State of Supply Chain: As new issues arise and existing challenges remain, no easy answers for shippers or carriers about what to expect for the rest of 2022
As we move into the second half of 2022, shippers and carriers are looking for signs of what is to come. Clearly, there are challenges – the geopolitical environment, rising fuel costs, and inflation. And, the industry is still dealing with a pandemic, driver shortages, and higher expectations from end customers. What is less clear is the degree to which these factors will disrupt the supply chain.
Are we moving toward a trucking recession?
As early as March 24, FreightWaves predicted a freight recession citing a decrease in tender rejections and lower load-to-truck ratios as well as deterioration in the spot market. In a May 10 update, DAT said that the decline in the spot market is unprecedented because of its magnitude and duration.
Cass Information Systems also reported that in April shipments were down 2.6% and 3.5% on a month-to-month basis and on a seasonally adjusted basis, respectively. Tim Denoyer, ACT Research vice president and senior analyst, said that freight volumes are likely to remain in the red in the coming months, due to the expectation that global supply chain disruptions are set to intensify, with what he described as more softness on the horizon.
“Freight was slowing even before the war in Europe began, but the effects of the additional surge of inflation and recent interest rate increases seem to have pushed volumes over the edge,” wrote Denoyer. “After a nearly two-year cycle of surging freight volumes, the freight cycle has downshifted with a thud.”
Trucking company executives see the situation differently and told Logistics Management magazine that “the fear of an economic slowdown is greater than the actual drop-off in freight.” This poses the questions: What are the implications of a freight recession for shippers? Will there be lower freight rates, but less capacity if carriers exit the market? Will the high prices of fuel and inflation that are impacting carriers also make it more difficult for manufacturers and retailers to provide goods at prices consumers can or will afford?
Are elevated inventory levels risk avoidance or a typical cyclical pattern?
Elevated inventory levels in Q1, 2022 are also raising questions. Some industry analysts said that companies are over-stocking to build up “safety stock,” or rushing to place orders now to stay ahead of expected rising costs due to higher fuel costs and inflation. But, is this typical cyclical pattern as retailers and manufacturers prepare for the peak shipping season of 2022?
Technology is the enabler to efficiency and more informed decisions
The one trend that virtually all analysts agree on is the increasing importance of technology to supply chain management. As one shipper put it, “In this market, with everything going on, you have to look at how you can speed things up, innovate, and reduce waste.” He also noted that, “Business changes so fast that I need to make decisions quickly.
Industry Benchmarking Tools can hedge against market volatility
Emerge is introducing an industry benchmarking tool that provides real-time information about market trends. Shippers also have the ability to compare their freight procurement practices with the market. On a lane-by-lane basis, a shipper will know if their rates are at, above, or below the current industry average. This business intelligence will empower shippers to make data-driven decisions immediately. This data-enabled functionality is an excellent way to hedge against market volatility.