Shipping conditions are worsening to the point that, if Washington continues to sit on its hands, a recession could occur in 2013, predicts Larry Gross, senior consultant for FTR Associates. FTR’s Shippers Conditions Index (SCI) for July fell to a reading of -4.5, indicating the beginning of an expected steady decline as shippers and carriers feel the impact of increased regulatory drag heading into 2013.
The SCI sums up all market influences that affect shippers; a reading above zero suggests a favorable shipping environment, while a reading below zero is unfavorable.
The current period begins what FTR characterizes as an inflection point where costs and rates will begin moving up if the U.S. economy continues to sustain a relatively healthy freight market as new regulations take hold. The forecasted tightening of capacity and associated increased shipping costs will continue to negatively impact the SCI unless the economy slows more than expected.
“FTR’s base outlook calls for shipping conditions to deteriorate as freight volume grows slowly and government regulations are implemented, adversely affecting driver productivity,” Gross says. “This assumes that the Euro crisis remains contained and that the Federal government does not drive the economy off the ‘fiscal cliff’ at year-end. If either scenario occurs, we would consider a recession likely, causing freight demand to drop and eliminating any potential capacity issues and driving improvement in shipping conditions.”