Is the freight recession upon us again?
Latest News2018 MHI Innovation Award finalists announced The Overlooked Competitive Advantage: Connected Teams Reusable Packaging Association announces 2018 board and committee chairs Face security threats head-on. Protect data beyond perimeter. Maersk’s “Transformation” Under Scrutiny More News
Latest ResourceThe Overlooked Competitive Advantage: Connected Teams 57% of surveyed manufacturers believe they could reduce downtime by 10-30% by unifying their workgroup communications. What does a minute of downtime cost you?
A combination of recently released economic indicators and second quarter earnings reports from freight transportation and logistics sectors continue to lend increased credence to the thesis that a freight recession may not be imminent anymore and has actually arrived.
On the economic indicator side, there are things like sluggish GDP. Last week, the United States Department of Commerce reported that second quarter GDP only expanded by 1.2 percent, or, in other words barely pushed the needle and not meeting the expected increases analysts called for, which were closer to 2.5 percent.
Various reports cited still-high inventories as the primary culprit for the low GDP, with the second quarter marking the fifth consecutive quarter that low inventories have quelled GDP growth in a meaningful way.
The theme of inventory overhang has been cited often in this space and in the pages of LM as a major factor for depressed economic growth. What’s more, that has been the case for more than a while, too. And subsequently when this happens, it typically results in transportation volumes seeing declines (more on that in a minute).
Last fall YRC Freight pointed to elevated inventories forcing supply chains to be more cautious, and lead them to opt for smaller shipments moving in fast-cycle logistics systems to refill products rather than reorder large quantities of products to fill early stock-outs. It is hard to say if that has definitively happened given the most recent GDP reading, but it looks like a good strategy all the same.
An Associated Press report quoted Nariman Behravesh, chief economist at IHS Global Insight, as saying “Businesses have overdone the inventory reductions, and that is likely to reverse in the third quarter, which will help growth,” adding that he expects GDP to rise by 2.5 percent in the back half of 2016, which would still leave total 2016 GDP at 1.5 for the lowest annual tally since the recession officially ended.
Another economic indicator stunting growth is the strong U.S. dollar, which is not doing any favors for U.S. export growth, although that is far from a new development to be sure.
But on the other hand there are some decent economic signs out there at the moment, too, including things like a 4.2 percent annual bump in second quarter consumer spending and a 0.2 percent uptick in trade activity.
Other economic indicators providing signs of hope include June single-family home sales hitting an eight and a half year high and industrial production up 0.6 percent in June.
But even with some of these good signs, it does not mean that everything is good, not at all. And this is being reflected by some of the biggest names in the freight transportation and logistics sectors, as evidenced by a flurry of research reports issued recently.
Among the themes noted in earnings were things like soft business levels, still high capacity, and lack of demand, with volume trends ranging from soft, to middling, to OK. There are other things that factor in, too, like lower energy prices, capital expenditures, asset allocation, pricing and contracts, market shifts, and commodity declines, among others.
In any event, it is clear that the recent and promising aforementioned economic indicators have not translated into the growth that is needed to truly sustain real economic momentum, as evidenced by the current GDP number.
“The market is soft right now, and, honestly, I don’t think anyone understands what is going on with the economy,” said Mike Regan, chief relationship officer at TranzAct Technologies. “And absent of a connection between the two it really is hard to tell where we are going to be. We are not anywhere near as bad off as we were in 2009, but what we hope would be is that we are not still seeing the see-saw peaks and valleys in managing capacity and demand that we have seen in years past but that does appear to be the case still. We are in a situation now where it really is a ‘who knows?’ type of thing.”
What happens from here remains to be seen, but if we are truly in a freight recession, let’s hope things head up from here going forward.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Modern Materials Handling Magazine!Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!
Lift Truck Series Part 1: Lift truck technology connects pickers to productivity Breaking Through On Yard Visibility View More From this Issue