Part I – Uncertainty in the Logistics Outlook for 2023
This is the first of two articles around navigating the uncertainty in logistics over this next year. We will explore some of the macro-economic and geopolitical factors that may generate uncertainty in logistics. We will also review changing conditions in logistics and some of the projected trends for the year ahead.
In recent years, we have experienced a variety of challenges in logistics, impacting how we conduct business. With uncertainty in the forecast for 2023, additional supply chain challenges and disruptions are anticipated. This uncertainty can impact companies in many ways, as we have seen in recent years. For companies to navigate the uncertainty, they may focus on the importance of planning, flexibility in their operations and creating mechanisms to increase their resiliency.
2023 could be a challenging year in logistics, as there are many variables that may impact several facets of supply, demand, and cost structures. Some of these factors stem from macro-economics. For example, the overall global economy is projected to slow, with growth expected to fall by a half percent, while some regions such as Europe falling over 2.5 percent. This may result in layoffs, creating adverse impacts to the supply chain. With the increase in inflation and interest rates, this
may slow consumer demand, and if not balanced well, potential recessionary affects. If this slowdown occurs with a drop in demand, it is possible we could see a large shift in capacity of goods transported, which could send another ripple effect through the economy.
Freight has experienced large swings over the past year. As companies surged to bring in increased levels of inventory to meet increased consumer demands, companies paid elevated shipping prices and have accumulated elevated inventory levels. In 2022, the increased demand sharply raised prices in container, fuel, and trucking prices, which contributed to inflation. As the economy has softened in recent months, we have seen shipping rates from China drop by 90 percent year over year. With demand dropping, the shipping rates dropping are welcomed by companies. However, we may start to see blank sailings (when a scheduled sailing is cancelled), once again restricting availability and creating receiving delays. With continued labor shortages, we may also see constraints in the middle and last mile of transportation, creating additional unpredictability in delivery.
In summary, 2023 may include some relief in shipping costs and reduced transit delays, especially in the first mile. However, with a variety of geopolitical tensions and instabilities, coupled with potential large shifts in supply/demand balances, companies may experience some unexpected surprises in logistics this year. In our next blog entry, we will feature a second part to this article where we will discuss how companies can prepare and respond favorably to the uncertainty ahead.