Cuts in spending by consumers have already resulted in a 20-30% drop in Chinese manufacturing orders from US importers, as recently reported by CNBC, and more recent data from US shippers shows that the slowdown in the housing market is now showing in the Asian supply chain data too.
“We are seeing the impact and slowdown in home appliances, home appliances (items like dishwashers) and home improvement products,” said Akhil Nair, senior vice president of products for Asia Pacific at Seko Logistics. “We’ve seen a sharp slowdown in furniture and home textiles, particularly in China and Vietnam, due to importers holding large inventories.”
Inflation has pushed consumer sentiment to record lows, but the housing market remained strong until the Fed’s more recent stance led to the biggest weekly hike in mortgage rates since the 1980s.
“We saw an immediate reduction in residential building materials such as lumber,” said Spencer Shute, senior consultant at supply chain and procurement firm Proxima. “This shouldn’t come as a surprise given the sales and construction numbers for new homes.”
Taken together, the latest manufacturing orders data and housing orders data show how US consumer spending control will continue to weigh on supply chain conditions and inventory planning.
General commodity categories and orders per shipper have declined since March due to overstocking. Big retailers like Walmart and Target surprised the market in May by reporting huge inventory levels.
According to the latest data, the decline in orders is not across the board.
“For other sectors like apparel, sporting goods and e-commerce, we still see strong demand,” Nair said. “To my knowledge, large garments and footwear have not yet shown any major declines or order shifts,” he added.
The American Apparel & Footwear Association (AAFA) tells CNBC that it continues to see strong demand for apparel and footwear.
“Experience shopping applies to our industry in two ways,” said Steve Lamar, CEO of AAFA. “First, consumers need the right clothes, shoes and gear if they want to outfit themselves for experiences. Second, the shopping itself – rummaging around in shops and outlets for summer outfits, children’s clothing and shoes for back to school or new back-to-school outfits. Styles to work, touching materials and trying on and buying your favorite fashion – remains an experience.”
Lamar added that the threat of persistently high prices remains a major concern for retailers.
US ports congestion
Congestion in US and European ports and the drop in US manufacturing orders in China highlight this week’s CNBC supply chain heatmap.
Ports across the country continue to process record imports and with Shanghai slowly reopening, this peak season is expected to be strong despite inflation fears. The reason is that these orders were placed by US retailers months ago.
The increase in both unscheduled and scheduled ships arriving on the East Coast and Gulf ports is causing congestion in ship arrivals. For the time being, the unloading and loading of container ships in these ports is running smoothly.
However, West Coast ports are still plagued by rail delays and bogies being used as makeshift warehouses for loaded containers.
The high volume of containers arriving in all US ports will continue even in the high season.
“We expect strong imports in the summer months as retailers complete back-to-school freight and begin importing Christmas items,” said Jon Gold, vice president of supply chain and customs policy at the National Retail Federation. “Retailers are considering supply chain disruptions and planning accordingly to meet strong consumer demand despite ongoing inflation concerns.”
German union strike
Negotiations between the German trade union ver.di and the Central Association of German Seaport Companies (ZDS) are continuing after a second warning strike last week. This strike lasted 24 hours while the first strike lasted one shift. The effects of the all-day strike hit almost all ports in the German North Sea.
Sources tell CNBC that ZDS has made an offer to the union with a final offer of a wage increase of up to 11% in 18 months. Sources are hoping for an arbitration process in which politicians or a neutral person mediate.
Delays caused by the recent warning strike have added to ship congestion. Container ships are currently delayed by several weeks in some German ports.
The German labor dispute affects the availability of empty containers used for both European exports to the US and Chinese exports. China is Europe’s No. 1 trading partner.
“The overall situation in the northern European ports is deteriorating,” warned Andreas Braun, Ocean Product Director for Europe, the Middle East and Africa at Crane Worldwide Logistics. “Port congestion is increasing, as is shipyard utilization,” he said.
First shipping companies such as MSC are reacting to the current scenario with emergency storage surcharges for both imports and exports, with surcharges after exceeding the standard storage-free period and in addition to the standard tariffs. Braun said that this surcharge is currently limited to Dutch ports only and so far only MSC has circulated a notice about the additional charges, but he added: “We can expect other ports and shipping companies to follow.”
Shipping companies are warning their customers about the impact that strikes and related delays can have on the supply chain. Hapag-Lloyd issued a statement to report increased demand for trucks. Maersk announced that it would “catch” the standstill at its German terminals. “In order to minimize further disruption to your supply chain, we will be closely monitoring developments up to and during the next round of meetings between the ver.di union and the ZDS and recognize that further strikes are possible.” Maersk has notified its customers .