LM Group News Editor Jeff Berman recently caught up with Bart De Muynck, Chief Industry Officer, for Chicago-based supply chain visibility services provider project44 about shifts in global supply chain patterns, at a time when economic uncertainty remains firmly intact, in the form of things like still-high inflation and decreased consumer demand coupled with signs of supply chain stabilization such as reduced port congestion and lessened logistics bottlenecks on a global basis. Their conversation follows below.
Logistics Management (LM): What, in your opinion, are the key drivers in supply chains recovering and issues easing?
De Muynck: On the one hand, we see things improving. We've seen leadtimes and transportation rates going back to normal. On the other hand, supply chains are still witnessing high inventory levels, putting big pressures on profit margins and free cash flow. In return, that has significantly slowed down the iimport of goods from abroad. This is very visible at large ports like New York and Long Beach, where very significantly lower volume is coming in and, hence, activity levels are very low. High inflation rates are still impacting consumer spent in certain areas, although in retail, grocery and restaurant spend are still up. The high cost of capital with high interest rates is another pressure continuing putting pressure on supply chains. And finally the uncertainty that is being put by socio-economic and geo-political risks, are other impactful challenges to the supply chains.
LM: How much of an impact on this are declining import levels?
De Muynck: As mentioned earlier, the high inventory levels are forcing companies to buy less inventory, and result in declining import levels. This is also partially caused by the near shoring of certain activities, where you see increased activity in Mexico, but, at the same time, reduction of ocean imports from abroad. This has a huge impact on the logistics infrastructure in the U.S. We have seen rates go down as a result of it although ocean carriers are still trying to manipulate this through blank sailings and limiting capacity. On the over-the-road side, however, we see a very tough market for carriers with low rates and not enough demand for volume. In the long term, this will drive certain carriers (as well as brokers) out of business, which, in turn, will result in lower capacity when things pick back up.
LM: What are the biggest signs of evidence that things are improving within, say, the last 12 months?
De Muynck: Here are just a few examples that things are slowly improving:
But things are still challenging. We have seen the collapse of several banks (SVB, Signature, Credit Suisse), as well as tech companies, not to speak of layoffs at tech companies. Stock markets are still at lower levels. These are all results of economic indicators so we are not out of the woods.
LM: How do you see things playing out over the rest of 2023? Will things like inflation a freight recession, the recent bank failures have a negative impact or is it too early to tell?
De Muynck: Overall, optimism is starting to come back around the economy. I personally believe that in the second half of 2023 things will improve. Inventories levels, or, better, inventory-to sales-ratios, will start improving, and import orders will increase bringing back increased activity in transportation in the U.S.
But it will remain a challenging year for transportation. Strong companies, whether asset based, non-asset based and even tech vendors, will come out stronger. We will see weak and companies that are not well-positioned fail and not survive. But that on its own will bring back some balance that is much needed in a widely segmented market.
The bank failures will mainly increase the sense of risk although most banks have already been acquired (UBS acquires Credit Suisse and First Citizen acquires SVB). So, the government and the bank industry have stepped in to secure companies would bear limited impacts of those failures.