The resulting global logistics chaos has persisted for the past year, and with the traditional holiday peak season quickly approaching, many retailers and logistics services providers alike are left wondering if and when global supply chain disruption will start to ease up and what the future will look like against a new normal.
While there is hope that certain issues will ease—especially as widespread vaccinations take hold and more operations fully come back online for business across the globe—data trends are showing that it will be quite some time before the logistics upheaval will significantly resolve itself. As we head into the latter half of 2021, there are a few major points that retailers, shippers and carriers should keep in mind.
• The inflation situation. Based on The Fed’s recent inflation forecast, inflation will grow faster than predicted this past March, and is expected to rise to 3.4% this year. While many might consider a dip in consumer spending and a reprieve to current market pressures as a result, the reality is the inflation rate is projected to remain around 2% long-term. This rate has proven fairly manageable historically, and likely wouldn’t deter consumer demand. Interestingly enough, historical figures also show that the threshold is much higher than the current numbers, and when inflation peaked at 5.8% in August 2008, U.S. maritime import volumes actually increased. See Figure 1.
• Inventory to sales ratio is down. According to the U.S. Census Bureau, the inventory to sales ratio is down more than 25% since the beginning of the pandemic (see Figure 2), and this will continue to challenge retailers. While the pandemic has hurt their manufacturing and distribution capacities, consumer demand has remained in full force —so much so that available inventories are still low, retailers are unable to keep up and replenish stocks and, against the fear of continued supply chain uncertainty, many are even holding onto their inventory. In turn, we’re going to see retailers buying much more than they need to in the near term to help build their stocks down the line, which will only put more pressure on supply chains and logistics operations—pressure that will be felt even after this year’s peak season.
• More jobs, more money, more logistical problems. As COVID-19 restrictions ease across the U.S., restaurant, tourism, and other service industries that were significantly impacted by COVID are coming back online. This will be incredibly impactful from an economic perspective and is projected to create more job opportunities that will help alleviate the country’s current unemployment burden. Consumer spending will inherently increase in tandem and, while this is a positive for the economy, businesses and shoppers, it will continue to put a strain on global supply chains supporting increased demand.
While it’s tempting for retailers to quickly react to the current situation and action short-term strategies that get their goods to market but increase costs in the process, this won’t always prove sound in the long run. The most important thing they can do now is evaluate alternative supply chain sources—how goods are getting to market, how concentrated and congested trade lanes can impact operations—and apply that knowledge to re-engineer the risk out of their supply chains in order to drive the most success.
Source: By Chris Jones, EVP, Industry & Services, Descartes