The way to a recovery will be a bumpy ride.

In May 2020 I wrote ‘Container cargo 2020, where we are, and where we may go.’ or if you are a ‘Linkedin’ kind of person.

In the article I forecast generally horrible conditions to mid-year with a recovery of sorts for the second half of the year. My exact words were,

“While the first half of the year will likely be the 20% or more shrink of container volume many say it will be, I believe given the right environment the second half of the year can start the climb back up the hill in better shape than we think we are in.”

“Counting TEU’s and not trade dollars, 20% year on year drop through the second quarter, yes, sure, maybe even more. But I see the bottom at the beginning of the third quarter and the start of growth due to pent up demand left over from the first half of 2020 and the ‘Covid Months’.”

Here we are starting August 2020 and we are right on schedule. The Purchasing Managers Index chart for June and July were rather good months coming in north of fifty considering where we were in April 2020at just above forty. Given the PMI for July 2020, I expect cargo volume to be robust though August, but not much longer. 

Traditional thinking would indicate the needle is pointing up because we are heading into the customary peak shipping season. Unfortunately, we are not living in conventional times. Covid-19 has re-written what normal will be, and to summarize the plot, there is no normal.

To me, June and July were clearly ‘bounce’ months to compensate for nonexistent trade in April and May. Now that some of the shelves are being restocked and inventory levels are normalized in many areas, where are things going to go? Let us take a moment to envision ourselves as the purchasing manager in charge of buying everything for the United States for all retailer and other sellers, the exceptions being food and normal consumables. Would you commit to large purchases to end the third quarter? 

Going back to traditional thinking, we know about two-thirds of the U.S. economy is consumer driven. We know the peak consumer season is fast approaching. And we know June and July PMI impressively trended upward. It is time to place orders and stock shelves to the ceiling, right? Not so fast. As the title of this article alludes to, the path to prosperity will have many peaks and valleys. Do not confuse the July PMI peak of 54.2 as the way things will be going forward. Indicators point to lower optimism for August which will set the stage for modest growth for the third and fourth quarters.

Regarding indicators, there are a few roadblocks to the road to normal. First the U.S. GDP took a hard hit in the first half of 2020. The GDP is the most common indicator to measure the overall health of the economy because it measures the dollar value of all goods and services produced in a specific time. The GDP took an epic nosedive to below -30 in the 2nd quarter. The nosedive itself is not that concerning because it was artificially created by government mandated shutdowns. In theory, when the shutdowns were over, the GDP should have had a ‘V’ recovery. Although I do not expect it to.  

One of the reasons I am not as optimistic about a ‘V’ recovery is one of the byproducts of a GDP nosedive, inflated unemployment rates. In March 2020, the unemployment rate rose 4.4%, in April 14.7%, in May, rebound to 13.3%, and June 11.1%. If people are not working, consumerism falters, especially in discretionary spending. 

At the current rate of unemployment reductions, keeping in mind initial reductions should be the larger increments because of unemployment bloat, it will take until nearly 2021 to get back to our 4.4 unemployment rate barring some stunning turnaround. That is if nothing else goes wrong. Since we know something always goes wrong, pick your date. It will be a good a guess as any. 

Additionally, even though the economy is being ‘reopened’ not everyone is participating. Incidence, or fear of, flare up infections is muffling much of the positive economic impacts of reopening. Moreover, political wrangling is not helping much either. The more uncertainty there is, the more reluctant buyers are.  

Referencing my May 2020 article again, there were a few caveats I outlined that had to happen for a recovery to happen by the end of 2020. Two of the caveats are below.

“U.S. China relations can’t be a dumpster fire. Some in the U.S. and other countries are rattling sabers because of Covid-19. China was in no way transparent, or even truthful, about the Covid-19 virus, yet for me, China met my expectations. They did what you would expect China to do. I am a bit confused some people are acting surprised. China chooses a preferred story line and they stick with it. No, I do not believe what China did was right in any way, and no, I do not think we should forget about it and pretend it never happened. Although focus on China not being forthcoming regarding Covid-19 would be better dealt with in a heathier economy when more countries are on solid ground.

Global steps to reopen must stick and stick on the first try. If virus outbreaks run amok in the U.S. and other countries after initial re-opening attempts triggering more or expanded shutdowns, it won’t be a pretty situation. Global economy killer comes to mind. Reopening must stick.”

Now, fast forward to August 04, 2020 it appears the two caveats are not working out as well as I hoped they would. China is still on the hotseat with politicians for their Covid-19 shell game, and the reopening, if not faltering, is being done so with great hesitance. Finding the balance between public health and economy health is becoming a tricky magic trick. All things considered, if no serious unforeseen setbacks come along, I will not back away from my forecast things getting better in the second half 2020 and being firmly in a recovery by 2021, but I do not believe it will be a steady ascent. Global pandemic swings and spikes, as well as geopolitical bad vibes, will make the recovery racked with ups and downs based on the knee jerk reaction of the day. Why won’t I back away from a 2021 recovery? In reality, we have no other choice but to forge forward. We are in for quite a ride.