Managing the supply chain the last two years has been no easy feat. Shortages, delays, and price hikes had even the most seasoned supply chain leaders playing whack-a-mole with evolving challenges. Now with a slowing economy and the pandemic shifting to endemic status, people want an important question answered.
“Will the supply chain get better in 2023?”
Yes and no. The good news is that several of the problems plaguing the supply chain will improve in the coming year. However, some challenges will stick around. Following are some highlights and lowlights for what 2023 has in store.
The Improvements
- Speed
The pandemic prompted many companies to reshore or nearshore their manufacturing. Many of the early adopters of this tactic will have new facilities coming online in 2023. These efforts will continue to be a big area of investment for manufacturers in the coming year as well. A shortened supply chain will improve transit times. The move also will help companies bypass many of the shortages and backlogs from the past 24 months coming out of Asia.
- Prices and Capacity
Shippers can expect capacity improvements in 2023—especially among cargo ships. A container shortage at the height of the pandemic now has created the opposite problem. Spot rates are down about 60% in Q4. The order-book-to-fleet ratio currently sits at 28%, its highest point since 2010. The data strongly indicates container ship capacity will outpace global demand in 2023.
The number of passenger flights is also increasing with belly capacity for cargo up 23% since last year. Trucking spot rates currently sit at their lowest point since early 2021. Contract rates are averaging 2-7% less heading into 2023, reflecting an increase in over-the-road capacity. Shippers will have a stronger position when it comes to rate negotiations for cargo movements.
- Inventory
The pandemic’s impact on demand left some shippers with total inventory stockouts. This prompted companies to saturate their inventory stores, especially over the summer to prepare for Q4. While decreasing consumer demand is never a good thing, the current slowdown will give companies an opportunity to return to normal inventory management practices and the cost benefits that come with lean inventories.
- Reaction Times
The past 24 months had many shippers scrambling to manage the daily onslaught of supply chain issues. Surviving meant doing whatever it took—and paying whatever was needed—to keep materials and products moving. The new year offers the chance for a reset. Rather than operating reactively, shippers will have the chance to evaluate their supply chain strategies and correct many of the weaknesses. 2023 will be a good time to test new strategies as well.
The Persisting Problems
- Global Labor
Despite threats of a recession, global labor shortages will remain a major headline in 2023. Expect labor actions, including strikes, in countries across the world as people pressure companies to raise wages and improve working conditions. The Russia-Ukraine war and China’s zero-COVID policy will further cause labor shortages impacting the international supply chain. More than 500,000 open positions currently exist in transportation and logistics in the United States, a problem that will continue into next year.
- Diesel Prices
Fuel prices are crushing carriers and 2023 will offer little help. The Department of Energy’s Energy Information Administration projects diesel to average $5.12 per gallon for Q1 of 2023. While prices are anticipated to decrease 13% by Q4, the $4.45 per gallon is still 50% higher than 2020 prices. Expect this to factor into rate negotiations with carriers.
- Climate Change
The impact of climate change often is undervalued in supply chain discussions. However, this is a growing cause of disruption. Low water levels in Germany are impacting economic activity. The same is true for the Mississippi River which has resulted in a logjam of more than 100 vessels. The number of annual hurricanes is increasing as are droughts, fires, and heatwaves. Expect the volume and intensity of weather events to impact the supply chain in 2023 and beyond.
- E-commerce Cost Pressures
E-commerce’s growth trajectory will continue with more than $6 trillion in global sales next year. Unfortunately, many of the cost pressures plaguing e-commerce will grow as well. UPS and FedEx both raised rates multiple times in 2022 to account for increased demand. The 2023 General Rate Increase for the carriers sets an all-time high of 6.9%.
Shippers will need to experiment with new strategies in 2023 or continue absorbing rate hikes from parcel carriers. One promising and underutilized strategy is zone skipping. The practice bundles small parcel shipments for the longest leg of transit before separating them for the final mile.
Look to Langham for Solutions
Need help navigating the benefits and barriers of 2023’s supply chain? Langham Logistics transports goods worldwide using a skilled team of experts and business intelligence software that lets us see what others overlook. We know the landscape and how to manage it. Langham Logistics solves even the most complex supply chain challenges making us ready for all that 2023 has planned.
