Everything Has a Cost

Supply Chain 2023 Forecast

A stable supply chain is a welcome change but it will come at a cost.

By Jacob Wright

It’s a new year, and many people look at it as a fresh start for goals and resolutions. For the supply chain, however, a revolution around the sun does not change anything. Going into 2023, the supply chain is still recovering and weathering the storm of 2022. Demand is still softening, and freight volume has decreased, resulting in more available containers and more reliable lead times - at the cost of economic activity. With that being said, 2023 is likely to play out differently than 2022.

Inflation is playing a significant role in affecting consumer habits. Record-high inflation has led to a decrease in consumer spending, a trend expected to continue in 2023. This period of soft demand follows a period of incredibly high demand, causing many businesses to have excess inventory. This may lead to a deflationary effect on some goods as businesses lower prices to normalize inventory levels. As a result of excess inventory, businesses are likely to reduce the level at which they manufacture and/or import, leading to less congestion and strain on the supply chain.

Another factor leading to excess inventory? Many businesses responded to the long lead times of the past few years by stockpiling. This reduction in demand and consumer spending brings the supply chain back to equilibrium.

Geopolitical conflicts will continue to add a high degree of uncertainty in business operations. Major trade routes will likely suffer if conflict escalates. This may lead to a reshoring trend among manufacturers as a way to make the manufacturing and transportation of goods more reliable. If the practice of reshoring increases, the strain on ocean and air freight will be reduced.

2023 may very well be an inverse of 2022, which saw high demand in the first half and low demand in the second. In the coming year, demand may not pick up until the second half. ■