THE COWEN INSIGHT
This report contains a multi-sector angle that provides insight into the long-term impact of COVID-19 on supply chains and the beneficiaries of these shifts. A COVID-induced supply chain spiral led to a logistical conundrum that forced shippers and executive teams to adapt to an ever-changing global environment. As the dust begins to settle, we take a closer look at the more long-lasting changes across the supply chain and across the consumer sector.
THE IMPACT OF LONG-TERM SHIFTS IN THE SUPPLY CHAIN
A cyclical slowdown has eased some headline supply chain pressures. Despite the macro slowdown, shippers’ actions have resulted in structural shifts that will likely lead to long-term changes up and down the supply chain. Automation, regulation, nearshoring, infrastructure, consumer habits, and geopolitical pressures will likely shape the future of the supply chain.
Based on our proprietary survey data, we estimate that ~10% of freight shifts may stay on the East Coast, potentially benefiting Eastern transports. Multiple regulatory headwinds will force change in the California market in 2023, with the potential to set a regulatory precedent.
In our report, we discuss four motives that highlight the opportunity for reshoring in Mexico and the beneficiaries associated with potential shifts. These include the cost of transportation, among others. In addition, the pandemic has accelerated tech-enablement in supply chain management with measures ranging from port, warehouse, and truck automation.
QUANTIFYING SHIFTS IN THE SUPPLY CHAIN
We conducted a proprietary survey to measure how shipper habits and sentiment have changed in a post-COVID supply chain environment. We collaborated with Cowen Analysts across retail, consumer, internet, OEMs, semiconductors, and airlines on the broader implications across the supply chain and consumer. This report offers a wide perspective on how shifts in the supply chain ripple through the economy.
A majority of shippers will likely move their freight back to the West Coast. However, we believe there may be a ~10% permanent shift of freight to the East Coast, which has absorbed volumes from Western counterparts, creating long-term opportunities for Eastern transportation companies.
Cost/benefit analysis tilts in favor of nearshoring supply chains (Mexico). Friendly neighbors reduce political risk while offering affordable labor, manufacturing (industry specific), and seamless port/rail opportunities and tailwinds. Despite 2022 rail congestion and labor negotiations that should ultimately affect rail service into 2023, we believe intermodal operations will be a long-term growth driver for transports due to cost efficiencies and ESG initiatives.
WHAT TO WATCH
Catalysts and what to watch include:
- Retail inventories
- E-commerce trends
- Greenfield investment in North America
- U.S. port volume data
- Import/Export data from Asia and North America
- Rail and intermodal volumes
- Industrial production
- Energy pricing
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