Supply Chains: Is the Freight Industry Destined for a Recession?

It’s been well over two years since the coronavirus shut down much of the world, but the freight industry may not be ready to balance itself out just yet.

Two years of isolation spurred Americans into unforeseen spending on physical goods. Demand was high in many sectors across the board, and the freight industry hit highs that were unsustainable to maintain. Because of high gas prices and overstocked goods, trucking may be staring a recession in the face during the second half of this year.

Disposable Spending Trends Away From Goods

As elective vacation trips become the norm once again, consumers will begin to once again holster their checkbooks for the good of saving up. People traveled significantly less during COVID, and flights reached all-time low prices. As most of the population now meets the vaccination requirements to travel by plane, luxurious vacations are back on the menu.

Travel and entertainment require far less cargo responsibility than do consumer goods. Disposable spending is tracking toward this segment of the economy, which is a bad sign for the freight industry.

When Supply Spikes, Demand Dwindles

The increase in demand that quarantine brought forced suppliers to stock and overstock. Shippers operated at maximum capacity for consecutive months on end, and to keep up with demand, supply was kept inordinately high.

Now that demand has dropped, key nodes like ports and warehouses are jammed up. A new product becomes significantly more challenging to move when surplus from the past few years’ boom in disposable spending on consumer goods takes up space in storage and production facilities.

The manufacturing sector could potentially feel a bit of a ricochet blow as well. Since product is slightly more challenging to sell now than it has been recently, cogs at all levels in the machine can expect a harsh wake-up.

Fuel Prices Sting (In More Ways Than One)

The obvious elephant in the room with consumers countrywide right now is the price of fuel. The average nationwide price of a gallon of gas surpassed $5 on June 9th, less than three years after a gallon of gas dropped below $2.00 in April 2020, according to GasBuddy.

The main effect of this price hike is easy to see: people aren’t driving places nearly as much as they were. They drive mostly only to the places that they’re required to be, and it’s unlikely that anyone will dip into their gas fund for spending any time soon.

As more people decide to cut back on discretionary spending to adjust to the higher cost of day-to-day living, trucking is becoming more expensive. The average price of diesel in the United States skyrocketed to $5.72 per gallon on June 8th.

“When I first started, diesel was 99 cents,” said Raymond Mayberry, a self-employed trucker from Houston, Texas. “These customers want to pay you the same they did six, seven months ago. Me, I’ll let my truck sit.”

The combination of more supply than demand coupled with the astronomical prices of both unleaded fuel and diesel signals bad news for freighting.

The Trucking Industry Could See a Wave of Bankruptcies

FreightWaves, a leading supply chain intelligence platform, predicts a “Bloodbath 2.0” approaching. Spring 2022 saw more newcomers to the trucking profession than any other period over the last two years, with upwards of 20,000 new fleets registered in one month at one point.

An influx of new operators is a precarious situation in any industry, but the balance can be especially tricky in freight, which millions of consumers rely on every day. FreightWaves points to the fact that these novice fleet operators have never worked through a bad season in the markets, and on top of that, they brought on their staff and purchased infrastructure when the market was near its peak.

As the market creeps towards a recession, seasoned veterans won’t panic, but owner-operators who have never seen a downturn are far more likely to struggle with less-than-ideal conditions.

Sustainable Supply Chains Offer Hope

As we previously wrote, implementing and managing a sustainable supply chain is challenging, but it can drive up results for your business. Specifically within the realm of shipping, there are adjustments to be made to maximize productivity (and gas mileage!).

Route tracking is one of the best ways to streamline shipping. Getting from point A to point B is the name of the game, and while we can’t often take a direct line to get places, route efficiency is a piece of the puzzle that’s easy to overlook.

More efficient routes play a significant part in lowering your company’s carbon footprint, and when paired with more sustainable decisions concerning packaging and customer service, your business is one step closer to being recession-proof.

Don’t Panic Just Yet …

So should you be panicking about a recession right around the corner? We say no. It’s always the right decision to be wary when there are warning signs such as the ones present, but more dominos need to fall before the freight industry hits DEFCON 1.