Excess Inventory Slows Global Demand

Excess inventory stacked in shipping containers beside an empty road.

Quiet Lunar New Year in Store for Shippers

Inflation and the possibility of a recession are leading to excess inventory. Demand for products of all kinds surged since the start of Covid in March 2020. Buyers could not keep stores stocked. However, Q4 2022 indicated the historical demand we have seen recently has come to a stop.

Last year’s Lunar New Year was seen as a return to normal, giving hope for a year of smooth sailing. Unfortunately, thanks to a multitude of factors such as confusion around China’s zero-Covid policy and the largest ground war in Europe since World War II breaking out, the global economy is on even more tenuous ground than before. 

Everywhere is faced with a surplus of goods and not enough places to move it.

Slower Sales Leads to Full Warehouses

In a typical year, January can be one of the busiest months for global shippers. There are two reasons why. First, retail locations are looking to restock after a busy holiday season. Second, most—if not all—factories in China close for Lunar New Year celebrations. 

Many retailers fell short of their projections and saw significant year-over-year drops. Nordstrom shares fell upon the announcement of contracted net sales during Q4 2022. Profit margins were slim due to a combination of slower sales and then subsequent markdowns to move year-end merchandise. Nordstrom is not alone in these woes. Fellow retailers, like Macy’s and Lululemon, have already warned investors to temper their expectations on earnings reports. Even popular automakers, like Tesla who operate their Gigafactory in Shanghai, missed their projected sales numbers by tens of thousands of vehicles.

The Year of the Rabbit arrived earlier than usual, with festivities beginning on January 21st. Compare this to 2022, when the holiday arrived during the second week of February. With this compressed timeline and depressed sales, there was not enough time in warehouses to clear inventory. Many buyers are reasoning they will be able to restock when factories fully reopen in mid-February.

Inflation Curbing Spending

Shipping containers stacked with excess inventory at port.

The pattern of belt-tightening and slowing sales will continue as long as global economies are rocked by inflation. Unfortunately, economists do not see a quick pathway to limit inflation at the moment. 

Biden’s White House and a highly partisan House of Representatives are currently engaged in a standoff on the debt ceiling. Both sides have said they will not budge; Biden cites the current debt was inherited from past congresses and House Republicans are looking to shrink the debt by cutting social benefits and services. In the meantime, Secretary of the Treasury Janet Yellen is deploying all of the tricks possible to stave off the United States faulting on its debt. If the world’s largest economy were unable to cover their debts, it would send shockwaves felt by governments, businesses, and individuals around the world.

Senator Mitch McConnell expressed optimism last week about the situation. He stated, “the important thing to remember is that America must never default on its debt. It never has, and it never will.”

How to Adjust to Excess Inventory

The real mistake would be to see this situation as a complete negative. Softening demand, even during the logistically tricky Lunar New Year, is leading to lower prices for shippers. January and February 2023 are an excellent time to set yourself up for success in the spring and early summer. Blanked shipments indicate the possibility of a recession, but provide an opening for those with operating capital.

It might not be possible to place orders if you are struggling to find adequate warehouse space. However, it is possible to use laws like the Ocean Shipping Reform Act of 2022 to your advantage. Created to ease costs incurred from port congestion, it is possible to avoid detention and demurrage fees for your cargo. Knowing how to navigate these choppy waters can set you and your company on the right course in 2023.

Tug boat helps load a container ship.

How SiShips Gives You the Advantage

Sheltered International combines expertise with state of the art software to bring you quality domestic and international shipping solutions. SiShips puts the shipper in control, offering efficient and cost effective ways to ship your product.

To learn more about managed transportation with SiShips, or to view a demo of our software, contact us today.