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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