Hoping that much of the COVID-induced issues are behind us, many industries – from fresh food and apparel to high tech and heavy equipment – expect to face better prospects for logistics in 2023.
But first, let’s set the stage. A recent report issued by the world’s largest shipping line, Maersk, summed it up well: “Logistics as we know it has been spun out of rhythm over the past two years, with supply and demand discrepancies, low reliability, global port congestion, labor shortages, capacity constraints all coming together to put pressure on rates.”
Echoing this assessment – but with a glint of optimism – was 3M’s CFO & Transformation Officer Monish Patolawala who reported during a recent earnings conference that, “Raw material, logistics, and labor inflation are starting to show some signs of moderation, and we are starting to see some evidence of global supply chain stabilization.”
Building Long-term Resiliency
Good news for a weary world of commerce. But no one’s quite letting their guard down yet – a sentiment shared by Mary Barra, CEO of General Motors Company. In her most recent earnings call with investors she stated, “As we’ve moved through the year, we have seen gradual improvement in the supply chain, including semiconductors… Short-term disruptions will continue to happen, but we’re taking concrete steps to minimize them and build long-term resiliency.”
If there was one lesson to come out of the global epidemic, it’s the importance of resiliency. “There exists a constant threat that disruptions – man made or natural – can and will happen at any moment,” says Omar Zambrano, COO of the Prime Group of companies.
“Having learned that hard lesson and many others that COVID-19 forced upon us all, many of our customers say they will use 2023 to continue to focus on being better prepared in the future to forestall the impact of unexpected world events on their operations.” For over 21 years, Zambrano has overseen daily operations of Prime Logistics, a global provider of third-party logistics and services based in Miami.
Freight Rates Dropping
Also on the mixed-news front, the Council of Supply Chain Management Professionals in its latest Supply Chain Quarterly notes that freight volumes for sea, air, and trucks are likely to decline in 2023, and that freight rates for all three “are on track to drop from their pandemic high points,” noting a “severe rate of contraction in transportation prices measured in November.”
The trucking industry is often considered among the best barometers for logistics, as it accounts for about 80 percent of total freight spending in the U.S. Industry experts forecast spot truck freight rates to hold relatively stable in 2023 (after falling in 2022) and contract rates to normalize.
The Wild Card is Fuel Costs
As is often the case, the wild card continues to be how the fluctuation of fuel prices impacts freight costs for shippers in the year ahead. Presently, the average on-highway diesel price reported by the Energy Information Administration is dropping from the highest prices over the past summer but is still up more than $1 per gallon from a year earlier.
And though the much-forecast arrival of a recession in 2023 should help reduce freight demand and subsequently we should see freight rates dropping as consumers buy less, right now we are operating in an environment where inflation is affecting freight rates as freight rates are affecting inflation. This circular feeding scenario is forecast to continue in the short term; however, looking at the future, it is widely believed the outlook is positive for pressure coming down fairly soon.
The View from Wall Street
Here’s a look at select comments made by other chief experience officers (CXOs) on the supply chain in the year ahead, as compiled by Larry Dignan who has covered the technology industry and transformation trends with articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine.
The remarks from CXOs were made in a series of earnings conference calls in the closing weeks of 2022 as their plans for 2023 were being formulated. As a whole, they see supply chain conditions improving in this year compared to 2022 and 2021, but across the board, they also say their companies will focus on resiliency and optimization as conditions remain fragile.
- James Umpleby, CEO of Caterpillar: “We’re working closely with our suppliers, as I think all companies are doing, thinking about our supply chain. And certainly, resilience is very important.”
- Greg Lewis, Honeywell CFO: “We are looking at our own supply chain from a resiliency perspective… We are sort of doing a few things around the edges to create redundancy in places where we think risk levels may have gone up.”
- Antonio Neri, CEO of Hewlett Packard Enterprise: “We are continuing to take proactive measures to mitigate supply chain challenges … Over the course of 2023, we expect to see greater easing but not an end to supply shortages.”
- Josh Jepsen, CFO of John Deere: “We’re seeing pockets of improvement in the supply chain, but it remains fragile. So, we’re not assuming that our operations return to normal levels of productivity and efficiency in our forecast.”
- Richard Hayne, CEO of Urban Outfitters: “Supply chain costs have dropped precipitously over the last six months, and our speed-to-market capabilities are almost back to FY ’20 levels.
- Adrian Mitchell, CFO of Macy’s: “There are two realities that we view in our planning. Number one is that goods will be flowing. We also believe the supply chain is going to continue to get healthier and healthier. But the key thing is that goods are flowing.
- John Murphy, President & CFO of The Coca-Cola Company: “As we think about the supply chain, it’s important to not just have efficiency as a metric, we also need to make sure that we have continuity.”
About Prime Logistics Group
One of four divisions of Prime Group, an international logistics services conglomerate founded in Ecuador in 2001, Prime Logistics Group serves to streamline, optimize, and expedite freight to and from the U.S. for a wide range of major industries.
With offices in Quito, Miami, New York, Los Angeles, Bogota, and Amsterdam, Prime Logistics capitalizes on its long-time relationships with the major air carriers and ocean lines to offer competitive rates in securing ample space to destinations all around the world.
For information, call 305-592-2044 or visit www.PrimeLogisticsGroup.com.