As the world’s leading economies battle inflation, supply chain crises, and geopolitical tensions from the Russian invasion of Ukraine, logistics managers told CNBC that they are seeing 20% declines in ocean freight orders — a reality arising from uncertain consumer demand outlooks and the accumulation of existing inventory.
“Inventory levels are high as consumerism shifts further to off-price,” United National Consumer Suppliers CEO Brett Rose told the outlet. “Bigger brands are very conscious of current season and trends. A Bloomingdale’s consumer doesn’t want last season’s shoes or handbags. These items will be attractive to consumers of retailers like T.J. Maxx, Marshalls, Ross Stores.”
Falling demand has impacted multiple industries, from machinery and industrials to housing and clothing, according to CNBC. Demand for some goods, such as retail displays and ultrasound machines, remains strong. The growth of the global economy is expected to decline from 5.7% last year to 2.9% in 2022, according to June forecasts from the World Bank, which marked a downgrade from predictions made in January.
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” World Bank President David Malpass explained. “Markets look forward, so it is urgent to encourage production and avoid trade restrictions.”
Companies are canceling voyages to match lower customer demand with vessel space. HSL Logistics said in a note to clients that it cut vessels by nearly 50%, while other companies, such as DHL Ocean Freight, told CNBC that demand is expected to remain flat through October.
Meanwhile, ports on the east coast of the United States are witnessing heightened vessel congestion — a phenomenon worsened by Hurricane Ian, which made landfalls in Florida and South Carolina last week. With winds exceeding 150 miles per hour, the system was tied for the fourth-strongest hurricane ever to hit the Sunshine State.
Despite lower consumer demand, central banks across the globe are cutting target interest rates — a move that leads to lower economic activity and a higher cost of borrowing money — in order to quell soaring inflation. Among G20 economies, price levels increased by an average of 9.2% between August 2021 and August 2022, according to data from the Organization for Economic Cooperation and Development.
The Federal Reserve Bank of the United States raised the target federal funds rate by 0.75% last month, mirroring two identical rate hikes in June and July. The higher interest rates triggered a stock market selloff, with the Dow Jones tumbling roughly 500 points upon the news. Additional fears gripped Wall Street on Monday as rumors regarding potential insolvency at Swiss investment bank Credit Suisse began to circulate.
To stimulate the economy during the lockdown-induced recession, policymakers at the Federal Reserve had initially pegged a near-zero target interest rate and purchased government bonds from the market. Several leading companies across multiple industries — including Meta, Bed Bath & Beyond, Ford, and Goldman Sachs — have announced layoffs amid uncertain demand conditions induced by the new contractionary monetary policy regime.