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.
Economic activity in the logistics industry continued its expansion streak in October, growing for the 11th straight month and reaching its highest level in two years, according to the most recent Logistics Managers’ Index report (LMI), released this week.
The LMI registered 58.9, up from 58.6 in September, and continued a run of moderate growth that began late in 2023. The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.
October’s reading showed the fastest rate of expansion in the overall index since September of 2022, when the index hit 61.4. The results show that the industry is continuing its steady recovery from the volatility and sluggish freight market conditions that plagued the sector just after the Covid-19 pandemic, according to the LMI researchers.
“The big takeaway is that we’re continuing the slow, steady recovery,” said LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University. “I think, ultimately, it’s better to have the slow and steady recovery because it is more sustainable.”
All eight of the LMI’s indices grew during the month, with the Transportation Prices index showing the most growth, at nearly 6 points higher than September, reflecting increased activity across transportation markets. Transportation capacity expanded slightly during the month, remaining just above the 50-point threshold. Rogers said more capacity will enter the market if prices continue to rise, citing idle capacity across the market due to overbuilding during the pandemic years.
“Normally we don’t have this much slack in the market,” he said. “We overbuilt in 2021, so there’s more slack available to soak up this additional demand.”
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.
Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.
“The Canadian port strike is a microcosm of many of the issues that are impacting Western economies today; protection against automation, better work-life balance, and a cost-of-living crisis,” Russell Group Managing Director Suki Basi said in a release. “Taken together, these pressures are creating a cocktail of connected risk for countries, business, individuals and entire sectors such as marine insurance, which help to mitigate cargo exposures.”
The strike is also sending ripples through neighboring U.S. ports, which are hustling to absorb the diverted cargo, according to David Kamran, assistant vice president for Moody’s Ratings.
“The recurrence of strikes at Canadian seaports is positive for U.S. ports that may gain cargo throughput, depending on the strike duration,” Kamran said in a statement. “The current dispute at Vancouver is another example of the resistance of port unions to automation and the social risk involved with implementing these technologies. Persistent disruption in Canadian port access would strengthen the competitive position of US West Coast ports over the medium-term, as shippers seek to diversify cargo away from unreliable gateways.”
The strike is also affected rail movements, according to ocean cargo carrier Maersk. CN has stopped all international intermodal shipments bound for the west coast ports of Prince Rupert, Robbank, Centerm, Vanterm, and Fraser Surrey Docks. And CPKC has stopped acceptance of all export loads and pre-billed empties destined for Vancouver ports.
Connected with the turmoil, Maersk has suspended its import and export carrier demurrage and detention clock for most affected operations. The ultimate duration of the strike is unknown, but the situation is “rapidly evolving” as talks continue between the Longshore Workers Union (ILWU 514) and the British Columbia Maritime Employers Association (BCMEA), Maersk said.
Terms of the acquisition were not disclosed, but Mode Global said it will now assume Jillamy's comprehensive logistics and freight management solutions, while Jillamy's warehousing, packaging and fulfillment services remain unchanged. Under the agreement, Mode Global will gain more than 200 employees and add facilities in Pennsylvania, Arizona, Florida, Texas, Illinois, South Carolina, Maryland, and Ontario to its existing national footprint.
Chalfont, Pennsylvania-based Jillamy calls itself a 3PL provider with expertise in international freight, intermodal, less than truckload (LTL), consolidation, over the road truckload, partials, expedited, and air freight.
"We are excited to welcome the Jillamy freight team into the Mode Global family," Lance Malesh, Mode’s president and CEO, said in a release. "This acquisition represents a significant step forward in our growth strategy and aligns perfectly with Mode's strategic vision to expand our footprint, ensuring we remain at the forefront of the logistics industry. Joining forces with Jillamy enhances our service portfolio and provides our clients with more comprehensive and efficient logistics solutions."
In addition to its flagship Clorox bleach product, Oakland, California-based Clorox manages a diverse catalog of brands including Hidden Valley Ranch, Glad, Pine-Sol, Burt’s Bees, Kingsford, Scoop Away, Fresh Step, 409, Brita, Liquid Plumr, and Tilex.
British carbon emissions reduction platform provider M2030 is designed to help suppliers measure, manage and reduce carbon emissions. The new partnership aims to advance decarbonization throughout Clorox's value chain through the collection of emissions data, jointly identified and defined actions for reduction and continuous upskilling.
The program, which will record key figures on energy, will be gradually rolled out to several suppliers of the company's strategic raw materials and packaging, which collectively represents more than half of Clorox's scope 3 emissions.
M2030 enables suppliers to regularly track and share their progress with other customers using the M2030 platform. Suppliers will also be able to export relevant compatible data for submission to the Carbon Disclosure Project (CDP), a global disclosure system to manage environmental data.
"As part of Clorox's efforts to foster a cleaner world, we have a responsibility to ensure our suppliers are equipped with the capabilities necessary for forging their own sustainability journeys," said Niki King, Chief Sustainability Officer at The Clorox Company. "Climate action is a complex endeavor that requires companies to engage all parts of their supply chain in order to meaningfully reduce their environmental impact."
Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.
Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.
The tool leverages data from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to project scores to varying locations using those eight category indicators: tropical cyclone, river flood, sea level rise, heat, fire weather, cold, drought and precipitation.
The Climate Risk Scores capability provides indicator risk projections for key natural disaster and weather risks into 2040, 2050 and 2100, offering several forecast scenarios at each juncture. The proactive planning tool can apply these insights to an organization’s systems via APIs, to directly incorporate climate projections and risk severity levels into your action systems for smarter decisions. Climate Risk scores offer insights into how these new operations may be affected, allowing organizations to make informed decisions and mitigate risks proactively.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” Jon Davis, Chief Meteorologist at Everstream Analytics, said in a release. “We’ve consulted with the world’s largest brands on the top risk indicators impacting their operations, and we’re thrilled to bring this industry-first capability into Explore to automate access for all our clients. With pathways ranging from low to high impact, this capability further enables organizations to grasp the full spectrum of potential outcomes in real-time, make informed decisions and proactively mitigate risks.”