The supply chain in 2023
I’m writing this article around Halloween and while trick or treating is fun for kids in the neighborhood, for those involved in supply chain operations the words ‘trick or treat’ could take on a more ominous tone. Certainly, if you take a step back and think about all the challenges supply chains have faced in the last few years, it would be enough to frighten off the more faint-hearted from considering a career in the industry. Indeed, if you work with supply chain colleagues and they appear to have a somewhat haunted look, that is not just the Halloween spirit, there are real issues now and ahead in 2023 which must be addressed.
As my colleague Josh Brazil said recently: “We are living through a unique convergence of economic, environmental and social challenges, and the supply chain, which was fundamental in keeping the world moving during the pandemic, is being tested like never before…”
So, if you are in the supply chain profession, or a company waiting at the end of a supply chain for goods that might be critical for your business, how do you get your head around these obstacles? And more importantly, how do you minimize disruption and maximize the potential opportunities that effective management of your supply chain can offer?
Fundamentally, we must get used to operating in a state of permanent uncertainty, which is nothing unusual for the supply chain industry, but perhaps the level of unpredictability around economic, geopolitical and natural disruptions is what makes this even harder.
Surviving the scary season for supply chains
There are any number of real headaches facing both those operating in the supply chain industry and their end customers. Inventory build-up is a very real issue, because companies stockpiled goods in response to supply chain difficulties during the pandemic or due to late arrival of products that were ordered previously. This is now leading to surplus stock. In our October Ocean report, Nike was referenced as having $9.7 billion of goods on its balance sheet in the first quarter, up 44 percent on the same period last year. Amazon and Walmart faced similar inventory woes. Total retail inventories in the US set a new record in July at $731.6bn. With the prospect of a global recession on the horizon, retail inventories in the US are 46 percent higher than they were before the financial crisis in 2007.
From a supply chain planning perspective there is a real concern companies will miss revenue opportunities as they have not been able to clear existing stocks. With inflation hampering consumer demand and consumers’ knowledge of these high stockpiles, consumers are waiting on product clearances before being able to focus on Christmas. In our Global Insights analysis we reported that “as warehouses in both Europe and the US are full, the sizeable inventory levels resulting from the disappointing earnings reported by nearly all major retailers will continue to prompt mark-down sales and a cut-back on excess inventories.”
And Christmas peak season is not the only headache for retailers, who are already planning Spring Collections. In some cases, we have seen clothing retailers ordering next year’s collections back in the first half of the year. With shipping transit times coming down, it means product is getting to its destination quicker, but then dwell times in ports start to add unnecessary costs which may have to be passed on to already cash-strapped consumers.
That is not great when we already know inflation is clearly having an impact on consumer demand. While inventory has grown by 30 to 40 percent consumer demand has only grown in single digits. It means consumers are becoming more discerning about where and when they spend, so in turn, B2C companies are forced to offer more sales and discounts to shift inventory.
This creates another big headache for supply chains. Logistics does not like multiple peaks. All these supply chain issues create capacity inconsistencies. For example, reductions in the amount of time ships are berthed in port has led to greater capacity which has weakened spot rates and seen a dramatic increase in blank sailings. In the October Ocean report, blank sailings were highest on the Asia to Europe trade lane in September with an average of 41 percent compared to an average of 27 percent in October. The average for blank sailings on this trade is forecast to rise again to 31 percent in November.
The biggest problem these supply chain issues are causing for operators and their customers is cash flow uncertainty. Companies need cash more than ever in the current economic climate to be able to save. If they’re stockpiling goods, not shifting them, cash is not flowing. And we all know that cash has become more expensive with rising interest rates.
Outlook for 2023: Welcome to a world of unknown unknowns
2023 will bring other cost considerations. There will be more changes to regulatory requirements with scrutiny on sustainability reporting. IMO2023 (Oceanside) will mean older ships must slow down to reduce emissions with a knock-on effect for capacity as ships will reduce the number of trips. Combined with the rising cost of oil and bunker fuel there could be even more incentive for carriers to run slower steaming services to save on rising transportation costs.
Capacity issues will impact rates as demand is still strong. Supply chain operators and their customers will have to build this consideration into their budgeting.
Labor costs will also escalate as staff demand salary increases to cope with the cost of living crisis. We have already seen this impact on where goods are shipped as companies worry about fulfilling peak demand this Christmas. In the most recent Ocean report, New York has become the number one box port in the US, overtaking Los Angeles due to fears about strikes by the International Longshore and Warehouse Union. In our recent Global Insights report, it was estimated the eight-day strike at Felixstowe port impacted some $4.7 billion in trade.
Extreme weather events are also on the rise. Experts are warning about the social and economic impacts of extreme weather events, such as drought on the Mississippi and the Rhein which in the last year has impacted key transportation routes. In our most recent Global Insights report we flagged that this summer’s record low water levels on the Rhine forced many containers to use rail networks and trucks for shipping adding unexpected intermodal costs and delivery headaches. Such unpredictable changes have a knock-on effect for other ports as well, making it essential to have real-time visibility of supply chains so that logistics routes can adapt.
Supply chain professionals always cope with change and black swan events but given how central the performance of supply chains has become to the global economy there is even more pressure on the sector to reassure businesses they can handle not just the uncertainty, but the increased unpredictability of geopolitical, economic and weather factors.
What is clear from our data is that supply chain performance is an early warning system for potential softening in economic performance, underlining the strategic value to the business of having better visibility of what is happening. For example, in the October Ocean report Twenty-foot Equivalent Unit (TEU) volumes from Asia to North America were down eight percent in August on a year-on-year basis whereas Asia to Europe were down seven percent It also pointed to a similar reduction year-on-year with four percent less deployed vessel TEU capacity in September and a two percent decline in the number of vessels in the same period. With this visibility, companies can plan how they adjust production to reflect where demand is slipping and equally identify where it is increasing. Spotting these opportunities early, particularly in the current economic climate, will be critical to driving new revenue opportunities.
End-to-end visibility requires collaboration
Given so much uncertainty and unpredictability companies must manage their supply chains in such a way that they can be more pro-active or at the very least react in an informed way. End-to-end visibility is key, but that can only be achieved with collaboration. The best companies today in the supply chain eco-system are collaborating more and that should include the technology vendors providing the software to run these supply chains. It is absolutely crucial they work together to share data and collaborate more effectively, because ultimately the more visibility built into a supply chain the more it will have a positive impact on cashflow.
For example, in the October Ocean report carriers posted reductions in shipment delays of more than 40 percent year-on-year in September. Asia-Europe experienced a 19 percent reduction in shipment delays in September when compared to the previous month. On the surface this appears a positive development reflecting improvements in the processing of goods in ports, but equally it indicates a softening in demand simply because less goods are being processed.
The good news is that if companies get their approach right, there are opportunities to be had. The companies that were brave during the 2008 Financial Crisis came out ahead.
Make supply chain insights digestible
If a company can achieve end-to-end supply chain visibility through collaboration with its partners, it means they have invaluable data that can have a direct impact on business decision making and performance.
For example, everyone in the industry needs to have a wary eye on what dwell times might mean for Christmas sales. In the most recent Ocean report the number of vessels waiting to berth on the Eastern seaboard of the United States and Gulf Ports has jumped notably since July, particularly in the ports of Savannah and Houston, which experienced a 208 percent increase year-on-year in the number of vessels waiting to call at the ports in September. Savannah had the highest average with 37 vessels waiting to berth in September. New York and Houston had 25 and 24 vessels waiting to berth, respectively. Any delays to accessing stock could have a real consequence for those retailers on 5th Avenue hoping for bumper Christmas sales. With newer vessels carrying up to 24,000 TEUs, a single vessel delay could impact millions of consumers.
A complete and single view of supply chain data means businesses can be forewarned. In the Global Insights report terminal dwell times increased in European ports largely due to labor shortages and congestion. Limited trucking and rail availability also continue to impede the movement of goods at the ports, where most storage space is occupied to its full capacity.
Deciphering supply chain data and the lingo is not straightforward so it must be a priority to make data consumable for everyone in the organization. To get to that point companies must ensure they have all the data on one platform from ocean, road and rail routes. This gives confidence they have a complete picture. It also makes the user experience better, as users can adapt the data to their specific requirements.
Start small and build
Global supply chains are huge. It would be too disruptive to try to integrate all insights from every aspect of the supply chain in one go. It is better to start with one mode. Decide where to start by identifying where the biggest opportunity for improvement lies. For example, ocean visibility is easier in some senses as it is a less segmented market than road haulage.
Then adopt a step-by-step process and ensure the software provider is willing to be a partner on that journey. Every customer should be asking its vendor to help find value in the supply chain not just in the short term, but continuously monitoring for future opportunities. What we have seen work is setting up a center of excellence which encourages collaboration and enables customers and partners to constantly look at how to improve capabilities.
One aspect that should not be overlooked is talent, as developing a more integrated digital supply chain platform also requires very different skills. Given that every sector is facing huge challenges to find the right skills organizations need to think about how they attract the talent that will help their businesses in the next five to ten years.
Here too, there is a role for the vendor to be supportive. Next generation AI and automation tools can automate mundane tasks easing the burden on employees and allowing them to focus on more interesting, challenging tasks. Building a reputation as an innovator in supply chain technology will make a business more attractive to top talent.
Hopefully, this hasn’t put readers off a career in the supply chain industry. If anything, it should reinforce that it is probably one of the most exciting and fast moving career choices out there. Let’s face it, you will never be bored! However, as supply chain professionals we must also be realistic about what lies ahead. There is a real opportunity for data emerging from supply chains to offer strategic insights to critical business decisions in the year ahead, but access to that information will only be possible with end-to-end visibility and increased collaboration between everyone in the eco-system. Insights will have to be delivered in near real-time to keep companies ahead of the uncertainty and unpredictability. Get that right and the supply chain can demonstrate critical value to the business.
For a list of the sources used in this article, please contact the editor
Bart de Muynck is Chief Industry Officer at project44. As the supply chain connective tissue, project44 operates the world’s most trusted end-to-end visibility platform that tracks more than one billion unique shipments annually for over 1,200 of the world’s leading brands, including top companies in manufacturing, automotive, retail, life sciences, food & beverage, and oil, chemical & gas. Using project44, shippers and carriers across the globe drive greater predictability, resiliency and sustainability.