Thursday, September 16, 2010

Freight Cutbacks: Fewer Products

The new round of FedEx layoffs are worrisome to stock traders, not so much because of the 1,700 jobs lost at FedEx, but because of the reason FedEx feels it needs fewer workers carrying freight for it. It’s because the volume of freight is declining.

In economic terms, freight isn’t just heavy boxes going from one city to another. It’s a sign that companies are manufacturing things and that other companies are buying them. When freight shrinks, it means the part of the economy that deals with physical products is also shrinking.

Part of this is just the shrinking size of physical products, a trend that goes back to 1970. There are no more truckloads of telephones because telephones aren’t as large as they used to be, but people are still using as many telephones as ever. In some years, the general expansion of the economy is enough to keep freight volumes growing or holding steady. But that’s not happening between this year and next, the way FedEx sees it. That’s why there was such a large stock market reaction to the FedEx announcement.