The impact of freight and logistics companies on economic output requires a long view

The good thing about economic forecasts and predictions made by all types of industry stakeholders, whether they are carriers, shippers, analysts, and government types, among others, is that while their calls are true, sometimes, there is also a fair amount of room to explain what the reasons are for when things don’t go exactly to the script or went wrong.

And this is applicable to the freight transportation and logistics sectors, too. As previously noted in this space, there has long been a thesis that carrier and provider performance serves as leading economic indicators.

Aside from key financial earnings metrics like operating ratio, EPS, and, revenue and profits, eyes typically turn to things like volume or tonnage growth and revenue per shipment, too. That is not a huge surprise as those things are all highly relevant and important to be sure.

But in recent years, there has been some sentiment that the thesis of strong carrier and provider performance may or does not carry the weight it once did when assessing the economy. 

What’s more, while manufacturing and industrial production data, during given times of the economic downturn and still today, has been largely positive at times, it has seldom clearly dovetailed into improved transportation volumes.

A recent report issued by Cowen and Company analyst Jason Seidl-entitled “What is the best predictor of transportation stocks?”- made the case that industrial production appears to show the strongest positive correlation with freight sector equities.

While it may not be exactly apples-to-apples with the not so definite theory that how transports goes, the economy follows, there are some very interesting takeaways presented in the report.

“We found no significant correlations between transportation stocks and US GDP over a five-year period,” wrote Seidl. “While the freight market is largely a function of the economy, the absence of statistically meaningful correlations may be attributable to overall economic cyclicality not coinciding with freight market cyclicality. Portions of freight volumes, such as building products and raw materials, can be leading indicators of the economy, while other traffic categories, such as some finished goods and certain intermodal shipments could be laggards in their fluctuations.”

As he notes, the same batch of data can include both leading economic indicators and laggards alike, which makes basic theories look a little less trustworthy at times, too.

Economic performance by freight transportation and logistics services provides will always be closely watched and monitored, but, like Seidl observes, there are times when the numbers and narrative need to take a long view, rather than a short one to make sure the full story is being told.