Retailers’ inventories, truck freight volumes fall, e-commerce impacting ‘distribution networks’

Inventory levels of large retailers are returning to healthier levels for the U.S. trucking industry, while an index measuring freight volumes has been falling.

Transportation analyst Brad Delco of Stephens is encouraged by the inventory levels of large retailers with planned reduction in inventory expected to continue. Delco recently reviewed the earnings reports and conference calls of the retailers to gauge their demand and inventory levels. He also incorporated data on inventory and sales nationwide into his analysis on retail inventory trends and trucking.

“While we continue to see signs of an inventory correction occurring, we believe the continued growth of e-commerce is having impacts on the traditional truckload supply chains as retailers update their distribution networks,” according to Delco’s analysis.

He noted Amazon “continues to take market share and retains sizeable inventory levels in the domestic retail market albeit still 25% of the inventory levels of (Wal-Mart Stores) in terms of (U.S. dollars).” Other companies Stephens included in its analysis included Kohl’s, Macy’s, Target, T.J. Maxx and Wal-Mart.

The group of companies reduced inventory by an average of 3% in the first quarter of 2017, compared to the same period in 2016, according to Stephens. Wal-Mart same-store inventory in the United States fell 7.3%. Some of the companies in the group have more inventory reductions planned. However, Amazon inventories rose about 11% in the first quarter compared to the same period in 2016.

“We continue to believe the draw-down in inventories and subsequent re-stocking provides a positive setup for the (trucking companies) in combination with the ELD mandate looking out,” Delco said.

E-COMMERCE RISING
The number of consumers who prefer to make purchases online continues to rise, leading traditional brick-and-mortar stores to close. Over the next two years, Macy’s will close 100 stores, or 15% of its total store base. J.C. Penney, Sears, K-Mart are a few other large retailers closing stores. Meanwhile, Amazon’s revenue rose 23% in the first quarter.

Delco noted Target announced a pilot program, Target Restock, “aimed at providing next-day delivery of essential items,” including “toiletries and non-perishable goods for a low flat fee to online customers.” Also, Wal-Mart expanded its e-commerce offering when it acquired Jet.com, “which helped drive a 63% increase in U.S. e-commerce sales” in the first quarter and “helped bolster overall top-line growth.”

U.S. inventory-to-sales ratios have fallen from peak levels in the first quarter of 2016. In December, the ratio improved to 1.35, “marking the lowest ratio since 2014, driven by stronger sales in the fourth quarter of 2016,” according to Delco. But in the past quarter inventory levels have risen almost 1%, compared to the previous quarter.

TRUCK TONNAGE FALLS IN APRIL
In April, an index measuring the amount of freight trucks haul fell 1.8%, from the same month in 2016, according to trade organization American Trucking Associations. ATA’s seasonally adjusted For-Hire Truck Tonnage Index declined 2.5% in April, from March. The index also was down 1.1% in March, from the previous month. The index reached a peak in February 2016, and for the year, the index rose 2.5%.

“I have to admit that April’s contraction is a bit surprising, especially considering the anecdotal reports I’ve been hearing from fleets regarding freight levels,” said Bob Costello, ATA chief economist. “It’s not necessarily that tonnage levels fell in April that is surprising, but the size of the decrease. One explanation is that housing starts fell substantially in April as well, and residential construction generates heavier truck freight.”

Over the past three months tonnage has fallen 3.6%.

“I still expect moderate growth going forward as key sectors of the economy continue to improve slowly,” he said.