The supply chain in 2022 continued to be a point of frustration for businesses and consumers alike. A recent Gartner survey found that 76% of supply chain executives say their company is facing more frequent disruptions than three years ago. Meanwhile, shipment delays between China and major United States and European ports have quadrupled since March 2022.
This past year, shippers and carriers were also impacted by global political unrest, a shortage of truck drivers, port congestion and imbalance of shipping containers. With problems stacking on top of one another, is there any hope for the future of our supply chain?
I believe there is. Here are four of my predictions and expectations for how 2023 will reshape the global supply chain.
- Port and rail congestion will finally ease
Massive backlogs and disruptions spurred by the pandemic caused supply congestion at U.S. ports and rail yards. But at the end of November 2022, zero ships were stuck off the coast of California for the first time since October 2020. Across the country, overall port congestion is down 60%. This is partially because cargo thefts spiked at the start of 2022, causing importers to lack trust in the rails. That distrust continues, and with the resulting low demand, log jams can alleviate themselves. This will mean cargo isn’t sitting on the rails waiting to be pilfered.
I expect this lowered demand will continue at least through the second quarter of 2023, so overall congestion at docks and on the rails will continue to ease. After that, things will level off to numbers we’d seen before the pandemic, leading to fewer delays and a resumption of normal operations.
2. Warehouse capacity will remain extremely tight
Over Black Friday shopping weekend, internet sales smashed records. However, visits to shopping malls were down 2.3%, leaving excess inventories stacked up across the country. Market reports indicate there will be a shortage of warehouse space throughout 2023 because supply continues to outpace demand. Throughout the third quarter of 2022, the U.S. Industrial Vacancy Rate remained at 3.2%. Compared to the previous year, that’s a fall of 60 basis points, and it’s well below the five-year historical average of 4.7%.
While warehouse space is clearly tight, with time, I expect a gradual reduction of inventory levels and depressed import volume because of lagging in-person sales in the second half of 2022. Retailers will need to work off the excess inventory before any more is imported. This decline in demand, and the resulting rise in vacancy rates, will provide some much-needed relief to warehouse operators in terms of space. For users, it means less upward pressure on vacancy rate costs. Those rates directly impact the cost of storage, so when space frees up, warehouse operators will need to be more flexible in pricing.
3. Shipping rates will continue their dip
As a result of high warehouse inventories and low consumer confidence due to inflation, importers have reduced their overseas orders. This has cooled off ocean and trucking carrier costs, leading to lower shipping rates than we’ve seen in some time. This could impact the number of ocean carriers on the market as we might see consolidation if carriers need to renew their focus on deploying cash. Carriers merging with major alliances has already been going on throughout the past decade.
It won’t be immediate, but I believe shipping rates will eventually stabilize after carriers adjust for the huge amount of shipbuilding currently in progress and refit vessels to align with new emissions standards. Both scenarios will impact the amount of supply in the market and then balance out shipping rates. Trans-Pacific eastbound ocean rates should be fully restored to pre-pandemic levels by April because of the dip in demand typically seen in Q1. Rates could even reach 10-year lows come summer. After years of pandemic uncertainty, companies are asking for stability, and fixed shipping rates will give them that.
4. Ocean blank sailings will remain high
High supply and low demand is also impacting the number of blank sailings—when a carrier decides to skip a port or an entire leg of its schedule to manage changes in demand and capacity. This affects delivery times, and it strains relationships between retailers and customers who are expecting their orders in a timely manner.
Leading up to Christmas 2022, shipping companies canceled a record number of sailings to shore up sliding rates. At the Port of Long Beach, for example, as much as 15% of its export capacity was tied to canceled vessels, and more cancellations could be on the way. With softening rates and the potential for new vessels on the market, carriers will likely continue to protect their levels and monitor specific trades’ capacity in relation to demand. With these issues in mind, I predict blank sailings will remain prevalent in 2023.
The supply chain saw chaos and hardship in 2022, but it was able to make improvements as well. In October, the Global Supply Chain Pressure Index was close to its lowest level in nearly two years. Meanwhile, the Institute for Supply Management’s supplier deliveries index is at its lowest since 2009, and nearly 90% of panelists reported the same or faster deliveries compared to the prior month. While the supply chain may not completely normalize to pre-2019 levels, if my predictions come to pass, we’ll see steady improvement in 2023.
Source: Forbes
