A series of “Black Swan” events that started with the COVID-19 crisis and the global inflationary economic response to the pandemic, stoked by the war in Ukraine and the rise of extreme weather events linked to rising global temperatures - have all shown how vulnerable the global supply chain is to unexpected disruptions.
By its very definition, it’s impossible to predict the next black swan event. However, becoming resilient enough to deal with the next unforeseen crisis should be at the top of every supply chain manager’s list of priorities in 2023.
To thrive in these uncertain times, besides the obvious need to focus on quality, service, and cost, supply chain management needs to build resilience, flexibility and sustainability to ride the next round of disruptions, whatever they might be.
Managing Supply Chain Risks in 2023?
At a macro level, most supply chain experts have flagged geopolitical uncertainty and inflation as the biggest challenges to tackle in 2023.
With little sign of a resolution to the crisis in Ukraine nor any indication of an imminent de-escalation in the tensions between the world’s two largest economies - the US and China - the panorama for 2023 remains highly volatile.
As resources become increasingly scarce, more conflicts - domestic and international are likely and will create further disruptions to supply chains in 2023. Whether it's semiconductors, oil, uranium, lithium or wheat, who knows where the next big disruption will come from.
Inflation and the response by governments to bring it into line with expectations have cast a shadow over the macroeconomic situation, and COVID continues to cause problems in China’s industrial heartland.
This makes it more difficult for supply chain planners to predict how much and what kind of commodities consumers will likely need and where to source them without fear of disruptions.
Third-party logistics experts should forget about things getting easier in 2023. Instead, they should stay focused on building resilience, expect the best but prepare for the worst and think about how to manage inventory better in a downturn.
C3 Solutions’ Top 5 Supply Chain Trends in 2023
1. Freight Rates Return to “Normal”
The dramatic plunge in freight rates in the second half of 2022 surpassed the forecasts of even the most bearish of market commentators. After reaching stratospheric records of $16,000 FEU in January 2022, spot rates for containers moving between China and the US west coast finished the year at less than $1,500 / FEU below the levels recorded before the pandemic supply chain collapse. The 90% decline has been uniform, nearly across the board and rates are not expected to rebound until retailers clear the bloated inventories that are currently causing congestion concerns in warehouses across the US.
The big question is how long it takes for retailers to work through record inventories – partly due to retailers over-ordering to avoid issues with the supply chain at the end of last year.
How things pan out depends very much on the shape of the recession that economic forecasters are predicting. If the recession is more of a soft landing, there could be a recovery in demand for container shipping in the second half of 2023. If the recession turns out to be more profound and more prolonged, demand could be subdued next year, and the next peak season may only materialize in the lead-up to the 2024 Chinese New Year.
If demand returns rapidly, there could be a return of congestion as shipping lines seek to reactivate spot rates. If demand is sluggish in 2023, the lines will continue to blank more sailings in a rearguard action, leading to even more disruptions for shippers. Both scenarios come with certain operational risks to shippers so getting visibility on cargo flows is crucial in understanding which outcome is most likely.
Shippers that locked themselves into long-term rates at more than three times the current spot rates will be sharpening their knives for contract negotiations opening up in May 2023 as shipping lines ready to receive new tonnage after going on a spending spree in 2021 and 2022.
Sitting on record profits, shipping lines are better placed than ever to weather the storm in 2023 and will have to decide how to manage tonnage if the demand fails to recover soon.
2. Decoupling from China
The big decision for supply chain managers will be the degree to which they decide to pull back from production in China.
While the political temperature continues to rise, many businesses are looking at “friend shoring” - strengthening trade links with like-minded and most likely geographically close countries - to mitigate the risks of tensions escalating between China and the US or exposure to other regional conflicts.
Recent supply issues caused by the closure of factories as part of China’s zero-COVID policy and the subsequent U-turn on the issue have only underlined the continued risks of putting all your production eggs in one basket.
More and more governments and industry leaders are exploring domestic self-sufficiency in material supply and manufacturing by creating production capacity in India and Southeast Asia and alternatives closer to home.
However, the challenges of decoupling from China are considerable, and there are signs that companies are reluctant to completely detach from the world’s second-largest economy.
China’s accumulated stock of foreign direct investment currently stands around $2.5 trillion, according to Economist Intelligence Unit estimates, and China’s Ministry of Commerce reported that FDI rose 14% from January to October last year.
Of the top 6,000 global multinationals by revenue, 1,272 have a presence in China, second only to the United States, twice as much as Japan and eight times more than India.
Shifting that elsewhere would take decades, but being diversified is becoming an aim as companies seek to reduce their reliance on the world’s largest manufacturer.
3. The Hi-Tech Supply Chain Arms Race
Flush from two years of record profits, shipping lines are sitting on piles of cash and are choosing to spend it on more than just building bigger ships.
How much consolidation happens in the logistics industry is an exciting question as carriers like Maersk and CMA CGM seek to accelerate their transformation into fully-fledged logistics operators with a more customer-centric outlook.
They will continue to invest heavily in technology to improve the customer experience, as will the giant retailers explore further automation of their warehouses and invest in drones and driverless vehicle technology as a possible solution to last-mile delivery of the future.
It all bodes for the kind of technological arms race that has never been seen before, including re-wiring the digital framework of a traditionally very conservative industry.
Over the past year, companies prioritized investment in a cloud-based digital transformation strategy, and in 2023 this trend is likely to accelerate as organizations seize technology to mitigate their growing concerns around inflationary pressures and staff shortages, seeking to stave off economic stagnation.
While technology transformation focuses on the back office and better customer engagement, supply chain and operational capabilities will be front and center in 2023. Notably, there will likely be a greater investment to uplift supply chain planning maturity, automation of warehouse and operational tasks, as well as in gathering better end-to-end supply chain analytics to create enhanced visibility.
At an industry-wide level, the companies that are best equipped to harness artificial intelligence are expected to win through and thrive.
Gartner predicts that AI will generate $5 trillion in economic value by 2025.
And while there’s still a long way to go before self-driving vehicles are widely adopted throughout the supply chain, autonomous fleets are positioned to alter how shipping and logistics operate in the future.
They are expected to reduce the need for drivers and significantly increase fuel efficiency, which will be critical after the end of the age of cheap fossil fuels appears to be upon us. In short, your yard management software needs to power your ability to tap into using AI.
4. Staving off Cyber Attacks
As the supply chain becomes increasingly interconnected via cloud-based networks, it has become increasingly exposed to vulnerabilities such as cyber-attacks.
According to a study by Argon Security, an Israeli cybersecurity firm specializing in protecting the integrity of the software supply chain, cyber attacks on supply chain software were up 300% last year.
Ranging from stealing sensitive customer data to holding data hostage for financial gain, cyber-attacks have had a dramatic impact on the top five shipping lines in the last five years.
In 2023, all businesses must evaluate the risk in their digital supply chains and prepare scenarios to protect themselves.
Getting your Digital Immune System sorted is a priority in 2023. Logistics software that connects without creating weaknesses will be top of the list of priorities to improve the customer experience by reducing the risks of disruptions to operations.
Read more about Digital Immune Systems for Yard & Dock Managers:
5. Putting Planet, People into the Picture
A good business is no longer simply the one that posts the most significant profits. Increased scrutiny from consumers and regulators requires future-fit companies to put place, people and the planet alongside profits on their balance sheet, making sustainability a priority for all supply chain experts in 2023.
Resilience is arguably the buzzword for 2023, and worker well-being is another key component for companies looking to thrive. Labour shortages have given workers more leverage, so creating a healthy organization that plays a positive role in a global transformation is a crucial recruitment strategy.
Greenwashing is not an option. Neither is hoping you never get found out for working with companies employing dubious working practices and with greater supply chain visibility comes the requirement for even more transparency.
More than 50% of industry carbon emission comes from retail supply chains. Increasing consumers’ expectations for sustainable delivery and logistics have put massive pressure on supply chain management. As a result, climate change adaptation, circular economy, ESG (Environmental, Social, Governance), and sustainability have become priorities in recent years and the main target in the future.
Exposure to new regulations will force companies to revisit how they track their greenhouse gas emissions and exposure to other social issues in their production facilities.
For example, in January 2023, the Germany Supply Chain Due Diligence Act will come into effect, requiring businesses to monitor supply chains for human rights violations and ensure that partners are not causing environmental degradation across their entire supply chain.
How to make your logistics business recession-proof has become aligned with a more significant concern of how to make your business future-proof.
Supply chain sustainability strategies have long been integral to achieving corporate ESG initiatives, and in 2023, regulators, customers and investors will demand an increased focus on scope 3 emissions control.
Adding to the pressure will likely be a shift in investor activity towards organizations that can prove their scope 3 emissions are low as global financial institutions, private equity and venture capitalists align their portfolios to sustainable companies.
For yard and warehouse managers, like the rest of the supply chain, reducing unnecessary movements is an excellent way to reduce emissions simultaneously.
Priority actions for ESG improvement in 2023 include:
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Operationalize your ESG strategy by aligning the objectives of each function within your business, including Finance, HR, IT, Operations and Commercial. Ensure internal collaboration and alignment with each function accessing and tracking the same ESG data.
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Capture real-time operational data along your supply chain to measure and report ESG matters.
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Build end-to-end supply chain visibility to see where your goods move, the organizations driving them, and their sustainability credentials. With this insight, make active decisions about your partners to reduce your scope 3 emissions.
How C3 Can Help
Since it was founded in 2000, C3 Solutions has gained the confidence of clients worldwide and across many industries, including retail, grocery, distribution, manufacturing, and parcel post, for its solutions' simplicity and effectiveness.
C3’s unique products allow customers to maximize the usage of their trailers, dock doors, dedicated yard staff, and physical yard space. C3 Reservations, the company’s web-based dock scheduling system – streamlines the scheduling process by improving dock productivity, expanding visibility on scheduled appointments, and measuring vendor compliance.
C3 Yard’s web-based yard management system (YMS) – empowers yard managers by providing visibility on yard assets, optimizing the flow of trailers from gate to gate, and automating yard driver task assignments.
Visit C3 Solutions to request a demo today!