Welcome to the first edition of The Supply Times for 2024!

In this issue, I take a look at the potential pitfalls and challenges awaiting supply chain practitioners in 2024. Political clown-show aside, what sort of year can we expect? And will the supply chain strategies we forged during the pandemic be resilient enough to deal with a new wave of disruption? 

Just as importantly, what’s going to happen with the job market? All the numbers point to a single trend: cooling. Find out why below. 

As usual, we have plenty of other bits and pieces, including recommendations for podcasts, books, shows, charts, and tweets of the week, before finishing with a final chuckle.

Let’s get going.

Industry Highlights: The Supply Chain Minefield of 2024

Is 2024 going to be another year of disruption? Will hastily formulated resilience strategies begin to bear fruit? In a recent article published by the Wall Street Journal titled New Disruptions, Geopolitics Hang Over 2024 Supply Chains, Paul Berger delved into the pressing issues faced by global supply chains in the year 2024.

I was prepared for another doom-and-gloom piece about a difficult year ahead, but found it surprisingly upbeat. The good news is that the supply chain strategies initially devised in response to the pandemic have seen accelerated implementation and are now being leverage to face all disruptions.

What disruptions? Well, the conflicts in Ukraine and the Middle East pose threats to the transportation of essential commodities such as grain, oil, and consumer goods. Disruptions caused by climate change and mass migration impact trade routes from the Panama Canal to the U.S.-Mexico border. These combined challenges, along with mounting geopolitical tensions, are further complicating the operations of global supply chains.

Yet many companies, including our biggest retailers, have achieved remarkable success in the past year by effectively reducing their inventory stockpiles. These stockpiles were initially built up during the pandemic to navigate shipping disruptions and swiftly changing consumer purchasing patterns. 

Retailers have continued to simplify supply chains by cutting back on consumer choices  - and consumers don’t seem to mind. Coca-Cola, for example, has slashed its brands from 400 to 200 since COVID, while Kimberly-Clark cut more than 70% of its paper and tissue products in one fell swoop back in 2020. It may be easier to manage, but this trend isn’t great for innovation or for small businesses hoping to be picked up by a bigger company.  

The broader indicator of the inventory-to-sales ratio among U.S. retailers has remained steady at 1.30 from May 2023 to October, indicating that merchants have achieved a certain level of stability following the tumultuous years of the pandemic. As U.S. holiday sales witnessed a 3.1% increase compared to the previous year, many retailers reported streamlined inventories that reflected a deliberate approach rather than a frantic rush to replenish stock.

The jury is currently out on whether we’ll see organizations flipping back from Just-in-Case to Just-in-Time supply chain strategies, particularly in the context of inflationary pressure. 

What about the trucking industry? After experiencing significant layoffs and witnessing several major bankruptcies in 2023, the trucking industry, which had expanded significantly during the pandemic, is placing its hopes on a resurgence in order volumes this year. The rumor is that many companies anticipate a rise in truckers exiting the profession, which would increase freight rates by cutting down on excess carrying capacity. Similarly, overcapacity in international shipping is expected to ease. 

Then there’s the “Great Reshuffling”, where global trade flows are transforming and shifting away from China. Importers are focusing on alternative suppliers in countries like Vietnam, India, and Mexico. However, this shift is not without its challenges and bottlenecks.

In a recent issue I discussed how Mexico surpassed China as our largest trading partner in 2023. Freight and logistics companies anticipate that this demand will persist and even increase in 2024 as trade relations between the two countries continue to strengthen. However, there’s a fly in the ointment - in recent months, U.S. Customs and Border Protection intermittently closed rail and truck crossings to redirect personnel towards supporting border patrol officers in managing the influx of migrants.

Carriers are being forced to send ships on alternate routes due to a lack of rainfall in Panama and Houthi rebel attacks on the Suez Canal. These disruptions are playing havoc with ocean schedules and shipping rates. New routes have dramatically impacted inbound freight flows, with cargo volumes surging into West Coast ports and sinking on the East Coast and Gulf Coast gateways. This is likely to accelerate in 2024.

The Future of Work: 2024 Labor Market Expected To Cool

The WSJ dove into the data to develop a slew of predictions for the job market in 2024.

Let’s start with unemployment: S&P forecasters predict the unemployment rate will rise to 4.1%, surpassing November's rate of 3.7% and reaching its highest level since the end of 2021:

The same forecasters expect hiring to slow considerably. Why? Cooling economic activity, people coming “off the sidelines,” immigration picking up, and generally more available workers. In addition, workers are job-hopping less, and layoffs are down. The result, says the WSJ, is a “less-frenzied labor market.”  

Job growth has become concentrated in specific industries: healthcare, social assistance, leisure and hospitality, and state and local government. In contrast, hiring in other sectors has experienced a significant decline.

The factors above have led to a deceleration in wage growth. Average hourly earnings across the private sector increased at a rate of almost 6% annually in early 2022, but by the end of 2023, the growth rate had cooled to 4%. Sectors with high competition for workers, like restaurants, have also witnessed substantial easing in wage gains.

Temporary hiring is cooling and has been doing so for over a year. The WSJ comments that “temps are considered a bellwether for the labor market … often the first hired as businesses start staffing up and the first dismissed when the economy sours”.

The takeaway? Although the labor market is slowing, it has continued to generate jobs at a faster rate than in the period just before the pandemic. Consumer spending has demonstrated resilience, driving the demand for a wide range of goods and services (and for workers in these industries). Moreover, companies, in general, have been hesitant to lay off employees, considering the headaches they’ve recently faced in recruiting and retaining skilled workers.

AI Insights

• Educational technology company Duolingo has cut 10% of its workforce as part of its transition towards increased reliance on AI tech. This shift is driven, in part, by AI's ability to generate content, such as scripts, at a faster pace. Duolingo's CEO emphasized in November that AI plays a crucial role in expediting content creation, including developing in-app voices and introducing AI features for users.

• Apple is anticipated to unveil generative AI-based tools at the WWDC in June, according to Bloomberg's Mark Gurman. These tools, part of iOS 18, are expected to include a revamped Siri and features like auto-completion and auto-summarization in core apps and productivity software. Apple has been testing its "Ajax" large language model and aims to integrate AI into Apple Music and troubleshooting with AppleCare. However, Gurman believes that the complete realization of Apple's generative AI vision may take until 2025.

• Siemens and Microsoft have partnered together to drive the adoption of AI across industries. During CES 2024, Siemens CEO Roland Busch introduced the Siemens Industrial Copilot, an AI-powered assistant designed to enhance collaboration and productivity. By utilizing Microsoft's Azure OpenAI Service and Siemens' Xcelerator digital business platform, the Copilot aims to revolutionize industrial processes.

The Supply Aside

📕 Read - The Age of AI

“Without significant fanfare — or even visibility — we are integrating nonhuman intelligence into the basic fabric of human activity,” write the authors of this book. 

It’s tempting only to consider AI’s impact on your profession or areas of interest. What’s needed is a wider view of how AI is transforming society, and what this technology means for us all. Kissinger, Schmidt, and Huttenlocher explore everything AI-related from job loss to misinformation, the impact on artists, writers, and other professionals, medicine, military applications, and more. On a bigger scale, AI is changing our relationships with knowledge, politics, and the societies in which we live.

What Else I’m Reading

• Time management with Oliver Burkeman: “Accept the need for tough choices. You don’t just have to say no to things you don’t want to do; you also have to say no to things you do want to do.” I love this tough advice on time management from the author of 4,000 Weeks - a book we covered last year on TST.

• Wayfair’s CEO Wants Staff to Work Harder: “Working long hours, being responsive, blending work and life, is not anything to shy away from. There is not a lot of history of laziness being rewarded with success,” wrote Niraj Shah in a holiday email to staff. This is just one example of the growing pushback against flexibility, quiet-quitting, and other trends.

• Unions are pushing back against AI surveillance: We’ve come to expect some level of monitoring, but what if the next step is being fired by algorithm? U.S. unions are way behind Europe in reacting to this challenge.

📺 Watch - What People Really Mean in Meetings

Here’s a bit of levity - what do people really mean when they say “Allow me to play devil’s advocate”? What’s the hidden message in the phrase: “Let’s pick that up in the next meeting”? Check out this funny video from Smart Company featuring overused phrases at business meetings.  

👂 Listen - Obviously The Future (Podcast)

Obviously The Future Podcast explores the massive trends that will shape our world in conversation with the trailblazers, non-conformists, and hidden experts who are building tomorrow, today. Season one featured wisdom from the founders of Avalanche VC, four fund advisors, three Austinites, three professional storytellers, and 12 guests sharing their views on the future. It’s hosted by the brilliant Katelyn Donnelly and Arvind Nagarajan, who are currently gearing up for season two. Highly recommended!

💡 Think - Bitcoin Trading Volume Is Roaring

The launch of the first U.S. Bitcoin ETFs sparked a huge spike in Bitcoin trading volumes. After the SEC's green light, nine new ETFs hit the market, drawing in loads of investor interest. This hype reminds me of when ProShares' Bitcoin futures ETF raked in a billion bucks in just two days back in 2021. The big players like Grayscale are leading the charge, converting their massive Bitcoin trusts into ETFs. In just the first day, Bitcoin's trading volume shot up by 40%, even though its price kinda wobbled around $46,000.

What's cool is the variety in these new ETFs, from heavy hitters like BlackRock to digital asset buffs like Valkyrie. And get this – they've already pooled around $113 million in seed capital. But hey, let's not get carried away with crazy expectations. Even Bitwise's head honcho thinks hitting up to $20 billion in the first year would be mind-blowing and not the usual ETF scene. Something definitely worth keeping an eye on in 2024.

Charts of the Week

Quote of the Week

Tweet of the Week

The Final Chuckle

“To respond to constant changes we also need the agility of a mountain goat. And to spot those changes coming, we require the radar of a bat. Now just ask yourself this question: have you ever seen a sprinting goat-bat? That tells you something about the scale of the challenge that we all face.”

Don’t miss this spoof on an “inspirational” New Year’s message from a corporate CEO, written by The Economist’s Bartleby. Permavucalution, anyone?

Thanks so much for reading. I’d love to know what you think about this issue and how I can make it more useful to you.

If you have suggestions or topics you’re interested in seeing me address, shoot me an email at [email protected]!

Want more?

If you’d like to read more of my writing on the supply chain, entrepreneurship, or the future of work, check out my website.

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Wishing you all the joy of the season - have a Merry Christmas, a rejuvenating holiday, and a very happy New Year!

-- Naseem