The hopes of a soft landing and more: interview with Jason Schenker
Supply chain leaders are banking on a better 2024 than they experienced in 2023. But is their optimism justified? We asked acclaimed economist Jason Schenker that question and more.
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
By most accounts, 2023 was not a stellar year for companies in the supply chain sector. Rising inflation, high fuel costs, and a glut of inventory left over from the pandemic years combined to create a market that was sluggish at best.
Some sectors, like the trucking industry, experienced what amounted to a recession in everything but name. At the same time, warehouse projects were slow to get off the ground. And businesses of all stripes struggled to find the labor they needed.
But with the turn of a new year, there is always hope for better times ahead—and, in the case of the supply chain sector, that hope is justified, according to economist Jason Schenker.
Schenker, who serves as president of Prestige Economics and chairman of The Futurist Institute, is considered one of the best economic minds in the business. Bloomberg News has ranked him the #1 forecaster in the world in 26 categories since 2011. LinkedIn named him “Top Economics Voice,” and more than 1.1 million students have taken his LinkedIn Learning courses on economics, finance, risk management, and leadership.
Schenker is also the author of more than 30 books, including 15 bestsellers on supply chain, finance, energy, and the economy. He has provided economic and material handling forecasts for the industry association MHI since 2014. He spoke about supply chain economics with Group Editorial Director David Maloney on a recent episode of DC Velocity’s award-winning podcast, “Logistics Matters.”
Q: Jason, we just wrapped up 2023, which was a difficult year for companies that provide logistics and supply chain products and services. What were some of the factors that made things so tough?
A: I think there were a few things going on here. First and foremost, you had a rise in CapEx [capital expenditure] and OpEx [operating expense] costs. You had high interest rates, which eroded margins. You also had a tight labor market driving up labor costs. There were material costs and inflation that are still elevated. All of those factors were nipping away at the profit margins for businesses in the sector.
And, of course, we’ve also seen in some of the proprietary data that we produce for MHI—the MHI Business Activity Index—that new orders weren’t as strong as in the past, including several months where they were pretty weak.
However, shipments remain positive, as we saw the backlog burning off, with unfilled orders and inventories finally getting shipped out the door. But that reduction in new orders is something we’ll have to keep an eye on, especially in a relatively high-interest-rate environment.
Q: As you mentioned, interest rates remain high. How much does that affect investments in new technologies, which drives a lot of supply chain-related spending?
A: I think there are big investments still being made on the technology side. Anything that can boost productivity has still drawn tremendous investments. And, of course, if you are a business in the logistics, supply chain, or material handling space and you need equipment, some of the order times are still quite long because of the backlog that had built up so significantly in 2020 and 2021, and even parts of 2022. They’ve only really started easing in the past year. So, those things still represent challenges for many companies in the space.
Q: We’ve seen very low unemployment in the last couple of years, which has made it tough for companies looking to hire warehouse workers or truck drivers. Do you see the labor crunch easing anytime soon?
A: Oh, that’s been the real bugaboo for the industry, and that’s why there’s still so much interest in automated solutions and technologies that can boost productivity in logistics and supply chain.
If you look at some of the most recent data, we see that even for the month of October 2023, there were about 1.2 million open jobs in trade, transportation, and utilities. And if we dig a little bit deeper, there were 207,000 open jobs in wholesale trade in the U.S. In transportation, warehousing, and utilities, there were 488,000 open jobs. That’s a lot, right?
And even though the labor market slowed from 2022 to 2023, open jobs in transportation, warehousing, and utilities didn’t decline much in that period. There were 491,000 open jobs in October 2022 compared to 488,000 in October 2023—a drop of only 3,000 jobs. The reason I’m bringing this up is to show that the competition for labor is really, really tough. You have fewer than 2 million people collecting unemployment, and as of October, you had over 8.7 million open jobs. So, you have a lot more open jobs than people seeking work, and that’s been true throughout all of 2023. And it’s likely to remain a challenge throughout the year ahead.
Q: Will that put pressure on employers to raise salaries?
A: Well, it’s definitely a seller’s market if you are labor right now. That definitely drove up salaries in 2023, and it gave a lot of unions and other organized labor [groups] opportunities to push for wage increases. We saw it with the auto manufacturers and in health care, and we’ve seen it across industries.
And we could continue to see that, if the unemployment rate remains low, the number of people collecting unemployment remains low, and the number of open jobs remains high. You don’t need to run an economic research firm to know that if demand exceeds supply, then price goes up. And that means we could continue to see some labor price pressures, and further increases in wages, in the year ahead.
Q: Let’s look ahead to the remainder of this year. Do you think we’ll be able to achieve that soft economic landing that many are hoping for?
A: Well, that’s the hope, right? At the end of the day, the good news is that about 70% of GDP is driven by people buying stuff. It’s driven by consumption, and people with jobs who are making more money than they’ve ever made are out there spending. So, that’s the good news.
But it’s a double-edged sword with this labor force, because while we have a really tight labor market that’s really competitive for employers, it erodes profit margins, and that’s an issue. On the upside, by driving up wages and having full employment in the economy, you’ve got people out there making money, spending money, and that drives consumption, and it drives GDP. So, it’s really a mixed bag.
But trust me, we would rather have an economy with a tight labor market that’s growing than an economy where hiring is easy but there’s no business because we’re in a recession and so many people are out of work. So, this is the much preferred scenario at a macro level.
If I were to take a poll of companies working in supply chain and logistics and asked them, “Hey, would you rather struggle to maintain your profit margin, but still have lots and lots of business? Or would you rather be in a situation where business is slow, but labor is cheap and plentiful?”—trust me, the vote wouldn’t even be close. Most businesses would much rather be in a situation where we have a solid economy, solid growth, and strong consumption—and, yeah, labor has become pricier and it’s challenging to get high-quality people, but at least there is business to be done and a reason to hire.
Q: Let’s get a bit more specific. What do you feel are the prospects for supply chains in 2024?
A: I think we’re going to see more geopolitical risk. We’ve seen this for a number of years, as we see Cold War Two continuing to devolve, and we see trade tensions between the United States and China and their allies—tensions that have spilled over into regional proxy wars and will interfere with trade. We began to see that happen in the Red Sea, where hostilities are currently disrupting transit through the Suez Canal.
We have other supply chain issues and challenges in the Panama Canal as well that cropped up in the latter part of 2023. As we’re looking ahead, I think there’s still reason to keep our eye on these supply chain bottleneck risks.
And, of course, the war in Ukraine isn’t over, and that presents all kinds of commodity risks. And that, by the way, is what has engendered much of the inflation we’ve been seeing. So, that risk hasn’t gone away.
In addition to that, the geopolitical tensions in the Middle East present real risks to oil prices. We could see more conflicts proliferate globally that present risks of various stripes to supply chain industries, not just from a sourcing standpoint but even from a transit standpoint. So, I think geopolitics is going to be front and center as both an inflation risk and a cost risk, as well as a security-of-supply risk.
Q: It does sound like there are a lot of risks, but I also think supply chains have become more resilient over the last couple years. Will all the work they’ve done to boost resiliency bear fruit in 2024?
A: I think we’ve seen some improvements in resiliency, but the level of risk that we’re facing on a global basis is truly significant. I’d say here in North America, we’re in a blissful situation economically compared to the situation in China, where the economy has been weak and there are some major systemic problems, or in Europe, where the Russian war in Ukraine has had significant impacts and there have been some significant weaknesses.
So, the U.S. is in a charmed position economically, as we project out how the rest of the year is going to be, even if our growth slows or if job gains slow, because if inflation falls, the potential for lower interest rates increases, right? Those things all look increasingly likely, but even though we see some slower growth or some slower job gains, we don’t see a collapse. Part of the reason is that massive backlog of open jobs we’ve got across sectors, where [rising] wages are fueling economic growth.
We’re in a better spot than most economies. Securing your supply chain and being aware of geopolitical risks, both from a material-cost and from a security-of-supply standpoint, that could reverberate across your cost structure is going to be absolutely critical.
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 British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.