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WholesaleCentral.com Blog
Home»For Suppliers»Importing»Supply Chain Volume & Wholesale Prices Dropping Rapidly
Importing

Supply Chain Volume & Wholesale Prices Dropping Rapidly

Krystina MorganBy Krystina MorganDecember 27, 20226 Mins Read
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After the pandemic-driven surge in consumer demand that triggered a frenzy of shipping activity and skyrocketing prices, logistics and transportation companies are signaling a fast slowdown. Shipping and wholesale prices are plunging and orders are not being placed as often. 

  • Disruptions in the Container Shipping Industry
  • The Impact on U.S. Wholesale Imports
  • Costs Need to Continue to Come Down
  • A Look at the Wholesale Supply Chain in 2023

Disruptions in the Container Shipping Industry

With consumer demand wavering and retailers coping with excess inventories at overstuffed warehouses, global container volumes fell 8.6 percent in September, according to maritime data group Container Trade Logistics. This is the lowest level reached since February, during a period when shipping is usually at its peak. 

There is market volatility that continues to disrupt the container shipping industry. With an oversupply of containers and an influx of more TEUs (Twenty Equipment Unit) in 2023, shipping lines continue to reduce vessel capacity and suspend services by considerable blank sailings.

“In 2023, there is a high possibility of an all-out price war. It does not seem that the capacity restrictions that we have seen in the past two years are due to return, so we will have ample capacity both on the vessel as well as on the container side,” Christian Roeloffs, Co-founder and CEO of Container xChange, said. “With the competitive dynamics in the container shipping and liner industry, I do not expect especially the big players to hold back. We expect wholesale prices to come down to almost variable costs, and we foresee market consolidation.” 

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The Impact on U.S. Wholesale Imports

The WSJ also reported that the rapid falloff is hitting imports into the U.S. hard. Research group Descartes Datamyne says container imports from China into the U.S. were down nearly 23 percent in October from the annual high in August. 

“Imports have slowed down quite a bit. A lot of the wait times that were happening have started to clear out and decreased significantly. With that drop in demand, we will also see a continued drop in imports,” Chelsea Brady, Project Manager at Longbow Advantage, said. 

To think of the situation from a more macro-lens, what businesses have been experiencing the past three years is a natural reaction of market forces of demand and supply resulting from the disruptions like COVID-19 and subsequent lockdowns, the war in Ukraine, and geopolitical risks. Container prices skyrocketed soon after the pandemic because there were not enough containers to fulfill the rising demand. This caused retailers and importers to stock more in advance to avoid the historic port congestion.

The pre-peak season in 2022 saw record containers throughout import-heavy ports. Now that the stocks have been filled, demand is plummeting. Inflation and the energy crisis are leading to cautious spending, which will have its own impact on the container industry. The shipping trade will survive this, and we will once again start to see normal activity levels in the future. 

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Costs Need to Continue to Come Down

Unfortunately, fading transportation costs have not reached deep enough into the economy yet. This is mainly because freight rates remain above pre-pandemic levels in many cases, even after the steep declines. Most freight businesses move on contract rates, and those long-term prices have not fallen nearly as fast as the spot market. 

“Ultimately, the goal is to reduce prices back to what they were before and become more reasonable,” Brady said. “Inflation in the U.S. is close to nine percent. With shipping prices dropping, it should definitely help bring some of that back down and get closer to three-to-four percent inflation rate, which is what the economy strives for. This will give the supply chain more opportunities to diversify carriers and be more competitive with prices, which they have not been able to do the past few years.” 

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A Look at the Wholesale Supply Chain in 2023

“Supply chain disruptions have been on the rise the past three years. We saw an increase of disruptions between 30-33 percent prior to the pandemic. But from 2020-2021, there was almost a 67 percent increase. This year, there was almost over an 80 percent increase year-over-year,” Bindiya Vakil, CEO of Resilinc, said. 

The reality is that there will always be disruptions that cause instability for the supply chain industry. While businesses have certainly become more aware of the fragility of their supply networks over the past few years, it is making them stronger and more able to handle complications in the future. Looking into 2023, Vakil suggests that these will be the top four supply chain hot topics:

1. Continued Recessions

The instability of the economy and financial markets will extend into next year. If the supply chain can deliver your desired units at cost, that means you are able to meet your projections. If the supply chain does not get you where you need to be, then the markets will come down. It is an interconnected network of dependencies. 

2. Increased Geopolitical Risk

While the complications with the war in Ukraine have already been factored into companies’ operational performances, the factory shutdowns in China, along with their tensions with Taiwan, will continue to put a damper on the supply chain. 

3. Surge in Cyber Attacks

Cyber attacks are very disruptive in the supply chain because companies have to completely shut down the ability to transact and restart their systems. Meanwhile, their customers are still trying to make purchases. Systems can obviously be turned back on, but that one disruption can take weeks to go back to normal. Having a good cybersecurity system in place will be crucial in 2023. 

4. Climate Risks

Vakil has been seeing not only an increase in severity, but also an increase in frequency with climate disruptions. Climate risks are a big issue because if you are ordering products or parts from different regions, each area can be impacted differently and have a variety of consequences on your supply chain. Always be aware of the weather conditions in the regions you are purchasing from.

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Related articles:

  • How to Calculate Wholesale Prices & Profit Margins
  • How Retailers Can Adjust to Soaring Inflation Prices
  • Prepare Your Business for Supply Chain Disruptions
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