National Retail Federation (NRF) thinks consumer spending will grow in 2024 but lag behind GDP growth. While disruptions like the Red Sea attacks will cause ripples felt throughout the supply chain all the way into the consumers’ wallets.
After surprisingly strong holiday sales last year, continued growth in 2024 remains likely, driven by a healthy consumer. However, this may be challenged by economic and political uncertainties, contends the National Retail Federation, (NRF), the nation’s largest retail trade association.
The health of retailing, which has a $3.9 trillion impact on the nation’s GDP and supports 52 million Americans, is largely dependent on the labor market and the Federal Reserve’s actions on interest rates which impact consumer spending, the NRF’s Chief Economist Jack Kleinhenz said earlier this month.
The US Economy and the Consumer
American households are feeling better about the economy as they are experiencing lower inflation, he said. Lower prices were a key factor in the successful 2023 holiday season. However, consumer spending is increasingly dependent on further improvement in inflation and the combination of jobs and wage growth, the NRF economist asserted.
“Federal Reserve officials have tough policy choices ahead as they decide on what to do and when,” Kleinhenz said. “There is still a risk that keeping rates too high could curb the economy’s momentum more than necessary. Yet if they lower rates too soon, it could allow the economy to reinflate and make it harder to contain inflation pressures,” he added.
“I remain of the view that consumer spending continues to grow, but at a rate slightly below overall GDP growth, Kleinhenz predicted. “Consumers were in decent shape heading into the holiday season, but the labor markets, while unlikely to unravel, do look likely to cool, which would impact consumer expectations and, in turn, affect spending.”
While the NRF’s official annual economic forecast will not be released until later in March, Jonathan Gold, vice president of supply chain and economic policy, is taking a broader, global view. “Retail did so well last year based on the strength of the consumer who continued to be out shopping, especially during the holiday season,” he told the American Journal of Transportation in an exclusive interview. But they were not frivolous in their purchases, Gold said. “They pulled back and were focused on necessities, spending on themselves, their families and loved ones.”
However, that was last year and before a prolonged series of pirate attacks on freighters navigating the Red Sea. Gold, who testified January 31 before the House Transportation Infrastructure Committee Coast Guard and Maritime Transportation Subcommittee, said the ongoing impact of vessel diversions away from the Red Sea raises serious concerns about increased rates and fees, the potential for congestion at U.S. ports and retailer risk mitigation strategies.
“Having a safe, efficient, predictable and timely supply chain is critical to the success of any retailer,” he testified. “The ability to ensure that products are available to the consumer, whether they shop in-store or online, is key to the retail supply chain.” Nevertheless, in his comments to the AJOT, Gold said retailers today are focused on preserving and protecting merchandise in transit.
“For cargo already on vessels and destined for the Red Sea and the Suez Canal, the carriers who made the decision to go around the Cape of Good Hope are adding 10 to 14 days or longer to their supply chains on a sailing,” Gold explained. Retailers using vessels that discharge to West Coast ports but have East Coast markets will find themselves using intermodal rail, he added. “There are also retailers who are looking at using air freight to get their more time-sensitive shipments to their destinations.”
Retailers Face Tough Logistical Decisions
Retailers are facing tough logistical decisions right now, the executive emphasized. “Retailers are making their key sourcing and transportation decisions now for the back to school and winter holiday seasons.”
Aside from extreme transport time delays, retailers are suddenly saddled with sharply increased shipping costs, Gold warned. “We have seen significant increases in the spot market. While rates are not as high as we saw during the pandemic, there are concerns about what this means for future rate discussions.” Besides higher rates, ocean carriers are also seeking to pass along different surcharges and fees to customers, according to the NRF’s top supply chain official.
Gold said NRF members “certainly understand that the longer vessel times impact fuel, labor costs and insurance costs—and maritime insurance costs are skyrocketing--- they want to make sure the new fees and surcharges actually cover real costs and are not intended for profit.”
A laundry list of new surcharges sounds onerous. They include peak season surcharges, transit diversion surcharges, war risk surcharges, contingency adjustment surcharges and emergency contingent surcharges, among others, Gold testified before Congress.
Retailers are also extremely worried about the size of the surcharges and rate hikes. “I’ve had one (NRF) member tell me they have had carriers ask for an increase of $1,500 to $3,000 per container, which represents a 38% to 73% cost increase for directly affected cargo,” he said. “We are hearing that the rates and surcharges are not just being applied to directly impacted cargo, but to other routes such as Europe to the U.S. because of equipment availability.”
It’s not just the disrupted transportation of finished goods that are straining retailer supply chains, contends Gold. “We have heard from some (NRF) members that their overseas vendors are starting to see some challenges with their ability to source raw materials in a timely manner. They are indicating increased costs for their components as well. There have been recent reports of European manufacturers shutting down because of their inability to get materials.”
Gold, who has pointed out that shippers are looking to shift back to West Coast ports, fears the “surge in cargo may cause congestion” without proper planning. He points out that a “significant amount” of freight shifted away from the West Coast ports during the most recent labor negotiations and the cargo may shift back.
“We need to make sure our ports, terminals, railroads, drayage providers and warehouses are ready for the increased volumes. We are already hearing that railcar dwell times are starting to tick up and railcar imbalances and increased demand could result in more congestion and (further) increases in dwell. We also need to make sure there is chassis availability as well. Some believe this congestion could begin within the next four to six weeks after (the Chinese) Lunar New Year when trade volumes start to pick up again.”
The NRF supply chain executive is also “concerned” that the longer transit time around the Cape of Good Hope “will put vessels and equipment such as empty containers out of position.” He said some retailers are complaining that vessel space is “becoming increasingly constrained,” and that some carriers are “canceling certain services” adding to “capacity constraints.” He did not cite specific markets.
The Ripple Effect
Gold is further convinced that the Red Sea attacks and route disruptions will have a “ripple effect and complicate the global supply chain.” He noted that the current shipping restrictions at the Panama Canal will continue and “further impact the choices shippers and carriers have for an alternate route.”
While the Red Sea attacks are commanding worldwide attention among shippers and ocean carriers, said the NRF executive, retailers must also plan for “potential” labor disruptions at East Coast and Gulf Coast ports because of ongoing labor negotiations between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance. The contract will expire at the end of September “during peak season when retailers are bringing in their holiday merchandise,” he said, adding that the NRF has called on the ILA and USMX to “return to the bargaining table” to settle on a new contract before the current one expires.
Meanwhile, Gold said import cargo at the nation’s major container ports continues to rise despite Red Sea vessel disruptions and tonnage volumes are expected to see year-over-year gains through the first half of 2024, while the revenue outlook is not as positive.
“Only about 12% of U.S. bound cargo comes through the Suez Canal but the situation in the Red Sea is bringing volatility and uncertainty that are being felt around the world, Gold said in a Global Port Tracker report released February 9 by NRF and Hackett Associates, a consultancy to the international maritime industry and government agencies.
Still, the Tracker is basing its forecasts on projections for U.S. ports and concluded imported cargo nationwide for the first half of the current year will be 11.1 million TEU, up 5.3 percent from the same period last year.
How? The consultancy’s founder, Ben Hackett, explains the projected cargo volume hike in the face of current Red Sea shipping attacks by stating in the Tracker, “the shipping industry has rapidly adjusted by adding extra vessels to its networks, and has returned to normal weekly ship arrivals.”
There is no cast-in-concrete projection on how retailers and shippers will fare in 2024. As this story is written, the NRF released its annual survey on Valentine’s Day spending this year. NRF President and CEO Matthew Shay said, “total spending on significant others for this holiday is expected to reach a record $14.2 billion.”
