This article originally published on Forbes.com
Soft landing. Two tantalizing words that are appearing more frequently in business media cover the state of the economy.
As I write this, inflation is slowing faster than expected. Gas prices are down. Stocks are up. All of this is spurring a burgeoning optimism—however tentative—that we might emerge from this prolonged period of high inflation and interest rates without the economy falling into recession. Goldman Sachs Research has gone so far as to project that the U.S. economy will “easily beat consensus expectations” in 2024.
I’ll leave the macroeconomic prognosticating to Goldman Sachs and others. But when it comes to the supply chain industry specifically, I predict two different words will define the year ahead: extreme caution.
That’s what I’m hearing as I talk to supply chain leaders at Fortune 500 companies around the world—along with belt-tightening, profitability and cash management.
I think these supply chain leaders have the right attitude. After all, 2023 continued to test our global supply chains and exposed many of its inherent weaknesses. Organizations with strong foundations and sound business models survived. Those without perished.
Let’s look at three examples.
The supply chain industry is cyclical by nature, with the pendulum swinging from periods of high freight capacity to a dearth (the so-called “capacity crunch”). Typically, when there’s a downturn in the freight market, many of the industry’s smallest carriers—those with fewer than 20 trucks in their fleet—fold.
What made 2023 particularly challenging was that capacity bottomed out at the same time interest rates were unusually high, which meant all carriers were tested. Layoffs, bankruptcies and business closures, together with consolidation moves such as Knight-Swift’s acquisition of U.S. Xpress, ensued. FreightWaves has aptly characterized the current freight market as “an era of somber recalibration” and “prolonged market softness.”
I predict this softness will continue for far longer than usual, likely throughout all of 2024.
Brokers were also hit hard in 2023. The term “LogTech” was coined by the VC community back in the mid-2010s to address inefficiencies in the logistics space. Flexport and Convoy were the high flyers aspiring to disintermediate the freight forwarders and freight brokers in the international and domestic spaces, respectively.
But, disintermediation requires more than improving the matching of a truck with freight or a container to a shipment. And despite the “tech” in “LogTech,” a lot of manual effort is still going into freight execution—think appointments, truck breakdowns, detention, warehouse labor, yard congestion and the like.
In 2023, it became crystal clear that these companies hadn’t cracked the formula to efficiently scale. 2024 will see more companies that can’t show strong ROI or customer value fall behind.
The third category of companies put to the test in 2023 were the factoring companies. These are the organizations that provide trucking companies with advance payments on their invoices to help them with cash flow issues caused by shippers implementing tougher net-60 or even net-90 payment terms to preserve their cash. 2023 showed that the factoring business model couldn’t withstand record interest rates.
Markets are tightening, and that will continue through next year. We see that consumers are increasingly prioritizing value and reducing spend. Food and beverage companies have experienced a slowdown in shipment volumes; in the case of alcoholic beverages and packaged foods, FourKites data shows a decline of 8% and 9% from July 2022 to July 2023, respectively. We’re seeing a tightening across both discrete and process manufacturing, as well.
And while transportation and inventory are no longer bottlenecks, many companies are still struggling to deliver “on time and in full.” Given that, supply chain leaders are looking to technologies such as supply chain visibility solutions, not as much to locate a shipment in transit or inventory in a warehouse, but rather to optimize the execution of orders upstream. This will drive efficiencies that not only make customers happier but also preserve cash by keeping the cost-to-serve as low as possible.
Similarly, for all of the legitimate concerns around privacy and security when it comes to GenAI, the technology has the potential to make it dramatically easier for supply chain professionals to query systems for the data and insights they need to better serve customers in real time. Innovation and new use cases will continue to emerge in the coming year.
Investments like these, with tangible ROI that can be realized in weeks rather than months, will be increasingly important as executives navigate a tougher capital environment. The companies that survive—and even thrive—in 2024 will be those that strike the right balance between tech-driven transformation and business fundamentals.