How the Economic Climate Impacts the Logistics Industry - Global Trade Magazine
  May 24th, 2018 | Written by

How the Economic Climate Impacts the Logistics Industry

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  • Inflation and interest rates are macroeconomic factors that influence the the economy as a whole.
  • Macroeconomics enables an understanding of how key indicators impact specific industries.
  • A number of metrics indicate growth or contraction for the logistics industry.

If you’re familiar with the study of macroeconomics, you’ll know that this relates to the core economic factors that impact on growth and the performance of key markets. Examples include inflation and the base interest rate, and macroeconomics remains concerned with how these factors combine to influence the structure and behavior of the economy as a whole.

The core principles of macroeconomics also enables individuals to understand how key indicators impact on specific industries. In the case of logistics, for example, there are a number of metrics that indicate growth or contraction, and understanding this crucial for businesses and couriers across the globe.

In the article below, we’ll explore this in greater detail, while asking what we should learn from this year’s first quarter figures.

Supply, Demand, and the CPI – The Key Indicators for Logistic Firms

From a headline perspective, perhaps the single biggest indicator is the performance of the manufacturing sector. After all, the haulage and logistics industry is focused on the domestic or international shipment of goods, so a robust supply of products usually correlates with growth in the logistics sector.

With this in mind, the start of 2018 brought bad news for the UK, with overall economic growth falling by half during the first quarter and manufacturing input declining at an alarming rate.

After the influential Purchasing Managers’ Index (PMI) had peaked at a four-year high of 58.3 back in November, March’s figures produced a disappointing drop to 55.1. This represents a quarterly drop of 3.2, on the back of unseasonally adverse weather conditions and the growing uncertainty surrounding the Brexit negotiation process.

This shows that the production of material goods and products has declined at the beginning of the year, creating a diminishing supply across a number of industries. This hints at marginally weaker demand for logistics service providers, particularly those who lend their expertise to small and medium-sized ventures.

Another key metric for hauliers to consider is the Consumer Price Index (CSI), which relates direct to inflation and the cost of living in the UK. This can have a dual impact on the logistics industry, as it influences both the cost of fuel and the prevailing demand for products across a wealth of markets.

In terms of the former, March saw the CPI drop marginally to 2.7 percent, while the headline inflation rate remained fixed at around three percent. Although this is higher than the Bank of England’s target of around two percent, last month did at least see a month-on-month drop in the cost of fuel in relation to 2017’s figures,

This has done little to assuage the cost of living crisis that exists in the UK, however, with households continuing to struggle with minimal levels of disposable income. As a result, customers have less to spend on goods in the current climate, with a weakening demand compounding supply issues and dealing another blow to the logistics industry.

The Last Word

As we can see, these key indicators can have a profound impact on the logistics industry in the UK, while they also offer an interesting insight into the current marketplace.

Clearly the sector is facing a number of short and longer-term challenges at present, particularly in terms of Brexit and the balance between supply and demand. Still, there is hope for the future, particularly with the weather conditions improving and inflation expected to fall incrementally throughout 2018.

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