In retail Walmart Inc. and Target Corp. few are ready to cope. So it was surprising that during the 24-hour period the two offspring traders posted weak profits in the first quarter, which seemed out of place to guide both.

Part of the deterioration in profits was due to fuel, which soared to a record high after Russia’s invasion of Ukraine on 24 February. This was partly due to margin pressure caused by unfavorable sales, when consumers switched purchases from higher-income goods such as electronics to less lucrative goods such as groceries. An extension of this was the excess of stockpiling activity, which returned to the bite of retailers after easing concerns about the COVID-19 pandemic pushed more consumer purchases to services and “experiences” and from goods.

Retailers have little to do with fuel prices. It could be argued that they had to expect that from March 2020 to the end of 2021 the buying flow caused by the pandemic would stop, and that they had to plan their inventory strategies accordingly. However, demand forecasting has always been a solid nut, and the market is where it is. The construction of stocks could also be the result of a delay in the supply chain at the beginning of the year, which led to some late deliveries of cargo that was spoiled.

The level of stocks as of March compared to activities in March 2019 after stocks stabilized after a major shift in 2018 ahead of the Chinese administration’s Chinese tariffs, yields mixed results. Not surprisingly, given the current shortage of vehicles, according to data from the federal government, analyzed by the University of Michigan, the ratio of stocks of cars and spare parts to sales has dropped significantly. Stocks of clothing before sales also declined during these periods, as did e-commerce.

However, furniture, home furnishings and appliances, building materials and gardening, and a category known as “other common goods” that includes Walmart and Target, among others, report higher inventory-to-sales ratios, according to government figures. analyzed Michigan.

For the latter sectors, change has taken place quickly, according to Jason Miller, professor of logistics at MSU’s Eli Brod Business College. As of November, the stock-to-sales ratio was up to COVID-19, Miller said. They have since exploded upwards.

Miller said he expects retail orders to “cool down” even if inflation-adjusted sales remain constant as retailers seek to cut their existing inventories. He also expects retailers to launch major discount programs to speed up stock burning. According to Miller, fewer orders in certain categories are unpleasant for carriers whose networks are strongly tied to the bands that are part of retail distribution centers.

In a Friday note, Basque Meyers, an analyst at Susquehanna Investment Group, said the gap between annual sales and inventories – an approximate barometer of the impact of sales growth on replenishment activity – was positive in the spring of 2020 and accelerated to a favorable one. territory for four consecutive quarters. Gradually, however, the spread became negative, according to Majors. In the first quarter of this year, inventory growth exceeded sales growth by 200 basis points. The recent surge in inflation, Majors writes, is seriously distorting inventory and sales trends.

The decline in freight prices in?

For some, high inventory levels are an expected phenomenon and this is to be welcomed. In a note Tuesday, Amit Mehrotra, a transport analyst at Deutsche Bank, said the rise in buffer stocks is part of retailers ’desire to have goods when consumers scan shelves. Mehrot added, however, that these data lead to a likely slowdown in freight flows in the coming months and quarters.

He said the recession has already been assessed in most transport stocks, noting that the shares of most freight have been higher over the past 30 days, while the broad market is about 7% lower.

In an unusual world Walmart, Target and other retailers are likely to turn to one area where they traditionally find leverage: their shipping bills. During the Target quarter (NYSE: TGT) Faced with freight and transportation costs that were hundreds of millions of dollars higher than already raised expectations, chief operating officer John Mulligan said during a call from the company’s analyst on Wednesday. Essentially the same story at Walmart (NYSE: WMT).

According to industry experts, retailers ’efforts to curb transportation costs will lead to an unprecedented third and even fourth round of truck contract negotiations, with users becoming more aggressive in their bids to gain greater cost savings.

Discussions can become controversial. In a LinkedIn report Friday, Jason Ickert, president of trucking at Sonwil Logistics, said a major shipper, whom Ikert would not identify, suggested during a conference this week with trucks that they “artificially maintain their tariffs” above accepted markets. levels. The sender “clearly stated” that carriers should adjust their rates during the “unprecedented and unplanned” third round of request for proposals, Ikert writes.

Potential transition to intermodal

The pressure to reduce transport costs will also trigger increased interest in intermodal transport, whose full cost is cheaper compared to contract trucks than ever since 2018. Intermodal rates have been growing at a slower pace than truck contract rates, turning from a 2019 freight recession when higher intermodal rates have allowed off-road transport to gain market share.

The transition to intermodal, if it happens, will benefit railroads and intermodal marketers such as JB Hunt Transport Services Inc. (NASDAQ: JBHT), Hub Group Inc. (NASDAQ: HUBG) and Schneider Inc. (NASDAQ: SNDR). However, experts warn that intermodal opportunities remain limited, as well as storage space needed for storage.

“Walmart, Target and other retailers are absorbing every drop of intermodal potential that Hunt, Hub, Schneider and Rails supply in 2022 and probably in 2023,” said Majors of the Susquehanna Investment Group. Increased activity, he said, should occur even as retailers operate through a multi-quarter inventory withdrawal process.

The FREIGHTWAVES TOP 500 In the list of carriers for rent J.B. Hunt (№ 4), Schneider (No. 7) and Hub Group (No. 29).

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