Too Much Stuff

The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago. Inventories at non-auto retailers were up 20%. One merchant after another — Target, WalMart, Costco, even mighty Amazon — has reported disappointing earnings and is marking down excess merchandise like crazy. Merchant wholesalers — a category that includes companies that import everything from washing machines to smartphones for sale in the United States — show much the same trend.

The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to prepandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well. This trend, visible in Europe as well as North America and parts of Asia, means that fewer consumer products and the inputs required to make them are moving through manufacturers’ and retailers’ supply chains. International trade in goods, which soared in 2021, is facing a decline. Construction of new distribution centers is grinding to a halt.

The logistics industry has been slow to pick up on the implications. Some transportation companies and freight forwarders have issued glowing forecasts for the months ahead. Many ports are expanding in expectation that the trade boom will linger, and some that have rarely seen a container ship are investing to lure vessels that may never arrive. Shipbuilders’ order books are full, including many orders for vessels large enough to carry 24,000 20-foot containers. As globalization enters an era in which manufacturing value chains matter less and consumer spending is anemic, this enthusiasm for adding capacity is hard to understand.

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