Is the freight recession upon us…again?

A combination of recently released economic indicators and second quarter earnings reports from freight transportation and logistics sectors continue to lend credence to the thesis that a freight recession may no longer be imminent, but has actually arrived.

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A combination of recently released economic indicators and second quarter earnings reports from freight transportation and logistics sectors continue to lend credence to the thesis that a freight recession may no longer be imminent, but has actually arrived.

On the economic indicator side, we find a still sluggish GDP. In fact, the United States Department of Commerce recently reported that second quarter GDP only expanded by 1.2%. In other words, it barely moved the needle and certainly fell short of meeting the 2.5% that many analysts were predicting.

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 Logistics Management as a major factor for depressed economic growth for some time. And, when this tends to be the case, it typically results in lower transportation volumes.

Last fall, YRC Freight suggested that elevated inventories were forcing supply chains to be more cautious, a situation that lead shippers to opt for smaller shipments moving in fast-cycle logistics systems to refill products—rather than reordering large quantities of products to fill early stock-outs. It’s hard to say if that’s exactly what happened given the most recent GDP reading, but it certainly seems plausible.

A recent 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. He added that he expects GDP to rise by 2.5% in the back half of 2016, which would still leave total 2016 GDP at 1.5%, 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’s far from a new development.

However, there are some decent economic signs at the moment, including a 4.2% annual bump in second quarter consumer spending and a 0.2% uptick in trade activity. Other signals of hope were June’s single-family home sales hitting an eight-year high as well as the fact that industrial production was up 0.6% in June.

But even with these positive signs, it doesn’t mean that everything will be coming up roses in the near future. 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.

"It’s clear that the recent, more promising
economic indicators have not translated into the
growth that’s needed to truly sustain real economic
and freight momentum—a fact that’s reflected by
the current GDP number.”
— Jeff Berman

Among the themes noted in recent earnings calls were issues like soft business levels, that pesky high capacity and overall lack of demand. In the meantime, volume trends are ranging from soft, to middling, to just OK. There are other things that factor in as well, like lower energy prices, capital expenditures, asset allocation, pricing and contracts, market shifts and commodity declines.

In any event, it’s clear that the recent, more promising economic indicators have not translated into the growth that’s needed to truly sustain real economic and freight momentum—a fact that’s reflected by the current GDP number.

“The market is soft right now,” said Mike Regan, chief relationship officer at TranzAct Technologies, a freight payment and audit technology provider. “And, honestly, I don’t think anyone understands what’s going on with the economy. Absent of a connection between the two, it’s really hard to tell where we’re going to be. We’re not anywhere near as bad off as we were in 2009, but we’re still not seeing the see-saw peaks and valleys in managing capacity and demand that we have seen in years past.”

What happens from here remains to be seen, but if we’re truly in a freight recession, let’s hope things head up from here. 


About the Author

Jeff 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

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