What you need to know about inflation and supply chain ops

Inflation has affected us all at an unprecedented rate since the beginning of Covid-19, hitting us where it hurts – our mortgages, loans, and possibly the most painful, the rising price of food.

One thing these increases have in common is the supply chain. This is a theme that ties into rising shipping rates, fuel surcharges and the cost of warehousing space, as well as storage and the movement of goods, from both a supplier and consumer perspective.

The inflation rate in Canada declined to 3.8 percent in September from a 4.0 percent high in August. The Bank of Canada’s Monetary Policy Report projected at the end of October that inflation will stay around the 3.5 percent mark until the middle of 2024. They are expecting inflation levels to return to the target 2.0 percent in 2025.

The full impact when it comes to interest rates and the trucking industry likely won’t be felt until we are further down the road. The industry will have to balance out somehow and this will likely be where it is hit with rising wages for truck drivers and an increase in equipment costs in the coming years.

As we have seen in similar markets with warehousing cost increases, the purchase price of transportation equipment today will not be the same in a few years. It is inevitable that the price will increase but the question remains as to how much.

Purchasing new vehicles will also become more volatile as loan costs are likely to continue to increase, along with continued delays and persistent microchip shortages. With these factors in mind it is a possibility that we may see a larger shift to vehicle rentals versus vehicle purchases as people try to avoid higher loan costs.

“Supply chain volumes have experienced wild fluctuations due to these changes in product volumes moving with the supply chain. We know we have not resumed normal levels just yet,” said Jane Ayn Lyndon, director of western region for Mactrans Logistics Inc., in an interview. She said factors that have contributed to inflation include rising costs of resources, labour shortages, regulator costs and taxes being passed into consumer pricing, along with energy volatility and supply disruptions driving up the cost of fuel.

Consumer spending habits have both decreased and increased since the beginning of Covid-19, and we are starting to see reductions in spending again. Inflation has proven to be very temperamental and central banks continue to favour a high interest rate environment. As we continue into the end of Q4 for 2023 and into the beginning of 2024, supply chain volumes will likely be reduced as the cost of borrowing for consumers continues to be high and they run through available credit lines and credit cards for purchases.

With these expected fluctuations in inflation, pricing in the industry will likely remain status quo, according to Lyndon. “However, any significant increase in demand could increase shipping costs slightly as carriers leverage into higher rates. We do not foresee large change in the cost in the short term,” she said.

We will likely see this translate into the holiday season as consumers are planning to shrink their holiday spending, which is likely to have an effect on carrier costs and consumer goods as demand begins to shrink. According to a survey conducted with 1,000 Canadians by Deloitte Canada, anticipated spending for this holiday season is hovering around $1,347, the lowest amount reported in the last five years. According to Deloitte this anticipated spend is down 11 percent from the 2022 forecast of $1,520, and an even larger drop from the 2021 holiday spending forecast of $1,841.

Everyday costs of living are likely to keep the supply chain busy however as the average consumer spending is still on an upwards trajectory. The fear of recession continues to loom over the heads of Canadians. The same survey reported two-thirds of respondents were concerned about the possibility of a recession.

Lyndon also confirmed that her company has seen decreases in both volume and rates in truckload shipments when reviewing weekly load to truck ratios in relation to demand of shipping and availability of equipment. While many LTL rates are negotiated annually, Lyndon expects rates to remain static in future negotiations, confirming that the situation really is all about supply and demand.