HOW WILL THINGS BE CARRIED OUT IN THE LOGISTICS INDUSTRY DURING STAGFLATION?

Hüseyin Cahit SOYSAL
UGM Board Member

At the global level, humanity has faced many periodic economic crises until today. Some of these periodic crises are due to cyclical reasons; some due to excess supply or contraction in demand; some from global climate changes; some from natural disasters; Some of them resulted from political instability. Unfortunately, the crisis we are currently experiencing was caused by all of these factors simultaneously.

If the rate of gross national product (GNP) is growing at a lower than average rate while the general level of prices is constantly and noticeably rising, we are in stagflation.

CLOSING BUSINESSES, INCREASING UNEMPLOYMENT…

Although it has been in theory for many years, stagflation emerges as a negative situation that we are experiencing for the first time in our country. Although the general price increase has reached three-digit levels, the people of our country cannot attack real estate, motor vehicles and durable consumer goods. Forget these, there does not seem to be a general attempt in society to stock food. According to the statements of TOBB (Union of Chambers and Commodity Exchanges of Turkey), the number of closed businesses has reached rates incomparable with previous years. Accordingly, unemployment rates are also rising.

TABLE IN DEVELOPED ECONOMIES…

Inflation rates have increased in all developed economies after the Covid-19 epidemic and the Russia-Ukraine war, although still at 10 percent levels; On the other hand, it appears that market transactions have slowed down and sales of automobiles and durable consumer goods have decreased.

In other words, stagflation is at our doorstep as a global economic crisis. Even though stagflation has not yet been experienced at a global level and is "not fully defined", I think it will not be very difficult to make future predictions on the subject.

POSSIBLE EFFECTS OF GLOBAL STAGFLATION ON THE LOGISTICS SECTOR…

When stagflation occurs at a global level, we will probably face the following facts in the logistics industry:

• There will be severe disruptions in global supply chains, and orders for durable consumer goods will not be placed in the previous sizes.
• Global demand for some agricultural products will increase as people prioritize food supply, which will cause difficulties for underdeveloped economies.
• The difficulties of obtaining fresh water from global warming will negatively affect the lives of millions of people.
• Since businesses structured according to a specific production volume cannot review their processes in the short term, falling total demand will increase final product stocks, increasing stocking costs.
• Freight costs in air, road, and rail transportation will increase when oil barrel prices are above 100 dollars; therefore, orders for goods from distant markets will decrease, and demand will be directed to nearby markets.
• -Countries neighboring the Black Sea, which has been mined due to war and has become a dangerous area for maritime traffic, will look for ways to transport their cargo by rail and road. (As a matter of fact, he ensured that the bridge was built for the land crossing between Russia and China after the Russia-Ukraine war was completed earlier. The construction of the 1,080-meter-long bridge over the Amur River between the Russian city of Blagoveshchensk and the Chinese city of Heihe was completed quickly, and the construction of the bridge was completed at an earlier date. China-Russia road freight traffic was started with new highways.)
• As maritime transportation costs increase, railway construction-related projects, which were previously postponed due to high costs, will be reviewed again. (As a matter of fact, China pushed the button for the construction of the China - Kyrgyzstan - Uzbekistan railway line, which required 90 - 95 tunnels to be opened due to the mountainousness of Kyrgyzstan and was therefore postponed.)
• -Sea freight prices peaked two years ago and will hit the bottom, and some maritime transport businesses in a difficult situation will close down. (As a matter of fact, the Baltic Dry Cargo Index - BDI has decreased by 1350 points since May, when it reached its highest point this year, falling to the 2000s. Likewise, according to the world container index of the international consultancy company Drewry, it was $ 9,600 in January 2022. The spot freight cost of the 40' container decreased to $7,060 at the end of June 2022.)
• Air transportation decreased, first due to COVID-19 restrictions and then due to the airspaces closed to Russia by European countries and the USA. When ticket prices increased due to increases in oil prices, there were severe decreases in passenger transportation at the global level. Although general cargo loads on the airline have decreased, the habits people acquired during the "lockdown period" continue to determine the direction of trade. In this context, air cargo transportation operations will remain stable as offline shoppers demand that their products be brought by air.
• Rising ticket prices due to high dollar-indexed fuel prices have also restricted domestic travel. Our people have also given up on intercity travel if it is necessary. The same situation is happening in the fresh fruit and vegetable market and the fruit market. Agricultural enterprises will start producing fresh fruits and vegetables in fields close to consumption centers to eliminate freight prices, which have an essential place in price formation.
• Manufacturers who cannot purchase new products due to stagflation will continue using existing vehicles and durable consumer goods for extended periods. Accordingly, in the coming period, professions such as automobile repair, refrigerator and washing machine repair, computer repair, shoe repair, and tailoring where clothes are modified will start to earn more income.

ALL REASONS OCCURRED SIMULTANEOUSLY IN THE CURRENT CRISIS

At the global level, humanity has faced many periodic economic crises. Some of these periodic crises are due to cyclical reasons, some due to excess supply or contraction in demand, some from global climate changes, some from natural disasters, and Some from political instability. Unfortunately, the crisis we are currently experiencing was caused by all these factors simultaneously. In this respect, although others have taken their place in history as economic crises that were overcome within 1-2 years, the recovery of things at the global level will take longer since the reasons for the situation we are currently experiencing are multiple.

The crux of the matter lies in the scientific examination of stagflation's causes and the subsequent implementation of scientifically-backed precautions. Without this crucial step, societies will lack confidence in the measures taken, potentially prolonging the crisis.