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EU Logistics Pressure Matrix Shows Sliding Retail, Better Timeliness

Flexport’s EU Logistics Pressure Matrix (LPM) gathers eight data points in an attempt to provide a picture of the challenges facing logistics networks from the demand side and a view of ongoing activity on US-inbound routes. In the latest update we find a year-over-year decline in retail sales while ocean shipping rates and air freight times dropped to levels not seen since August 2021.

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The Methodology: The Flexport EU Logistics Pressure Matrix (LPM) brings together eight data points clustered into two groups: demand measures covering consumers and industry; and activity measures which show the state of logistics networks. The measures are US-centric and mix a variety of weekly and monthly measures. The LPM is updated every Tuesday with the latest data points from the prior seven days. More details on the measures and the reasons for their inclusion can be found in our in-depth explainer published June 28, 2022.

Week to August 8, 2022 Key updates in the past week include:

Retail sales growth fell in June 2022, with sales excluding food falling by 1.3% sequentially real (i.e. inflation adjusted) terms versus June. Sales are now 2.4% below the same period a year earlier. Online sales (the green line in the chart above) also fell, by 2.4%, and are now 9% below the year-earlier level. While providing signs of a decline from recent peaks, total sales are still 5.2% above the same period of 2019 while online sales are 32.0% higher.

The major activity measures also continued to decline. Shipping rates from China to Europe fell to a level not seen since August 2021. The time taken for ocean freight to go from cargo-ready to origin port departure is at its lowest levels since May 2021. Similarly, air freight timeliness has hit the fastest since August 2021.

The Logistics Pressure Matrix is colorized in 10 grades from red (measure represents high pressure on logistics networks) to green (low pressure) relative to the period from January 2019 to date. So, falling retail sales tends to be “green” as it represents reducing demand pressure on logistics networks while a high level of deflated imports would be “red” in indicating elevated flows.

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The matrix above shows the sentiment indicators, which provide a guide to future behavior, suggest less pressure on networks, though retail sales have yet to drop to pre-pandemic levels and inventories are still not fully refilled.

On the activity side the deflated trade activity, which includes non-containerized sea-freight and air-freight, is steadily returning to pre-pandemic levels, suggesting reduced pressure. Yet, shipping rates remain elevated and logistics timeliness remains worse than the pre-pandemic period.

Demand Metrics

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Consumer and Industrial Confidence (Updated July 28, 2022): Consumer confidence in the EU has continued to plumb new depths, having dropped below its 10-year average in November 2021 as shown in the chart above. At -27.3 in July (10–year average -9.9) that was the lowest since the survey began in 1985 after declining every month since September 2021.

Industrial confidence has also been shaken by the supply chain disruptions resulting from the conflict which have added to earlier complications caused by a shortage of components. Rising producer prices and concerns about further consumer price hikes in the face of ECB tightening have driven the IFO index of German manufacturing sentiment to -31 in July.

While that was better than the trough in March it was still well below the 10-year average of 4.7. Lower manufacturing confidence may be a sign that firms are planning to reduce manufacturing activity and hence less demand both for imported components and export sales - in turn cutting the need for logistics services.

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Retail Trade Activity (Updated August 6, 2022): EU retail sales, like those in the U.S., expanded rapidly during the pandemic in response to diverted consumer spending from services and a desire to improve home living conditions.

Retail sales growth fell in June 2022, with sales excluding food falling by 1.3% sequentially real (i.e. inflation adjusted) terms versus June. Sales are now 2.4% below the same period a year earlier. Online sales (the green line in the chart above) also fell, by 2.4%, and are now 9% below the year-earlier level.

While providing signs of a decline from recent peaks, total sales are still 5.2% above the same period of 2019 while online sales are 32.0% higher. Broadly speaking a significant decline in real retail sales on a seasonally adjusted basis in the order of 5% or more below pre-pandemic levels will be needed to reduce pressure on logistics networks.

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Stocks of Finished Goods (Updated July 28, 2022): There is not a readily available source of inventory data equivalent to that used in the U.S. Logistics Pressure Matrix, so instead we track corporate assessments of finished goods availability. The chart above shows a balanced diffusion index where zero indicates “sufficient” wholesale inventories and a figure below zero indicates a shortfall.

The black line for the EU-27 overall shows a reading of +1.6 in July, which compares to a trough of -6.6 in October 2021 and was the first positive balance (i.e. inventories above sufficient) for the first time since February 2021.

There’s a marked difference by country which largely reflects the relative importance of capital and consumer goods. Inventories in the Netherlands, which reflects commercial and consumer goods, have remained in sufficient territory. Capital-goods-centric Germany is still well-below sufficient levels but has recovered to its highest level since March 2021.

An inventory assessment at or above zero indicates a need for reduced imports and hence reduced pressure on logistics networks to carry inventory-rebuilding stocks.

Activity Metrics

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Deflated Trade (Updated July 15, 2022): One way to access underlying trade activity is to take the nominal value of merchandise trade and deflate it by the import prices element of PPI. In the case of the EU-27 the nominal value of imports climbed by 29.7% year over year in May. Once deflated by import price inflation, the real value of imports fell by 0.6% on a year over year basis, marking the fourth straight monthly downturn.

That may indicate a lessening of pressure on logistics networks, though the rate of decline has slowed from 8.6% in April. It should also be noted that these figures include shipments of break-bulk cargo (e.g., autos), commodities (including oil, metals and agricultural products) and airfreight as well as containerized sea freight.

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China-to-Europe Shipping Rates (Updated August 4, 2022): Container shipping rates from China to Europe, including both Northern Europe and Mediterranean ports, are 11.4% below their February 2022 peaks as of the four-weeks to August 4. Rates have fallen for five straight weeks and are back to levels last seen in August 2021.

Rates are nonetheless still 5.1x their levels of January 2019, suggesting market prices still include fundamentally different expectations for services demand and availability of vessels compared to the pre-pandemic period.

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Ocean Freight Handling Times (Updated August 7, 2022): Flexport’s Ocean Timeliness Indicator for Far East Westbound (FEWB) routes for shipping from cargo-ready in Asia to destination-port departure in Europe has declined to 93 days in the week to August 7. That’s well below the April peak of 122 days.

As shown in the chart above, the downturn is partly explained by a slide in the first stage of the process, from cargo-ready to origin port departure. There has been a 1.7% dip in the time taken in the past four weeks to August 7 from four weeks to July 31 to reach the lowest since May 2021. That all comes on the eve of the peak shipping season discussed in recent Flexport research.

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Air Freight Handling Times (Updated August 7, 2022): Flexport’s Air Timeliness Indicator for Far East Westbound (FEWB) routes for air freight from consolidation in Asia to final delivery in Asia dipped to 9.0 days in the four weeks to August 7, measured on a four-week trailing average basis. That’s the lowest since August 2021 and well down from the January peak of 12 days but is nonetheless well above pre-pandemic level of 7 days.

There’s been little change in flight times, despite disruptions caused to long-haul routes resulting from the conflict in Ukraine, with ground handling and delivery being the main constraints. The outlook is somewhat uncertain given the recent lockdowns in Asia and rising industrial action risks in Europe.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.

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