It’s been two years since the Covid-19 pandemic swept the world. The economy is now going through labor pains as it enters the next phase. The United States is sitting pretty with full employment but American consumers remain afraid and stressed over the current economy and their own personal finances. The supply chain and logistics problems have taken a toll and inflation have become out of control.
- Inflation
- Crashing stock markets
- High-interest rates
At this time, things have shifted into a slow economic downturn. Consumer pullback could not come at a worse time for the supply chains. The entire process is causing a bullwhip effect which has led to massive overstocking of inventory.
The term ‘bullwhip effect’ is used by those in the supply chain to explain a temporary surge in consumer demand that is then exaggerated by manufacturers and suppliers who increase production. Retailers quickly end up with more inventory than they can sell and the goods shortage morphs into a goods surplus.
The consumer pullback will ultimately impact supply chains in a negative way. The bullwhip effect will cause a massive overstock and the global supply chain will take a hit that will take time to recover.
Recently, Walmart reported too much inventory, and then Target also issued the same report. Both have been two of the biggest importers of containerized freight in the U.S. They imported 1.7 million TEUs in 2021 alone which accounted for 7% of all imports into the U.S.
Even Samsung has reported a bullwhip effect with too much inventory. They have asked suppliers to cut back production. Samsung has been the seven largest importer in the U.S.
At this time, containers are starting to drop to below the pre-Covid numbers in response to the bullwhip and the reduction in consumer demand.
Big box retailers have responded by canceling orders Small importers are struggling to cancel orders because they do not have the supply chain leverage to make such rapid changes and adjustments.
Evently, the changes in the market will also start to impact truly and the container slowdown takes hold nationwide. The weakening trucking market remains concerning as it continues to drop.
Warehouse space is also feeling the changes. Existing inventory is not selling at a rapid rate which is making companies find square footage to house the inventory. Shippers are slowing down the movement of containers in ports which is causing the container time to lengthen as they await warehouse space.
Even ocean container rates will continue to fall. At this time, the GDP tracker already shows the U.S. is in a recession. With such dire news, the downturn will continue.
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