Freight Demand

Freight demand has been lower than expected. We demanded to know why.

Freight demand was lower than expected in late September and early October. Traditionally, this has been a peak shipping point in the season due to retailers stocking up merchandise to accommodate for holiday shopping. However, this peak has been less prevalent in recent years, and especially appears to be down in 2012. We used our industry knowledge and insights to uncover two fundamental reasons why:

1. Shift in inventory models

It’s difficult to prove this concretely, but there are those who theorize that many firms decided to shift further away from traditional inventory models (where retailers stock up their shelves during strong economies) and move closer to the concept of a Just-In-Time inventory model.

The Just-In-Time inventory model has merchandisers minimally stocking their shelves during September/October and only ordering more product when needed. This way, they avoid over spending up front and not having the sales to match the large cost of their inventory. The prior thinking was to fully stock your shelves in September/October and bank on a strong holiday season.

2. Slow or stagnant economy

Even with the shift in inventory models, 2012 demand seems to be well below average for this time of year. This could be an indicator that growth for the 3rd and 4th quarter may be slower than originally predicted – most industry forecasters called for gross domestic product (GDP) to grow between 2-3% over this period. A slow economy and an underperforming GDP are a good recipe for reduced freight demand.

What does this mean for shippers?

Regardless of why demand is down, or what this indicates, the fact remains that there is less freight moving in the market. This translates, at a macro level, to generally lower pricing and more available capacity. As of right now we are anticipating the softer demand will last through the remainder of 2012 and into early 2013. The next significant demand surge will likely occur in February/March of 2013, but a lot could change between now and then. We believe shippers would be wise to take advantage of this lull in freight demand and the potential pricing benefits it brings.

Find out if rates have lowered in the lanes you ship in by visiting www.freightquote.com.

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