OPINION: This article contains commentary which may reflect the author's opinion
In 2021, there has been no denying that the year has been disruptive, with new virus variants from the CCP (Chinese Communist Party), governments locking down and supply chain disruptions impacting the global economy. Now, experts from different industries have put forth their predictions for the upcoming year.
Many companies are trying to predict the results of the current trajectory in order to plan better for 2022, but predicting the economic and business environment is difficult. Three sources make predictions for supply chain-related events this year: a Bloomberg survey, a trade credit insurer, and a leading international magazine.
Considering consumer habits and a pandemic like the COVID-19, Chris Rogers from Flexport, a technology platform for freight forwarding, knows what to expect.
“If the pandemic becomes flu-like and consumer spending shifts steadily back to services from goods, it will still take several months for current bottlenecks to dissipate. A similar or worse health outcome combined with continued fiscal or monetary stimulus means more spending on goods and challenges throughout logistics networks running well into 2023,” Rogers said to Bloomberg.
Euler Hermes, a trade credit insurer, views China’s zero-COVID policy that shuts down entire regions when a single infection is detected and China’s trade volatility during the Chinese Lunar New Year as negative effects on global supply chains in the short term.
By the end of 2022, the insurer anticipates three factors that could stabilize global trade and restore supply chains to normal. The first is a cooling demand from consumers.
“The impressive household spending shift towards (durable) goods rather than services, in the context of curfews and lockdowns, should be much more timid going forward, even in the downside scenario of renewed COVID-19 outbreaks,” Euler Hermes said in a recent report.
The second factor is the return to pre-pandemic inventory levels by organizations. In most sectors, inventories are now above pre-crisis long-term averages due to an increase in capital expenditure spending in the United States and a rush to restock in recent months.
The last factor is the reduction of shipping congestion. By 2021, shipping costs are expected to decline due to the government investing more in port infrastructure and increasing port capacity. New container ships have been ordered worldwide at a record pace, which is a step in the right direction toward resolving the current bottlenecks facing the United States.
Global Banking and Finance Review predicts that manufacturers will manufacture crucial components locally and move supply chains back closer to home, rather than relying on foreign nations for production.
Due to this, American production can keep pace with sudden spikes in demand, as opposed to industry hubs like China where disruptions in production have a direct impact on American production. In addition to high rates for containers, another prediction is that demand for goods and services is expected to sustain throughout the year, while a backlog of existing orders is expected to be fulfilled.
Due to the coming interest rate hike, demand is expected to cool off, which may give manufacturers and suppliers an opportunity to relax some supply chain constraints.
Experts are also quite pessimistic about next year, and don’t expect supply chain issues to be resolved anytime soon, at least in the near future.
Bloomberg quoted Alan Murphy from Sea-Intelligence, a weekly analytical report, who said, “The latest Census Bureau data shows no signs that we’re seeing any slowdown in U.S. consumer spending on durable goods, so we’re maintaining our outlook that we will continue to see a shortage of supply throughout 2022, with a possible resolution in 2023.”
Omicron, a virus that is rapidly spreading around the world that has now infected more than 100 countries, is causing concern in many other countries. Maritime research company Drewry’s Simon Heaney told the media: “Unfortunately, 2022 is shaping up to be another year of severe disruptions, undersupplies, and extreme costs for cargo owners.”
“The virus is once again showing it is in charge and that all predictions related to it are folly, but it is not too bold to say this development will negatively impact the supply chain recovery by further depleting the already stretched supply of labor in the logistics arena and adding more healthcare-related red tape that will slow operations.”
Various strategies are being employed to solve the current supply chain crisis, according to the general market view. But tangible improvements will take time to develop. Unless economies become resilient and learn to deal effectively with the challenges they face, disruptive events like the discovery of new variants will force them to start from square one.