Shipping As Key Economic Bellwether
If you want to understand where the economy is going, shipping activity is the proverbial canary in the coal mine. Traditional financial indicators such as GDP, Dow Jones Industrials, and Employment Indices are subject to the vagaries of economist interpretation and timing as complex forces work themselves through the system. Enron might puff up revenue numbers, but shipping doesn’t lie. If Eddie isn’t loading trucks, his boss isn’t billing. No billing, no cash. No cash, the canary stops flying. Carriers are the first to notice.
Shipping Demand Slows Months Before Market Meltdown
Spring 2008. Irrational exuberance still prevails. Dow Jones down but still hovering around 13,000. I talked to a friend of mine at a major parcel carrier. I asked him how the economy looked from a carrier’s perspective:
“Bad.”
“Bad as in time to reconsider tax shelters?”
“No. Bad as in time to reconsider bomb shelters. Looks like no back to school rush, no Christmas rush, no shipping. Economic activity at a standstill. The abyss. Cannibalism. Bad.”
“You really gotta stop following the Cubs and cheer up.”
At a corporate level, FedEx and UPS began to signal weakening freight demand during the Fall of 2007, right at the height of the market. Turns out the carriers could see with their own eyes at their hubs and terminals what would not become apparent to economists for months: businesses were not shipping as much. The economy was slowing down. Only unprecedented Federal intervention brought the economy back from the precipice.
DEC Stops Shipping
Those of us in the shipping system business have seen the same dynamic at work at a micro-economic level. I can recall implementing UPS manifest software at DEC warehouses that sprung up around the metro Boston area in the mid-1980’s. At the time, DEC was still the darling of Wall Street, even as they continued to dismiss the idea that PCs could replace mini-computers as serious business machines.
One day we implemented some custom reports for the Traffic Manager and I noticed for the first time that their monthly shipping volumes were declining at the same time the media continued to paint a rosy picture of DEC’s prospects. Shipping didn’t lie. The canary soon assumed room temperature. Compaq swallowed DEC, HP swallowed Compaq. Massachusetts miracle ended. Bush beat Dukakis.
Shipping Outlook 2010
What is the economic outlook for 2010? Mixed, but cautiously optimistic. FedEx CFO Alan Graf Chief sees “some uncertainty regarding the sustainability of current demand trends after our peak shipping season.”, but international, air and group shipments all increased between 3-6%. Coming from carrier known for conservative financial forecasts, he might as well have sung “Happy Days Are Here Again”.
UPS gave a more optimistic outlook in early January 2010. UPS CEO Kurt Kuehn announced better than expected Q4 results, anticipating “a gradual economic recovery with improvement more evident as 2010 progresses.” Cue balloons.
So pay attention to UPS and FedEx volumes in early 2010. They’ll tell us a lot about how we can expect the economy to perform throughout the rest of the year.
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