The Ferrari Consulting and Research Group through its affiliate the Supply Chain Matters blog unveils a summarized overview of our annual prediction themes for industry and global supply chains for the year 2023 and beyond.
In Part One of this two-part commentary, we first look back in a summarization of the challenges and action taken by industry and global supply chain during the past three years. We will then proceed into what we expect major themes to be in 2023.
Looking Back Summary- Prediction Themes of the Past Three Years
In summarizing the challenges and performance of industry supply chains over the last three years, we start with the year 2020 when the Covid-19 pandemic initially impacted global economies and businesses. In our research advisories, we indicated that the pandemic tested the resiliency, ingenuity and resourcefulness of supply chains when it counted most. One of the most valuable learnings of 2020 was the value and dedication of people in supporting supply chain customer fulfillment needs.
The stated overall theme for our 2021 predictions series was a ‘year of renewal’ where new thinking, definition and directions would be addressed for what is required in a “new normal” of business.
The year featured continual component shortfalls, explosive inbound materials cost increases and continuous global transportation disruptions. Disruptions were brought about not only by the persistent and recurring spread of Covid-19 infections globally, but also significant storms and natural disasters, a one-week blockage of one of world’s most transited shipping canals, followed by complete disarray among global shipping schedules.
As the year 2021 drew to a close, industry supply chains experienced a constant struggle in attempting to respond to overwhelming pandemic related product demands. Upwards of over 100 container ships were queued across the Pacific Ocean seeking to be processed by the major U.S. West Coast ports of Los Angeles and Long Beach with the average wait time for ships to be unloaded reaching 20.8 days. Meanwhile, global shipping and logistics costs began to explode, and so did the windfall profits of major ocean container shipping lines and logistics providers who were collectively able to leverage extraordinary demand and supply imbalances along with major port backups.
While 2020 was depicted as supply chain’s finest hour, 2021 was portrayed as supply chain’s succumbing to multiple outside-in and inside-out challenges all occurring simultaneously. Business, industry or general media literally featured daily headlines regarding various aspects of supply chain related disruption. Rather than the year 2020 being the extraordinary outlier that tested the limits of business, the year 2021 provided the catalyst for exposing pre-pandemic risk exposures related to global based outsourcing, global transportation stakeholder conflicts and the need for added skills-based training and retention needs among multiple businesses.
Current Year 2022
The basis of our Ferrari Consulting and Research Group 2022 Predictions for Industry and Global Supply Chains in 2022 was the theme of ‘Reexamination’ which was a spillover of the escalation of global wide disruptions, supply chain driven cost inflation and critical parts shortages leading to lost revenue growth.
As depicted in our mid-year assessments, the global economic outlook significantly changed during this year with the IMF and the World Bank trimming their forecasts for 2022 growth. The ongoing Russia-Ukraine conflict has brought forward an increased threat of geo-political tensions, a global energy shock along with incremental shortages of agricultural products such as grain and key raw materials such as titanium.
The European continent has been especially impacted by high inflation, concerns on an overall shortage of natural gas supplies to fuel industrial and household energy consumption. By Q4, major European manufacturers were exploring alternative sources to produce energy-intensive products such as chemicals and fertilizers, with the U.S. seen as a likely alternative. In March, global equity investment firm Black Rock founder Larry Fink declared that the conflict has put an end to globalization that has been experienced over the last three decades. In April, economists at Goldman Sachs indicated that supply chain resilience had become a top-of-mind topic for manufacturers and retailers.
Global manufacturing activity as depicted by the J.P. Morgan Manufacturing PMI® began 2022 at an expansion value of 54.2. By November, this index slid to the contraction value of 48.8 reflecting a 29-month low. The overall theme depicted in the November reporting was an intensification of a global manufacturing downturn. The report headlines further pointed to a bleak outlook amid subdued business optimism, rising global-wide inventory, and leading indicators pointing to weaker intakes of new business.
Throughout this year, key manufacturing regions across China including Shenzhen, Shanghai, Beijing, Zhengzhou and Wuhan have been impacted by both the threat of and actual occurrence of new variant Covid-19 infection rates and the government’s zero-tolerance lockdown policies. The culmination and likely milestone action of 2022 was reportedly Apple acknowledging overall risks for its sourcing of manufacturing in the country and stepped-up efforts to seek alternative sourcing options in Asia.
The consumer goods demand that was experienced in 2021 clearly shifted by the mid-year mark and has presented continuing inventory challenges for retailers and businesses. At the same time, multi-industry supply chain teams have executed added defensive moves toward assuring more reliable supply of key materials and components. Continuing concerns have remained evident in the global wide shortage of semiconductor and some high-tech components.
In the area of global transportation and logistics costs, the World Container Index published by Drewy Shipping Consultants stood at $9,304 at the start of 2022, reflecting a nearly 138 percent year-over-year increase. In September, executives among major container shipping lines acknowledged a likely end to the 2021 shipping boom. By the beginning of December 2022, this same index stood at $2,284 per 40-foot container, reflecting upwards of a 75 percent decrease. Correspondingly, U.S, surface trucking rates have plunged to new lows. In 2021, supply chain transportation and logistics teams had little option but to execute contracts with carriers and logistics services providers to lock-in rate structures amid exploding rates. By the end of this year, spot rates are far less costly.
The most pressing concerns of senior business leaders remains focused on labor quality and availability, cost inflation and on mitigating supply chain disruptions for the business.
In our subsequent Part Two posting we will summarize what we predict will be the economic and business challenges of 2023 along with our overall prediction themes in key supply chain capability, process and technology areas.
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