What will consumers do?

What will consumers do?

Many things move inside containers -- grain, cars, scrap, lumber, you name it. But what propels the container as a force in global commerce is finished goods -- stuff for purchase by consumers. The pullback by the American consumer, responsible for two-thirds of the U.S. economy and a pillar of the global economy, has been the darkest of clouds hanging over container carriers and really the entire intermodal chain.

The implications of the pullback were specifically blamed for last week's market turmoil, and caused Treasury Secretary Henry Paulson to change course in using the $700 billion bailout to ease consumer credit. So is the consumer just taking a breather, or are we witnessing a more profound and lasting change in behavior?

Anyone listening to the Nov. 6 speech at the World Shipping (China) Summit in Dalian by Steven Roach, chairman of Morgan Stanley in Asia, would likely have had the same reaction -- gulp. "The American consumer is toast -- done, finished, over," Roach said. He characterized the 14-year stretch from 1994-2007, in which consumer demand grew at an annual rate of 3.5 percent, when income was growing at a consistently lower rate, as "the greatest buying binge over such a protracted period for any economy in modern history." As to what has now happened, a front-page New York Times headline last week said it all: "Buying Binge Slams to a Halt."

Roach is a known bear, a fact he acknowledged. But the point he raises is critical for the future of transportation. He suggests that the U.S. consumer may not return to his old habits for four or five years. If even remotely true, that would not only slash long-term growth rates for containers and other conveyances and the multitude of 3PL services that support them. It would lead to long-term overcapacity and weakness in rates. It would also result in a change in the composition of cargo moving through the system, and with that, the types of expertise, equipment and facilities needed to handle it.

Walter Kemmsies of Moffatt & Nichol has predicted that the coming U.S. reinvestment in infrastructure will tilt the cargo mix toward raw materials, building components and project cargoes. It's no wonder the mood at the recent Breakbulk conference in New Orleans was a bastion of serenity amid the shell-shocked transportation industry.

But the consumer remains central to the equation. The network of terminals, inland rail hubs, cross-docks, DCs and trucking has all been put in place to support consumer spending, not to mention retail stores and the millions they employ. Assessing what is really going on with the consumer means looking at the economic situation and beyond that into the culture itself. Will economic realities force Americans over the long term to become more like the Chinese, habitual savers instead of enthusiastic spenders? Will the change in administration and a greater emphasis on sacrifice alter Americans' basic views on spending?

That is doubtful, but in the short term, there are differing views on how long the consumer will sit on the sidelines. The tightening job market and mortgage crisis on top of an existing mountain of consumer debt, and their effects on consumer confidence, are taking a toll. But we may be a lot further into the downward economic cycle than appears from the headlines. When all the numbers are in, for example, they will show that the U.S. has already been in a recession for many months, beginning as early as the fourth quarter of 2007 or early this year -- not just starting in the fall when credit markets seized up and the stock market nosedived, according to the Economic Cycle Research Institute. In other words, we are possibly approaching the one-year anniversary of the U.S. recession, and may be closer to a turnaround than many realize.

"Our indicators are showing a severe recession, but one that is consistent with what we saw in the recessions of the mid-'70s and early '80s, both of which lasted 16 months," said Lakshman Achutan, managing director of ECRI. That contrasts sharply with the 49 percent of Americans who said in a survey last week that the country is on the verge of another Great Depression. "We don't have any evidence today that we're looking at some sort of depression or deflationary scenario. If you are going to have a really negative view, those words can creep into the discussion, and we don't have any evidence in our indicators of that type of scenario."