Since the early days of the coronavirus pandemic, the supply chain crisis has been the talk of the mainstream media, with headlines dominating the business press throughout 2021 and 2022. Although a new book from author Chris Whipple claims that President Joe Biden thought the Fourth Estate “invented” panic on this issue, the plethora of snarls, from tampon to baby formula shortages, continues to persist. Gains are being made, but industry observers do not see light at the end of the tunnel for at least another year.
Polling on the Supply Chain Crisis
A recent CNBC survey of logistics managers at major companies and trade associations discovered that many do not think the supply chain will normalize until 2024 or after. Sixty-one percent of respondents reported that their current supply chain is not functioning normally. But the target dates for when they anticipated a return to some semblance of normalcy were fascinating:
- 2023: 19%
- 2024: 30%
- 2025: 10%
- Never: 12%
- Don’t Know/Unsure: 22%
Meanwhile, the same study revealed that nearly two-thirds (59%) did not believe the Biden administration understood the myriad of challenges facing the US supply chain.
“I’ve been saying [this] since the beginning of COVID. It will take a long time for the supply chain to recover the trucking industry,” Mike Kucharski, the co-owner and vice president of JKC Trucking, told Liberty Nation. “My industry is at war. What we’re seeing now is this massive domino effect that started when the world shut down for COVID, causing shockwaves throughout the supply chain. And I think the supply chain might never return to normal or no time soon. This might be the new norm.”
So, what problems are businesses confronting in 2023?
Understanding the Supply Chain Crisis
Considering that news coverage related to this subject has diminished in recent months, is now the time for governments and companies to declare the mission accomplished? Still waiting. Before diving into the various snafus negatively affecting supply chains, it is first essential to assess some data to justify industrywide concerns and skepticism.
The IRI CPG Supply Index shows that 89% of products are in stock, but this number diminishes for specific products, especially for general food (86%) and general merchandise (84%). The IRI CPG Inflation Tracker highlighted that prices are also elevated for products across the board, from refrigerated foods to home care products to health-related items. Go Comet data underscore that US ports remain congested. In Los Angeles, there is a delay of three to five days. Traffic is totaling eight days at the Bayport Odfjell Terminal in Houston, TX.
Overall, the Federal Reserve Bank of New York’s (FRBNY) Global Supply Chain Pressure Index (GSCPI) is above pre-pandemic levels and has steadily increased from October.
The first challenge is the cost of diesel. According to the American Automobile Association (AAA), the national average price for a gallon of diesel is $4.65, up 30% from a year ago. In California, the cost is around $5.60 per gallon. Although national stocks have rebounded since hitting multi-decade lows this past fall, the number of days of US supply (32) is still below pre-pandemic levels.
This has become a significant problem for truckers, and many of these firms are going out of business. Some of the largest entities are absorbing higher energy costs, but these higher prices are “killing the smaller charters,” Kucharski noted.
Labor has been another hurdle for the industry to overcome. The transportation and warehousing sector lost approximately 24,000 jobs in the fourth quarter. Hours worked have been flat for the past year, while average hourly and weekly earnings have fallen short of inflation, rising just 4.8% since Dec. 2021. Ultimately, the sector faces labor shortages, causing production to slow and transportation to experience delays. The American Trucking Association (ATA) estimates that the United States is short roughly 78,000 truck drivers, driven by early retirements and, if you are situated in California, the AB-5 legislation. Could automation be on the horizon?
In November 2019, Liberty Nation reported on the so-called gig worker bill that classifies owner-operated truckers as employees. Lawmakers say it is necessary to ensure workers receive basic protections, such as minimum wage, sick days, and health insurance benefits. However, critics purport that it has resulted in many truckers quitting or leaving the Golden State.
“It’s causing a shockwave and disruption,” Kucharski said.
China may be the other wild card to pay attention to this year. Economists say that supply chain measurements might evolve now that China has shifted away from its COVID-Zero strategy, something that has caused a tidal wave of infections, hospitalizations, and deaths. So, the future of Beijing’s woes might lead to either gains or troubles for Asian economies and the United States.
Is There Hope?
In the end, there may be a reason for optimism. The Drewry composite World Container Index (WCI) cratered 77% over the last year to $2,135.16 per 40-foot container. Transit times from China to the United States have fallen from a peak of 121 days to a two-year low of 75 days, although this remains above the pre-pandemic rate of 50 days. Xeneta’s global XSI reported that freight rates from China to the United States also have crashed by about 90%. After a pandemic-era buying frenzy, retail stores have been dumping their inventories at a steep discount. Still, recession-wary consumers have refrained from bingeing on these goods in the last couple of months (November retail sales tumbled 0.6% month-over-month, and real holiday sales fell 1.2%).
So, what does a normal supply chain look like at this point? Experts have said that getting diesel prices under control, in-sourcing manufacturing, and not relying so much on other countries for products would be some of the desired conditions. What about an economic downturn? A global recession to eviscerate demand could be the panacea to help stabilize the worldwide supply chain.
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