What is the freight recession in the logistics industry?

The term freight recession in the logistics industry indicates more significant economic recessions. Also known as the trucking recession, the freight volume decreased during this period, which signals overcapacity in the industry. The freight industry plays a crucial role in global trade, allowing the movement of goods internationally. This freight recession is a matter of concern for businesses of all sizes. The leading cause of the freight recession is the market's imbalance between the supply and freight demand. 

In this article, we will explore the exact definition of freight recession and its causes and effects on the logistics industry. We will delve into some insights to assist you in navigating the challenging times. 

What is a freight recession?

As the name suggests, a freight recession is a decrease in the volume of goods in the market. This will ultimately lead to the over-availability of freight containers in logistics. The decline in demand for freight services mainly causes this. This type of recession differs from general economic recession as it only affects the logistics industry. However, freight recession is the initial stage of a large global economic recession, so you must be alert and prepared. 

What causes a freight recession?

Many factors contribute to the freight recession, which is not a one-day incident but has long-lasting impacts on the shipping industry. Let’s have a look at the causes of the freight recession: 

1. Slow economy: Economic conditions govern the freight industry. The less consumer spending on goods, the less production, the more capacity there will be for containers, and less demand for goods to be transported, ultimately causing a freight recession and inflation. 
2. Regulatory changes: New rules and regulations also affect the freight industry. When the government issues laws on emissions and labor, operational costs increase, and freight production declines. 
3. Global trade agreements and tariffs: Global trade agreements, import duties, and taxes significantly affect freight rates. Recently, there have been many fluctuations in the tariffs and agreements due to the affected trade between the US and China. 
4. Increase in trucks on the road: The increase in trucks creates an oversupply of freight services. The variety of fleet sizes and the deregulation of the trucking industry caused the increased number of trucks on the road. 
5. Technological development in transport and logistics: Also, the availability of certain goods online has reduced the dependency on freight services, like e-books or online games, which has led to decreased production and freight logistics. 
6. Lack of consolidation: The lack of consolidation in the logistics and shipping industry decreases the number of merged shipping contracts and simultaneously increases the number of ships and trucks on the sea and road. The oversupply of services will cause the under-availability of freight and freight forwarding in the market. 
7. Supply chain disruption: Supply chain disruption is the leading cause of freight recession. When the complete production, manufacturing, and distribution stage of the supply chain and logistics is disrupted, freight rates increase, and supply decreases. 

These factors create future challenges for the logistics andtransportation industry that are unsuitable for future economic conditions. 

What sectors are most affected by the freight recession?

Some sectors are entirely dependent on the movement of goods from one place to another due to the freight recession; the following sectors are highly affected: 

1. Manufacturing of heavy machinery: Heavy machinery construction requires transporting some small equipment from different places. When there is a freight recession, the production of those goods declines, ultimately halting the manufacturing of these industries. 
2. Food and beverage processing: When there is a freight or trucking recession, there is a disruption in the transportation of food and beverages, which leads to spoilage and waste of these goods. This will increase the prices of goods, creating problems for customers. 
3. Electronics and appliances: Supply chain disruptions increase the container transportation costs for transferring the latest technologies to needy places. This negatively affects competitiveness and decreases consumer demand. 
4. Retail goods distribution: The reduced transportation of goods from producers to retailers negatively affects the freight market's stocks, sales, and consumer satisfaction. 

What is the impact of the freight recession on carriers and shippers? 

The freight recession affects both shippers and carriers and their work. Let's have a look at the impacts on shippers first: 

1. There is a decrease in freight volumes and revenue earned from transporting goods from one container depot to another. 
2. Reduced pricing power decreases carriers' ability to negotiate and maintain consistent freight rates with shippers. 
3. The decreased freight production leads to increased competition for a smaller market share. 

Now, we will discuss the impact of the freight recession on shippers: 

1. Low freight rates create losses for the shippers. 
2. The increased uncertainty and volatility in the market also cause an increase in efficiency in the logistics and reverse logistics process. 
3. All the complexities cause potential delays and disruptions in the supply chain, creating inefficiencies in the market for shippers. 

How long does a freight recession last?

The length of the freight recession depends on certain factors, including the current market condition, the cause of the freight recession, and the actions taken by logistics companies, shippers, and carriers. On average, a freight recession can last six months to two years or more. A freight recession marks the beginning of an economic outburst, so if the proper measures are not taken, it can result in a global economic recession.

The freight recession is a major concern for the logistics industry. Due to decreased economic capacity, this situation can arise at any moment, leading to truck overcapacity and insufficient goods transport. You need to be careful and prepared for any unexpected situation like this. Warehouses and balanced distribution of goods will help to overcome this situation in the future.