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Supply chain issues and weaknesses presented themselves in 2020 as the COVID-19 pandemic led to businesses closing, people leaving the workforce and an increasing demand for shipments.
The supply chain has certainly strengthened since 2020, but as the world got “back to normal,” three significant trends took shape that are likely to impact the supply chain in 2023:
- Inflation
- Potential recession
- China and semiconductor concerns
Inflation has caused prices to rise 9.1% between June 2021 and June 2022. Slight easing in inflation is being experienced, but the Federal Reserve has had to raise interest rates to help this easing.
Higher costs are a concern for the supply chain, which is seeing costs swell and worker pay rise.
With inflation and the disruptions below, it will be interesting to see what happens to the supply chain in 2023.
Supply Chain Disruptions to Consider in 2023
A Looming Recession is Likely
Hints of a recession have hung over the world since the start of 2022, and inflation will continue to play its role here. Higher inflation is combatted by rising interest rates, which often result in pushing a country into a recession.
Many economists believe by mid-2023 there will be a recession of some kind.
A short recession or a “soft landing” may not impact the supply chain much. However, no one knows how long or intense a recession it will be. Due to the supply chain needing to meet supply and demand, a recession may allow the supply chain to rebalance and better meet the needs of the future.
With that said, a recession may also impact other critical weaknesses in the supply chain, such as:
- Labor shortages
- Critical supply scarcity
- And much more
It will be interesting to see what the looming recession will do to the supply chain – whether it allows it to rebalance or exposes even more weaknesses.
China’s Unreliability as a Trading Partner
China will remain a major focal point in 2023. A few things are going on here that may impact the supply chain:
- Export controls on China increased in 2022, stopping China from accessing semiconductor chips made with US tools.
- Companies worldwide continue to cut off Chinese support.
Both of these factors will cause many companies to experience disruptions in 2022. However, this is just the start of the disruptions that concern China in the year ahead.
Taiwan and China Potential Conflict
Taiwan remains a major question mark and concern for the entire world. If China does invade Taiwan, it can cause the world to go into a deep recession and impact the supply chain dramatically.
The main concern is that Taiwan is responsible for much of the semiconductor manufacturing in the world.
Due to the world’s reliance on computing systems, a war with Taiwan could lead to an immediate decline in sectors across the world that cannot access semiconductors or complete orders without them.
Many countries, including the US, are funneling billions of dollars in investment into the semiconductor industry with hopes of in-country production. The investment will remain important in the years ahead, but there are no immediate means of producing enough semiconductors to replace those from Taiwan as these facilities will take years to build, outfit and begin producing semiconductors.
Geopolitical Unrest
Rising fuel costs and transportation issues in 2022 were a result of the conflict in Ukraine. Business leaders are concerned that the Russia/Ukraine war will continue to impact the supply chain due to:
- Political unrest
- Raw material costs
- Rising fuel and energy costs
Continued geopolitical unrest will lead to rising food and energy prices, and some goods, primarily grain from Ukraine, may still be a significant issue in 2023. A fast resolution to the war would help the supply chain in 2023.
Extreme Weather to Continue Impacting Supply
Extreme weather conditions may continue to impact supply in 2023. The year 2022 saw historic droughts, extreme wildfires and flooding. These extreme weather events will likely continue into 2023.
Significant weather events like droughts and flooding impact food and water supplies. Severe storms and natural disasters also disrupt the flow of goods.
The supply chain must learn to adapt if it is to survive these weather events, which will likely intensify over time.
Political Interference
International politics will continue to influence the supply chain, as more nations put their interests ahead of the international community.
For example:
- After India imposed a duty on certain rice exports in 2022, neighboring countries sought alternative supply sources. This action led to food shortages and higher demand.
- OPEC’s decision to cut back on production is keeping global fuel prices high.
- The Uyghur Forced Labor Prevention Act (UFLPA) in the U.S. has effectively banned the import of products from the Xinjiang Uyghur Autonomous Region of China, including cotton and the polysilicon products used to produce solar panels. Europe is considering similar legislation that would ban goods produced with forced labor.
- Tensions between China and the United States may further strain semiconductor trade.
Political interference is an ongoing point of concern for the supply chain and will likely continue to be a major influence heading into 2023.
Will Supply Chain Get Better In 2023?
With so many factors impacting the supply chain, it’s difficult to say whether things will improve in 2023.
Currently, there’s a great deal of uncertainty surrounding:
- The Centers for Disease Control and Prevention is still uncertain whether new viral strains will arrive.
- The war in Ukraine creates greater market volatility and instability.
- The Federal Reserve is still uncertain of the outlook for inflation in the coming year.
The supply chain is still reeling from the pandemic and the initial disruption of supply chains. In addition, plant shutdowns, inventory shortages and backlogs at the height of the pandemic contributed to higher prices for consumers.
Uncertainty has been the overarching theme of the last two years, and at the start of 2023, it is still looming overhead. The Chicago Board Options Exchange’s Volatility Index, known as the “fear gauge,” is still elevated.
With so many factors at play, it’s difficult to predict whether 2023 will be a better year for the supply chain.
