This year we may see the return of normal shipping levels and patterns, but companies are still assessing whether they should make significant changes to their sourcing strategies.
In our annual outlook, we identified 2023 as being a year of two halves. The first half of the year is expected to see a return to “normal” supply chain conditions, particularly in terms of physical network operations. The second half, however, may bring confirmation of changing corporate sourcing strategies in the wake of the pandemic and political tensions.
Disruptions coming to an end
Evidence from the first quarter of the year suggests the normalization in logistics networks has rapidly arrived. For example, as part of our Purchasing Managers’ Index (PMI), S&P Global Market Intelligence asks survey respondents, “Are your suppliers' delivery times slower, faster, or unchanged on average than one month ago?” Based on their responses we calculate a supplier delivery times index, which is used to indicate the extent of supply delays and capacity constraints in the general economy. For the index, which is shown in Figure 1, readings of 50 mean that there has been no change in delivery times over the prior month, readings above 50 indicate that delivery times were shorter or faster than the previous month, and readings below 50 indicate that delivery times were longer or slower. As Figure 1 shows, the most recent PMI indicates that after several years of slow supplier delivery times, times in the U.S. and European Union have reached their fastest on record. This suggests that after years of supply constraints and delivery delays, supply is loosening up and the transportation network is less constrained.
[FIGURE 1] Supplier delivery times their fastest on record in U.S., Eurozone Enlarge this image
Part of the normalization process is due to there being less pressure on logistics networks. Our forecasts indicate global trade, on a real (that is, inflation-adjusted) basis, has dipped by 0.1% in first quarter 2023, compared with a year earlier. We estimate that it will expand by 0.4% in the second quarter of 2023 and accelerate to 2.5% in the fourth quarter of 2023. With the easing in demand, we are seeing less congestion and capacity constraints across supply chain networks.
There is also evidence that we may see a return to traditional seasonal shipping patterns in 2023. The elevated level of U.S.-inbound container shipments during the consumer boom that occurred from late 2020 to mid-2022 meant there was little seasonality in shipping as ports struggled to “dig out.” In 2022, peak season occurred much earlier than normal as firms sought to avoid shortages. For 2023, there is an apparent return to normal shipping levels and off-peak patterns. But whether or not we are seeing a full return to historic buying and shipping patterns for U.S. and European importers wouldn’t be clear until late summer.
Shipping conditions may be returning to normal levels, but that does not mean all sectors are back to regular operations. The electronics sector faces a glut of supply in memory chips and processors for smartphones and PCs, while the automotive and industrial sectors are still working through back orders as supplies normalize.
Rethinking corporate sourcing strategies
The shortages of the pandemic era may be quickly becoming a distant memory, with some sectors already back to pre-pandemic levels. But corporate inventories are by no means back to normal across the board. U.S. retail sales, for example, are still below their historic averages, but that's due mostly to the automotive sector. Consumer durables (furniture and appliances) and general stores have actually declined from recent peaks, as firms seek to make up for earlier overpurchasing.
The road ahead for inventories will depend on whether firms switch to “just in case” rather than “just in time” sourcing strategies. A more prudent just-in-case approach to inventories reduces future risk. However, a recession with tighter financial conditions may mean banks and shareholders will not allow firms to lock up more cash in inventories.
Aside from the question of “how much” to source, companies have also had to address the question of “where from.” Disruptions from the pandemic have led companies to rethink their over-reliance on sourcing from China. Reshoring, however, is an expensive process. So, like changes to inventory strategies, we're unlikely to see firms making major adjustments in where they source from during the high-interest/falling-profit environment of 2023.
Our analysis of the telecommunications and computing sectors, for example, shows that reshoring is a multiyear process with a panoply of drivers ranging from labor costs and transit times to tariffs and local industrial policy. The exceptions may be the automotive and semiconductor sectors, where significant government funding is encouraging firms to accelerate their investments in new countries including the U.S., the EU, South Korea, Japan, and mainland China.
Conflict, chips, and carbon
With supply and logistics constraints looking to mostly ease in 2023, government policy changes remain one of the largest risks facing companies for the remainder of 2023 (although certainly not the only risk). Policy shifts addressing the war in Ukraine, restrictions on semiconductor exports, and sustainability measures could all have an impact on how companies structure their supply chains.
The war in Ukraine is still ongoing, with fighting likely to continue over the next six months and an eventual stalemate likely by end 2023. From a supply chain perspective, the main outstanding risk comes from an extension of sanctions, including secondary sanctions for countries that sell to Russia.
The passage of the CHIPS for America Act in 2022 and U.S. restrictions on exports of semiconductors and manufacturing equipment to mainland China are tangible signs of the possible development of dual supply chains for some products (for example, graphics chips for artificial intelligence), or what some are calling a “bifurcation of global technology markets.” During the remainder of 2023, it will become clearer whether other countries will follow the United States and issue export restrictions of their own. So far, the government of the Netherlands has indicated restrictions on semiconductor machinery exports will be applied, but their final form has yet to be determined. Similarly, the Japanese government has announced plans to limit the export of chipmaking equipment to China but has yet to apply formal restrictions.
Export restrictions should not be taken to mean there will be a full split in all technology supply chains. In many assembled goods, for example smartphone and computer manufacturing, there are significant economies of scope, and we expect to see companies operating in both countries.
Meanwhile the European Union’s Carbon Border Adjustment Mechanism (CBAM) has the potential to reform global supply chains over the coming decade. CBAM will tax “carbon-intensive products” imported into the European Union in an effort to keep European companies from moving production to or importing from countries with lower environmental standards. Cross-border trade in raw materials and their derivatives will become subject to tariffs set in line with the origin countries’ own environmental policies.
In 2023, the main impact will come from a requirement for importers to start reporting the greenhouse-gas emissions embedded into the covered imported products. That is a quarterly requirement with a deadline of 30 days after the end of the quarter. In the long term, the effect on aluminum and steel products may have the widest implications for global supply chains. Mainland China and Vietnam have the highest carbon dioxide (CO**subscript{2}) intensity among major suppliers of steel and aluminum to the European Union. Mainland China is also the largest supplier of those products. (See Figure 2.)
[FIGURE 2] Mainland China leads supplies, has second highest emissions Enlarge this image
In summary, logistics networks look to finally work their way through the repercussions from the COVID-19 pandemic. However, that does not mean that supply chains will completely return to how they operated pre-2020. Some companies continue to explore significant changes to their sourcing strategies in efforts to increase supply chain resiliency or respond to government regulations.
ReposiTrak, a global food traceability network operator, will partner with Upshop, a provider of store operations technology for food retailers, to create an end-to-end grocery traceability solution that reaches from the supply chain to the retail store, the firms said today.
The partnership creates a data connection between suppliers and the retail store. It works by integrating Salt Lake City-based ReposiTrak’s network of thousands of suppliers and their traceability shipment data with Austin, Texas-based Upshop’s network of more than 450 retailers and their retail stores.
That accomplishment is important because it will allow food sector trading partners to meet the U.S. FDA’s Food Safety Modernization Act Section 204d (FSMA 204) requirements that they must create and store complete traceability records for certain foods.
And according to ReposiTrak and Upshop, the traceability solution may also unlock potential business benefits. It could do that by creating margin and growth opportunities in stores by connecting supply chain data with store data, thus allowing users to optimize inventory, labor, and customer experience management automation.
"Traceability requires data from the supply chain and – importantly – confirmation at the retail store that the proper and accurate lot code data from each shipment has been captured when the product is received. The missing piece for us has been the supply chain data. ReposiTrak is the leader in capturing and managing supply chain data, starting at the suppliers. Together, we can deliver a single, comprehensive traceability solution," Mark Hawthorne, chief innovation and strategy officer at Upshop, said in a release.
"Once the data is flowing the benefits are compounding. Traceability data can be used to improve food safety, reduce invoice discrepancies, and identify ways to reduce waste and improve efficiencies throughout the store,” Hawthorne said.
Under FSMA 204, retailers are required by law to track Key Data Elements (KDEs) to the store-level for every shipment containing high-risk food items from the Food Traceability List (FTL). ReposiTrak and Upshop say that major industry retailers have made public commitments to traceability, announcing programs that require more traceability data for all food product on a faster timeline. The efforts of those retailers have activated the industry, motivating others to institute traceability programs now, ahead of the FDA’s enforcement deadline of January 20, 2026.
Inclusive procurement practices can fuel economic growth and create jobs worldwide through increased partnerships with small and diverse suppliers, according to a study from the Illinois firm Supplier.io.
The firm’s “2024 Supplier Diversity Economic Impact Report” found that $168 billion spent directly with those suppliers generated a total economic impact of $303 billion. That analysis can help supplier diversity managers and chief procurement officers implement programs that grow diversity spend, improve supply chain competitiveness, and increase brand value, the firm said.
The companies featured in Supplier.io’s report collectively supported more than 710,000 direct jobs and contributed $60 billion in direct wages through their investments in small and diverse suppliers. According to the analysis, those purchases created a ripple effect, supporting over 1.4 million jobs and driving $105 billion in total income when factoring in direct, indirect, and induced economic impacts.
“At Supplier.io, we believe that empowering businesses with advanced supplier intelligence not only enhances their operational resilience but also significantly mitigates risks,” Aylin Basom, CEO of Supplier.io, said in a release. “Our platform provides critical insights that drive efficiency and innovation, enabling companies to find and invest in small and diverse suppliers. This approach helps build stronger, more reliable supply chains.”
Logistics industry growth slowed in December due to a seasonal wind-down of inventory and following one of the busiest holiday shopping seasons on record, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The monthly LMI was 57.3 in December, down more than a percentage point from November’s reading of 58.4. Despite the slowdown, economic activity across the industry continued to expand, as an LMI reading above 50 indicates growth and a reading below 50 indicates contraction.
The LMI researchers said the monthly conditions were largely due to seasonal drawdowns in inventory levels—and the associated costs of holding them—at the retail level. The LMI’s Inventory Levels index registered 50, falling from 56.1 in November. That reduction also affected warehousing capacity, which slowed but remained in expansion mode: The LMI’s warehousing capacity index fell 7 points to a reading of 61.6.
December’s results reflect a continued trend toward more typical industry growth patterns following recent years of volatility—and they point to a successful peak holiday season as well.
“Retailers were clearly correct in their bet to stock [up] on goods ahead of the holiday season,” the LMI researchers wrote in their monthly report. “Holiday sales from November until Christmas Eve were up 3.8% year-over-year according to Mastercard. This was largely driven by a 6.7% increase in e-commerce sales, although in-person spending was up 2.9% as well.”
And those results came during a compressed peak shopping cycle.
“The increase in spending came despite the shorter holiday season due to the late Thanksgiving,” the researchers also wrote, citing National Retail Federation (NRF) estimates that U.S. shoppers spent just short of a trillion dollars in November and December, making it the busiest holiday season of all time.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Specifically, the two sides remain at odds over provisions related to the deployment of semi-automated technologies like rail-mounted gantry cranes, according to an analysis by the Kansas-based 3PL Noatum Logistics. The ILA has strongly opposed further automation, arguing it threatens dockworker protections, while the USMX contends that automation enhances productivity and can create long-term opportunities for labor.
In fact, U.S. importers are already taking action to prevent the impact of such a strike, “pulling forward” their container shipments by rushing imports to earlier dates on the calendar, according to analysis by supply chain visibility provider Project44. That strategy can help companies to build enough safety stock to dampen the damage of events like the strike and like the steep tariffs being threatened by the incoming Trump administration.
Likewise, some ocean carriers have already instituted January surcharges in pre-emption of possible labor action, which could support inbound ocean rates if a strike occurs, according to freight market analysts with TD Cowen. In the meantime, the outcome of the new negotiations are seen with “significant uncertainty,” due to the contentious history of the discussion and to the timing of the talks that overlap with a transition between two White House regimes, analysts said.
That percentage is even greater than the 13.21% of total retail sales that were returned. Measured in dollars, returns (including both legitimate and fraudulent) last year reached $685 billion out of the $5.19 trillion in total retail sales.
“It’s clear why retailers want to limit bad actors that exhibit fraudulent and abusive returns behavior, but the reality is that they are finding stricter returns policies are not reducing the returns fraud they face,” Michael Osborne, CEO of Appriss Retail, said in a release.
Specifically, the report lists the leading types of returns fraud and abuse reported by retailers in 2024, including findings that:
60% of retailers surveyed reported incidents of “wardrobing,” or the act of consumers buying an item, using the merchandise, and then returning it.
55% cited cases of returning an item obtained through fraudulent or stolen tender, such as stolen credit cards, counterfeit bills, gift cards obtained through fraudulent means or fraudulent checks.
48% of retailers faced occurrences of returning stolen merchandise.
Together, those statistics show that the problem remains prevalent despite growing efforts by retailers to curb retail returns fraud through stricter returns policies, while still offering a sufficiently open returns policy to keep customers loyal, they said.
“Returns are a significant cost for retailers, and the rise of online shopping could increase this trend,” Kevin Mahoney, managing director, retail, Deloitte Consulting LLP, said. “As retailers implement policies to address this issue, they should avoid negatively affecting customer loyalty and retention. Effective policies should reduce losses for the retailer while minimally impacting the customer experience. This approach can be crucial for long-term success.”