Hello, it’s IINO.
I would like to broadcast IINO san’s Logistics Radio.
Today, I would like to talk about, “North American Companies Face Rising Supply Chain Costs Amid Inventory Issues.”
Daily Logistics Radio by IINO san in 23rd June 2022
Rising Logistics Costs
Logistics costs rose 22% to about $1.85 trillion in 2021 as North American businesses strive to keep up with consumer demand, according to a new report.
This represents 8% of the nation’s total economic output and the highest logistics spending as a percentage of GDP since 2008.
Freight industry experts say that as logistics disruptions continue in North America and inflation rises, companies are trying to reset supply chains and rebuild inventories.
Furthermore, they state that they are facing new and rising logistics costs.
Inventory Cost Increase
The specific cost that has gone up is inventory costs, which have jumped about 26% from 2020.
Inventory used to help companies deal with supply chain disruptions.
This is due to the long lead times between ordering from China or Asia and receiving the product, the fact that retailers and manufacturers are now holding products that are far from demand, and delays in delivery times.
In the past, inventory costs were not that high because orders were placed in China and were stable until they arrived.
However, with the Corona pandemic, we cannot afford to have orders not arrive at all, and be out of stock, and items that arrive late are not in demand.
Demand for seasonal items, especially apparel, will disappear.
Changes in Personal Consumption
According to a management consulting firm, “We expect logistics cost increases to ease somewhat this year, but they will ease from the very high levels of last year.”
In addition, consumer spending, the driving force behind logistics, has again changed dramatically in recent months.
They are now spending more on things like fuel, travel, and work clothes, at the expense of categories such as loungewear, furniture, and home improvement.
They are spending more on services.
While consumer spending is projected to increase by 4.2% this year, its composition is changing, with some noting that “the durable goods category is facing headwinds.”
Substantial Decline in Sales of Existing Homes
For example, the Nikkei Newspaper reported that the number of existing home sales in North America in May totaled 5.41 million, down 3.4% from the previous month and the fourth consecutive monthly decline.
This was the lowest level since June 2020, when sales were hit by the Corona pandemic.
Prices continue to rise amid low inventory, which, combined with rising loan rates, is adding to the difficulty of purchasing a home.
With interest rates currently high in North America and a low inventory of existing homes, prices are inevitably high. If used homes don’t sell, furniture and other home-related products won’t sell.
This is what they mean when they say, “The durable goods category is facing headwinds.”
Responses from Various Companies
Target Corp. announced earlier this month that it would cancel orders to its international vendors and offer discounts to customers in an effort to clear out excess inventory.
Other major retailers, including Gap Corporation, Kohl’s, and Macy’s, have also reported having too much of the wrong merchandise on hand.
One freight brokerage firm was unloading Halloween costumes at warehouses at the Port of Los Angeles and the Port of Long Beach in December.
The article concludes, “While this is inventory, it is clearly not proper inventory.”
When you cancel orders with vendors, as Target did, your purchases are reduced.
In particular, purchases of durable goods, automobiles, appliances, computers, and furniture will decrease.
Overall, shipping volumes will decrease, and it will be interesting to see how this will work in conjunction with the clogging at ports and domestically.
I will continue to update you on domestic developments in North America.
That’ all for today. Thank you.