers, mid-price point items, furniture and appliances.

The survey finds respondents split in their outlook for 2024. In the first half of 2024, 34% expect freight volumes to be down either 5% or 10%; 33% of participants said it would be unchanged; and an equal percentage expect an increase of 5%.

The survey shows expectations for a turnaround in freight volume in the second half of 2024.

Half of respondents expect a 5% increase; 33% expect a 10% increase; and among the 17% that were the most optimistic, a 15% increase is anticipated.

"With a lot of uncertainty around consumer demand, interest rates and the global economy, most people do not have a positive outlook on freight volumes in the first half of next year, but we could certainly see a rebound in the second half of next year," said Brian Bourke, global chief commercial officer at SEKO Logistics. "Importers and exporters should take note when thinking about long-term contracts versus leveraging the spot market when planning transportation budgets between now and the negotiating season early next year." 

In addition to the quantity of freight moved, logistics companies on the water, road, and air generate their revenue based on the rates they can charge.

The majority of respondents believe ocean freight prices for the first and second quarters will be unchanged or down. Looking at air freight, the majority anticipate rates to be unchanged to down anywhere from 10% to 20%.

Last Friday, global shipping bellwether Maersk announced 10,000 layoffs amid weak results.

Shippers are currently in the negotiation season for contracts. It's the wheeling-and-dealing during this time that can help add to a company's revenue stream or add to its inflationary operating costs.

The freight trucking recession

Trucking companies get paid per load, and the low expectations for orders imply potentially lower revenue this holiday season. Logistics executives were split on LTL (less-than-truckload) freight rates for the first quarter, with half looking for a 5% bump and the other half expecting rates to be unchanged to down as much as 15%.

The majority believe rates for full truck loads will be unchanged or down, while 33% expect prices to be up marginally at 5%.

This has been a year marked by numerous trucking bankruptcies. Yellow, one of the largest trucking companies in the United States, filed for bankruptcy on July 31. Forty-year-old Montana trucking company SELSCS and Elmer Buchta Trucking, an Indiana company that has been in business for 80 years, also filed for bankruptcy. A "massive freight recession" contributed to a shutdown of Convoy, a trucking startup backed by Jeff Bezos.

According to Tank Transport, rising fuel costs and falling freight rates caused a total of 31,278 trucking companies to either close or shifted their services to larger fleets.

"For ocean peak season, stocking up for the U.S. holidays, there was a slight uptick in shipping volumes, Hoffman said. "But we expect retail peak season for trucking to be sluggish."

Uber Freight's CEO recently told CNBC that fuel prices will lead to a "new tipping point" in the freight industry shakeout with less diversified business models unable operate on a cost-effective basis.

"Unfortunately, we are going to see significant challenges in volumes, and this will continue to cause more providers to exit the market or implement significant layoffs," Brashier said. "This is not 2008-2009 by any means but it sure feels like it."

Panama Canal drought and West Coast port action

The drought impacting the Panama Canal and the reduction of daily vessel crossings has influenced the flow of trade, according to the survey, with 60% of respondents saying shippers are moving more freight to the U.S. West Coast as a result.

The Port of Los Angeles has reported two consecutive months of improvement in container volumes, with September imports up 14% year-over-year. The additional freight should be a boost to the bottom line of railroads Union Pacific and BNSF, a subsidiary of Berkshire Hathaway, which move containers out of the West Coast ports.

A recent shift to intermodal trade for rails including Norfolk Southern and CSX tied to the import of containers into U.S. East Coast ports seems to be waning. This logistics approach boomed during Covid, amid historic congestion off West Coast ports and labor issues. Now a majority of respondents (67%) say they are not using this strategy.

The results indicate a market that will have little to no growth during the first half of 2024, thus promoting stable to downward-leaning pricing, with a hope that during the second half of 2024 volume increases, according Alan Baer, CEO of OL USA. "Without more freight moving, 2024, and potentially 2025 will continue to see soft pricing as capacity outstrips demand," he said.

Correction: Tim Robertson is CEO of DHL Global Forwarding Americas. Due to an editing error, an earlier version of this story misidentified the company.