How the current recession is impacting on Logistics and expectations for 2023
Before Russia invaded Ukraine, the world was trying to slowly recover from the pandemic and projections for the global economic growth for 2022 were around 5%, but the invasion generated a shock over the global economies impacting the markets and slowed the growth to 3.1%. This has continued to 2023 seeing the world with a first semester of 2023 in a very slow pace that includes a projected growth of only 2.2%. Many economies are showing signs of a recession and high inflation figures. The US is seeing a technical recession and the inflation in America may be even worse than thought. Consumer prices in May were 8.6% higher than a year earlier—the greatest increase since 1981. Petrol prices, in nominal terms, are at a record high. And geopolitical tensions are weighing on economic growth. Big inventories and low demand are also playing a role in all this, making that some industries start to feel the impact and start to stress out their financials.
The logistics industry during and after covid was impacted positively because many consumers shifted from services to materials and increasing the needs for logistics services drastically and the prices in shipping started to skyrocket for 2020 and 2021 – probably one of the best years for the industry, but then for the second semester of 2022 and first semester 2023 the demand slowed down. After 2 years of consumers spending a lot on merchandise, building materials and appliances because most of the people were at home most of the time acquiring all they needed to work and live at home, ended, and closed that cycle. As a result, after resuming the post pandemic time, the travel and leisure industries started booming and shifting the minds of the consumers from buying things to buying “outside” experiences that were lock off for some time, leaving not much room to buy something else.
So, the combination of all these factors is impacting the logistics industry and the inflation levels have an enormous impact on consumers. And the consumer business is also having challenging times predicting demand showing signals of slow down.
The ongoing recession has undoubtedly had a significant impact on the logistics industry. Another key factor is Supply Chain Disruptions: The recession often leads to disruptions in global supply chains. Businesses may experience financial difficulties, leading to closures, downsizing, or a decrease in production. This can result in irregular shipping patterns, reduced cargo volumes, and challenges in maintaining consistent shipping schedules.
Shifting Trade Patterns is another point we need to have in mind and during a recession, countries may adopt protectionist measures or impose trade barriers to safeguard their domestic industries. These measures can impact international trade and result in changes to trade patterns. Logistics providers may need to adapt to new trade routes or deal with additional customs and regulatory requirements, which can increase costs and add complexity to operations.
Recessionary conditions often lead to intense cost pressures across industries. Businesses look for ways to reduce expenses, including negotiating lower transportation rates. As a result, logistics providers may face downward pressure on pricing, which can impact profit margins. It becomes crucial for companies in the logistics sector to find ways to optimize their operations and reduce costs without compromising service quality.
During pandemic one interesting thing we have seen in our business is the Shift to E-commerce. We have seen an accelerated growth of e-commerce. With consumers spending more time at home and relying on online shopping, there has been an increased demand for logistics services to support the e-commerce sector, during the post pandemic time the e-commerce sector saw some decrease compared to the expectative due to the consumers spending on “experiences” instead of products but we expect to continue growing in the next years. However, this shift requires logistics providers to adapt their operations and invest in technologies that facilitate efficient last-mile delivery and order fulfillment.
In light of these challenges, it is essential for shipping partners like us to remain agile, proactive, and customer-centric. By closely monitoring market trends, optimizing our operations, and exploring new opportunities, we can navigate through these difficult times and emerge stronger.
I would appreciate your insights and observations on how the recession is specifically impacting your operations. It would be valuable for us to exchange ideas and explore potential strategies to mitigate the effects of the recession together.
Sincerely
Juan David Restrepo
In Motion Logistics, LLC
President and CEO