Ask The Experts: Ask The Experts: Can the Supply Chain Right-Size Their Wrongs?

3 Insights from Freight Industry Leaders

While 2021 showed consumer behavior that seemed to trend towards a heavy increase of retail purchases, this year has shown a swing in the opposite direction. Our Principal Economist, Ayeh Bandeh-Ahmadi, predicted in a June episode of the Transfix Take Podcast that “certain kinds of goods, like clothing, are going to go on discount sales because consumers may not [want them] right now.” In direct response to the backlog of container ships being cleared out during the end of spring and beginning of summer, Stephen Bethel, head of Frazier Capital, noted in August that “A lot of the companies we work with have seen inventories rise by about probably 25% to maybe 30% over the last four months.” 

Some of the biggest retailers in the country have reported warehousing capacity being at upwards of 90% through the summer. And while that uptick in inventory now seems to be collecting dust ahead of the much-anticipated holiday sales, consumer behavior has since shifted from purchasing goods to services. “If we see demand drop very suddenly and precipitously, this could be something that hurts the transportation industry,” Bandeh-Ahmadi continued. What we’re not witnessing is a slew of big-box retailers scrambling to right-size their backlog before the end of the fiscal year.

We asked three freight industry leaders to weigh in on whether the retailers will be able to right-size their wrongs through the rest of the year. See where their opinions land.


Scott Sokoloff  (VP, Data and Analytics)

In the past few years, we have seen how consumer demands and supply and retailer expectations have impacted the trucking sector. Supply chain disruptions in 2020 caused many companies’ inventory levels to fall to historic lows. Consumers felt this at the stores when many companies were struggling to keep items in stock on the shelves. While inventories grew in 2021, those levels largely remained below historical norms through 2021. 

At the start of 2022, we saw many companies forecasting sales to remain strong, but as the year has gone on, some of those same companies have started to decrease their outlooks and appear to be managing excess inventory.  What we’ve seen in connection with this is that many shippers are under-tendering their contract awards as they look to draw down their accelerated inventories. This is putting more truck capacity on the spot market and driving down prices. We are also seeing some customers who overstocked their inventories in early 2022 that have already taken their inventory levels down to a more normal operating level– which means their ordering for new supplies should pick up. As more shippers start to make this shift, we’ll eventually start to see the bottom of the market.

If you want to understand the level of inventory for a specific company, their annualized sales and their total inventory can provide some insight. Comparing current levels to historical levels as a baseline for recent years can help one understand whether they have excess inventory or whether they are working from a shortage.  A 25% increase in year-over-year inventory this year could still put them behind their historical levels. 


Ayeh Bandeh-Ahmadi  (Principal Economist)

Inventory woes are not going anywhere for the foreseeable future, but I expect they will change in intensity and character over the coming months. This will be particularly true as industrial supply chains continue to shift in response to the war in Ukraine and embargoes on Russia– and as the Fed navigates a bumpy path regarding business sector growth expectations and consumer spending.

There are a number of countervailing challenges when it comes to inventory: the story varies by industries and by specific types of goods. Based on reports through July, for example, we saw most GAP family brands do poorly as consumers shifted their buying away from leisurewear.  Old Navy sales fell 10% year over year (which resulted in excess inventory), whereas sales for Banana Republic (the group’s only officewear-oriented brand) grew 9% year over year.

Some retailers (e.g., Macy’s, Walmart, Target) have reported holding a glut of inventory they needed to offload this year. Meanwhile, others (Zara, for example, which carries officewear and, as a European exporter, benefits from the strong dollar) are actively looking to build larger inventories to counter high demand and supply-chain delays. Consumers’ pandemic appetite for home goods and appliances has been sated, particularly in the face of inflation-driven price increases, leaving stores and manufacturers like Electrolux with extra inventory on hand. But fertilizer, chemicals, and industrial shortages (and potential shortages due to railroad capacity limits, looming strikes, port backups, the war in Ukraine, and embargoes on Russia) have driven pushes to accumulate more inventory.

The demand for space to store these goods is rising. This may be because retailers are stuck with more than they wanted to have on hand, or because they are actively choosing to increase inventory– or it may be a combination of both. Currently, we’re seeing large retailers trying to offload inventory and/or store it until it comes into season again. We’re seeing mobile storage grow in popularity as retailers and storage facilitators look to containers and truck trailers as flex space, which impacts the number of empty units available for shipments in the transportation sector. As a result of exploding demand for warehousing space– in combination with wage increases and labor shortages– the cost of warehousing has increased by 21% in 2022 Q2, as compared with a year earlier.

Remember how, during the pandemic, there was a lot of buzz around whether we would see a U-shaped recovery, L-shaped recovery, or W-shaped recovery? As I mentioned in my Transfix Take podcast episode back in June, the answer we’ve found is that it depends on the sector – so maybe “K-shaped” comes closest to the right answer. Some parts of the economy saw booms while others didn’t fare so well, and this will continue as people and companies prepare to deal with supply chain challenges and economic volatility.

The global warehousing industry is expected to grow at a compound annual rate of 6% through 2026, although I question how much interest rate hikes will eventually impact this– perhaps more than the market anticipates. Amazon is reducing its warehouse footprint, perhaps making this same call, but for now warehouse firms and other retailers are making the opposite bet, snapping up storage. So while excess inventory is traditionally considered a sign that stores will slow down purchases of more goods, in today’s environment this could also signal a shift. We may see a shift towards different types of goods as the economy and supply chain figure out what “right-sized” looks like in an environment where “right-sized” is ever-changing.


Jon Gold (Vice President, Supply Chain and Customs Policy at NRF)

Despite ongoing headwinds facing retailers– from high inflation to supply chain challenges– the retail industry has experienced year-over-year sales growth for 28 consecutive months to date. NRF is forecasting that annual retail sales will grow between 6% and 8% over 2021, and we anticipate another robust holiday season. Retailers continue to focus on addressing supply chain challenges, which may continue well into 2023. Priority investment areas include supply chain resiliency, transparency, and diversification, all of which are all vital for success.


Disclaimer: All views and opinions expressed herein are those of the writers and do not necessarily reflect the views or positions of Transfix, Inc. or any parent companies or affiliates or the companies with which the participants are affiliated, and may have been previously disseminated by them. The views and opinions expressed herein are based upon information considered reliable, but neither Transfix, Inc. nor its affiliates, nor the companies with which such participants are affiliated, warrant its completeness or accuracy, and it should not be relied upon as such. All such views and opinions are subject to change.