By Michael Rofman, leader of the Transportation and Logistics Group at Mazars
Supply chain disruptions came in hot in 2022. This brought new challenges for businesses as manufacturers struggled to meet demand and find enough workers to fill production needs. Automakers such as GM were forced to close for weeks because of a lack of chips, and grocery store shelves went barren.
Transportation problems also developed, including a backup of shipping traffic in global ports and a shortage of truckers to haul freight. Who can forget the Suez Canal blockage that impacted 2022 supply chains starting in 2021?
The disruption continues to severely impact the global economy and fuel inflation, with transportation companies raising prices to offset higher shipping and labor costs. In fact, diesel prices in 2022 hit one of the highest U.S. national averages at around $6 a gallon in June.
While we all hoped these issues would start to subside in 2023, it’s now clear the Russia-Ukraine war will not end soon, putting even more pressure on supply chains and making them even more vulnerable to geopolitical forces.
Where does that leave us in 2023? There are many serious unknown factors we need to consider, including the ongoing war impacting energy and shipping costs, along with the ability to fill inventory; a turbulent global economy, which could impact access to credit, defaults and the labor market; and the semi-truck shortage, as the U.S. requires an estimated 200,000-250,000 new vehicles to maintain an appropriate fleet.
Here are some of my predictions regarding what will impact the supply chain the most in the coming year:
- As in most years, the upcoming Lunar New Year will affect global supply chains, but this year is different in significant ways. First, it arrives 10 days earlier than in 2022 (running January 22 through February 5), so enterprises need to have contingency plans in place sooner. Second, if millions of people in Asia travel for the festival, we could see increases in Covid infections — particularly in China, where in recent weeks Beijing has ceased ordering Covid-related shutdowns.
- During “normal” times, Lunar New Year results in a manufacturing shutdown and major supply chain delays. In-transit times commonly are pushed back three to four weeks. But given the continued uncertainty over Covid, businesses should have emergency plans in place to mitigate even longer delays.
- We expect regular gasoline prices to remain roughly where they are now for the near term, which is on par or slightly lower than they were a year ago. However, diesel prices are still in question with reports finding that prices are expected to fall from the 2022 highs, but remain relatively higher than previously experienced, as US distillate inventories stay low following the Russian sanctions. Businesses should account for fluctuating prices to impact their bottom line.
- In 2023, we’ll see the amount of inventory units return to normalized levels, but the average price-per-unit will be significantly higher. Warehouse rent sits at all-time highs, so vacancy rates will remain low on that front. We do expect to see continued investments in warehouse automation, which will likely make shipping go more smoothly in the years to come and inventory be filled faster.
- The economy likely will continue to be volatile in 2023, but we don’t foresee a massive 2023/2024 global recession. However, global growth will slow, particularly relative to explosive growth in 2022. We do expect more defaults and bankruptcies to shake up 2023 because interest rates will continue to rise, and banks will tighten access to capital.
- We anticipate seeing continued consolidation of trucking companies. Shippers will prioritize sending business to larger firms with adequate capacity. However, the truck shortage will remain a challenge because haulers’ ability to finance new equipment will be limited. We see equipment prices remaining high as demand outpaces supply. Companies can look at pulling cash from operations or other business lines to finance equipment.
All in all, prioritizing awareness of cashflow will be the name of the game in 2023 because we can expect things to normalize only slightly. Working with a trusted advisor to determine which investments are best for the business and how to navigate all the unknowns will be essential to success in the new year. ✷