Supply chain managers should pay special attention to three trends that will reshape international trade and shipping patterns over the next decade, potentially altering supply chain dynamics.
For supply chain managers, there is no simple way to view the global economy. We are now seeing multiple, divergent macroeconomic trends that are likely to have significant implications for businesses over the next several years. These include falling oil prices, more stimulus from central banks, and a stronger U.S. dollar, among others. However, there are three global trends supply chain managers should watch closely. These trends will reshape international trade and shipping patterns over the next decade, potentially altering supply chain dynamics.
Slower growth in emerging markets
Chief among these trends is the slowdown of emerging market growth. The extraordinary growth of emerging markets—in particular the BRIC countries (Brazil, Russia, India, and China) during the 2000s—encouraged many U.S. and European companies to move manufacturing operations overseas. But during those boom years, many emerging markets failed to institute the necessary structural reforms that would enable them to transition to slower but more sustainable economic growth. As a result, economic performance in a number of those markets has rapidly deteriorated over the last few years.
China is maintaining relatively strong growth; last year real gross domestic product (GDP) growth was 7.4 percent, and this year it's projected to be 6.5 percent. Brazil and Russia, however, have entered economic recessions. Russia's economic performance is tied to the ups and downs of oil markets and is now seeing the impact of Western sanctions. Brazil's real GDP growth for 2014 was just -0.1 percent. Meanwhile, India faces much slower GDP growth due to declining fixed investment and productivity.
Real GDP growth in the United States averaged 3.2 percent between 1980 and 2007. Since the end of the Great Recession in June 2009, the recovery has been anemic, with real GDP growth averaging just 2.2 percent. In the European Union, the recovery has been hampered by the two-tiered growth performance of the northern and southern countries. The north is relatively economically stable, while the south is slowly digging out of a deep economic hole.
While IHS expects global real GDP to accelerate in 2015, globalization—defined as the value of world exports as a percent of global GDP—is not expected to follow suit. Over the past 20 years, roughly coinciding with China's acceptance into the World Trade Organization (WTO), trade growth has accelerated and outpaced overall economic growth; that is, globalization increased. This pattern ended with the recession, and trade as a share of of world GDP is expected to hold at around 30 percent, where it has been since 2010 (see Figure 1).
The combination of the slowdown in emerging markets and relatively weak U.S. and Western European economic performance has slowed world trade growth. International trade is expected to grow on pace with GDP.
Supply and demand balancing
In 2014, China's GDP represented 14 percent of global GDP, while the United States represented almost a quarter of global GDP. However, by 2024 China and the U.S. are likely to be even at about 20 percent each, which would balance global production more uniformly between East and West. Consumption patterns are expected to follow that shift.
U.S. consumers probably will continue to claim the highest percentage share of global consumption for the next few years, but emerging-market consumers are closing the gap. While its growth has slowed somewhat, the rise of China's consumer class is likely to propel the Chinese economy to a much larger share of global consumption over the next six to eight years, fueled by accumulated wealth and an increasing number of middle-income households (see Figure 2). In fact, IHS expects consumption in the BRIC countries to surpass that of Western Europe or the United States in 2022.
These changing international trade, production, and consumption patterns have several implications for global supply chain managers. First, the relative decline of the U.S. consumer's importance to global trade will serve to reduce production volatility. As producers become less reliant on one market they will be able to spread risk in a more balanced way.
Second, the major trading blocs are becoming increasingly connected and their performance correlated. At the same time that retailers are struggling for market share in the West, the growth of the middle class in China and India has slowed. A strategy that considers relative growth opportunities across multiple markets will enable global corporations to maximize their market opportunities.
Third, buyers will face competition from consumers in traditionally exporting countries. For example, the BRIC countries' production will increasingly be consumed within their domestic markets, and manufacturers there will view domestic markets as increasingly appealing relative to export markets. This will contribute to a reduction in economic globalization while reducing the export-oriented nature of production.
Production shifts
Several countries are showing promise as good locations for sourcing or as end markets. Chief among them are Mexico and Vietnam.
Mexico's increased competitiveness is helping the country regain its share of U.S. imports at China's expense. In 2001, China's entry into the WTO caused a major shift in trade, with China quickly outpacing Mexico in exports to the United States. Between 2001 and 2005, Mexico's share of U.S. imports of manufactured goods fell from 12.1 percent to 10.4 percent, while China's share rose from 11 percent to 19.2 percent. But Mexico staged a comeback. By 2009, China's share of U.S. imports had leveled off at around 26 percent, while Mexico's share grew to 13 percent by 2013. Proximity to the United States, lower relative wages, and the high cost of ocean shipping compared to the cost of utilizing an improved north-south transportation infrastructure between the U.S. and Mexico were primary factors in this shift.
China can no longer offer the kind of cost advantages that allowed it to become a dominant player in global manufacturing. Not only are labor costs rising, but there also is growing concern about broader macroeconomic and political risks, such as civil stability, "shadow" banking, a real estate bubble, and military adventurism. These factors have prompted Western companies to reassess their reliance on China.
This concern is also helping to drive growth in Vietnam, China's southern neighbor. The country has been a member of the WTO since 2007 and has manufacturing wages that are roughly half of those paid in China. These advantages have recently triggered a surge in manufacturing foreign direct investment and have led to a tenfold increase in the value of Vietnam's merchandise exports since 2000, with shipments in 2014 expected to have hit US $150 billion.
Positive implications
Changing global production and consumption patterns should have generally positive implications for global supply chains. On the consumption side, a more regionally balanced demand for goods will reduce dependence on any one market and lower overall supply chain risk. On the production side, the emergence of regional manufacturing centers—in Mexico, Vietnam, and elsewhere—will distribute and perhaps minimize the risks for downstream manufacturers, distributors, and other members of the global supply chain. These benefits will be mitigated by trade growth that is closer to the growth in overall economic activity. Look generally for shorter and more diverse supply chains going forward.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.