Freight Economy 2020: Are We Headed for a Recession in Freight or a Boom?
Shippers around the globe continue to express concerns for the state of the freight economy 2020 industry. Experts disagree on whether we are heading for a recession or a boom. The reality is simple; organizations that can roll with the changes and adapt supply chain processes will evolve and experience productive years. Unfortunately, those that do not recognize the need to evolve will face vast uncertainty, experience problems with risk management, realize higher transportation spend and succumb to a perception of recession. To maintain objectivity, let’s take a closer look at whether the freight economy 2020 will go boom or bust.
Indicators of a Freight Recession and Why They Appear
Fears over whether the freight economy 2020 will slip stem from the expectations and events occurring within the trucking market. Weaker freight demand, the pressure to maintain profitability, higher-price diesel, and falling truck and trailer production mixes elude to uncertainty. Meanwhile, the US-China Trade War appears to be approaching stabilization reports Transport Topics, and overall shipping volume is still in correction territory. Of course, it helps to understand the key indicators of a freight recession and why they appear.
- Increasing labor costs. Increasing labor costs are often associated with the onset of a recession indicator, and while higher costs amount to lower revenue, increases within demand and volume can more than make up for such factors.
- Increasing insurance costs. Shippers also tend to look to insurance costs for insight into whether the industry is heading toward recession or explosion. While insurance costs may be on the upswing, shippers still have the advantage of e-commerce growth, which is expected to surpass all prior years
- Demand for faster shipping with fewer total orders. Customers are expecting faster shipping, and the total volume of orders does appear to be slipping for now. However, it is important to consider that the global economy, including the state of logistics due to the coronavirus and the election-year, may confound this indicator.
- Use and investment in private fleets change. Changing the use of fleets, specifically switching between the use of a private fleet versus an outsourced fleet, may also indicate a forthcoming recession. With that in mind, maintaining productivity and keeping freight rates under control will naturally require a balance between private and outsourced fleet use.
- Prices start to fall. Declining freight rates are one of the biggest indicators of the forthcoming freight economy 2020 recession. Viewing the trucking industry exclusively, shippers do see a gradual decline in the cost of shipping. However, those declines are put to the test by higher freight rates in other areas of the global supply chain. Furthermore, lower freight rates are also possible through the infusion of technology that has taken place within the industry over the last few years. As a result, lower freight rates were the end goal for all players.
- Carrier margins go through the roof. Comparable to lower shipping rates, higher carrier margins tend to coincide with higher freight spending rates. However, the same improvements within the carrier-side of the supply chain are finally starting to have an effect.
Why the Freight Economy 2020 Matters Most
According to MarketWatch, the U.S. Bank Freight Payment Index found that total volume and spending on freight transportation fell in the fourth quarter of 2019. However, spending in 2019 was still up 3.9% year over year, so light rests at the end of the tunnel. The freight economy impacts diesel prices and vice versa. While the freight economy might not yet be on the brink of collapse, shippers need to realize that the changes within the industry will have a direct effect on operations, including:
- Changing compliance regulations that may require changes to basic supply chain management software.
- Evolving customer demands for faster, “free-er” shipping.
- Changing trade agreements and the need to share data and maintain transparency.
How to Leverage the State of the Freight Economy 2020 Market to Improve Profitability.
Shippers that hope to avoid the risks of a recession in 2020 should follow a few best practices:
- Follow the spot rate market closely. Spot rates can help shippers navigate the changes in shipping costs as recession fears climb, and they have the same protective effect against rapidly changing industry factors.
- Tap into the value of new and retrained talent. More people have realized that the age-old perceptions of the supply chain have changed, and that’s partially why the industry is experiencing a lower unemployment rate. Lower unemployment also means non-traditional supply chain workers are ready to enter the industry.
- Monitor the Modal Indices. Freight Waves publishes a series of transportation stock indices, and the LTL index recently rose 6.5%. Parcel and truckload rates rounded out the lower tiers with 0.3% and -0.1%. In other words, the industry is having a balancing moment. Understanding and recognizing the balancing between modes will help shippers refine their strategies.
- Use technology, i.e., automate transportation management. Automation and technology are essential to staying above water with fears of a recession on the horizon. Continue investing and deploying newer technologies and capabilities to stay successful.
There’s really no telling if the industry will go boom or bust in 2020. One thing is clear; the industry is on a precipice, and shippers need to realize that deployment of data, technology, and innovation will combat the effects of the potential freight recession within the freight economy 2020 cycle. It’s an oddity. Recession fears remain, and shippers can avoid the topic entirely by simply staying proactive in freight management.