It is getting harder for people in the real economy to ignore the events on the world’s capital markets. Stock and corporate bond markets in the US and around the world, have suffered big falls in value as a result of the so called ‘liquidity crisis’ that has affected much of the debt market in the US.

The Central Banks of the US and of the Euro area have stepped in to calm a situation which if left untreated could turn into some sort of melt-down in the banking system. Not that such a situation is new. The present crisis has been caused by Banks lending too much money to people who could not pay it back- and then burying those loans in grossly opaque financial engineering. Such over-exposure by Banks is an invariable feature of the business cycle.

For those in the logistics sector however, it is unwise to assume that the problem will just fade away. First of all the problem directly concerns the American consumer and they in turn are important to logistics companies.

What the American economist Robert Reich calls the ‘Energizer Bunny’ of the American consumer has been driving the world’s economy for over a decade and that includes the world’s logistics systems. It might have slowed recently, with volumes on the trans-Pacific routes moderating and some of the slack being taken-up by imports into Europe. But don’t be fooled, the US private sector is still vital to world trade.

For example take Germany. At first glance an economy such as Germany has, if anything, an excess of stability. Whilst imports into Germany have increased recently, it has been the buoyancy of export sector that has underpinned the German economy. However a high proportion of that export activity is directly to the US and much of the rest is providing capital goods to China in order to meet demand from the US. Low growth in the US will mean lower volumes out of Germany.

So if there is a deterioration in the American economy what are the effects on the world’s logistics sector likely to be? One salient problem areas would be in shipping. Most container shipping lines are committed to big programmes of ‘new-build’. If growth in demand in key routes slows or even halts, there will be a capacity over-shoot and a consequent collapse in rates and profits. To a lesser extent similar effects will be seen in areas such as port infrastructure, which has seen so much investment recently, airfreight capacity and even rail services. Road freight in the U.S. has already felt the squeeze of lower consumer spending, but now this might spread to affect the acquisitive ambitions of the big European logistics companies.

If the Energizer Bunny slows or comes to a halt the decade of strong growth seen by so much of the logistics sector will end.

Source: Transport Intelligence

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