Naturally, anyone who is involved in the international shipping industry will look for ways to create a greater sense of certainty in their lives. The shipping industry is extremely reliant on having consistent sources of verified data—shipping costs, fuel costs, international shipping codes and many other variables will all directly affect whether a particular shipping endeavor is profitable or not.
When compared to other industries, increased cost variability will be exceptionally amplified throughout the world of international shipping. When the cost of petroleum increases by 10%, for example, it would not be surprising to see the cost of shipping jump by 15% or even more. This is simply how the global supply chain network is currently structured and will continue to be structured into the foreseeable future.
As a result, many of the most important players within the global supply chain are frustrated. They are frustrated because they are uncertain how much it will cost to move essential goods from Point A to Point B. They are frustrated because the current geopolitical positioning of the world remains unclear (especially regarding Russia and Ukraine). And they are frustrated because they are unsure whether engaging in any large-scale shipping and distribution efforts will end up being profitable.
This frustration is not unheard by the world’s leading policymakers and financial institutions. However, it also remains clear that the “magic solution” to the world’s current manufacturing and shipping woes will not be revealed overnight. The recovery from the most recent wave of economic uncertainty will take a considerable amount of time to recover from.
Short-term pessimism, long-term hope
There is no denying that there has been quite a bit of negative economic data produced within the past few months.
GDP growth within the United States was negative 1.4% in the first quarter of 2022. Negative GDP growth, especially when coming out of a serious pandemic, is never a good sign. In fact, the formal definition of a “recession” equates to two consecutive quarters of negative GDP. So, depending on the data revealed following the close of this year’s second quarter, it is highly probable that a technical recession will have unfolded.
There is plenty of additional negative data that makes it difficult for the typical person—any active consumer, producer, or owner of the international supply chain—to be optimistic about the near-term future. Inflation rates hovering around 8% (year over year), for example, make it difficult to be confident that even a modest investment in security markets will increase in real value.
Nevertheless, despite the short-term pessimism coming from many of the world’s leading economic experts, there are still quite a few reasons to believe this current “dip” in the global economy differs from the types we have seen in years past.
The 2008 Financial Crisis, for example, represented perhaps the most dramatic economic dip of the 21st Century. But there are quite a few defining factors that differentiate current economic struggles from those of yesteryear. While the original crisis was a direct result of the pure misrepresentation of property values (credit default swaps, bundled mortgages, etc.) the current “crisis” is a result of a genuine housing shortage.
In the end, this means that recent gains within many capital markets—including the broader mortgage market—will likely be sustained. It is extremely unlikely that total wealth in the United States (and most other major nations) will decline, and it is also very unlikely that the asset classes that have recently rallied will end up losing their recent gains. Nevertheless, those who are heavily invested in the global supply chain—or are even just active consumers—will likely be affected by the current and near-future distribution challenges.
Adjusting global supply chains
There are likely quite a few changes that will need to be made in order to ensure a “soft landing” into the next economic era. The combination of many corresponding crises—including the pandemic, the outbreak of war between Russia and Ukraine, and the general increase in tariffs and sanctions—have all contributed to the current economic quagmire.
Some proposed solutions in response to the economic status quo includes initiating a deliberate shift away from an economy that is centered on goods consumption in favor of an economy that is more centered on services. The short-term adaptation of a service-focused economy, it seems, is perhaps the most direct method for combating the fallout from the global supply chain burden.
Additionally, companies across the supply chain should adapt to an ever-changing ecosystem. It is clear that the global supply chain will remain exceptionally volatile for at least the next three years. Those who are positioned to quickly adapt in response to future obstacles will be the ones most likely to succeed.
Similarly, an exceptional emphasis should be placed on the need to develop a dynamic and flexible operating structure. Companies that adopt a reshoring and nearshoring distribution structure will likely be the ones who are most able to keep their distribution costs under control, regardless of what the global economy has in store.
While not exceptionally optimistic about how the economy will perform throughout 2022, we do believe the global value chain will approach “normal” by 2023. This forecast is a result of several major assumptions—inflation will decline, COVID-19 will become less of an economic factor, and geopolitics will not stop the global supply chain from interconnecting.
Ultimately, it is clear that if the global economy is to bounce back from an unprecedented wave of challenges, it will need to strengthen its resolve. There are likely many malicious economic forces at play in the status quo—international blockades, companies exploiting profit margins, and organizations monopolizing limited resources—that will, eventually, need to be addressed.
Looking toward the future
With every new wave of economic data, it can be very difficult to remain optimistic about the future. Increases in inflation, increases in national deficits and stagnating wages all make it very easy to assume that, despite high levels of wealth accumulation, the current economy is on the verge of collapsing.
But despite the dismal GDP numbers that resulted from the first quarter, there is still reason to believe the economy can improve. A three-year economic recovery from the pandemic, after all, will be significantly faster than the recovery we witnessed in 2008 or any other recent recession. In the end, while a gradual economic recovery might be exceptionally frustrating, it at least represents continual steps in the right direction.