With so many competing narratives on the outlook of the supply chain industry, it is increasingly difficult to glean solid information that will benefit future planning. Tactical challenges impact long-term strategy, but how can we plan for the unknown?

War, inflation, interest rate changes, labor shortages/issues, and more stress businesses.

Three years ago, in 2020, the world faced the COVID-19 pandemic, which disrupted supply chains and the general global market in ways not previously anticipated or imagined.

2021 brought us further economic erosion, domestically and globally, with the beginnings of inflation, declining GDP(s), a devastating microchip shortage, and a contraction of the money supply, which was already affected by over a decade of artificially low-interest rates, leading to a market flooded with cheap cash that has now dried up.

2022 saw a conflict in Ukraine impact the energy and agriculture sectors while the Fed continued to tighten monetary policy (by increasing interest rates), affecting every aspect of society and devastating the global economy, specifically Europe.

The whole time we, as industry professionals, were forced to react to the market forces that are changing rapidly how we conduct business.

What will 2023 hold? Will we have a full-blown recession? What will that mean for supply chains? Will capacity and pricing normalize? How much of the pain was/is/will be from reaction-overreaction in the supply chain?

Any assumption could be considered valid. Economists, strategists, and logisticians are all in agreement on one thing… we just don’t know when normalcy will return or what it will look like once we have landed.

We are still reeling from COVID-19…3 years later! As the pandemic gripped the world, carriers, manufacturers, and distributors reduced supply anticipating a decrease in demand as businesses shuddered and people were required to “lockdown.” Instead, due to the injection of trillions of dollars to keep businesses and consumers above water, demand spiked, internet purchases shot up, and orders increased. With few places to spend money, many turned to e-commerce for shopping.

As a result, suppliers could no longer rely on lean, just-in-time manufacturing methods.

Physical inventories have outpaced demand now that the free flow of money into the economy has been restricted. As a result of the unanticipated demand and reduced capacity, ports grew congested, lead times lengthened, and costs increased more than at any time in history, as much as 5,000%.

Shortages of some commodities and surpluses of others rippled throughout the supply chain. Eventually, excess inventory will need to be liquidated, and doing so would have to happen in an environment of declining demand, rising CPI, an expensive dollar, and generally unfavorable economic factors to do so.

China just lifted its zero-covid policy after three years, which threatened to shut down some of the world’s busiest ports at any given time and created many of the logjams and headaches we have seen over the years. While that will undoubtedly add confidence in many supply chains, how far will we go to relieve the pressures on our end?

Labor and infrastructure have also been issues since 2020 (or earlier), which will continue. With such high inflationary levels – which do not include the extreme energy or housing sector fluctuations in their calculations - the labor issues will be exacerbated.

Inflation, coupled with inadequate infrastructure in at least the near term, leads to unrest in the labor market and the potential for strikes.

Additionally, the workforce shortage in the trucking industry exposed an issue of driver retention, which has been an ongoing problem and will persist in the industry. According to the American Trucking Association, the trucking industry will be short 160,000 drivers in the next ten years.

To address the issues of roads, ports, bridges, rail, and other areas where the US needs an upgrade to remain competitive and handle the volume and capacity of the future, the Biden administration announced a $550 billion federal investment into infrastructure.

However, it will take time for that investment to take effect. Shippers will still be moving cargo via outdated roads, ports, and rail for the near future until these infrastructure investments can be realized.

Key economic indicators point in the wrong direction, but how will the supply chain industry respond?

If the economy contracts significantly, declines in spending and employment could lead to an increase in extended payment terms, payment defaults, and supplier bankruptcies. Higher interest rates may dampen US demand where exports decline (as they have been since 2020) even as the strong dollar makes imports more affordable.

Coupled with inflationary price pressures, a recession may jeopardize demand/supply equilibrium and throw us another curve ball.

Since the beginning of the pandemic, the global strategy has been one of resilience. With that resilience, a call came for more efficient and accurate visibility and IT infrastructure. While we continue to see improvement in our supply chains, we will see ongoing challenges and pressures across all trade lanes and markets. It will be a while before supply chains fully stabilize, and we may never fully return to the efficient “just-in-time” world seen before the pandemic. Despite these ongoing supply chain resiliency challenges, we understand that our customers’ work cannot stop and the importance of maintaining operations while managing costs.

At NNR, we continue to invest in our infrastructure to support our clients more effectively and efficiently. We understand that education, communication, and partnership remain vital in continuing to navigate the challenges.

Although we cannot control the global supply chain issues, we will continue to be transparent and straightforward about the challenges, accompanied with solutions, and work closely with our clients and vendors to navigate these challenges together.

Together, we will overcome the short-term tactical challenges to develop a sustainable and successful strategy to push forward.