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.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.