Midwest Industrials build stability amidst disruption
A giant cargo ship doesn’t crash into the side of the Suez Canal because one big thing goes wrong, but rather because lots of little things go wrong all at once. You might be able to say a similar thing about the global supply chain as a whole.
Disruptions to the supply chain created an estimated $4 Trillion in losses to the world economy in 2020. This series of disruptions began at the onset of the COVID-19 pandemic, with companies around the world halting operations, cutting prices and laying off workers. American manufacturers and distributors now struggle to meet the quick rebound in demand. It’s been 18 months of weathering material and labor shocks, but is the worst still yet to come?
Along with creating new dilemmas like strikes over vaccine mandates, COVID made obvious that the current infrastructure is inadequate to meet the growing needs of our commercial system. Demand for shipping containers doubled from 2000 to 2020 and is expected to double again by 2030. To keep up, many Midwest firms were forced to prioritize speed over resiliency. The downside to operating more lean, however, is greater vulnerability to disruption and bottlenecks.
Some economists argue inflation will be the inevitable result and natural corrective force to the production backlog COVID created. If labor and material costs continue to rise — trucking wages spiked 40% in the last year — consumers will see higher and higher prices. This may in turn lead to the dreaded “stagflation” if economic activity continues to be limited by our capacity to build and produce goods.
A key challenge is finding manufacturing and logistics workers now, as well as ensuring we are training a next generation to fill these critical jobs. Further, the relationship between technology and labor will play an increasingly important role in our overall economy. As labor costs rise in manufacturing and construction, automation can act as a deflationary mechanism by amplifying each worker’s capabilities. But firms better make sure their workforce is prepared.
In our work with Midwest industrials, economic stagnation feels far from a foregone conclusion. COVID-19 accelerated challenging trends, but has also accelerated the adoption of new paradigms for delivering value. While much of the media coverage of this issue delivers a bleak prognosis, we are optimistic this is an opportunity to generate investment in critical infrastructure and optimization to create a truly sustainable logistics network.
Our industry partners do a great job of remaining focused on what they can control, even as uncertainty abounds. Some Midwest manufacturers are adapting by increasing the reach of their vertical integration. Construction companies are putting new technologies to work to expand their supplier networks, gain real time visibility over their materials and employees, and streamline communication across their job-sites. Logistics firms find emerging solutions to make warehouses easier to manage and safer places to work.
Beyond the transformations that may occur within any given organization along the supply chain, the system will need to evolve as a whole. There will be a need for greater stability and collaboration across industries, public-private partnerships and innovation networks. Some logistics experts are optimistic we are headed in the right direction, while others predict years of turmoil ahead. We can’t predict the future either, but at Heartland Ventures, we will bet on Midwest builders and makers every day to catalyze unprecedented improvements for our national economy, local businesses and communities.
