The Tight Rope of Freight Recession
As this tumultuous period of the stock market continues to do its best to even out, the logistics industry has not been unaffected. From supply chain strains to market uncertainties, companies and those associated with the industry are in the midst of pivoting and adapting to help support their customers and shareholders. Are there lessons from the past that have helped us mitigate these types of hurdles? What does the near future look like for the industry and how can companies bullet proof themselves?
As it stands…
If you are a business owner that deals with the market directly or are invested in general, you are likely turning on the news every morning and every evening to get the latest update. Currently, the trends have not been favorable for any industry especially in the past couple weeks as of June 20th with Ryder Systems Inc. as an example, down 23%. But what is interesting about our industry in particular, the transportation industry, is that it has been used as a predictor for what is to come for other industry. Considering everything touches logistics at some point, this makes sense.
“Like the recent convergence of yields on shorter- and longer-term U.S. government bonds—sometimes seen as a signal that the bond market is predicting a recession—the fall in transport stocks seems to suggest rougher economic times ahead. The stocks historically decline when lower demand for goods, materials and travel is expected.” – Wall Street Journal
Freight recessions and the past
As rumors of a recession loom and inflation continues its upward trend, most of us remember the 2008 recession that left no one unaffected. In similar past times the pattern of commerce slows, meaning people are purchasing less, slowing down shipping, then slowing down logistics. This results in negative impacts to the trucking world, primarily the smaller business that make up a good amount of the industry. This is typically a precursor to a recession and out of the twelve recessions since 1972, six of them came soon after a “trucking” or freight recession.
Companies downsizing and taking their operations to bare bones while trying to maintain growth has become a general practice ahead of and during recessions. In 2008 nearly 130,000 trucks stopped running and over 700 small trucking companies filed for bankruptcy. Because freight and logistics have become an indicator of times to come, it makes investors hesitant to do any kind of business as it signifies a truly volatile market ahead.
Today there are new hurdles that may be causing us to head into a freight recession, one of them being employment. Getting drivers behind the wheel continues to be an ongoing battle and one that hurts the little guys tremendously. Bigger companies that are cushioned from all of this with year-long contracts are able to afford competitive salaries for their drivers all while balancing the rising cost of fuel. While those that have a fleet of 5-10 trucks or so suffer greatly to make ends meat and keep business running.
In the coming months…
Before we throw ourselves into a panic, it would be wise to take a big step back and look at the big picture. Before 2020 we can look at where the freight market was and its standing. Enter mid and post pandemic periods of frantic up and downs in the supply chain, world-wide crises, inflation and loads of innovations; we are still in an ever-fluctuating market that is yet to find a new equilibrium. Eventually, a new threshold will be apparent in the market and the shipping of good and commerce as a whole will find a “new groove” so to speak. Experts do not expect freight levels to plummet but to possibly soften for a time.
Companies small to mid-size are taking action now to get ahead of the curve. Though this freight slow down was inevitable after a two-year boom, it does not necessarily mean hundreds of companies will be heading for bankruptcy. Rather, many are investing in automation and tech to slim down the need for manual labor and passing on major expenses until inflation eases. Though inflation continues to beat down on the economy, freight is forecasted to stay steady so until then, this may be a balancing act.
Everyone seems to be walking a tight rope this year and every decision must be calculated down to the penny in order for companies to not just break even but thrive during these times. Meadow Lark has walked this tight rope before and not only came out on the other end better than before, but our customers can say the same when they partner with us.
Call us to learn more about the solutions we can provide for your company during these stringent times.