The Consequences of Overstocked Warehouses
For the duration of the COVID-19 pandemic, it was understandable for manufacturers or wholesalers to stockpile large quantities of goods such as clothing, chemicals, tools and more amid the uncertainty of how available products would consistently be with lockdown restrictions constantly looming or in-place. Combine those restrictions with the Russian invasion of Ukraine and its reverberating affects, stockpiles again took play as raw material prices skyrocketed for goods such as wheat and energy. The consequences of these previous large purchases, however, are becoming more evident.
As reported by Reuters, warehouses for many companies across the United States and Europe are currently struggling with overloaded warehouses, as inventory starts to overflow amid a decrease in orders intended for manufacturers. Not only does the decrease in orders prevent inventory levels from going back to a normal level, but it equates to significant lost business as well. As the global demand for goods continues to fall, it has coincided with higher borrowing costs. Companies are offsetting this by trying to run down their warehouse stocks, the it’s a difficult process that’s expected to continue into 2024 for many.
Vincent Clerc, CEO of Maersk, which controls about one-sixth of container trade across the globe, expressed his surprise and concern with how slow companies are drawing down their inventories, noting there are no signs that the market is going to improve the pace anytime soon. According to data from the U.S. Bureau of Statistics, business inventories as a whole jumped by 20 percent by the middle of last year, marking the biggest year-over-year increase since nearly 30 years prior in 1993. As it stands, the inventory-to-sales ratio in May 2024 was 1.4, which increased slightly from the 1.33 mark in 2022. This indicates that even more inventory is available that can be sold by wholesalers and manufacturers at a higher rate compared to last year.
For related news, check out this article detailing how supply chain disruptions impact the contract cleaning industry.