Conditions in global logistics markets are evolving as indications of slowing consumer demand in the US continue to appear. The latest is ruminations from the semi-conductor industry that the market for consumer electronics is turning down, with the likes of Nvidia and Intel suggesting the balance between supply and demand is moving away from the over-heated market of the past couple of years. Another example is that of retailers in the US who are reported to be working to reduce inventory levels, with anecdotal evidence of retailers, such as Target, selling-off excess stock cheaply in order to free-up warehousing space.
However, the economics of the situation may be more nuanced. For example, the latest US Institute of Supply Management’s (ISM) manufacturing purchasing managers index was running at 53%, down 3.1% and the weakest level of demand seen for the past two years. Yet the ISM also reports that the numbers reflected the efforts of much of the economy to work-through backlogs of orders within the constraints of continuing supply chain bottlenecks. Purchasing managers were buying less components because production lines were full, rather than having fewer orders.
One of the arguments against a recession is that both employment levels and consumer finances in the US remain robust and this militates against a fall in demand over the short-term. In the case of retailers, it may be that the inventory they are selling-off is simply the wrong product for the present state of the consumer demand.
However, the state of logistics markets is complicated by the condition of the supply side. Areas such as belly freight are seeing the resumption of capacity restrained by lack of capacity within airlines but particularly within airports, whilst the strong labour market is still making recruiting truck drivers slower than it might be. There are clear signs that container shipping freight-rates are softening whilst at the same time port congestion persists.
At present the US consumer is playing a disproportionate part in the global logistics market. Rates in air frieght, sea freight, road freight and warehousing are dependent on elevated demand from the US. If that moderates, prices will experience downward pressure. Yet at present demand is probably still sufficient and supply still sufficiently constrained to avoid a violent correction in freight prices.
Source: Transport Intelligence, 5th July 2022
Author: Thomas Cullen
