[dakiol]

Perhaps I'm naive, but I think companies are doing massive layoffs these days because of some sort of "domino effect".

There are companies out there who would love to lay off half their staff, but in regular times they couldn't just do it (because it wasn't a common thing, and makes them look "bad"... everyone would protest). But since nowadays every damn company is doing massive layoffs (and not unknown companies, but companies like Twitter, Facebook, Google, etc.) then they take advantage of the situation and proceed to do the same.

> While we are looking forward to what’s to come in 2023, we must also make hard decisions necessary to set us up for long-term success.

This could have been said any damn year in the past, but massive layoffs is the latest trend, so why not.

[super256]

The FED is currently raising rates to fight inflation. One of the FED's main goals is slowing down demand, as policymakers can't control supply.

So, to fight that elevated inflation they are killing demand, and when demand sharply drops, you can't keep paying your workers as before (because you sell less goods!).

Moreover, companies simply got fat during the pandemic and over hired. I mean, there are probably also a few (lot) companies which do what you write, but I don't think Flexport is one of them. It's more likely they over hired like everyone else. Also, you might want to take a look at the current container fright prices [1]. Pretty parabolic.

[1] https://fbx.freightos.com/

[themagician]

Another impact of rising rates and declining demand is decreased credit lines and increased costs.

The world, particularly business in the US, really did get used to cheap borrowing for everything. Using a line of credit for everything or acquiring massive amounts of easy to service debt has been basically a standard business practice for the last 20 years.

I am actually surprised things haven't imploded yet. So many companies have acquired massive debt that's going to become increasingly impossible to service. It feels to me like we are waiting for the first big domino to fall.

[bobthepanda]

I mean, we have seen this before. This is particularly classic in retail, with a lot of overleveraged expansion of new locations by both department and big box stores in the US.

Some dominoes took longer to fall than others (Circuit City was fast, Sears took half a century)

[themagician]

I'm seeing this right now in retail, actually. Particularly retail that got snapped up during the pandemic by private equity which already had high levels of debt. They are opening new stores left and right… and their expansion seems unabated by recent rate hikes. I have to imagine that can not last forever.

[csomar]

This was the case against raising interest rates in the EU. It’d affect the servicing of the debt for countries like Italy.

Companies are screwed. Big companies might get bail out, or not. Governments, especially big ones like Italy, will probably get a bail out and break the stupid system once and for all.

It’s not that the system does not work, but it’s getting abused left and right by people who think they know shit about economics.

[runamok]

If the massive debt is at 1 or 2% interest they could essentially bank a fairly small portion of it to service that interest. When instead debt is at 7+% it's a whole other story. You better be building something that will shake loose enough profit to service the debt.

[rafale]

Also the market is betting the Fed will not stick to their forecast and will end up lowering rates in 2023.

I tend to think they will stick to their guns: they will raise to 5+% and stay there as long as unemployment is below 4.5%

[TigerTeamX]

Thanks for the good explanation

[ec109685]

They can control supply via immigration and lowering tariffs.

[metacritic12]

Not the Fed. The rest of the government, yes.

[SilverBirch]

This is literally what interest rate hikes are meant to do though, and everyone plays along. You hike rates, which switches people to saving instead of spending, since no one is spending companies cut costs and downsize instead of spend for growth and hey presto, demand collapses.

In a cheap money environment you take the money and you gamble for growth, in an expensive money environment you do your best to run lean. The pain is moving between these two. The winners are the guys who did a raise at the peak and can use that cash to accelerate through the downturn, and the losers at the guys who just didn't quite get there, who now are forced into taking capital at a massively diminished valuation.

[blippage]

> In a cheap money environment you take the money and you gamble for growth,

It's a classical Austrian economists nightmare. The argument is that cheap money stimulates malinvestment. That is to say that corporate projects that would not have made adequate returns on capital under normal circumstances seem to look feasible.

It's all fun and games until the tide turns, and then the whole edifice collapses like a house of cards because it was built on shaky premises that no longer hold.

[nly]

*Servicing debt, instead of borrowing and spending. Very few people save in the best of times.

[madrox]

This was my initial take six months ago, but I've come to realize this is about runways. Imagine you just lost your job. First thing you'd want to do is get some idea of how long it'll be until you can get another one, then look at your budget and cash on hand to make sure you can pay the bills. If you don't, you have the options of borrowing money (which is hard and a bad deal in these circumstances) or selling some of your stuff. This is basically what companies are doing.

It's a bad deal for companies to borrow money or take big investments when interest rates are so high. If you want to avoid doing that, you need to predict when interest rates will drop and make sure you have enough cash to ride it out. In spite of being successful, some companies don't have the cash, and they need to reduce their burn rate.

[pm90]

Amazon and Meta are at 0 risk of running out of money. They make billions in profits.

Smaller companies that are still not generating profits? Absolutely they need cuts to survive.

Both of these things are true at the same time. I’m continually surprised at how quickly people have bought the excuse trotted out by extremely profitable companies for mass layoffs. In that situation it is primarily an exercise in juicing up the stock price and keeping investors happy.

[andsoitis]

> Amazon and Meta are at 0 risk of running out of money. They make billions in profits.

Companies don’t try to break even, they try to make money because higher ROI means you’re more valuable.

[kqr]

More than just make a profit -- they need to be a better investment than e.g. Treasury bonds, for the additional risk. Which means higher Fed rates put the bar higher for acceptable profit levels for companies.

[deltree7]

How about you go raise money to start a company and tell them this exact thought process?

[dpflan]

This is from earlier and seems pertinent: Why are there so many tech layoffs, and why should we be worried? (stanford.edu) - https://news.ycombinator.com/item?id=34339698

[zitterbewegung]

You are naive they just want to rehire positions at lower rates if you see in the article they are cutting 600 but are hiring for 350 to 400 people. It would immediately allow them to replace higher wages workers that have been with the company with entry level positions . Also it seems like an identification of long term trends and they figure they want to invest in automation.

[dakiol]

Well, that's what I said. They are doing it not because of "bad times" or "recession" or "post-covid era", they are doing it because that's what they wanted to do from the beginning. They couldn't do a massive layoff in the past because it would get them bad rep, but nowadays, it barely is a thing anymore (just look at this thread: people commenting "well, at least the severance is nice". What the hell? Massive layoffs shouldn't be seen as regular news)

[72f988bf]

> They couldn't do a massive layoff in the past because it would get them bad rep

Forget about "bad rep", it was a bad economic decision: why let go a slight underperformer (a now-known 0.8x engineer) that you hired in 2015 at pay X, if in exchange you hire a "expected normal 1.0x engineer", but at a price of 1.8*X in 2021 due to crazy escalation of SWE salaries in that period.

(Assuming you have a perfected/more picky hiring process that knows the median hire will be a 1.0x engineer)

Now in 2023, the situation is different: you can hire a "expected normal 1.0x engineer" but at pay 0.8*X (adjusted for inflation - ratios all made up)

[hamandcheese]

The roles fired and not the same as the roles hiring, for the most part.

[htkibar]

The way the article is written is a reorganisation almost, normally you are supposed to let your workers move into other roles, if they are willing. Not the same as reduction in force.

[hamandcheese]

I’d sure like it if everyone could just decide to be a software engineer over night, but I don’t think that’s realistic expectation.