When 'Just In Time' Is Just Not Good

Takeaway: It's natural disasters like this when 'Just in Time' inventory management comes back to bite US businesses.

If anyone out there thinks that Sandy will not have a meaningful impact beyond a couple of weeks worth of disruption in consumer purchasing behavior, then think again. The chart below shows the absolute containerized imports into the US for apparel and footwear products over the past two years.

 

The data is through November 2, and the drop is startling.  

 

The reality is that we cannot simply expect the ships to dock, unload their wares, and then the retailers are off to the races. The Longshoremen (already near the full capacity their strict work rules allow) will have to unload the excess containers, and then the (largely unionized) drayage drivers will need to take to  either the railyard or to the hub and spoke system for an LTL trucking company (also likely unionized). Then the goods get unpacked, repackaged, and shipped off around the country. It wouldn't be a problem if we were operating previously at less than 50% productivity, bc then all we'd need to do is get people to work harder. But productivity is closer to 80%, which leaves little room catching up on lost work. All in, it's not as simple as it sounds.

 

The punchline is that a simple one or two week delay in shipment could snowball into a 3-4 week delay in when product hits the shelves. This is an extremely critical period logistically for the holiday shopping season. Sandy had very bad timing.

 

This is when 'just in time' inventory management comes back to bite US businesses. Retailers will do a great job of playing the blame game on the storm. But the reality is going to be more discounted goods, lower earnings and less cash flow. We particularly don't like the department stores in this context (M, KSS, JCP, and we'd throw GPS in there as well).

 

Number of Twenty-Foot Equivalent Units (TEUs) Imported Into The US

When 'Just In Time' Is Just Not Good - 11 5 2012 11 34 12 AM


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more