Economic downturn won’t affect freight long term, expert says

“Normalization” is how industry leaders are describing current market trends after an uptick in volumes and revenues from a pandemic-stricken global economy. Many companies showed increased capacity and flat revenues or losses in their first-quarter earnings reports. But many logistics leaders say this will not entirely devastate the market in the coming months, though there will be low points. “ We are in a freight recession right now, [but] we could have freight growth and still be in a technical economic recession, that's not unheard of,” Lee Klaskow , senior freight and transportation logistics analyst at Bloomberg Intelligence, said in a press release from the Freight Buyers Club, an analytical podcast hosted by former Economist and Business Insider expert Mike King . “Doom and gloom” will not likely be the theme of peak season for freight, which is typically during Q3 in preparation for the holiday season, Klaskow said in the release. Global demand and capacity However, t he situation may get worse before it gets better, Glyn Hughes , director general of TIACA, previously told Air Cargo Next. “We anticipate that this increase in overall capacity coupled with the continued weakened demand will result in further downward pressure on cargo yields,” Hughes said. “This situation is unlikely to reverse until late this year and into 2024.” Global cargo demand dropped 8% in 2022 compared with 2021, while capacity increased 3% year-over-year. Demand also decreased 1.6% from 2019 before the pandemic hit, according to IATA . Most recent IATA statistics show that global demand fell 6.6% in April 2023 compared with April 2022 and capacity was up 13% in April compared with April 2022. Meanwhile, cargo volumes decreased 0.4% YoY – which is much more encouraging than March’s 7.3% decrease from the previous year. Overall, the numbers show that cargo volumes and capacity are not too far below pre-pandemic levels, IATA reports. Recession imminent but ‘shallow’ San Francisco-based logistics company Flexport recently hosted an online seminar on the future of the U.S. economy and what implications it will have on global trade. Though a recession is likely imminent, it will be shallow, Jason Furman , Aetna professor of economic policy at Harvard University, said during the session. This is in part because consumer spending is still up compared with the pandemic, despite inventories’ volatile numbers , he said. “I think the reason the economy didn't go into recession last year, despite the Fed raising rates so much, was the American consumer, they just continued to spend at an enormous pace,” Furman said. Inventories during peak season Inventory volumes subtracted 2.1% from U.S. gross domestic product in the first quarter of this year from the previous two years, he added. “I think that is probably a temporary thing. I think we are unlikely to continue to see inventory subtracting at that pace going forward,” Furman said. “And that's one reason to feel better about GDP growth going forward; that we are not going to see this type of big decline in inventories, quarter after quarter. It is noisy and volatile. And that is one reason I think it is great to look at consumption as only 70% of GDP.” Despite this, Bloomberg’s Klaskow said that static inventories do not mean zero restocking of fresh products, and the upcoming peak season should not be judged against the pandemic -- or the volumes seen within that two-year window, the release states. “I think we're going to have a more normal peak season,” he said. “And when I say peak season, I'm not saying like a triangle angle kind of demand spike. I’m talking more of a hump kind of seasonal increase in demand; and then it slowly comes back down.” Join Air Cargo Next for the upcoming webinar , “What’s new in digital cargo systems,” on Tuesday, June 13, at 11 a.m. ET. F or more information on the webinar and to register , click here.

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