To view supply chain trends, we need to start from where we are. In a nutshell the pandemic and the disturbances it created made for some very dynamic changes in logistics. Where are we? We are still in the middle of these dynamic changes. We’re also the focus of consumers who have been watching, worrying, and hoping for the best.
Looking into the 2023 trends in published media we see some suggestions and questions.
Will the government intervene in the entire supply chain citing national security concerns? Some have talked about that possibility, especially as there’s a risk of a railroad strike next month in December. If that were to happen it could not only cripple our economy but cause a shortage in liquified gases used for home heating and other important chemicals used to treat our water supplies. This is raising very big concerns.
Another question… Will the labor market change? How does that look for a sustainable 3PL? Here’s my quick answer with more to come: We are seeing not only a shortage in the labor market but expect to see more layoffs companies such as Amazon are laying off over 1.5% of their workforce; Redfin is over 8%.
Will there be issues with supply and demand… will consumer demand decrease? With the onset of a possible recession, there’s a growing need for supply chain managers to manage costs and inventory management holdings. This is putting much additional pressure on those logistics companies that overstocked due to supply chain management issues and now are experiencing a drop in sales. I think we have all heard about the Crypto markets; the exchange has announced a 20% layoff of its workforce.
Keeping that in mind, all of these company layoffs have a spiraling effect. What this will most likely mean for the labor market is up to recent events. There had been a surplus of job openings by approximately 4.8M in the U.S. With the economic downturn expected in 2023 it will likely result in lower labor demand, both from the loss of jobs and the reduction of new job openings.
A company named Fitch Ratings has reported that “…with that lagged impact of aggressive Fed tightening, the drag on real wages from high inflation, and knock-on impacts from the downturn in Europe will drive the U.S. economy into recession territory turn of this year – with the unemployment rate increasing to 4.7% at the end of 2023, and peaking at 5.3% in 2024,” said Olu Sonola, head of U.S. Regional Economics.
Lower Prices for Consumers
Of course, consumers are hoping for lower costs and container rates have a lot to do with that.
Regarding ships and a surplus of ships, as mentioned at Fastcompany.com, next year they expect to see a rush of new vessels. “Some 28% of the current installed fleet capacity is on order and just under half of that is expected to be delivered over the course of next year, according to ING. That could make container rates lower, which could work out well for consumers, as shipping costs have actually already begun to drop.”
Lower costs for consumers? Will the container rates drop and provide some relief? I feel any relief to the consumer will be trivial for those items procured abroad at the current rate of inflation. The bottom line, we should not expect to see a lower cost for such items.
Automation & Robotics
Full-service supply chains have always been a very labor-intensive industry having a fairly high rate of attrition compared to other industries. As labor rates are continually on the rise these companies need to continually look at other ways to reduce costs to maintain profitability while providing a high level of service to their clients.
For a sustainable 3PL supply chain resilience process, one of the ways is to create more efficient operational processes with continual process improvement and re-engineering activities. This will typically include some percentage of automation; conveyors and sorters with the potential use of robotics. This will be much more efficient than human labor and can also displace a percentage of human labor costs.
However, this comes with a very high CapX cost that not every company is willing to invest in or can afford. This requires sustainable 3PL logistics supply chain professionals to seriously evaluate the savings and their return or investment (ROI) measure from displaced labor and added efficiencies on production floors.
We however know the one thing that’s a constant and most expensive line item on the P&L is labor, therefore as it continues to grow even higher the ROI for automation will continue to look better.
Circular Supply Chains/Economy
Before we get into circular supply chain trends, let’s explain what that is. With a concern of the constant growth in globalization demand, it becomes more and more important to become efficient with a Circular vs Linear “Cradle to Grave” supply chain.
Linear supply chain management begins at the cradle – from the initial procurement of raw materials and extraction to the production or processing activities; to a series of manufacturing plants; through ports, warehouses, and cross-docks; and finally to the end point of use at the consumer level, thus the grave.
Today most of this movement happens predominantly in a one-way flow. Alternatively, in the Circular supply chain, we would concentrate much more on efficiencies, waste reduction, and refurbishment flowing out every bit of value instead of the one-time use within the linear model. The Circular model of the supply chain visibility process essentially loops the materials through several life cycles in what would provide a more circular economy.
As reported by the Association of Supply Chain Management (ASCM), “These materials can loop within the same company, among different companies, and across multiple logistics industries. These loops produce value for both buyers and sellers. They connect the waste and by-product outputs from the seller’s processes to the buyer’s raw material needs as process inputs, creating a loop.”
The shift from linear to a more sustainable 3PL supply chain management requires organizations to redesign their models. It’s a big paradigm change from the linear model of what could be called take-make-waste-dispose of- to one that is more efficient in utilization.
A redesigned supply chain management model would see the fulfillment company adopt the 3Rs (reduce/reuse/recycle), and improve the sustainability of the operations, and efficiencies of inventories. This would include adopting JIC/JIT models (Just in Case/Just in Time), and the use of more green transportation to get those products to their multiple destinations throughout the life cycle.
As you can see the circular supply chain points toward one more trend which is seen in the word “Green”… sustainability. Through circular supply chain management, it is possible not only to reduce waste products but also to achieve self-sustaining production systems in which materials are returned to the production cycle.
Circular supply chains apply to both the manufacturing and service sectors. Various terms have been used to talk about the application of the paradigms of the circular economy – reverse/logistics supply chain, close-loop chain or open-loop chain, and green supply chain.
However, it is essential to consider the main characteristics of these different types of supply chains, since although they cannot be considered circular supply chains, they have contributed to their constitution.
Final Thoughts | Will The Supply Chain Still be a Threat in 2023?
As we approach 2023 we see the upcoming supply chain threat of a railroad strike. A strike is an urgent concern and could call for government intervention. It also appears we are moving into a possible recession with little to no reduction in logistics costs to the consumer. We see automation and robotics coming and we also see more of a circular supply chain on the way – a movement toward sustainability.
Regarding the labor market, it appears that the younger generations are showing more interest in blue-collar type jobs; turning away from corporate white-collar jobs. The labor market grew rapidly through 2022 emerging from the worst levels due to the pandemic.
Two things are true: Labor supply has not returned to pre-pandemic forecasts, and labor demand has been strong in relation to supply. However, with analysts predicting a potential recession in 2023 we can expect to see a leveling out in the supply of new candidates and a lower rate of job hopping.
I believe we will see a continued normalization within the supply chain trends as we get into 2023 but I don’t see it getting back to business as usual. One benefit to this is a weakening in demand, which is an artificial correction, but still one that will help to normalize.
The fact of the matter is there’s a hopeful picture as we are seeing improvement in the global transportation networks having more space available on container ships, the congestion at ports has decreased and the ocean containers and over-the-road freight rates are plunging.
I’ll end with the not-so-good news, which is the small parcel sector. It will continue to increase rates going into 2023 as they do every year. The duopoly – UPS/FedEx – has posted their highest-ever general rate increase (GRI), averaging 6.9% for 2023.
At AMS Fulfillment we are doing all we can to keep these costs as low as possible offering deeply discounted carrier agreements combined with our new rate shop optimization platform. For additional questions, Contact Us at AMS today!