Forecasting earthquakes, volcanic eruptions, cyclones, flood, fire, famine, epidemics, cyberattacks, and war is easy. Shifting demand patterns and supply disruptions are de rigueur. Predicting when and where is the tough — typically impossible — task.
Resilient choices are often neglected because we discount directly experiencing where and when. Answering why these threats — and our self-created vulnerabilities — persist and proliferate can prompt vigorous disagreements that dilute investments in resilience. Uncertainty regarding when and where too often undermines strategically mindful choosing.
Acknowledging that precisely when and where are beyond my competence, I am ready to claim considerable confidence that in the foreseeable future we will experience:
Flows disrupted by destruction: Current high volume, high velocity flows of food, fuel, critical materials, manufactured goods, professional services, and more emerged from a vortex of Nineteenth Century engineering (e.g., Suez Canal, railways, sea ports), mid-to-late Twentieth Century trade policies (e.g., free-trade agreements, expanded Major Favored Nation status), and early-Twenty-First Century technologies for expressing demand, developing supply capacity, and transacting trade (e.g., communications, computing, related financial tools, and other cyber-vulnerable functions). These flows have created and tend to reinforce various forms of comparative advantage. Over time these comparative advantages have tended to concentrate capacity (and wealth-producing potential) for particular goods and services in particular places and, often, a small set of commercial players. The more capacity is concentrated in one place and proximate places, the more likely some random event — or intention — will disrupt or destroy such capacity. For example, when more than half of national production capacity for an essential healthcare product is suddenly off-grid, off-road, and flooded. Disruptions and destruction of high-proportion capacity concentrations –upstream, midstream, and downstream — are the consequence of endemic structural characteristics of high volume, high velocity flows. Such events will recur. To the extent demand/supply concentration accelerates, threats intensify, and vulnerabilities are neglected — risks increase.
Flows disrupted by competition: The more capacity is concentrated, the more likely dysfunction and disruption (see above). The more systemic dependencies are exposed by dysfunction and disruption, the more likely challenges to current comparative advantages are stimulated — either as a result of commercial efforts to exploit gaps or as expressions of national /regional self-interest to secure wealth-producing potential. For example, when pandemic-related frictions exposed the capacity concentration in (and constraints on) semiconductor manufacturing both national and commercial interests responded. In the last two years there has been an intense, expensive, and still evolving effort to reduce concentration and diversify geographic sourcing of semiconductors (here and here and here). Diversification — or de-concentration — could eventually generate enhanced systemic resilience. But getting there will be complicated and treacherous. Actions intended to protect or advance one source of capacity will usually prompt a competitive response from other sources of capacity. For example, according to Foreign Policy,
The U.S. Commerce Department announced new export controls that target China on Dec. 2, including controls on 24 types of semiconductor manufacturing equipment, three types of software tools for developing semiconductors, and high-bandwidth memory chips. It will also add 140 companies, many of which are based in China, to an “entity list” that places a licensing requirement on the purchase of U.S. technology. Beijing responded within hours of the U.S. news and struck back by announcing its own export ban on key tech materials such as gallium, germanium, and antimony, which is a seemingly obscure metal that actually has vital defense applications. It also plans to tighten its exports of graphite, a raw material that underpins electric vehicle batteries.
This sort of competitive push and pull — by both macroeconomic and microeconomic players — increases flow volatility, turbidity, and uncertainty. Tit for tat sanctions, tariffs, saber-rattling, warning shots, price manipulation, market-dominant dumping, and most-favored-customer allocations increase systemic friction across demand and supply networks. When and where these frictions may prompt failures are, as noted, tough to predict — and can be very complicated to unravel post-hoc.
Flows disrupted by anxiety. As volatility increases, so does uncertainty. The more uncertain any context, the more widespread actions to reduce individual risk can substantially increase system-wide risk. The most common disruptors (even destroyers) of flows are fear-based sudden, unsustainable shifts in consumption, usually involving more consumption (aka hoarding), but much less consumption can also be disruptive. High volume, high velocity flows depend on upstream and midstream capacity well-calibrated to downstream pull. When sustained mis-calibrations occur response capacity is typically structurally constrained. Too much demand will drain downstream stocks with insufficient midstream capacity to quickly replenish. Reduced demand or increased demand or redirected demand will result in network congestion that further complicates adaptation. The more disruption, the less flow, the more fear, the more complications to restoring flow. For example, in August following a 7.1 earthquake in Southern Japan there was a surge in demand for groceries and other essentials across a wide area of Japan (here and here). A grocery store in Tokyo posted signs explaining, “Potential sales restrictions are on the way” and bottled water was already being rationed due to “unstable” procurement. Both “excess” consumption and “under-” consumption tend to reflect self-amplifying consumer anxiety.
I predict that destruction, competition, and anxiety will persist in the year(s) ahead. I don’t know when, where, or why each — or all — will spike. But I do know that when and where it happens the health and even survival of the impacted population will depend on how well preexisting supply capacity quickly adapts to post-disaster contexts. In most situations this adaptation will happen so effectively that most consumers will barely notice. But I also predict that when preexisting concentrated capacity is also hard-hit, response and recovery will be complicated, ugly, delayed, and more deadly than necessary. In the vast majority of places — even where capacity is most highly concentrated — we tend to discount and even dismiss our risk.
Best wishes for the New Year.
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A small collection of other year-end reviews and forecasts relevant to Supply Chain Resilience.
From the Financial Times: Forecasting the World in 2025. Significant — but transitory — US tariffs are projected. (More and more and more global forecasts.) In 2008 the US National Intelligence Council released 2025: A Transformed World. In my opinion it is an even more interesting read today than then.
From the New Scientist: Global temperatures falling back below 1.5°C. “La Niña conditions are expected to lead to a slightly cooler average global surface temperature in 2025, though it does not mean the planet as a whole has stopped warming.” Recent agricultural production and consumption trends are pointing toward lower stocks, but continued incremental progress toward global food security (more).
GasBuddy is expecting, “the (US) national average for regular gas to fall to $3.22 a gallon next year. That would mark a modest decline from about $3.33 in 2024 and mark the lowest annual average since 2021.” This is consistent with EIA fuel forecasts for 2025.
According to Freightos global ocean and air shipping rates are expected to increase in 2025. “Overall, ocean rates are at least double what they were a year ago and the biggest contributing factor is the Red Sea Crisis… potential changes to de minimis rules could significantly impact air freight, especially e-commerce and fast fashion, as companies may find their goods face new fees as well as costly and time-consuming customs filings.”
The Americas Commercial Transportation (ACT) research company forecasts, “The U.S. economy is projected to grow at a moderated pace of 2.0% year-over-year in 2025, reflecting high borrowing costs and cautious consumer spending. Despite easing inflation, interest rates will continue to weigh on business investment and housing. Consumer spending, while steady, is slowing, underpinning moderate freight demand as industries adapt to a constrained growth environment… Freight demand is projected to decelerate further as retail inventory adjustments stabilize and replenishment cycles slow.”
The Conference Board anticipates, “The (US) economy should expand at an upwardly revised pace of 2.7% year-over-year in 2024 (from 2.6%) and 2.0% in 2025 (from 1.7%). US real GDP growth in 2026 should settle at its potential rate of 1.8%. Inflation is expected to stabilize at the Fed’s 2% target in Q4 2025, later than the original Q2 2025 estimate.” Goldman Sachs projects, “Consumer spending should remain the core pillar of strong (US) growth, supported both by rising real income driven by a solid labor market and by an extra boost from wealth effects…” The Congressional Budget Office (CBO) “expects the slowdown in economic growth and the rise in unemployment to lessen the demand for goods and services and contribute to a downward movement in inflation over the next three years. Measured from the fourth quarter of one calendar year to the fourth quarter of the next, inflation in the price index for personal consumption expenditures (PCE) falls from an estimated 2.5 percent in 2024 to 2.2 percent in 2025, 2.1 percent in 2026, and 2.0 percent in 2027.”