Looking at supply chain perceptions and realities

With the second half of 2024 underway, it seems like now is as good of a time as ever to look at the state of the supply chain.

To be clear, there are many ways to look at where things stand, whether it be in the form of key trends, economic indicators, rates and capacity across different modes, and how the supply chain is being perceived.

That last grouping has been top of mind lately, simply because of everything the supply chain has gone through, going back to the onset of the pandemic in March 2020. Those events are still somewhat being felt in different ways today, to an extent, but albeit with not nearly as much uncertainty and confusion.

That is where perception, or, rather supply chain perception, comes into play. Why? Well, for one thing, in early 2020—and for quite a while after—it seemed like the supply chain could not catch a break whenever it was mentioned. Given the myriad challenges the pandemic presented, the profile of the supply chain ostensibly blew up in short order—and not in the most favorable ways.

Now, with the pandemic largely in the rearview mirror, there is a sense of supply chain normalization, in a way. That was made clear in some data I came across from S&P Global Market Intelligence, which was equal parts interesting and informative.

The firm explained that: “U.S. firms have become the most positive about their supply chains in at least 10 years, with 63.6% of U.S.-headquartered firms discussing the topic positively, thanks to lower inventory, cost-cutting, and normalized supplier delivery times. Corporate leaders have never been so positive about the impact of supply chain activities on profitability and cash flow.”

This percentage, which S&P Global Market Intelligence said is derived from natural language processing of machine-readable earnings conference transcripts for U.S.-headquartered firms, was up significantly from the first quarter’s 49.1% reading, as well as representing the highest reading since the first quarter of 2010.

Leading the way, positive sentiment-wise, were consumer discretionary product firms—manufacturing and retail—at 78.7%, with the automotive sector at 69.0%, while demonstrating the fastest rate of recovery annually, up 29.7% compared to the second quarter of 2022. 

“The improved sentiment likely reflects a relative period of normalization in supply chain activity, as well as the ‘tailwind’ from reduced cash flows allocated to inventory and cost cutting associated with diversification and logistics costs,” observed S&P.

S&P Global Market Intelligence Research Director Chris Rogers told Newsroom Notes that, generically, it feels like all of the available evidence shows that the supply chain is in a good place, with trade growing and companies having positive supply chain outlooks, but that comes with the caveat that it is not the complete story.

The reason for that, he explained is that once you scratch the surface and see what is going on underneath, the various issues being frequently discussed in supply chain circles—including things like soaring ocean rates and port congestion, mixed economic indicators, and the ongoing Red Sea situation are, and remain, evident.

That was also made clear by John Larkin, operating partner, transportation and logistics, Clarendon Capital.

Larkin explained that the over-the-road freight transportation market is still suffering from too much domestic capacity, although, there are some indications that capacity is slowly but steadily exiting and that inventory levels are nearing normalcy.

“Service levels across the supply chain are good, thanks in large part to the slack capacity,” he said. “Shippers are starting to get nervous, though, about supply and demand tightening in the 3-to-9-month time frame. If and when supply and demand tighten, rates will jump and service levels will likely suffer. Ocean and airfreight capacity are already tight given the de facto closure of Suez Canal thanks to the Houthi rebels.”

From a top-level perspective, this is where supply chain perceptions and realities intertwine. And there is nothing wrong with that, as two parallel themes can both be true without contradicting each other.

Supply chains always have to be ready for the unexpected, that is something everyone can likely agree on. Perceptions can vary, too, and we have seen them change in an instant—especially when the unexpected quickly happens. Make no mistake, the supply chain has made major strides in recent years, but it will never always be hunky dory, but it also will not always be doom and gloom either. It goes back to the ongoing perceptions and realities at the end of the day.