Global Supply Chains Head into an Uncertain 2024
It’s been a grueling couple of years for global supply chains. Covid granted challenges previously unimaginable, and geopolitical disruptions are poised to be equally demanding over the coming months, if not the year. Swings in demand will test the planning of freight and logistics companies as will the redrawing of trade maps that had existed for the working life of most employees.
One of the biggest wins for many CEOs post-Covid was their ability to clear inventory. This was welcome news to shareholders as companies were grasping for reliable demand models during the roller-coaster pandemic years. The inventory-to-sales ratio has remained steady at 1.30 since May 2023 and firms welcomed an additional win with a 3.1% holiday sales bump compared to 2022. All this suggests that the “just-in-case” hoarding strategy of the pandemic years is over and retailers are easing back into a “just-in-time” strategy.
The trucking industry was rattled in 2023, marred by bankruptcies and layoffs. If demand picks up a recovery in freight rates is possible for 2024, yet overall freight flows are tied to some very vulnerable international entanglements. Another interesting wrinkle for 2024 is the shift away from China. Importers have made noticeable inroads with countries like Mexico, Vietnam, and India as alternative suppliers. In 2023 Mexico eclipsed China as the number one US trading partner and logistics and freight companies reported heavy-duty tractor orders from Mexico up 150% in November of 2023 compared to the same month a year prior.
The wars in the Middle East and Ukraine continue to disrupt the flow of everyday consumer goods including oil and grain. The Mexican border is also a point of concern with a migrant surge that has required the US Customs and Border Protection to address via periodic truck and rail closings.
Houthi rebel attacks from Yemen are compromising the Suez Canal, while the Panama Canal suffers from a lack of rainfall. The latter has reduced the quantity of vessels through the canal, a vital trade corridor between the East Coast of the US and Asia.
Finally, shipments to US East Coast and Gulf Coast ports languished during the final months of 2023. This was a boon for West Coast ports resulting in double-digit gains over the previous year. The maritime industry is keeping a close watch on a potential dockworkers strike at the East and Gulf Coast ports unless a new labor agreement can be resolved before September of this year.