Source: adapted from D. Jacoby (2008) "How should the global financial crisis affect your freight strategy?", Logistics Digest, December.
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 (a few months) 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 value of goods. Basic goods (e.g. food) and luxury goods tend to be the most resilient, so their respective supply chains are impacted marginally by recessions. However, it is for 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 demand depending on the severity of the recession.
  • Trade and production. Stock market valuations and freight rates (futures indexes) tend to be leading indicators in the sequence, followed by production, income, spending and container volumes.
Using the financial crisis of 2008-2010 as an example, the sequence unfolded very quickly, implying that while future (forward looking) indexes first collapsed, so did container volumes and global trade immediately afterwards, confirming the subsequent collapse of the material economy with the substantial decline of merchandise volume. All of this is indicative of a global economy that is increasingly integrated.