Slow build for volumes

As retailers have now reached the point where inventories are in equilibrium with sales, freight volumes should slowly begin gaining momentum through the remainder of the year. As a result, wholesalers and producers should also see their inventories align at a quicker pace more closely with sales

As retailers have now reached the point where inventories are in equilibrium with sales, freight volumes should slowly begin gaining momentum through the remainder of the year. As a result, wholesalers and producers should also see their inventories align at a quicker pace more closely with sales (Chart A).

Moderate replenishment of retail inventories will help spur freight volumes into distribution centers which in turn will stimulate volumes upstream in the supply chain (Chart B) as wholesalers and producers increase shipments to retailers. This will accelerate the process of wholesalers and producers bringing inventories into balance with sales (Chart C).

As producers boost output (Chart D), freight volume into wholesalers' distribution centers will increase, and volumes upstream in the supply chain will moderately accelerate as retailers' and wholesalers' inventories approach equilibrium. The resulting recovery in freight volumes will become broad-based, as conditions within the supply chain continue to improve through the end of the year.

While conditions within the supply chain are improving, Commercial Motor Vehicle Consulting (CMVC) predicts only moderate growth in freight volumes because of sluggish consumer spending. As inventories approach equilibrium throughout the supply chain, expect freight volumes to expand at approximately the same rate of growth as consumer spending.

CMVC is predicting sluggish growth in consumer spending through the end of the year and into 2010 since households have altered spending in response to a $12-trillion loss in wealth, lower home prices and decreases in the value of financial assets.

Households have shifted a greater share of personal income to savings and paying off debt in order to rebuild personal balance sheets. The net effect of increased savings and paying down debt by consumers is a drag on spending, which stifles freight volumes.

Commercial Motor Vehicle Consulting publishes the monthly newsletter Visibility of the Supply Chain for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.

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