Global shipping is experiencing a freight recession, leading to a 75% decrease in container rates.

Global shipping is experiencing a freight recession, leading to a 75% decrease in container rates.

The Freight Recession: A Slump in the Transportation Industry

The COVID-19 pandemic has caused widespread instability across various sectors of the US economy. One industry that has been hit particularly hard is the transportation industry, specifically the freight sector. The global shipping industry, responsible for transporting goods around the world, has experienced a protracted slump since the peak of the pandemic. The impact of this downturn has rippled through other segments of the transportation business, such as trucking in the US, leading the Federal Reserve to acknowledge the “freight recession”.

The effects of this freight recession are evident when looking at the Drewry World Container Index, which tracks container rates on major shipping routes worldwide. The index has plummeted over 75% from a year ago, as a sharp decline in consumer spending has suppressed demand for goods. This downturn has not only affected the transportation industry but has also had repercussions for financial firms with exposure to the freight market.

Aaron P. Graft, CEO of Dallas-based financial-services firm Triumph Financial, acknowledged the freight recession in the company’s second-quarter earnings call. He stated, “There is a freight recession, and all of us who are exposed to the freight market face the same headwind.” This sentiment was also echoed by the Federal Reserve in its Beige Book released in May, where it highlighted the crisis facing the transportation business. The central bank reported that trucking firms were experiencing a sharp decline in freight volume with excess capacity in the system, making it more difficult to find loads. The weakness in demand was primarily seen in consumer and industrial segments.

Another indication of the freight industry’s downswing is the significant drop in the sales of cardboard boxes, which play a crucial role in transporting goods. This decline in sales is not only due to reduced online consumer purchases but also affects stores and warehouses that receive goods in bulk. Packaging Corp. of America, the third-largest containerboard company in the US, reported the largest decline in cardboard box sales for the first six months of a year since early 2009, during the Great Recession.

While global freight trade has decreased from its historic highs during the COVID-19 pandemic, there are signs that levels could be returning to their pre-pandemic norms. However, for those who use the shipping industry as a barometer for the overall health of the US economy, the outlook remains gloomy.

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It is essential to recognize the significant impact that the freight recession has had on the transportation industry. The slump in global shipping and the related downturn in trucking and other sectors have created challenges across the board. As the world navigates the ongoing effects of the pandemic, it is crucial to monitor and support the recovery of the freight industry, which plays a vital role in the movement of goods and the overall health of the US economy.

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