US demand surge set to continue as inventories remain low

High levels of consumer demand and low inventory quantities mean congestion bottlenecks in the US are unlikely to clear for some time.

Even though volumes imported into the US in the second half of last year set new records, US Census Bureau data for January shows the sales-to-inventory level fell to 1.25 in the latest figures.

Between 2016 and 2020 the inventory ratio had settled at an average of 1.4. As sales plummeted at the outbreak of the pandemic there was a spike in inventory levels, but this quickly dissipated. By January, there was another significant fall.

“This means the demand boom experienced in second half of 2020 was sufficient to cater for sales, but not sufficient to fully replenish the inventories,” said SeaIntelligence.

The development was much more severe in retail inventories than in manufacturing or wholesale, although these too declined in December and January.

“Following the initial short spike, a retail demand boom took off in earnest and almost instantly led to a very deep decline in the relative size of the retailers’ inventories,” the analyst said. “This low level was maintained until October, whereupon there was a brief period of increasing inventories at the end of the year, albeit to nowhere near the prepandemic level.”

But January again saw a sharp fall in the relative size of retail inventories.

“Despite the boom in import cargo, this was insufficient even keep pace with actual sales.”

While the ratio figures show inventories relative to sales, in real terms inventories also fell sharply.

The build-up that has fuelled part of the demand boom in in the second half of 2020 was only sufficient to match half of the decline, leading to the fall in inventories at the start of this year.

“From this perspective alone, we should expect a continued boom in import demand into the US, simply because the retailers have far from completed replenishing the levels in their warehouses.”

Moreover, the growth rate of US consumer spending on goods was also rising again in January and with further stimulus coming, this acceleration was likely to continue.

“The concurrent developments in the inventories and in the sale of goods, lead to the conclusion that the pressure on the containerised supply chain into the US will not abate in the near-term future. If anything, the January data points to an increase in the strength of the boom, as especially retailers struggle to not only keep up with sales growth, but also to replenish their inventories.”

But for those suffering from poor service levels and long delays because of bottlenecks along the supply chain, the “chicken and egg question” remained unanswered.

“The current bottlenecks prevent importers from getting their cargo in time. This causes some to try to front-load volumes to secure timely delivery. This in turn intensifies the demand pressure, making the bottlenecks worse — keeping the high pressure on freight rates. And, as can be seen, with no immediate resolution in sight.”