The US appears to finally be reining in the supply chain. Costs have started to fall which has brought a much-appreciated easing of inflation. After two years of rising costs post-Covid-19, the supply chain has encountered numerous problems. The high logistics costs were passed on to consumers, which quickly ran up prices to often unaffordable levels. In addition, backed-up ports, problems with trucking such as a lack of seasoned truck drivers, and a warehouse shortage, all contributed to the increase in costs.
In 2021, many stores faced bleak inventory when the holiday season arrived. However, this year things have started to improve.
Lowering Logistics and Transport Costs
Logistics and transport wholesale prices have started to lower. The Federal Reserve has even started debating whether to ease supply chain constraints. The improved situation is due in part to reduced shipping activity as consumers start to slow their spending. Manufacturing is also starting to slow its pace nationwide.
The Financial Times reports that the spot rate from Asia to the west coast of the United States has fallen by 87% in the last twelve months. It is now holding at only 7% over 2019.
The cost of air freight has also plunged by more than half in the last year. The spot rates for dry van-enclosed trailers have dipped by a third.
Simon Geal, the executive vice-president of Proxima stated “What typified the last two to three months is that demand has damped, capacity has opened up and therefore prices have come down.”
President Joe Biden and Congress managed to halt a fright rail strike which would have been devastating to the U.S. economy
Scott Sureddin, chief executive of DHL Supply Chain North America said, “There are still some headwinds in the truck industry [such as] labor costs and equipment availability, but that’s normalizing also, so I think in 2023 we’re going to see a really good balance in everything.”
China’s Zero-Tolerance Covid Policy and Protests
Despite the improvement of 2022, many US companies, such as Apple remain concerned about the current situation in China. They fear that China’s zero-tolerance on Covid will cause more manufacturing problems. Apple has warned that its shipments from China will be reduced due to the protests which have occurred at their Foxconn-owned plant in Zhengzhou.
At this time, raw materials used in pharmaceuticals remain under pressure which many feels will continue to cause inflation for certain prescription medications.
