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Is the logistics boom over?

10/26/2022

Is the logistics boom over?

The supply chain industry has seen a massive upturn over the past two years. The primary reason for this sudden spike lies in e-commerce: With millions of people staying home during global lockdown orders, online shopping became increasingly popular. It was incredibly easy for people to purchase and receive goods without having to leave their houses. Arguably, consumers bought more products than they may have otherwise.

The unexpected rise in order volumes and nationwide lockdowns led to challenges for organizations at each stage of the supply chain. Ports became congested, logistics and distribution companies found themselves battling unforeseen labor shortages and many businesses struggled to respond timeously and effectively to customer queries.

As DP World explains, it's been forecast throughout 2022 that this upward trend shows no sign of declining any time soon. However, there are conflicting indications that this boom may be coming to an end, as CNBC notes. The question arises: Which of these outcomes can we actually expect? Let's explore the current state of logistics and its potential ramifications for US-based distribution companies:

What's causing a possible waning demand?

It's no secret that a recession may be on the horizon. Although operations have largely returned to normal in many (if not most) industries, organizations are still grappling with the economic aftermath of the COVID-19 pandemic. This is particularly true for western nations. Ports are becoming less overcrowded and shipping container prices are falling as consumers are placing fewer orders.

What do the numbers say?

According to the most recent World Container Index, container rates have decreased by 64% since September 2021. Major shipping route freight rates have also plummeted by up to 13% on some paths. These statistics are reflective of all corners of the globe, including Europe and the United States.

What are the implications for business leaders?

As The Wall Street Journal notes, these figures — combined with the very real possibility of a devastating economic collapse and soaring interest rates — are leaving investors wary. The previous demand resulted in a boost in merger and acquisition rates that are visibly showing signs of the trend's end. Consequently, businesses are facing difficulties in partnering with would-be buyers.

However, it's not all doom and gloom, at least not for America. Although this is an international phenomenon, foreign entities are showing interest in the American market. This is especially the case for freight forwarders and ocean carriers based in Europe that want to broaden their end-to-end supply chain services.

As Evan Armstrong, president of the research group Armstrong & Associates, explains, private equity firms are intent on extending their current portfolios. This desire might mean good news for logistics businesses in North America. They would do well to remember logistics industry is relatively volatile and subject to change at any given moment. However, with sustained business prospect levels, these companies can have reasonable confidence in the continued demand for staff to accommodate steady merchandising and trading deals.