- Since peaking during the pandemic, the transportation industry has faced a protracted slump.
- An index that tracks global container rates has plunged 75% from a year ago.
- The downturn has also affected the US trucking business, prompting the Fed to acknowledge the “freight recession”.
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The US economy may have dodged a recession so far, but some of its sectors have been hit hard by instabilities created by the pandemic.
Case in point: a downturn in the freight industry.
Since global shipping peaked during the coronavirus pandemic, the industry responsible for transporting goods across the globe has faced a protracted slump. And that’s dealt blow to other segments of the transportation business, such as trucking – especially in the US – prompting the Federal Reserve to acknowledge the so-called “freight recession”.
The Drewry World Container Index, which tracks container rates on eight major shipping routes around the world, has slid over 75% from a year ago as a fall-off in consumer spending has suppressed demand for goods. The downturn in the freight market has even affected financial companies with exposure to the industry.
“There is a freight recession, and all of us who are exposed to the freight market face the same headwind,” Aaron P. Graft, CEO of Dallas-based financial-services firm Triumph Financial, said on the company’s second-quarter earnings call earlier this month.
In its Beige Book released in May, the Fed had highlighted the crisis facing the transportation business.
“Trucking firms reported a sharp decline in freight volume this period with excess capacity in the system. Respondents indicated that there was a freight recession, and it was more difficult to find loads. Weakness in demand was primarily in consumer and industrial segments,” the central bank said.
Also capturing the freight industry’s downswing is a plunge in the sales of cardboard boxes, which play a key role in transporting goods — not just to consumers who buy things online, but to stores and warehouses that receive those goods in bulk.
Cardboard box sales have reached lows not seen since the Great Recession – with Packaging Corp. of America, the No. 3 containerboard company in the US, reporting their biggest six-month decline since early 2009.
While global freight trade has declined from its historic highs during the coronavirus pandemic, levels could be returning to their pre-pandemic norms.
But for those who attach value to the shipping industry as a barometer of health for the wider US economy, the outlook remains gloomy.