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Insight: First Things First – No more bull?

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First Things First

No more bull?

August 1st, 2022   ·   By Rob Garrison

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
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The last five years in the global supply chain have been insane.

In 2017, trade conflicts began to cause tensions as new tariffs were introduced, and sourcing shifts began as companies realized they were over leveraged in China. In 2020, a black swan flew in and simultaneously shut down the country - while at the same time fueling unprecedented consumer demand. Now in 2022 we are facing yet another crisis—a plummeting economy. Inflation is at a 40 year high, we have two quarters of declining growth, and major companies are sitting on way too much inventory.

What's different about this third chapter is demand. In 2017, the economy was strong and getting stronger. Consumer confidence, wage growth, and low employment drove spending. In 2020, a massive amount of stimulus, changed lifestyles, and increased down time drove spending to even greater heights.

This time it's different. The economic meltdown is causing prices to rise faster than wages, causing people to pull back on spending by necessity. Consumer confidence is also down for the third month in a row.

So what are my predictions for the global supply chain?

  1. The historic shipping patterns are likely to return. Whereas 2021 saw record growth month after month, it is likely that next year January to May will be “slow,”* with an uptick starting in June in advance of the holiday season.
  2. Volumes will also return to “normal,” levels meaning (with the exception of September and October) there will likely be enough capacity to meet demand.
  3. Procurement and product assortments will shift from high-end luxury items to basic and low cost items.
  4. Transportation rates will come down substantially as their customers face shrinking demand (sales) and lower margins.
All of these “predictions” are based on what we experienced in 2008 when the real estate crisis triggered a recession and companies had to get lean and mean in order to weather the storm.

Like any predictions, mine could be way off base. However, history is often a pretty good way to see the future. In this case…I sincerely hope that I am wrong!

*By slow I mean in historic terms where roughly 40% of the volume ships in the first half and 60% in the second. There will likely be a small uptick at the beginning of January due to Chinese New Year which falls on January 2023.
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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