Two heavyweights in the world of goods movement offered some generally rosy takes on the state of the supply chain as their companies look to be opportunistic during the expected recession.
Dave Clark, co-CEO of digital freight forwarder Flexport, and Hamid Moghadam, co-founder, CEO and chair of industrial real estate behemoth Prologis, sat down for a wide-ranging talk Tuesday during the Prologis Groundbreakers conference at Hudson Yards in New York City.
At the top of the conversation, the two tackled the state of the supply chain.
“I think the patient’s in recovery at the moment,” Clark said during the conference talk. “It’s been a long two years for the supply chain. Lots of delays, every issue imaginable almost it seems like in the last 24 to 36 months. But, when you look at what’s happening with the freight markets, and costs are starting to plummet as capacity is freeing up. I think we still have some shortages, but I think you look at mid-’23, I think you start to see much of the supply chain begin to normalize.”
Clark joined Flexport in September to share the top spot with founder Ryan Petersen for a six-month period before Petersen transitions to executive chair.
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Moghadam shared a similar view, while also pointing to some potential headwinds.
“I think a lot of the constraints on the pipes that are connecting different areas of the world are being relieved. But I do think there are going to be two constraints that will continue,” he said during the presentation. “One is labor. There’s a real shortage of labor and that sort of raises havoc with the supply chain. And the second thing is actually a place to put all the inventory because people are carrying more inventory to be able to deal with resilience issues, and we’re running out of places to put it.”
Both pointed out the reality for supply chain executives is change remains a constant and being flexible is key.
“Everybody in supply chain knows that the supply chain always has problems,” Clark said. “If you work in supply chain, every day is some new challenge. It’s just … it’s blown up in an unprecedented way the last few years.”
Companies are increasingly interested in nearshoring to mitigate their risks, but the idea of wholesale deglobalization is not something either executive sees in the future.
Moghadam said while the world may have seen a greater move to sourcing and manufacturing diversification in response to the pandemic, deglobalization would call for capacity levels that currently don’t exist domestically.
“If you look at the numbers, those trade deficit numbers are increasing all the time,” Moghadam said. “And so I don’t think we’re getting into a de-globalized world, we may be getting into spheres of globalization so that you have this sort of European sphere, and you have the Chinese, maybe Russian sphere.”
Changes made the past couple years in the way of sourcing or manufacturing may have been more of a short-term response to Covid than a major movement toward deglobalization, Clark added.
“But as soon as that passes, that memory is typically very short,” Clark said. “And things go back to what’s the lowest cost, highest quality, fastest path for delivery. I think globalization is going to be a part of that for the foreseeable future.”
Flexport’s Petersen shared a similar view when it comes to the industry’s short-term thinking when he spoke during last week’s CNBC Disruptor 50 Summit and questioned whether the industry had learned lessons from the pandemic-induced downturn. He pointed to the example of ship capacity. Carriers ordered more ships to accommodate the surge in demand during the pandemic, but now find themselves with a glut of capacity as consumer spending on goods pulls back.
“I don’t know that we’ve learned that much as an industry,” Petersen said. “[This is a] cyclical industry.”
Flexport, as a digital supply chain company, clearly believes the future of goods movement is in digital. Moghadam sees supply chain 2.0 similarly in a continued march to digitalization, not to move product faster but for the sake of visibility.
The CEO and Prologis believed so much in that future, they were an early investor in Flexport.
“It’s not really as important to get things there tomorrow as it is to know where the goods are at, so you can get it to where it needs to go on time,” Moghadam said. “So time definite is much more important than immediate.”
As the rumblings of a U.S. recession continue to grow louder, both CEOs are looking for the potential upside for their respective businesses.
“I stayed up at night a lot more during the global financial crisis and the S&L [savings and loan] crisis that really affected the real estate industry,” Moghadam said. “This one, to me, doesn’t feel quite that way. And what, if anything, keeps me up at night, is the excitement of our being able to navigate this very successfully. It’s not worry; it’s just enthusiasm for what’s going to happen.”
Clark, who joined Amazon in 1999 when the dot-com bubble burst, has also encountered several downturns and said “I’ve seen this movie before a couple times.”
He went on to say Flexport intends to continue investing in technology and will double the size of its engineering team over the next year as the company acts opportunistically to gain new talent and build new products.
“You get very crisp on what’s important to you,” Clark said of downturns. “That’s the thing I’ve learned over the years is you really have to focus on the thing that is most important to the customer and most important to future growth so that, when you come out the other side, you’re ready to take sort of outsize share of whatever the new world is going to be when you come out the other end. And for us, that’s a big technology investment over the next year or two.”