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CAUTIOUS OUTLOOK ON GLOBAL TRADE ACTIVITY AS SHIPPERS FACE DEMAND HEADWINDS

As shippers prepare for 2020, the overwhelming feeling that characterizes the industry is that of uncertainty. By Ravi Shanker

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s we wrap up 2019, global trade volume growth is likely to remain weak, with 3Q19 trade activity the weakest since the global financial crisis. While monetary easing is gaining momentum, its effects are still being countered by lingering uncertainty about trade tensions. The emergence of these tensions has led global growth to decelerate from its peak of 4.1%Y in 1Q18 to a tracking 2.9%Y in 3Q19. The effects of this slowdown have been more pronounced in the rest of the world. Indeed, global ex US growth has already weakened to a post-crisis low. Growth in the US has held up better initially, due to the support from fiscal policy, which has partly helped to offset the impact from slower global growth. Trade tensions and slower global growth have already been reflected in weaker corporate confidence, slower trade, and manufacturing and capex momentum. This weaker capex activity has translated to a softer pace of jobs creation as well as a deceleration in

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hours worked, which is, in turn, transmitting to slower consumer spending. Interestingly, consumer spending has slowed even though easier monetary policy has helped to support spending in interest rate sensitive sectors. In September, a decline in global manufacturing Purchase Managing Index (PMIs), Korean exports growth, and ifo Export Expectations outweighed the improvement in China’s manufacturing new orders. The recent release of global manufacturing PMIs indicates that both new orders and export orders moved deeper into contractionary territory and are similarly at post-crisis lows. Real imports growth, which is a good proxy for domestic demand trends, has remained weak. Notably, import volume growth across the major economies remains in the contraction zone, except for the US and Japan. If trade tensions were to escalate further, they could bring corporate credit risks to the fore, resulting in a non-linear tightening of financial conditions, weighing further on consumer confidence

and spending. We expect global growth to remain challenging, which will keep global trade activity subdued with risks to the outlook skewed to the downside as global recession risks remain elevated. US Shipper Macro Outlook Lowest Level Since 2016 In our latest shipper survey, most were concerned that net ordering vs. inventory remained negative for the third successive quarter (consistent with past freight recessions), and over 50% of shippers said that they were looking to reduce inventory levels. Shippers’ expectations for capacity tightness over the next six months fell again across all modes (truck, rail, ocean, and airfreight) except barge. Most recently, rail volume weakness has come into focus as carloads across Class 1 Rails have deteriorated from -4.2% in 2Q (and -1.8% in 1Q) to -5.6% 3QTD. This is consistent with our survey where rail volume and spending outlook plunged while rail pricing expectations increased slightly for first time in six consecutive

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PARCEL Fall 2019  

PARCEL Fall 2019

PARCEL Fall 2019  

PARCEL Fall 2019