Ingram's May 2023

Smoother Sailing Ahead A year ago, fleets of fully-loaded cargo ships, many hailing from origins in China, formed a massive backlog at the ports of Los Angeles and Long Beach in southern California. That traffic jam began to clear in the fall of 2022, and recently has been restored to pre-pandemic operational levels, port officials say.

by Dennis Boone

Before there was COVID-19, before the toilet paper sold out, before lumber prices went to the moon, before assem bly lines were shut down for lack of computer chips, the health of the col- lective supply chain in the U.S. and globally was … tenuous. The virus merely broke the weakest links. A few others were snapped as a combination of seemingly unrelated conditions: shortages in raw materials, hoarding by companies trying to work around supply shortages, backlogs of container ships accumulating off U.S. ports, manufacturing delays from the world’s biggest exporter during China’s failed effort to wait out the pandemic by idling factories, labor shortages in transportation and delivery channels nationwide. And, of course, the brutal conflagration in Ukraine that has limit ed exports from both the Russian invad ers and the Ukrainians. Some of those conditions, but not all, have eased. The semiconductor shortage that pushed lead times in the auto industry from a few months to nearly a year—and cost the industry an estimated $210 billion in sales in 2021 alone—hasn’t gone away completely, but production is trending back up. Ports off of southern California have cleared the backlog on incoming cargo containers. Logistics industry executives who de- scribed 2020 and 2021 as a mess now concede that the mess is still out there—

it’s just a different kind of mess. There remains, they say, a common ques tion coming from corporate offices: “Where’s my stuff?” It’s hard to find silver linings in dark economic clouds, but the surge in interest rates in the U.S., the Fed’s effort to strangle an inflation monster, has dampened consumer spending that went hog-wild in 2020. Here’s one example of what’s hap pening on the retail front. Home Depot saw its stock price fall by a third in the early weeks of the pandemic. Then peo ple stuck in their homes started pouring into stores to spruce up their homes or address long-deferred projects. Result? Record sales and stock that went from $152 at the nadir to $415 a share by the end of 2021. Since then, with the federal infu sion tapering off, sales have, too, and the current share price of $293 reflects a nearly 30 percent pullback. With consumers scaling back demand, sup ply chains have found some breathing room—some—to reload. But again, that depends on the sector. In Kansas City, which found its lo gistics legs over the past decade and has become one of the nation’s hottest mar kets for industrial real estate, things are cooling a bit. WarehouseQuote, a North Point Development subsidiary that con- nects manufacturers and shippers with short-term warehouse space, expects that the worst of the demand has peak

ed, says WarehouseQuote’s marketing director Jordan Brunk. “Though we’ve seen year-over-year price increases, we are seeing some softening in the market and anticipate potential pricing reductions (based on increased space availability) around mid-year, through the end of 2023,” Brunk said. “Many of our customers who imported record amounts of car go in 2022 due to supply chain bottle necks are now off-loading the invento ry, which is leading to easing around the industry.” Shipping rates—for overland truck ing, rail, ocean shipping, and other modes—have, in turn, tumbled amid a literal sea change in consumer be haviors. During the pandemic, they crushed sellers with demand for new furniture and décor, new outdoor living and recreational spaces, and big-screen televisions. Their tastes, and whatever discretionary income they still have, have been redirected to all things expe riential—mainly travel, entertainment, and the full-throated return to bars and restaurants. A Shared Pain A study last year by supply-chain consultancy Avnet Silica, drawn from transcripts of more than 30,000 earn ings calls with corporate executives, showed that of the 20 sectors where sup ply-chain concerns were predominant, more than half involved manufacturing

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May 2023

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