If anybody needed reminding that dealing with disruptions has become the new norm in supply chain management and logistics, 2024 has provided ample illustration, from the repercussions of the conflict in the Middle East and the paralysis of the port of Baltimore after a container ship struck a bridge to natural disasters and a flurry of port strikes.
The year ahead will again pack a host of blows to test the resiliency of supply chains and push cargo owners and their logistics providers to find solutions.
The start of 2025 is expected to be rocky. Shipping will continue to take extended routes from Asia to the North American East Coast.
Top management of Maersk sees no return of its ships to the Suez Canal route in the near term. “There are no signs of de-escalation, and it is not safe for our vessels or personnel to go there,” CEO Vincent Clerc told journalists at the end of October. “Our expectation at this point is that it will last well into 2025.”
The U.S. trucking industry is also bracing itself for more pain. Notwithstanding recent signs of improvement, the recession that has plagued the industry is not over yet. The number of operators has dwindled in 2024, but more casualties are expected.
“The problem in the freight market right now is an oversupply of capacity,” one logistics executive commented.
The demand side looks similarly problematic. Industrial demand has been stuck in low gear – not only in the U.S. but also in other major economies.
Like their U.S. counterparts, manufacturing purchasing indices for the eurozone have languished in contraction for 20 months, and new order indices point to weak demand ahead. The manufacturing Purchasing Managers’ Index (PMI) for Japan has been in contraction for four consecutive months.
Only China registered a return to growth in manufacturing in October and exports rose at a clip last seen two years ago, but much of this has been attributed to front-loading as importers in North America and Europe were ordering goods early to beat anticipated tariffs in the new year.
The International Monetary Fund (IMF) forecasts global GDP to grow by 3.2% in 2025. It recently upgraded its projections for the U.S. and Brazil but dialled back its previous forecasts for China, Japan and Germany.
Industry executives are hoping for a stronger second half of the year. UPS CEO Carol Tome predicted that the second quarter would mark a turning point in the parcel sector’s fortunes.
The prospect of tariffs is dampening optimism for global trade flows and heralds some gyrations as markets try to adapt to them. Paul Brashier, vice president of global supply chain at ITS Logistics, recalled vessel and container diversions, congestion and a 70% spike in container rates after the Trump administration imposed tariffs on goods from China in 2018.
Abe Eshkenazi, CEO of the Association for Supply Chain Management, observed that some importers quickly reacted to the outcome of the U.S. election and placed orders for beta tariffs, but many firms have adopted a wait-and-see approach.
“We have had some history, and we also had four years of disruption that required companies to have contingency plans. This is just another factor in those plans to be addressed,” he said.
Tariffs are not the only tools that the incoming U.S. administration is looking to wield in its trade disputes with other nations. The outgoing government team has worked on plans to remove de minimis exemptions from a raft of products in a bid to stem the tide of ecommerce shipments flooding into the U.S.
According to Judah Levine, the Jerusalem-based head of research at Freightos, the removal of tariff exemption would have a negligible impact on ecommerce, as the value of the goods is relatively low. However, this would add to significantly higher processing costs for customs clearance and transit times would likely stretch from currently 5-7 days to about two weeks, he pointed out.
This would be ominous for air cargo carriers, who have come to rely on ecommerce in the absence of solid industrial demand. For cargo owners, on the other hand, it could bring down airfreight pricing, which has been elevated through most of 2024.
One factor that kept air cargo rates aloft has been the widening gap between demand and capacity growth. Supply chain problems continue to hobble aircraft production, but Boeing should be able to increase output. The slowing growth in bellyhold capacity has intensified the need for freighters, and airlines have been frustrated by the delays in Boeing 777 freighter deliveries.
The rate outlook for 2025 sounds reassuring for cargo owners. One carrier executive based in Southeast Asia does “not foresee an impressive upward curve in airfreight rates in 2025.”
Shippers and forwarders will have enough other issues to grapple with. Eshkenazi pointed out that the rise of trade barriers accelerates the trend of supply chain diversification and will fuel further nearshoring efforts.
“We’re in a period of significant transformation for supply chains,” he said.
He also highlighted the ongoing push to digitization, stressing that supply chain visibility requires technology investment and a digital transformation.
This is bound to accelerate the uptake of artificial intelligence in procurement and supply chain management. A study by Digital Procurement World and the Sam Walton College of Business at the University of Arkansas predicts that artificial intelligence (AI) adoption is set to surge 187% in 2025.
On the other hand, the deployment of AI is facing hurdles. Apart from challenges associated with expanding supply chain visibility and building up a suitable pool of clean, usable data, many companies are struggling with change management and recruitment of qualified personnel to leverage the technology.
Faced with a bumpy ride, they may feel they have enough on their plates and defer wrestling with AI to a later, more suitable time. But such a time may never arrive.
By Ian Putzger
Correspondent | Toronto
