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.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."