2023 Outlook: What to Expect in the Supply Chain
RedStone Resource
January 4, 2023
Inside This Edition
Business Investment Still Growing
Despite surveys which show an anticipated decrease in business investment and spending, the current national data shows that there is no deceleration yet in total spending. The Census Bureau showed that business investment came in 0.2% higher in November on an annualized $75 billion in spending.
Global Supply Chain Pressures Index Improving, But Problems Continue
The New York Federal Reserve released their latest data in the Global Supply Chain Pressures Index through November, and it shows that some pressure continues despite being much lower than it has been since January of 2021.
Truck Driver Drug Failures Continue to Increase
Drug failures among CDL drivers continues to rise, more than 5,000 drug failures were registered between October and November. According to the Drug and Alcohol Clearinghouse, there are more than 161,571 CDL drivers with at least one drug failure, and 117,291 with their license in prohibited status.
ECONOMIC BRIEFING
2023 Outlook: What to Expect in the Supply Chain
Economic forecasts call for 2023 to essentially come in flat for the full year. The first half of the year is expected to contract while the second half of the year is expected to show some moderate growth. But the supply chain could perform differently, depending on one key factor: inventory management strategies.
The US job market continues to be stable for now, and wages are still growing annually at roughly 5%. That has helped keep product demand and consumption stable through a difficult inflationary period.
But rapidly rising interest rates will likely force purchasing managers to watch their inventory levels carefully in 2023, and trim inventory volumes wherever possible. There will likely be a mental tug-of-war taking place as managers try to ensure that supply chains remain resilient and continuous without overstocking themselves on some categories of inventory (to ensure that they avoid stockouts). With China easing zero-Covid policies and Europe eventually emerging out of a difficult winter energy crisis, supply chain output should improve in 2023 and chronic shortages of many products should end (some products will remain in short supply in 2023). That could allow supply chain managers to move away from “just in case” inventory strategies and shift back toward a more continuous reorder cycle. If all goes as planned.
This should also help the transportation sector avoid being overwhelmed and help improve service performance (on-time pickups and deliveries, reduced shortages, and damages, etc.).
Business Investment Still Growing
Despite surveys which show an anticipated decrease in business investment and spending, the current national data shows that there is no deceleration yet in total spending. The Census Bureau showed that business investment came in 0.2% higher in November on an annualized $75 billion in spending. This was also 5.7% higher on a year-over-year basis.
Companies of all types are trying to improve their productivity, even if they do not think about it in those terms. With more than 10.3 million jobs open in the US, companies have struggled to find enough workers to meet the demand for their services or products. To compensate, many are looking at ways of automating some processes and are arming workers with more technology to help them be more productive.
Other types of spending have included expanding existing facilities to improve capacity, increasing corporate fleets, more efficient machinery, etc. The bottom line is that spending continues according to Federal data, despite survey data showing that many companies are planning to slow their spending heading into the new year.
TRANSPORTATION BRIEFING
Global Supply Chain Pressures Index Improving, But Problems Continue
The New York Federal Reserve released their latest data in the Global Supply Chain Pressures Index through November, and it shows that some pressure continues despite being much lower than it has been since January of 2021. In a normal cycle, the index would show a reading close to zero (and in most cases it was below zero – suggesting that supply chain managers had the opportunity to plan more accurately).
The current index is 1.2 (the all-time high was 4.3 in December of 2021 and the all-time low was -1.63 in November of 2008). The global supply chain is likely under more pressure than many believe, and much of it is still coming from the challenges emanating out of China and big portions of Europe. Many of the transportation components of the index have improved significantly since early in 2022; but unfortunately supply chain managers will continue to find that the “scramble” to keep their logistics operations synchronous is not over.
Truck Driver Drug Failures Continue to Increase
Drug failures among CDL drivers continues to rise, more than 5,000 drug failures were registered between October and November. According to the Drug and Alcohol Clearinghouse, there are more than 161,571 CDL drivers with at least one drug failure, and 117,291 with their license in prohibited status. This is a continuous running tally from the DOT and what it shows is that just 44,280 drivers have successfully gone through a return to duty process and are able to return to work. Just 38% of those that enter prohibited status can return to work according to the three-year history of the tracking program.
Although estimates vary (based on the driver pool that we use), one could argue that the industry is approaching 8-10% of CDL drivers in some form of prohibited status. Even the most conservative of estimates would show at least 5% of the driver pool being reduced by drug failures.
This is not intended to debate the effectiveness of the program, merely to point out that in a normal economic cycle truck driver capacity would be freeing up more quickly than the market is experiencing, because for the first time since January of 2020 the industry is tracking drug failures at the Federal level, and enforcement of the program is more detailed and effective. With more US states allowing recreational marijuana, and marijuana representing more than 53% of the drug failures in the program, the volume of failures could continue to rise at the current 5,000 per month average.
