In trucking’s not-so-distant past, the third and fourth quarters of the year represented a “peak season” of sorts for freight volumes as retailers stocked their shelves ahead of the Christmas holiday. Yet that healthy annual bump in shipments has largely disappeared, due in part to changing consumer buying habits and, of course, the economic downturn. The question for many in trucking, however, is this: will the traditional “peak season” return or is it gone for good?
“Although there are signs of economic recovery, forecasters predict U.S. consumers will spend conservatively for the holidays this year,” noted Kurt Kuehn, CFO for United Parcel Service, in the company’s third-quarter earnings report. “Our customers have widely differing views on their outlook for the holiday season.”
According to a recent survey by Consumer Reports, the overall bulk of consumers are reluctant to increase their retail spending habits as the unofficial start of the holiday shopping season approaches.
“Retail purchases in the past 30 days, as well as the overall outlook for the next 30 days remain soft, with little interest in increasing spending in other areas like appliances, yard and garden tools, cars or new homes,” explained Ed Farrell, a director of the Consumer Reports National Research Center. “While relative stability has returned to the Retail Index, it has not been able to demonstrate growth for three straight periods. With the holiday season fast approaching, this has dire implications for expectations this season.”
Overall, Consumer Report’s Past 30-Day Retail Index fell slightly to 9.0 from 10.4 in October and was significantly behind September (11.0), with its Next 30-Day Retail Index standing at 9.0 – relatively unchanged over the past 3 months.
“The economy remains in a precarious position where further decline is possible but is slightly less likely. Unless consumers can see concrete improvements in their lives and retail activity picks up, any near-term recovery is improbable,” Farrell added.
Not all the outlooks for the holiday season are as gloomy. The International Council of Shopping Centers (ICSC) and Goldman Sachs’ 2009 Holiday Spending Survey found that shopping on “Black Friday” – the Friday after Thanksgiving Day – is likely to be more important this season as 16% of respondents expect to begin their holiday gift shopping on that day. This is a marked increase from prior years, which have ranged from 10% in 2007 and 2008 to a previous high of 13% in 2006, the companies said.
“This pattern is not totally surprising,” noted Goldman, Sachs & Co.’s Global Investment Research analyst Michelle Tan. “Traffic has been increasingly concentrated in key shopping periods with deeper lulls in between and these survey results suggest that this trend will continue during the 2009 holiday season.”
“Bargain hunting will continue to be an important element of the consumers’ holiday shopping strategy,” added Michael Niemira, ICSC’s director of research and chief economist. “However, despite what consumers now expect, we think the holiday spending performance will be better than these pre-season consumer expectations, which is often the case following business cycle turning points in the economy.”
Online shopping is predicted to spike in some quarters – and that could be a boon to transportation providers if such sales materialize. Forrester Research, for example, is projecting an 8% increase in online holiday sales compared with 2008, pegging expectations for online spending to $44.7 billion. The study further found that 42% of consumers will be motivated by shipping offers to buy more online this year than in the past.
From the perspective of trucking companies, however, much uncertainty remains. “Freight shipment trends in fourth quarter 2009 will depend on the strength of consumer demand during the holiday season,” noted truckload carrier Werner Enterprises in its third quarter earnings report. “Pricing remains extremely competitive, due principally to the high level of customer bid programs that occurred in the first half of 2009.”
“Overall, the business environment continues to present formidable challenges, characterized by weak demand, excess capacity and pricing pressure,” added Douglas Stotlar, Con-way’s president and CEO, in its earnings summary. “We expect these conditions to persist in the near term, diminishing the prospects for earnings growth.”
Yet Eric Starks, president of research firm FTR Associates, believes that though the annual “holiday peak season” for freight may be muted this year, it will return as the economy picks up steam.
“I don’t think this ‘traditional holiday surge’ is over, though I don’t think we’ll see one for the time being due to the current economic downturn,” he told Fleet Owner. “Once the economy gets back to a more normalized state, I expect to see that typical holiday surge again. But one thing we won’t see is the big 3% to 5% spikes in volume we experienced during peak seasons back in the 1990s.”