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Tag: J.B. Hunt Transport Services Inc

  • Earnings will drive the stock market in the week ahead. That’s a good thing

    Earnings will drive the stock market in the week ahead. That’s a good thing

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    A view of the New York Stock Exchange building in the Financial District in New York City on Aug. 5, 2024.

    Charly Triballeau | Afp | Getty Images

    The good times are still rolling on Wall Street. An intensifying earnings season will put that momentum to the test.

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  • Here are Thursday's biggest analyst calls: Nvidia, Rivian, Apple, AMD, Amazon, Biogen, DataDog, Bumble & more

    Here are Thursday's biggest analyst calls: Nvidia, Rivian, Apple, AMD, Amazon, Biogen, DataDog, Bumble & more

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  • Inflation’s inventory gluts are here to stay and will hit the bottom line in weaker economy: CNBC Supply Chain Survey

    Inflation’s inventory gluts are here to stay and will hit the bottom line in weaker economy: CNBC Supply Chain Survey

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    CHRIS J RATCLIFFE | AFP | Getty Images

    Bloated warehouse inventories are an expensive pressure eating away at the bottom line of many companies, and for many, the excess supply and associated costs of storage won’t abate this year, according to a new CNBC Supply Chain Survey.

    Just over one-third (36%) said they expect inventories to return to normal in the second half of this year, with an equal percentage expecting the gluts to last into 2024 — 21% saying a return to normal can occur in the first half of the year, and another 15% expecting normal activity by the first half of 2024. But uncertainty about inventory management is significant, with almost one-quarter (23%) of supply chain managers saying they are not sure when gluts will be worked off.

    “We don’t expect significant decreases in inventory levels within our network in 2023,” said Paul Harris, vice president of operations for WarehouseQuote. “Several of our manufacturing clients are experiencing dead/bloated inventory challenges due to over-ordering in the container grid-lock from prior quarters. A majority have elected to keep the inventory on hand and are opposed to liquidating.

    A total of 90 logistics managers representing the American Apparel and Footwear Association, ITS Logistics, WarehouseQuote, and the Council of Supply Chain Management Professionals, or CSCMP, participated in the survey between March 3-21 to provide information on their current inventories and the biggest inflationary pressures they are facing, and often passing on to the consumer.

    What’s sitting in warehouses, and what companies are doing about it

    Logistics experts tell CNBC that 20% of their excess inventory sitting in warehouses is not seasonable in product nature. Slightly more than half of survey participants said they would keep the items in warehouses. But a little over one-quarter (27%) said they are selling on the secondary market because inventories impact a company’s bottom line through elevated storage prices.

    Harris told CNBC many clients with perishable goods are selling them on secondary markets to avoid destroying products. “However, if a secondary market is not an option, they are forced to destroy the product,” he said. “If it’s a consumable, they are donating the goods to take tax deductions.”

    Investors are worried about the earnings and margin trends and expect Wall Street to revise estimates lower. The supply chain pressures will be among the factors that weigh on quarterly numbers.

    “Inventory carrying costs continue to rise, driven by inflationary pressures and late shipments,” said Mark Baxa, CEO of CSCMP. “This means that with every day that passes, three things are happening … growing sales risk, margin pressure, and D&O [deteriorated and/or obsolete].”

    Almost half surveyed said the biggest inflationary pressures they are paying are warehouse costs, followed by the “other” category, which includes rent and labor.

    ITS Logistics told CNBC that many clients across industries have been using ocean containers, rail containers and 53-foot trailers for storage because distribution centers were full.

    “These charges will start materializing in Q2 or Q3 financial results,” said Paul Brashier, vice president of drayage and intermodal at ITS Logistics.

    The survey found 50% of respondents saying the average length of time they are using ocean containers for storage is over four months.

    “We are seeing similar trends in our data and ecosystem,” Brashier said.

    More inflation costs going to the consumer

    Traditionally, warehousing costs and the associated labor costs are passed on to the consumer, increasing or sustaining the price of a product. Nearly half (44%) of survey respondents said they are passing on at least half of their increased costs, if not more, to consumers.

    “It’s clear that supply chain challenges and all their associated costs continue to stir inflationary pressures,” said Stephen Lamar, president and CEO of the American Apparel and Footwear Association. “Given ongoing inventory concerns and the fragile nature of our logistics system, there are other pressures and uncertainty.”

    His group is calling for West Coast port labor negotiations to be quickly finalized and for the government to “aggressively remove other cost pressures,” a reference to Section 301 tariffs on Chinese imports, which he said continue to make supply chains more expensive.

    Manufacturing orders and the economic outlook

    Recent data on manufacturing has shown a deterioration in the economy, with the ISM Manufacturing index in contraction level based on March data released this week. The U.S. services sector slipped closer to contraction in March, according to the ISM Services Index, with sharp declines in new orders, exports and price.

    Looking at the health of manufacturing orders for the next three months, 40% of logistics managers surveyed said they are not cutting orders, while a little under one-fifth (18%) said they are cutting orders by 30%.

    Inventory levels and consumer consumption are two factors influencing manufacturing orders.

    These orders help gauge China GDP as it reopens from its strict Covid protocols, since the country relies on manufacturing and trade for its economic growth.

    FreightWaves SONAR intelligence shows a slight uptick in ocean freight orders and recovery from the massive drop ahead of Lunar New Year, but the longer trend line remains a decrease in ocean bookings.

    The inventory glut is affecting trucking logistics in multiple ways. Not only are trucks moving fewer containers from the ports, they are also moving less from the warehouses to the retail stores. Data from Motive, which tracks trucking visits to North American distribution facilities for the top five retailers by volume, shows a drop in truck visits from warehouses.

    “The decline in visits to retail warehouses indicates weakness in consumer demand, but surprisingly may also be a sign of recovery in the supply chain,” said Shoaib Makani, founder and CEO of Motive. “With lead times to replenish inventory reduced from 2021 and 2022 highs, retailers are burning off existing inventories with the confidence that they will be able to replenish quickly.”

    Even with orders increasing, the inventory headwinds are a source of concern for logistics experts.

    “This survey confirms that we remain in an era of serious supply chain cost-to-serve challenges,” Baxa said. “Warehousing costs are contributing to these challenges that shippers are facing today and on the road ahead.”

    FreightWaves and ITS Logistics are CNBC Supply Chain Heat Map data providers.

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  • There’s a new inflation warning for consumers coming from the supply chain

    There’s a new inflation warning for consumers coming from the supply chain

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    An Optoro warehouse in Tennessee that handles returns for retailers.

    Source: Matt Adams | Optoro

    As the markets prepare for the latest consumer price index data to be released on Tuesday, logistics managers are warning of a persistent source of inflation in the supply chain and saying consumers should be ready for the effect it will have on their wallets.

    While many sources of supply chain inflation that stoked higher goods prices have come down sharply — including ocean freight rates and transportation fuels — bloated inventories due to a lack of consumer demand are sustaining upward pressure on warehouse rates.

    “In 2022, we saw rate levels for international air and ocean and domestic trucking fall back down to earth,” said Brian Bourke, global chief commercial officer at SEKO Logistics. “But inflationary pressures remain where demand outpaces supply in 2023, including in warehousing through most of the United States, domestic parcel and labor.”

    One reason for the imbalance between warehouse supply and demand is the lack of new facilities coming into the market.

    “National warehousing capacity remains low and will remain tight for the foreseeable future as U.S. industrial construction starts have fallen considerably year-over-year due to rising interest rates,” said Chris Huwaldt, vice president of solutions at WarehouseQuote. 

    Consumer prices have come down sharply as goods inflation that surged during the pandemic has cooled. And Federal Reserve Chairman Jerome Powell expressed confidence after the most recent Fed meeting that disinflation “has begun.” December’s CPI was the smallest year-over-year increase since October 2021, at 6.5% on an annual basis, down from a 9.1% peak in June 2022.

    The Fed is now more focused on services inflation, in particular labor prices, as it expects the pressure in goods inflation to continue a downward trend. But the logistics issues suggest there will be some elements of sticky inflation on the goods side of the equation.

    “The market is starting to sense that the very comforting disinflation story is more complex than we would like it to be,” Mohamed El-Erian, Allianz chief economic advisor, told CNBC’s “Squawk Box” on Monday morning. “The comforting story was simple: Goods disinflation continues and service inflation comes down, that wonderful concept that Chair Powell calls core services, ex-housing, comes down and, lo and behold, we don’t have an inflation problem. Now we’re starting to see certain goods reverse this inflationary process so there’s more uncertainty about inflation.”

    Some shippers are holding their products in containers on chassis because of full warehouses and distribution centers, but this means they’re incurring charges which are passed on to the consumer. Shippers are given an allotted amount of free time during which they are not charged for holding a container, but once those days expire, they start to be charged per diem charges (i.e., late container charges that are charged for containers out of port).

    Containers left on chassis create two costly problems, said Paul Brashier, vice president of drayage and intermodal for ITS Logistics. It prevents those chassis from being used to move newly arriving containers, putting additional stress on chassis pools throughout the U.S., especially inland rail ramp pools. Shippers will also be charged fees for the dwelling chassis — separate from the per diem charge shippers pay per day once the container is out of use beyond its free time. “This can lead to tens of millions of dollars in penalties,” Brashier said.

    He predicts that per diem charges are going to surge in the second and third quarters of this year.

    “These are on top of charges for warehousing, which are still at historic highs,” Brashier said. “Late fees and warehouse fees are passed onto the consumer, which is why we are not seeing products fall as much as they should.”

    Shipping containers at a container terminal at the Port of Long Beach-Port of Los Angeles complex, in Los Angeles, California, April 7, 2021.

    Lucy Nicholson | Reuters

    National storage pricing is up 1.4% month-over-month and 10.6% year-over-year, according to WarehouseQuote.

    Many small businesses, which represent the largest share of the U.S. economy in number but are often the last to benefit from a decline in supply chain pricing, tell CNBC they do not believe inflation has peaked.

    For shippers with inventory imbalances, Brashier says these charges could cost tens of millions of dollars per quarter. Brashier warns these charges, on top of weaker consumer demand, will ripple through earnings.

    ITS Logistics is advising clients to avoid a hit to their bottom line by considering short-term, pop-up storage offered by third-party logistics providers, or 3PL, and grounding operations. “This will reduce reliance on storing freight in ocean containers,” Brashier said.

    3PL providers include C.H. Robinson, Expeditors, UPS Supply Chain Solutions, Kuehne + Nagel (Americas), J.B. Hunt, XPO Logistics, GXO Logistics, Uber Freight, and DHL Supply Chain (North America).

    Mark Baxa, president and CEO of the Council of Supply Chain Management Professionals, tells CNBC that inflation and higher interest rates are driving supply chain leaders to critically examine working capital investments in inventory and operations in relation to consumer demand forecasts.

    “In the short run, supply chains have moved closer to finance teams to manage cash flow, coupled with greater efforts to manage costs across operations. Considerations have moved to close-in review and total cost management across the business, including people, technology, warehousing and transportation investments,” Baxa said.

    One industry facing supply chain inflationary headwinds is construction.

    Phillip Ross, accounting and audit practice leader of Anchin’s architecture and engineering group, said supply chain inflation has made it more difficult for companies to manage completion times for projects.

    “In some cases, we are looking at six to eight months before materials will be available,” Ross said. “Construction, as one of the largest industries in the U.S., is uniquely impacted by the supply chain, which led to construction companies experiencing not only delays in their work but also increased prices for materials.”

    Some inflationary elements stemming from Covid-related supply chain disruptions remain, according to Jim Monkmeyer, president of transportation at DHL Supply Chain. These include higher costs related to diversion of containers to East Coast ports, production disruptions and shortages in China and elsewhere, and intermodal constraints forcing higher cost alternatives, such as air freight and expedited truck.

    Even with the rate of inflation slowing, higher consumer prices are expected to remain for a variety of other reasons, from contract terms set with suppliers before recent disinflation and company desire to maintain profit margins.

    Steve Lamar, CEO of the American Apparel and Footwear Association, tells CNBC that shippers are also finding it harder to absorb extra costs as a result of the Trump-Biden tariffs on China. “These tariffs are now hitting $170 billion and are baked into the cost of goods and, hence, higher prices at the register,” Lamar said. “The tariffs make it harder for companies to absorb other inflationary costs.”

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