What if it Snows?

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A glance at the future...

LM reader survey points to strong possibility of the economy entering into a recession






By Jeff Berman September 19, 2023





For more than a while now, there have been two things which have been clear regarding the economy: the freight transportation sector is and has been in a recession for anywhere between the last 12-to-15 months, or perhaps a bit longer; and the macro economy has continued to avoid a recession, due mainly to some solid, but not spectacular economic fundamentals.

Some of those fundamentals include: an improving inflationary environment; a still-solid job market and employment outlook; and an ongoing inventory drawdown, among others.

But that does not quell the possibility that the economy may enter into a recession, at some point, in the coming months, based on the results of a recently-conducted Logistics Management reader survey of 106 freight transportation, logistics, and supply chain professionals.

That was made clear with 53.6% of the survey’s respondents stating that the economy will enter into a recession within the next six months.

As for reasons why this may be the case, responses included: high interest rates; high balances on credit cards; inflation; lower consumer demand; and high gasoline prices, among others.

“Business activity is dramatically down. Imports are down 15%-to-20%, and ocean carriers are sailing light,” said a respondent. “Truckers are begging for business. Product is sitting in warehouses and not being sold. The savings accounts of consumers are dropping to low levels, with less ‘stuff’ being bought and being made. Increasing unemployment is the only likely next step. On top of that, inflation is still high, and the Fed keeps raising interest rates. This will eventually connect with falling demand. The usual outcome has always been recession in the past.”

Another respondent observed that continued inflation, increasing energy prices, and stagnant-to-declining consumer demand, with 2023 holiday season sales serving as a leading indicator of a recession, are all factors that could lead to a recession by late in the first quarter of 2024.

Were a recession to come to fruition, its duration varied, based on the survey’s results. On an ominous note, 62.9% said it would last six months or longer, with another 34.3% calling for it to be between three-to-six months, and a mere 2.9% saying it would be less than three months.

Even though there has been an ongoing freight recession over the last several months, survey feedback on what a full-blown recession would mean, from a freight transportation, supply chain, and logistics perspective, painted a picture of difficult times ahead.

The most prevalent takeaway was trucking company closures and bankruptcies. Other factors cited included: company layoffs; severe overcapacity in all forms of transportation, leading to a prolonged period of reduced cargo volume; increased back orders and slower deliveries; and a bullwhip effect similar to the end of the pandemic lockdown, among others.

“With a decline in consumer demand and less spending, there would be lower shipment volumes and warehouse activities,” said a respondent. “This drops utilization and strains budgets. Companies may get caught with excess stock as demand falls. This ties up working capital and creates markdown and write-off risks. Smaller suppliers may face financial trouble or even insolvency in a downturn. This endangers supply continuity and requires contingency planning. Truck, rail, air, and ocean transportation costs could swing wildly in a demand slowdown. Budgeting and cost control becomes very difficult.”

American Trucking Associations Chief Economist Bob Costello recently observed that “a multitude of factors” have caused a freight recession, including stagnant consumer spending on goods, lower home construction, falling factory output, and shippers consolidating freight into fewer shipments compared with the frenzy during the goods buying spree at the height of the pandemic, coupled with a sign of optimism.

“However, the magnitude of the year-over-year declines is improving, perhaps pointing to a bottom in the freight market,” he said.

And Doug Waggoner, CEO of Chicago-based Echo Global Logistics said that there are a few things to consider when pondering the possibility of a recession.

“I have been saying for a couple of quarters now that there would be a recession, and I think we were probably already in it,” he said. “The technical definition of a recession is two sequential quarters of negative GDP, and that has already come and gone. But I think the argument is yes, but employment has been strong and the consumer has been strong, so is it really a recession? We are in a freight recession, but I consider 2023 one of those years you have to write off and fight through it and live to fight another day. But, in looking at weekly numbers, I am starting to get the feeling that maybe the worst is over and maybe we are going to see a pickup from here. It is impossible to predict the future in this business.”

 

I would think there should be better and cheaper place to crap than there. Not much else to offer.

 

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