Recession, Geopolitics and Costs: Top Supply Chain Concerns

Container xChange surveyed 1200 supply chain professionals, asking what disruptions will affect the shipping industry in 2023. 49% of respondents said the economic downturn in the US is a key concern for the shipping industry with the freight forwarding industry, followed by geopolitical tensions at 32% and rising operating costs with 22% of respondents.

Some positives have been noted by survey respondents as the drop in freight rates seems to have bottomed out for most routes, and broader forecasts are showing a less positive outlook.

The war in Ukraine and tensions between China and Taiwan carry the risk of global trade being split into geopolitically determined blocs, Container xChange warns.

“These high-risk geopolitical tensions could potentially lead to the fractionalization of trade blocks and potentially a world where trade becomes less efficient because you cannot trade with everybody anymore. Trade becomes restricted to blocks. Currently, it looks like there might be two major blocks but in future, there might be more. This will then limit trade and make it less efficient.” Christian Roeloffs, co-founder and CEO of Container xChange said.

Regarding the US economy, Container xChange said recent events in the banking sector have prompted companies including Goldman Sachs to forecast and increase the possibility of a recession in the next 12 months.

“Interest hikes by central banks due to sticky inflation has put the balance sheets of many lenders under pressure, essentially forcing them to mark down assets or sell them off at a loss to cover short-term liquidity needs,” said Roeloffs.

Roeloffs noted the collapse of two US financial institutions in the first quarter of the year, an event that rocked economic markets and put a strain on banks.

“The bank crisis, compounded by the troubles in the real estate sector, negatively impacts interbank lending. Higher cost of interbank lending will lead to tight access to credit for the real economy and this in turn leads to higher risk of recession.”

“This vicious circle of increasing interest rates, rising instability in the banking sector, tightened access to credit, falling commercial real estate values and eventual recession is underestimated by the overall market, and has significant implications for supply chains,” said Roeloffs.

Rising operating costs, driven by energy and labor costs, are not expected to decline, with additional pressure from increased port tariffs and increased warehouse space prices due to tight supply.

Mr. Aaron Callahan, owner of a container trading company in the US said: “The container market, in general, is very volatile currently, it changes every week, so there is risk in predicting what will turn out after six months. We face high demurrage and detention charges, operating costs, and other charges pertaining to container storage and transfers. The demand is not coming back anytime soon, on the other hand, the capacity and supply of containers is abundant. Most of us are trying to build resilience and consistency in our operations. This is business critical.”

Source: Phaata.com (According to Container xChange, SeatradeMaritime)

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