What is for certain is there is abundant uncertainty regarding the economic forecast for 2020. The growth rate of real GDP is expected to be less than 2019. According to a recent article examining the U.S. economy's future trends, one-third of economists surveyed in Q3-2019 forecast recession in 2020 with another 30% predicting recession well into 2021. Based on this information, it is safe to say we are in the midst of a slow-down that is likely to continue for the next 12-24 months.
Are we at the threshold of another great recession? No. This slowdown is likely more reminiscent of the mild 2000-2001 recession.
Although the US economy’s growth is slowing, overall it remains relatively robust.
What is contributing to a more sluggish economy?
- Trade and political tensions. The world’s two largest economies are engaged in a bitter trade battle. Tariffs have adversely impacted businesses and the global economy.
- Disruptions caused by Brexit. Ongoing uncertainty on financial markets caused by the UK’s exit from the European Union continue to impact the US economy.
- Decelerated growth in consumer spending. Consumer spending is still strong, but the pace has decelerated over the past twelve months.
- Coronavirus. Spread of the virus is coinciding with Chinese New Year and causing a slow-down of the economy as factories are closed for the holiday. With production at a halt, travel restrictions within China, and airlines cancelling flights to China from the U.S. and other countries the adverse impact on tourism and commerce is felt worldwide.
How are these factors impacting providers and users of Third-Party Warehousing (3PL) services?
- Rents are expected to increase 5% in 2020. Vacancy rates in the US industrial market will remain low especially as proliferation of ecommerce and last mile distribution centers continue to penetrate the industrial warehousing landscape.
- Growth will continue in the 3PL sector. Complexity of ecommerce supply chains has these companies turning to the third-party logistics sector as ecommerce companies outsource distribution direct to consumers. Furthermore as traditional retail distribution engages more innovation and technology to improve productivity and efficiency, they too are increasingly turning to 3PL Warehousing companies.
- Shippers must find ways to drive out costs and improve efficiency. According to Rob Levin, Principal at Republic Partners, “Growth in the third-party sector will continue as Shippers need to drive out costs, maintain flexible supply chains in the face of shifting geopolitics, and plan for global events (even including weather). Shippers must maintain dependability, develop true end to end solutions, be visibility responsive to consumer needs, and use data, technology and execution to drive revenue growth.”
- Unemployment is expected to remain at unprecedented low levels. Low unemployment and the Amazon effect have made talent acquisition and retention more challenging driving up wages and turnover rates.
Critical to watch is the undercurrent of a decline in consumer spending that will directly impact the overall economy and industrial markets. However, uncertainty can have positive benefits for the 3PL segment as companies will look to further outsource their operations and supply chains.
The Shippers Group offers multi-client and contract third-party warehousing for traditional retail and ecommerce companies across the US. Learn more about The Shippers Group's locations and services by clicking here.