Why This Holiday Season is Creating Winners and Losers in the Transportation Industry

There is an excellent piece from The Wall Street Journal on how retailers’ changing inventory management strategies are affecting the fortunes of logistics and transportation companies.

Leading up to this holiday season, shipments by ocean carriers, railroads, and truckers have all been flat, while parcel delivery companies like UPS, FedEx, and USPS are projected to shatter all previous records.

This is because of a stark disconnect between online and brick-and-mortar shopping expectations this year.

Physical retailers are sitting on near record-high inventories as consumer spending hasn’t yet caught up with hopes of a surge stoked by low gasoline prices.

They are also employing new methods of inventory management for the holidays, including shipping items sold online from some stores and stocking fewer goods in others as they attempt to better predict rapidly shifting consumer demand, resulting in more packages.

A large piece of the disconnect between freight and small parcel stems from currently high inventory levels, which retailers think they can sell off online come December. When store shelves are full, manufacturers produce less and fewer freight shipments are sent, said Joseph LaVorgna, chief U.S. economist for Deutsche Bank AG.

In addition, retailers are changing the way they manage that inventory, according to both retail and delivery experts. Instead of stocking 50 sweaters at each store, some retailers will keep just 10 on hand, leaving the rest at a centralized distribution center that also fills online orders. When that store runs out, it will order 10 more for just-in-time restocking, and UPS or FedEx will get it to the door.

At other store locations, retailers are stocking up to use those as mini distribution hubs, employing holiday workers to pick and pack that same sweater for pickup by a delivery man for shipment to an online shopper.

DHL’s Mr. Parra said that more retailers are stocking up via smaller airfreight orders from international suppliers, a method they discovered was more cost effective than expected during a slowdown of the West Coast ports last year. “There’s no need for having large inventories sitting in brick-and-mortar stores,” he said.

Retailers are currently working toward full visibility of every item in stock, in stores and distribution centers, in real time, said Steve Osburn, a supply chain consultant with Kurt Salmon. While it’s a work in progress, “ultimately the long term play is if you get better use of inventory, you don’t have to carry as much inventory,” he said.

This article is a good example of how many of the themes we’ve covered previously–full visibility, shelf-connected retail systems, same-day and home-delivery, and new approaches to inventory management–are all interconnected, with real-world consequences for the companies involved.

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