Between shipping costs, the labor shortage, and the cost of raw materials, the logistics industry has been stretched thin. But as we move into the new year, there are already signs that the supply chain crisis we’ve been dealing with for the last year may be starting to ease up. Although the worst may have passed, it will still be a long road ahead till supply can keep up with demand, especially with the rate of e-commerce growth. However, equity analysts from Jeffries shared in an October research report said that they expect to see “significant improvement by the second half of 2022”, which is promising for both businesses and consumers.
So, what exactly can we look for to predict that the supply chain crisis is winding down? Experts agree that the following are key indicators that the supply chain is beginning to recover.
Consumer demand starts to wane
The “stay at home” orders of March 2020 seem far in the past now, but the supply chain bottleneck from the result is just beginning to clear up. The U.S. Census Bureau analyzes how much product sellers have on hand compared to how much consumers are buying. The ratio is currently sitting at a 10-year low, which indicates that demand is higher than supply. Watching this indicator can be a good predictor of when Americans’ demand for “stuff” has been satisfied and a bit of a return to normal for the supply chain.
Labor shortage ending
The labor shortage has contributed to the supply chain crisis, from crane operators at ports to truckers and everything in between. The cost of moving a non-specialized truckload of goods from one state to another indicates how much labor is available and how in need of a particular product is about what’s available. According to DAT, the largest U.S. load board, in April of 2021, the spot rates (the price for a truck booked the day of) were the second-highest ever recorded. There aren’t enough workers at the ports to help off-load goods from ships to the docks, causing delays and longer portage times that trickle down to the middle- and last mile. As we start to see the labor market stabilize and companies fill their job quotas, we’ll begin to see things normalize again.
Easing of port congestion
The port congestion we’re currently experiencing isn’t the sole cause of the supply chain crisis but merely a symptom of it. The hold-ups stem from anything from labor and equipment shortages to Covid-19 restrictions to the recent spread of the Omicron variant and the subsequent lack of workers and, of course, the never-ending consumer demand. So when the lines of ships at the ports of Los Angeles and Long Beach start to clear up (and stay that way), it will be a clear indicator that things are flowing more normally again. Experts also suggest watching the port of Shanghai for outbound Chinese goods and Savannah, the Eastern equivalent of LA/Long Beach, for inbound goods.
The pandemic as the new normal
The Covid-19 pandemic has directly affected the supply chain by intensifying the crisis and, in a short time, changing consumers’ purchasing habits, manufacturing processes, and shipping operations. In addition, several studies found that the initial shutdowns and containment periods in early 2020 created a lasting bottleneck in the supply chain. But as vaccines continue to roll out and restrictions continue to ease, there is hope that we’re entering a period where we’re getting more prepared for the unpredictable.
Deloitte recently published an article noting that digital supply networks will make the supply chain less vulnerable in the long run. They specifically called out robots, which can reduce dependence on labor, track and trace solutions to zoom in on bottlenecks, and artificial intelligence to update business processes and scenario management. All of these should be able to reduce cost and risk longer-term. Keeping an eye on these new solutions as they continue to roll out over 2022, combined with the above, will become evident when the supply chain crisis stabilizes.
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