Source: adapted from D. Jacoby (2008) "How should the global financial crisis affect your freight strategy?", Logistics Digest, December. http://www.bostonstrategies.com/images/BLD_0812.pdf

Impact of Recessions on Consumption and Freight Rates

Recessions can have various levels of severity, ranging from light where economic decline (e.g. GDP) may last a short period of time to severe where economic decline is steep and may last several years (commonly a depression). This severity will imply various levels of decline in consumption, trade and freight rates:

• Consumption. The level of impact on consumption is related to the price of goods. Basic goods (e.g. food) and luxury goods tend to be the most resilient, so their respective supply chains tend to be impacted marginally by recessions. However, it is over durable goods (e.g. cars), discretionary goods (e.g. electronics) and capital equipment (e.g. ships and port infrastructure), that recessionary forces can have significant impacts in lowering their respective consumption.
• Trade and freight rates. Stock market valuations and freight rates (futures indexes) tend to be leading forces in the decline of international trade, followed by production, income, spending and container volumes.

What is notable for the correction that began in 2008 is the extreme rapidity at which the sequence unfolded, implying that while future (forward looking) indexes first collapsed, so did container volumes and global trade immediately afterwards, confirming the inevitability of the collapse of the material economy and the temporary and for some freight segments the permanent disappearance of substantial portions of merchandise volume. All of this is indicative of a global economy that is increasingly integrated.

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