Are we Headed for a Supply Chain Recession?

Anyone who has a 401K or invests in stocks can attest to the recent volatility of the supply chain industry.

This type of ebb and flow combined with a growing trade war between the US and China have lead many financial experts to suggest a global recession is approaching.

But what about the supply chain industry? Is it possible that after record financial growth over the past three years, business will progressively slow, leading to a logistics-based recession? 

Well, if you look at some of the indicators that typically contribute to a recession, it's quite possible indeed.

In this blog post, we will break down some of the current global financial trends. Furthermore, we will pinpoint some of the most important indicators that suggest that a logistics recession is looming just ahead. We will also drop a few tips on you that all logistics companies should review to ensure they’ll be ready when a supply chain recession does happen.

What Does the Financial Market Indicate?

Most recessions are fairly predictable, especially when it is focused on a single industry.

It tends to occur when there have been years of financial growth combined with changes in international relations, and of course, the strength of the economy. An industry-specific recession is the global economy’s way of reminding us of a ‘speed limit’. This is actually good in that it ensures the world’s economy is not dictated by a single industry. 

But the logistics space is huge. A recession in the logistics industry would be nothing short of devastating on many fronts.

This leads us to review the possible concerning factors that indicate that a supply chain recession may be approaching sooner than later...

The China Factor

The current negotiations between the United States and China represent a true and honest threat to the stability of the global supply chain.

Products and raw materials shipped between these two countries are simply not well-covered in tariffs and are essentially left in a confusing mess of always-changing regulations. This instability has pushed many businesses to nationalize their supply chain processes. Seeking vendors in their own countries to maintain the stability of supplies and raw materials has become the best solution for many.

Additionally, China’s growth rate is experiencing a significant slowdown. This is mainly due to the US trade war. And while the US’s economic strength helps to reduce the potential of recessions, weakness of larger global trade partners like China or Mexico can contribute to a global supply chain recession.

Add China’s instability with rising trade disputes between South Korea and Japan, and the south pacific may already be primed for a possible recession.

The Brexit Effect

When the United Kingdom elected its new Prime Minister Boris Johnson, the potential of a UK Brexit became a stronger reality.

Removing the United Kingdom from the European Union may cause its own financial struggles. However, the looming challenges of Brexit are causing troubles within the UK.

In fact, the UK’s economy experienced significant losses in the second quarter of FY 2019. Until the UK decides which way to go, economic instability is likely to continue. This may reduce consumer spending and slow the need for logistics services. 

European countries, like Germany, is also concerned about economic reports from the second quarter. We are talking about a country with the world's 4th largest economy. And yes, they are still concerned!

Combine this with Brazil and Mexico expecting lower than expected economic growth in 2019 and the worst stock market crash in decades for Argentina. From here you can clearly see that the significant gains the supply chain has made in the past, may be on the downturn. 

How to Prepare for a Possible Logistics Recession

If the economic experts are right, what should you do to prepare?

Here are a few things to consider, whether a recession happens or not. Doing so will set your business up for continued success.

Make Sure Your Solutions are Scalable

When a recession occurs, consumers and thus companies have less disposable income to spend on goods and services. If this happens, having the flexibility to scale down your solutions is crucial to cut back expenses, without compromising quality. 

Review Your Carrier Network

During times of recession, being smart with spending is a priority. For shippers, this begins with using reliable carriers that deliver on-time and provide superior customer service at an affordable rate.

If you’re not reviewing your carriers now with a CMS, you’re already behind the competition. 

Invest in Technology Now

If you’re on the fence about spending money on technology, now is the time to get over it!

Over the past few years, the logistics industry has seen a lot of technological innovations. If a recession hits, already having a solid technological infrastructure is going to prove priceless.