While the economic outlook remains mixed, reasons for optimism remain intact

With 2023 coming to an end, now seems to be as good of a time as ever to take a look at the current state of the freight economy.

To be sure—and as per the usual, at this point—there are a whole host of mixed messages, signals, and indicators, perhaps more so now than at any other time, especially over the past five years or so. What’s more, while a decent number of these metrics are actually very positive, it does not necessarily feel that way to everyone, both in freight transportation and logistics and beyond. The point of this column is not on that aspect, as it is focusing on the data and not on mood or sentiment. But, at the same time, it clearly cannot be disregarded either.

What’s more, it goes without saying that these times of mixed messages and varying sentiment come amid what has been referred to as an ongoing freight recession, which has been intact over the last several months. Some of the key drivers of the freight recession, according to the American Trucking Associations (ATA), include: stagnant consumer spending on goods, lower home construction, falling factory output, and shippers consolidating freight into fewer shipments compared with the frenzy during the goods buying spree at the height of the pandemic.

But it is also important to note that there are some positive factors at work, too, such as an improving inflationary environment; a still-solid job market and employment outlook; and an ongoing inventory drawdown, among others.

As for the data, the third quarter GDP reading, at 5.2% is, no matter how one looks at it, is a very strong number. The U.S. Bureau of Economic Analysis attributed it to increases in consumer spending, as well as inventory investment, two things which are closely examined and monitored by freight transportation and logistics stakeholders.

In a recent conversation I had with Matt Muenster, Chief Economist for Green Bay, Wisc.-based Breakthrough, an innovator in transportation management, dedicated to creating transparent and fair strategies for the world’s leading shippers, he explained the GDP reading was a surprise, in that it overshot estimates. And the other thing the reading did, in some capacity, was show that consumer resilience remained intact heading into the holiday shopping season.

“There is some resilience in consumer spending, both on goods and non-durable goods,” said Muenster. “On consumer spending on services, the categories that consumers saw robust spending—including household utilities, healthcare, insurance—are not things that move a lot of freight, generally speaking, and, so, some of this robust growth and consumer spending is taken with a grain of salt. The reason for that is because in terms of the freight market, some of it is not representative of contributing a lot more freight into the market.”

As for if the third quarter GDP reading plays a major role in shippers’ approaches to the market, Muenster made it clear that is not a likely scenario, explaining that a single quarter “pop” in GDP is not necessarily changing shippers’ strategies. However, he observed that comes with the caveat that it is giving more confidence to the market that a soft landing is still achievable or the idea that inflation can hover around current levels without falling into recession is still achievable.

While GDP is strong, the inventory outlook is showing improvement, the employment picture is largely solid, and diesel prices are lower, those three things does not represent that “all is well,” when it comes to assessing the current state of the freight economy. Why is that the case? For one thing, U.S.-bound import levels still remain low, especially compared to the last few years, coupled with what could be viewed as steady, but by no means great, consumer spending levels.

That is not all that surprising, especially when considering the consumer-led goods-buying spree, of sorts, during the height of the pandemic, which clearly created some difficult annual comparisons still intact today, to various levels.

But there is cause for some cautious optimism on that front, which was evident in a recent edition of the always-excellent “Port Tracker” report issued by the National Retail Federation (NRF) and maritime consultancy Hackett Associates.

A recent edition of Port Tracker noted that the 2023 Peak Season would come in August but subsequently imports kept growing in September and October. NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said whether it was merchandise for retailers or cargo for other businesses, that’s a good sign for the economy and for the holiday shopping season, with NRF expecting record-setting holiday sales this year, coupled with retailers well-stocked to meet consumer demand.

What happens within the freight economy remains to be seen, but it is not hard to see at least signs of a year’s glass being more full than empty, based on some of the signs out there. Does that mean its issues and challenges are certain to be behind us? Of course not, but the data does offer up some positive indications, which need to be part of the game plan into the New Year all the same.