Logistics networks are absorbing a demand shock from elevated consumer spending on goods vs. services. The U.K. and U.S. have experienced the widest shift, while globally increased share of consumption of goods is proving persistent and widespread.

The congestion currently facing the global logistics industry is a function of both, a demand shock meeting relatively-fixed capacity, and a series of node-specific disruptions ranging from COVID19-linked port closures in Asia to shortages of truck chassis and port space in the United States.

On the demand side, the largest drivers have been buoyant household incomes, often reflecting stimulus payments in most major economies, combined with a swing in consumer spending towards goods and away from services. Flexport’s Post-Covid Indicator quantifies this effect for the United States and uses Flexport platform data to predict its future direction. This report adds similar measures for what has happened in other economies.

Latest Data Confirms Higher-for-Longer U.S. Spending Preferences

The latest data release on personal income and outlays, posted by the U.S. Bureau of Economic Analysis on Oct. 29, confirms our expectation that the proportion of consumer spending on goods versus services remains elevated compared to pre-pandemic levels.

Our PCI forecast for September that was published on Oct. 15 was 117, where 100 is equivalent to the balance of spending in the summer of 2020, and zero was the level before the pandemic. The outcome for September from the BEA data was also 117 as shown in Figure 1 above. Our forecasts for October and November are 112 and 122 respectively.

U.K. Beats U.S. in Goods Preference Shift

Looking globally, the United States is an extreme, but not the only, example of the shift in consumer spending towards goods and away from services. Figure 2 shows how the proportion of spending on goods versus services has shifted from pre-pandemic levels (2016 - 2019 average) using OECD local-currency data converted into dollars on a standardized basis for the selected countries.

The U.K. is the only country to have seen a larger proportional shift than the U.S. with goods versus services spending at 114% of pre-pandemic levels in Q2’21 (versus 112% in the U.S.) Note these figures are not equivalent to the PCI referred to above and Q2’21 is the latest datapoint available from the OECD.

Globally, the average has reached 106% in Q2’21, consistent with the Q1’21 level. Other standouts are Costa Rica and Chile at 109% and 110% respectively in Q2’21 having increased from Q1’21 levels. Notably Ireland and Luxembourg have seen a decline from pre-pandemic levels.

As is often the case in logistics, the origin matters as much as the journey. Figure 3 shows the Q2’21 goods’ share of PCE as a proportion of the 2016-2019 average (vertical axis) versus that average (horizontal axis).

The U.S. and U.K. have seen the biggest shifts but also had the lowest proportion of goods versus services in the pre-pandemic levels. That may explain why the logistics networks in both countries appear to have struggled versus their peers, though other factors such as Brexit clearly played a part and the relationship is statistically weak.

Nonetheless, the wide-range of economies facing elevated goods’ share of PCE and the continued divergence versus historic norms shows the demand shock for logistics networks is a global and persistent phenomenon.

That raises the thorny question of when, or whether, there’ll be a return to pre-pandemic conditions.

The honest answer is that it is too early to tell. If current spending patterns are purely a reflection of economic and public health issues then a reversion should come as those issues normalize. The relaxation of travel restrictions, for example from Nov. 8 for U.S.-inbound tourism, may provide useful data in that regard.

However, it is also possible that consumer behaviors have gone through a permanent shift and the current levels remain. Paying continued and close attention to the fundamental data—including through Flexport’s U.S. PCI measure—in the coming months will prove vital.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.