Three primary factors are contributing to supply chain variability in Q1 2023: Sourcing, Labor & Inventory

“The reshoring and nearshoring effects on freight, coupled with the shift in logistics labor needs from seaport to land ports as U.S. supply chains favor regional trade partners, contribute to supply chain variability in the first quarter of 2023,” said Jim Lee, Managing Director, Supply Chain, Advisory, KPMG LLP. “In addition, the KPMG Supply Chain Stability Index shows that manufacturers are re-evaluating inventory by balancing consumer expectations with inventory affordability.”

More analytically:

1) Sourcing: As many supply chain organizations seek to boost resilience by diversifying their networks, reliance on China has dropped; Mexico and Canada are maximizing this opportunity along with various countries in Southeast Asia.

The KPMG Supply Chain Index indicated that on average, ocean freight prices decreased by 10% during Q1 2023. Inbound ocean shipments from Asia and Europe dropped as did air freight from Asia, which was down 50%¹. General ground transportation rates experienced similar effects, with truckload rates decreasing 13% and intermodal rates decreasing 12%².

2) Labor: The transportation and distribution sectors are experiencing a significant shift, as more employees are required at land ports and for road transfers, rather than at seaports and for intermodal transfers.

The manufacturing labor market has continued to loosen in Q1 2023, while reshoring and government mandates should increase domestic jobs.

3) Inventory: Inventory levels continue to rise, as manufacturers who relied on just-in-case inventory management practices are revisiting just-in-time strategies to find a better balance between service level and risk.

“While variability is significantly down in many areas of the supply chain, organizations remain in a fragile state as they are still reeling from ramifications over the past year and making changes in an attempt to avoid future supply chain stress,” said Brian Higgins, Partner, U.S. Customer & Operations Practice Leader, KPMG LLP. “Companies are fervently trying to better their position on inventory, labor, and supply chain globalization before inflation or ‘something else’ throws them a curve ball.”

About the index:

The KPMG Supply Chain Stability Index, in association with the Association for Supply Chain Management (ASCM), is a set of machine learning algorithms. Fueled by 14 years of data comprised of nearly 30 key variables and performance indicators, the Stability Index unlocks insights into new behaviors that companies are taking to adjust to the new norm of volatility. The Stability Index is designed to help supply chain professionals understand the stability of supply chain operations in the U.S. It also serves as a helpful barometer for the greater global supply chain community.

Jim Lee is a Managing Director, Supply Chain, Advisory at KPMG LLP. For more information on the KPMG Supply Chain Stability Index and the 1Q 2023 findings, please click here for the report. To arrange an interview with Jim, please contact Andreas Marathovouniotis.

1. Freightos Baltic Index (FBX), May 2023
2. KPMG LLP, KPMG Supply Chain Stability Index, May 2023