ChainMail | Supply Chain Outlook

3 developments to watch in 2023

ChainMail | Supply Chain Outlook

Will 2023 be the year store shelves remain fully stocked? Will you have your choice of pickup truck or patio furniture — or will a missing part in Dearborn or Dalian spoil your purchase plans?  

The supply chain will function more predictably this year, though not without drama and disruption as the global economy works through the lingering effects of the pandemic. This should be the year that big developments in the global supply chain economy relate to longer-term strategic decisions rather than daily crises. Expect more news about manufacturers investing in future production or shifting suppliers and less about shortages or shipping fiascos. Expect plenty of consumer choice at dealer lots, in stores, and online. Whether shoppers have the confidence to buy is another matter.

Here are three areas of focus for ‘23:

Will goods move? Cargo vessels from Asia will not be log jammed. Shipping into Southern California finally unclogged in autumn as import demand finally slackened. Customers shifted some deliveries to East Coast ports, which helped. The early part of the year will be slow because the Chinese New Year starting Jan. 22 results in factories shutting down for several weeks, which impacts freight schedules. Activity will pick up during the spring, Jeremy Nixon, CEO of shipping company Ocean Network Express, told reporters in December. “But everything we’re talking about is always on a comparison with the year before,” he said. “We know 2021 was off the charts in terms of volume, so it doesn’t surprise me at the moment that we’re seeing negative growth rates of between 15%-20% because we must remember that (2021) was 15%-20% up on the previous year.” Caveat: If West Coast port contract negotiations break down, supply chains could snarl again. 

Will India outshine China? Moves by global manufacturers to diversify out of China should pick up steam because companies no longer see the Chinese government as a reliable partner. In the past, importers loved China’s low prices and trusted Chinese factories to get product out the door. Those cost benefits have eroded. At the same time, Beijing’s threatening behavior toward Taiwan and erratic efforts to control COVID-19 outbreaks represent supply chain risks that need to be managed. Some companies are bringing back manufacturing to the U.S. while others are turning to India, Vietnam, and elsewhere. This year should see some big-name companies make the shift. “Globalization is changing,” French logistics CEO Marie-Christine Lombard told The Wall Street Journal. “At some point, every company was going to China to manufacture goods. Now companies are asking themselves, ‘Should I remain dependent on China?’” Morgan Stanley thinks Apple will make India its second iPhone production hub, contributing up to 10% of total iPhone production in two to three years. China won’t stand still. This could be the year Beijing seeks to win back the confidence of nervous customers. 

Will the chip binge continue? Global semiconductor sales seem certain to slide as business investment slows in anticipation of recession. But the big picture looks positive for the return of U.S. chip production after a detour to Asia that lasted decades. Once it was logical for the American semiconductor industry to outsource production of some chips to Asia. But it was reckless to allow an exodus that now leaves U.S. companies almost totally reliant on Taiwan for the most sophisticated semiconductors. Since 2020, the Semiconductor Industry Association said, companies have announced 40 projects in 16 U.S. states worth nearly $200 billion related to chip manufacturing. By 2026, Taiwan Semiconductor Manufacturing Co. says it will be making next-generation chips at a new plant in Arizona. The rollout of this high-performance chip factory will come after the 2024 opening of another TSMC fab in Arizona. A big push for chips came from Washington incentives. Not all those projects may be completed, but the sooner American fabs are building high-speed chips, the stronger the U.S. economy will be. 

Read the complete Issue 26 of ChainMail here.

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