There seems to be less concern going into this holiday season that goods and manufacturing components will be in short supply compared to last year, but fears of a looming recession — if not an already-present one — have businesses across most sectors of the economy paying close attention.
One strong indicator that supply chain issues have improved this year is the significant reduction in wait times for ships coming into port on both coasts, according to Amy Sartain, director of business development for Simpsonville-based Sunland Logistics Solutions.
Sartain says her firm dealt with significant delays last year getting shipments through California ports and experienced similar delays out of Savannah. The problem was exacerbated by staffing shortages in the trucking industry.
Staffing was among the challenges faced by firms all along the global supply chain, from producers seeking to meet demand to logistics companies trying to accommodate a surge in volume. Sartain says this is one reason her firm offered the largest wage increase in its history over the past year in an effort to retain the crucial staffing needed to keep pace with increased strain throughout the logistics sector.
Grappling with the strains on supply and looking ahead to signs of recession have caused businesses to reevaluate a number of factors. Speaking to a number of leaders from a range of local manufacturers on supply chain issues, several trends emerged:
- Many manufacturers are shifting away from the long-standing model of just-in-time delivery of parts to a “just-in-case” model where they store more parts inventory on site to mitigate against production delays.
- Continued shortages in the construction sector, particularly for manufactured items like windows and appliances, are likely to ease as the cost of borrowing increases and demand for new construction slackens.
- Global geopolitical uncertainty and incentives built into federal initiatives like the infrastructure bill are likely to accelerate the reshoring of manufacturing back to the United States.
A further trend, the impacts of which economists are still trying to decipher, is the pandemic shift from consumer demand for services to more demand for goods, according to Scott Baier, professor of economics and chair of the John E. Walker Department of Economics at Clemson University.
Baier says that despite inflationary pressures, the New York Fed and other organizations continue to report high consumer demand for goods. Demand for goods spiked during the pandemic when most consumers shifted their spending away from services like dining and movies due to lockdown restrictions.
Despite growing indicators of a recession, Baier says consumer spending on goods remains high.
“That’s a good sign for economic activity overall,” he added.
In a sense, many manufacturers are hedging their bets by carrying larger and more diversified inventories. This might also explain why locally there are more storage and warehousing facilities going up, particularly along the Interstate 85 corridor, according to Baier.
Sartain of Sunland Logistics Solutions says her firm has seen an uptick in demand for warehousing space from clients and she is “cautiously optimistic” supply chain issues will continue to improve.
Baier adds the supply chain outlook will likely improve into 2023 but the uncertain economic outlook will probably make companies cautious about new spending on increased production capacity.
He says these factors indicate consumers are unlikely to encounter the types of empty shelves and shortages that were common at the height of the pandemic, but disruptions remain possible as companies and policymakers try to steer a path that will avoid both rampant inflation and a longterm recession.