For supply chain professionals, 2022 turned out to be a classic good news/bad news kind of year. On the up side, the well-publicized port backlogs cleared up, inventory shortages started to ease, and the transportation capacity headaches all but vanished. On the down side, there were the macro-economic woes: runaway inflation, rising interest rates, a slowdown in economic output, and, of course, the prospect of recession.
So it’s no surprise that the question on everybody’s mind is, How will 2023 play out? Will the Fed manage to pull off a soft landing? Will the employment picture improve? Can we get inflation under control?
Members of the supply chain community most likely have a few additional questions: Will we get inventories back in balance? Where are freight rates headed? And is this the year long-delayed material handling projects finally get off the ground?
To get some insight into these and other questions, we turned to someone who’s uniquely qualified to weigh in on such matters. Gary Master, publisher of DC Velocity and COO of Agile Business Media, has an extensive background in business economics and more than 30 years’ experience in supply chain/logistics. As an executive at a supply chain-centered media company, he keeps close tabs on the economy in general and the supply chain/logistics market in particular.
As 2022 drew to a close, Group Editorial Director David Maloney sat down with Gary to get his take on what lies ahead. Here’s what he had to say:
Dave: 2022 was certainly a roller coaster ride for most supply chains. As we look ahead to 2023, what is the general health of our supply chains and the material handling industry?
Gary: If you start at the 30,000-foot view, material handling and supply chain are doing very well. The general economy has taken some lumps but overall is pretty healthy, too. We broke records for Amazon and for online retail spending over the Black Friday holiday. Retail is still pretty strong, even though consumer confidence is showing some signs of weakening. And that is good for material handlers and good for the supply chain. Right now, you’ve got a lot of material handling companies that still have backlogs for a lot of reasons, which means they’ve got the cash to invest in further research and development, and to fund their operations and keep them strong.
Dave: As you mentioned, consumers continue to spend and online sales remain brisk. Although consumer confidence is starting to wane, the strong holiday sales were good news for retailers trying to work down excess inventory and normalize things.
Gary: I am glad you brought up inventory because that is a hot button issue right now. We couldn’t get certain things for so long. There are still some things we can’t get. We continue to have that whole idea of a scavenger-hunt economy, but as retailers and some manufacturers stocked inventory, they stocked it across the board. Now they have inventory that they’ve got to burn off.
Dave: Unemployment remains below 4%, which is quite low historically. However, recent Labor Department job reports show job losses in transportation and warehousing. Do you foresee layoffs in those sectors even though it’s still difficult to find workers for frontline jobs?
Gary: It is really interesting because you have the Amazons of the world and others that have said they’re laying off several thousand people. However, a recent study showed that there are 0.52 workers for every frontline supply chain job. That means that with the labor market as tight as it is, there is going to be a continued need for automating and for reducing touches in fulfillment operations. So, supply chain and logistics is very well positioned for continued strength.
I would say you’re going to continue to see layoffs across some of the high-tech companies and across some upper management positions. But the individuals being laid off tend not to be the frontline workers in supply chain.
Dave: Those continuing labor constraints bode well for the material handling and automation sectors in 2023. Could you talk a little bit about what you see coming up this year?
Gary: Anything that can limit your exposure to the labor ups and downs will continue to be hot this year. Whether we’re in a recession or not, there’s no indication that the shortage of frontline workers will ease anytime soon. DC leaders have to make up the difference somewhere, and it has to be through productivity gains achieved through automation and advanced technology.
Dave: In the last couple of years, many automation projects were delayed due to parts shortages, shipping problems, and other factors, with timelines stretching out as much as two years. Is the situation easing, and do you think things will be better in 2023 for people who want to tackle automation projects?
Gary: I think that the situation with some of the critical components you need for a highly automated system is getting better, but it hasn’t gotten better yet in some areas, and that is a topic for its own discussion. But overall, there are still backlogs in the material handling industry. While normally a backlog is a bad thing, it is now becoming a good thing because it is going to fund and fuel further growth in our space.
The only real downside risk, Dave, is that companies may decide that, since they’ve already waited two years for their systems and may now have to wait another year, their original designs are becoming outdated and they need to go back to the drawing board to redo them. That is the only thing that concerns me there.
Dave: Do you have any predictions as to when those system availability problems might be resolved and the situation might begin to normalize?
Gary: July 11, 2023. No, just kidding, Dave. That is a great question. I would say you’re going to see more normalization in the middle of the year. I do believe we will have a mild recession, but I also think it will start to balance some things out. I think the chip situation is going to get much better and that supplies of other components will continue to improve, and that is going to allow us to get back to more-normalized supply chains across the board.
Dave: What do you see for the transportation industry? We’ve already seen some consolidation, and the industry continues to feel pressure from interest rates, capacity fluctuations, truck driver availability, and the price of fuel.
Gary: The transportation side is a lot murkier. Given the current global unrest, transportation could be in for a rocky 2023 as it adjusts to the new normal after the post-Covid rush.
Dave: So, prediction time: Where do you think the economy is going in 2023, and what does the future hold for the supply chain sector specifically?
Gary: Well, let’s start with the overall economy. We had two consecutive quarters of GDP recession, which means we were in a recession. But when the Q3 numbers came out, they showed positive GDP growth, breaking the streak. But are we going to have a couple of more soft decelerations in GDP growth in 2023? We probably will in Q1 and Q2, and maybe in Q3.
I think that folks have to be realistic about where we’re at right now. I think if you look at it, we have some things that are really going well for us. During some of the previous recessions, we had some bad things happening around the recession itself. In this particular economy, the housing market remains strong. And when I say housing market, I’m not just talking about pricing—the pricing is holding its own. Some of the heat is coming out of it, yet the credit ratings of the individuals who have purchased houses are much better than they were in past recessions. That is a good thing for us.The backlog with material handling equipment manufacturers is a very, very good thing for us. We had record online sales for the recent holiday. So, Dave, I think that 2023 is going see a slight recession, but I think our industry is going to have a healthy year. The rate of growth is going to be lower than it has been, but we are coming off a record year. It is good news, bad news. The growth is going to be slower, but it is still going to be a great year in my opinion.