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Based on the most recent Consumer Price Index (CPI) data from both the US and Canada, industry analysts are warning of a steady state of inflation in the logistics sector, urging consumers to prepare now.
Economic-based supply chain challenges seen throughout the last quarter of 2022 are likely to continue into 2023. A review of cancellation in scheduled ocean freight due to congestion at US ports, rail congestion, chassis shortages, and a world-wide lack of localized trucking capacity for containerized shipments, all suggest a moderate recessionary effect will continue throughout 2023. Expiration of Covid-related stimulus support by G7 member states will likely add to the weakened consumer demand, already impacting poorer countries and regions.
Inflationary pressures will also have a continuing impact on shipping, including higher fuel costs, increased transportation costs, and higher prices for goods and services. These drivers can lead to reduced demand for shipping services, increased competition, and reduced profit margins for shipping companies, mandating the need for more robust business intelligence.
Both warehouses and distribution center managers have signaled the likelihood of rate increases, with US storage prices increasing on average 1.4% per month, and nearly 11% since last year. Inventory oversupply should further impact consumer prices, again presenting customers with less affordable options for holding inventory.
What about the emergence of One-Stop Service Consolidation? The continuation of shipping industry integration is expected to result in further challenges for customers. Larger, more integrated companies have shown they can benefit from economies of scale and scope, which can lower costs and increase efficiency. Smaller, independent shipping companies may struggle to compete in this environment, leading to further consolidation and concentration in the industry.
Signaling further plans for diversification, Carriers have expedited efforts to integrate logistics services and expand end-to-end delivery capabilities, providing opportunity for businesses that implement logistics technology to negotiate more favorable Carrier contracts and rates.
A growing number of Carriers are investing in port assets to ensure their customers and contracted vessels receive priority while calling at their terminals, strengthening positions as reliable service providers. While evident in larger multinational carriers, the additional revenue seen from integration of services has smaller players seeking to offer similar support, at a boutique level.
Additional investments in ports, terminals, air capacity, train operators and logistics assets suggest a growing trend to buffer the effects of seasonal and cyclical shipping variances and develop more robust and predictable operations across the entire supply chain.
Note: The labor unrest is real. As labor disputes continue, the cost of labor in 2023 will remain a significant expense for high-volume parcel shippers, including salaries, benefits, and training. Increases in labor costs can result from a variety of factors, such as minimum wage increases, changes in labor laws, or shortages of qualified workers. These costs will likely put pressure on a company’s profit margins and lead to higher prices for customers, increasing the need for accurate reporting of true costs.
As one example, a major rail strike loomed late in 2022 between the country’s largest freight railroad companies and several unions, after union leaders defeated proposed contract offers to date. The fear of a strike was real, with industry experts estimating a shutdown that could cost the nation’s rail system $2 billion a day. In a last -minute rescue, Congress intervened as the threat of a strike loomed, refusing to support the paid sick leave provisions workers sought, and preventing workers from walking off the job weeks before the holiday season.
Currently at UPS, negotiation reports indicate that, absent a resolution by their July 31 contract expiration, a strike is likely guaranteed by the controlling Teamsters union. “We’ll either have a signed agreement that day or be hitting the pavement,” according to union President Sean M. O’Brien.
A UPS strike would not be unprecedented, as seen in 1997 when UPS Teamsters halted deliveries for more than two weeks before a new contract agreement was reached.
As a logistics management measure, analysts again are advising shippers to begin contingency planning as soon as possible, since capacity at other carriers will quickly run out. Further labor disputes are expected in 2023, as workers push for better conditions and improved wages to combat inflation.
Overall, economic conditions through 2023 are expected to have significant implications for the shipping industry, affecting everything from demand for shipping services to costs and regulations. Companies who can meet the challenges through more robust logistics management will be better able to respond and adapt to change. Ultimately, those who manage their costs effectively will be better positioned to succeed in a rapidly changing global economy.
Global Supply Chain Pressure Index (GSCPI) Estimates
January 2023, The New York Federal Reserve: https://www.newyorkfed.org/research/policy/gscpi#/interactive
What Consumers Carriers And Suppliers Can Expect From The Supply Chain In 2023.
Supply and Demand Chain Executive, December 2022: https://www.sdcexec.com/transportation/article/22578797/worldwide-logistics-group-what-consumers-carriers-and-suppliers-can-expect-from-the-supply-chain-in-2023
There’s A New Inflation Warning For Consumers Coming From The Supply Chain.
State of Freight, February 2023:
10 Trends Expected To Define Supply Chains And Shipping In 2023
Maritime Insight, February 2023: https://www.marineinsight.com/maritime-law/trends-expected-to-define-supply-chains-and-shipping/