12.3 C
New York
October 6, 2022
NewsAltitude
Business TOP STORIES

FedEx is right. A global downturn is weighing down on shipping demand.

FedEx is right. A global downturn is weighing down on shipping demand.

Fedex, a darling of the pandemic explosion in online sales, said its dwindling business is a sign of an imminent global recession as consumers around the world cut back.

Last week, FedEx slashed its year-ahead sales forecast, saying economic conditions have deteriorated dramatically. To be sure, FedEx’s poor performance is partly due to its failure to manage costs. 

But given its large footprint in Asia, where many consumer goods are manufactured, it’s also a bellwether of demand around the world. While massive backlogs at ports hid a decline in consumer demand until recently, ocean container bookings have been pointing to a clear downturn since June, data compiled by FreightWaves, a freight market analytics company, show.

“We previously noted that the lack of a ‘freight wave’ from China’s re-opening was a negative sign for freight demand, but it appears to have impacted FedEx first as the leading airfreight carrier in the Asia Pac region,” wrote JP Morgan analysts on Sept. 16. A similar negative impact will probably show up in UPS’ earnings even though it has a lower exposure to the region, the analysts noted.

Fedex is not the only one warning about the risks of a global recession. The World Bank recently warned that the global economy might plunge into a recession next year, as central banks continue to hike interest rates to tame inflation. That would trigger a spate of financial crises in poor countries that were already hammered by covid-19.

Central banks aren’t letting up

Fedex’s poor results come at the same time consumer demand has begun to weaken in the US because of the contraction in the housing market. (Thus far, the US consumer has been propping up the global economy).

Persistent supply bottlenecks, the protracted war in Ukraine, and rising interest rates all are threatening large economies that would tip the globe into a recession, notes the World Bank. It’s hard to see those economies turn around soon given record inflation, a global oil shock, and worldwide monetary tightening. Since so many countries hold US dollar denominated debt, they have to raise rates to keep up with the Federal Reserve’s rapid hiking cycle or otherwise see their currencies fall even faster against the dollar. The Fed is expected to raise rates by another 75 basis points later this week.

What can advanced economies do besides hike rates and hope for the best? The World Bank suggests that they look into implementing supply-side policies that would ease constraints in global labor markets, energy markets, and trade markets. This might look like delivering more covid-19 vaccines, releasing oil from strategic reserves, and relaxing tariffs.

Read More