In the past, when making policy, Federal Reserve officials didn’t give too much consideration to supply chain challenges. The consensus was that supply chain issues would manage themselves and the Fed would manage the economy, independent of those issues. However, that strategy could soon be changing.
With a possible impending recession (though, the ATL Fed claims we’re already in recession territory) caused by the slowdown in consumer spending due to historic rates of inflation, the supply chain bullwhip is about to snap and the recoil will be felt nationwide.
The bullwhip effect is defined as when temporary surges in demand, as what happened when the pandemic caused consumers to turn their discretionary spending toward e-commerce, and this demand is met with unsustainable increases in production.
With port congestion and shipping delays, these surges in demand were multiplied by vendors and retailers scrambling to ensure stock for peak season shopping events like back-to-school, as there was some doubt that supply would be able to meet demand while production giants in China were on pandemic lockdown and the regular cogs of the supply chain ecosystem were brought to a grinding halt.
As the world begins to right itself, there’s a rush on warehouse space as goods are not moving at predicted rates, coupled with cancellations and staggered deliveries, as well as container spot rates dropping while diesel rates are surging, it’s all adding pressure to an already weak market.
With the Fed still raising interest rates, the US Federal Reserve Chairman Jerome Powell explains, “We’re not trying to induce a recession.” Yet, that’s where we are headed with GDP rates continuing to shrink and the market weakening more every day. However, Powell remains optimistic that the Fed’s actions will buoy the economy and stave off a recession.
If you have questions about how this will impact your cargo or your logistics strategy, reach out to your Argents’ representative today.
