Economic concerns always have a direct tie to logistics and the supply chain

Concerns over the state of the economy are front and center these days, to be sure.

From a supply chain perspective, that tale is not too difficult to tell, at the moment, given record-high gasoline (specifically diesel) prices, inflation at 40-year highs, a cooling off on the demand front, ongoing challenges related to exports, and looming concerns over inventory levels, too. Not to be overlooked, of course, are employment and staffing-related issues, too, which tell the story of many sectors, with companies of all sizes struggling to get the people they need in key positions.

It is fair to say that any one of these topics could merit a column of its own, no question. But, considering the fact that many people really did not even have a basic fundamental understanding of how supply chain and logistics worked, prior to the onset of the Covid-19 pandemic in March 2020, these topics, and others, are more likely to be viewed by most people with a supply chain- or logistics-focused lens than ever before.

It is true economic concerns are out there and ring true, regardless what type of industry stakeholder you may be: shipper, carrier, 3PL, forwarder, broker, consultant, or something else. How can they not, given the decent number of signals we are seeing on the current state of the economy?

What’s more, there are other issues, with a supply chain and logistics focus, that also weigh heavy on people not in the field, too, including: China’s economic reopening, which could bring about significant levels of angst and frustration, with U.S.-bound ports likely to bear the brunt of the impact, in the form of what could be elevated levels of port congestion, at a time when port throughout, to a point, has ostensibly improved, in recent months, as well as the ongoing port labor negotiations on the West Coast between the Pacific Maritime Association and the International Longshore and Warehouse Union, with their current contract set to expire at the end of the month and a less than rosy track record, in terms of getting a deal brokered on time, in recent years.

This is not meant to have a “doom and gloom” theme, to be honest. A lot of takes on the economy can be taken in different ways. For example, for all of the talk about waning demand, retail sales continue to show growth and many ports continue to point to import gains, driven by strong consumer spending. But, at the same time, there are signs of reduced consumer spending, and, in turn, demand, with people worried about high gas prices and inflation, and some major retailers concerned about bloated inventory levels and taking steps to get out in front of it however they can.

Then, there is also GDP. Ben Hackett, founder of maritime consultancy Hackett Associates, and author of the excellent Port Tracker report, which is co-produced with the National Retail Federation made the following observations about the current state of U.S. GDP in the most recent edition of the report: “U.S. gross domestic product shrank at an annualized rate of 1.5 percent during the first quarter, the first quarterly drop since the pandemic hit the economy in the second quarter of 2020. Despite that downturn, economists are projecting that GDP will grow for 2022 overall, although at less than half the 5.7 percent rate seen in 2021 and with a further slowdown in 2023. There is no consensus that there will be a recession this year or next, but the Federal Reserve needs to strike a careful balance as it tightens monetary policy to tackle high inflation.”

As always, Hackett takes a balanced and measured approach and puts it into broader perspective in an objective manner.

As for the aforementioned import outlook, Hackett explained that the impact of the economic slowdown on trade has yet to be felt as consumers are taking advantage of higher wages, increased employment and savings built up during the pandemic, all of which support strong demand for consumer goods.

“This is reflected in our current projections of a 2.6 percent growth rate for import container volumes for 2022, pushed mainly by a stronger East Coast,” he wrote in the report. “Much of the growth will be in the first half of this year, which is expected to be up nearly five percent compared with the same period last year. Importers continue to re-stock their warehouses in the continuing environment of delays caused by labor shortages in the supply chain.”

Hackett added that the early stages of a decline in import growth rates are likely expected over the second half of 2022, with the economy responding to anti- inflation policy measures taken by the Federal Reserve.

There are so many signals, indicators, signs, or whatever else you want to call them, regarding the economy out there that have so many of us on edge, wondering what is going to happen next. That is not meant in an alarmist sense; it is just that there are many things that need a watchful eye, of course. Covid happened and will be with us for a while, in terms of its aftereffects on the economy, no doubt. But, as we go forward, there are sure to be new challenges, which will likely bring new economic issues with a direct tie to supply chain and logistics. As has been the case since March 2020, be sure to expect the unexpected as the ride goes on.