The Supply Chain Crisis Isn’t Over As It Seems.
- Holiday shopping went well, so you might think supply chains have been fixed.
- Experts agree that while goods are flowing more smoothly around the globe, this isn’t normal.
- Potential problems with China’s labor market could lead to familiar disruptions.
All stores are full. Furniture deliveries are back on track.The long line of ships that used to line Long Beach’s coast is gone. A quick glance reveals that supply chains are now healthy and that shopping is back to normal.
Ryan Petersen (Flexport founder and coCEO) said, “I think all of us can breathe a sigh-of-relief, frankly,” during a December market update webinar.
Supply chains are running smoothly than they have been in over two years. However, there are still risks that could cause disruptions to supply chains.
Breaking down what factors make up the so-called “supply chain crisis” can explain what’s still off-kilter, hint at when it might be back to normal — and how to tell.
Freight is moving
The main factor behind back orders and empty shelves was the longer transit time between Asia and the United States via ocean shipping.
It takes about two weeks, but shipping containers were taking 120 days to go from China to America at one time. These delays led to some cases where swimsuits, pool floats, and artificial Christmas trees arriving just in time for Valentine’s Day.
Peterson said, “We have reached a state over these last couple of years which was frankly embarrassing for anyone who works as logistics professionals.”
The unpredictable delays incentivized retailers to import holiday goods months ahead of schedule this year just to make sure they were in stock — a major reason store aisles were stuffedOver the past few months.
Flexport reported that the transit time from China to the US took less than 50 days before the pandemic. This number has risen to around 75 days at the end of a volatile calendar year.
Slowly, inflation drivers are disappearing
Even though consumers don’t know the cost of shipping a 40-foot steel container to America from Asia, they pay it. This price has risen dramatically over the past few years.
Labor and materials costs play a role, but the cost to move goods around — especially on ocean-faring ships — was the most universal and extreme increase for many businesses during the pandemic.
The oversea journey cost approximately $11,000 at its peak in September 2021. Freightos data indicates that today it costs $2,000 for a 40-foot container to be shipped from China to the US West Coast.
It will take some time for the drop to affect prices at the store. However, it should begin to show up in a few months.
“As rates fall, you’ll also see our prices on products drop,” said Richard Galanti, Costco CFO, during a December earnings call.
How much stuff is sufficient?
A lot of stuff is currently in the country, which could help lower prices even quicker. Retailers have been offering massive discounts to get rid of their stock.
The US Census Bureau tracks the inventory to sales ratio. This is a major indicator that supply chain balance has been disrupted. This indicator fell to historic lows during the pandemic, when Americans were buying goods at a faster pace than imports. In June 2021 the inventory-to-sales ratio fell to 1.1. It was 1.2 as of October, which is an improvement on 1.5.
Cowen’s survey revealed that half of businesses intend to keep more inventory in the future, despite the challenges of the past few years. So it’s going to be hard to tell when the inventory-to-sales ratio is settled at a new normal — but slightly higher than the 2019 level is a safe bet, which means there’s still inventory to build up in the country, despite appearances.
There are still risks
Jason Seidl (Managing Director of Cowen and Company), stated that if the supply chain is a stream it’s only fluid up to its tightest bottleneck. There are still many bottlenecks that could tighten up next year.
A railroad strike has been avertedSeidl said that even without it, railroads are insufficiently staffed. The International Longshore and Warehouse Union, which has members who work in the ports of Los Angeles and Long Beach doesn’t have a. finalized contract. UPS’s contract for its Teamster drivers is up in July 2023. The union president has already resigned. promised a tough negotiationAlready threatened with a strike
China is the next. COVID lockdowns have been a reality supply chain managers had to contend with for many years. Now that most restrictions have been lifted, COVID-19 spread is another, possibly more difficult-to-predict problem.
What to Watch Now
Supply chains are made up millions of individual decisions by people. Supply chains cannot “get back to normal” unless people have confidence that goods will arrive on schedule and orders will be fulfilled as planned. According to Flexport Chief Economist Phil Levy, those people still need to be cautious about “unexpected surprises.”
Only when we look at the calendar can we see a sign that things are returning to normal. Supply chains follow a natural seasonal rhythm. Spring is the season for grills, patio furniture, Easter dresses, and other items. Back-to-school supplies are available in the summer. Electronics and toys are in high demand in the fall.
Seidl explained that this pattern has been out of control for the last three years. Seidl predicted it would be back in 2023.
“Am I anticipating a normal seasonality as 2023 progresses?” Seidl stated, “Yes. In the last few years goods have been moving at an unusually rapid, constant pace. Today, they are slowing to a halt because of the fact that stores are stocked and buyers are cautious about their economy. Supply chains will “return to normal” if they return to seasonal rushes or lulls without major, global disruptions.
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