After the pandemic in the U.S. struck entire industries, left tens of millions financially strapped and prompted the government to deliver historic levels of assistance to individuals and companies, things now seem to be rapidly returning to normal.
Nevertheless, corporations will need to reconsider business strategies and tactics, shifting labor patterns, short-term inflation threats and longer-term concerns about how to adapt to the near future.
Economic recovery post-pandemic
Examining the context of where things have been helps better understand a recovery.
“The country entered into a recession in February 2020 that endured through March and April,” says Scott Sureddin, CEO North America, DHL Supply Chain. “While we saw a recovery in the third and fourth quarters, last year saw an overall GDP decline of 3.5%.”
Unemployment hit 14.7% in April 2020. March 2021 saw an improved level of 6%, but this continues to be an elevated figure. “Jobs are still down by 5% [from pre-pandemic levels],” says Rhea Thomas, an economist at wealth and institutional services firm Wilmington Trust. That doesn’t count people who dropped out of the labor market, so “the economy is even weaker from a jobs view.”
Percentage of overall decline in the U.S. GDP in 2020
Sectors vary in what a return to pre-pandemic levels requires. Energy and hospitality and leisure were hard hit by the massive and swift cessation of mobility and travel. Others also faced pain because of multiple supply chain disruptions. If parts aren’t readily available, entire production lines could come to a halt.
“One sector that fell off because of supply chain disruptions was automotive,” says Mike Parra, CEO, DHL Express Americas. “That is slowly rebounding, although right now there’s a challenge with semiconductor chip manufacturing that’s going on.” A single car can incorporate hundreds of dollars’ worth of the devices.
Semiconductors weren’t the only shortages the auto industry faced. “Tires are being shipped by airfreight,” says David Goldberg, CEO, DHL Global Forwarding USA. The move is unusual because such bulky and heavy goods typically ship by sea to reduce handling costs, but dealers can’t sell cars without tires.
Some sectors became stronger. “The strain on the U.S. economy resulted in an uptick in companies and entrepreneurs pivoting to creating new product lines to meet demands, such as personal protective equipment, or PPE, and other items,” according to Lee Spratt, CEO, DHL eCommerce Solutions Americas. “Additionally, many companies with an online presence were also forced to ramp up and accelerate investments in their e-commerce capabilities.”
Consumers made substitutions in their consumption. Pickup and delivery replaced sitting in restaurants in many areas. As movie theaters went dark, streaming services from the likes of Netflix, Disney+ and Amazon lit up.
Supply versus demand
Whatever their current point, all sectors face a challenging battle between demand and supply.
“We have a huge fiscal [and monetary] stimulus, vastly larger than we saw in [the financial and economic collapse of] 2008,” says Aleksandar Tomic, program director for the master of science in applied economics at Boston College. Unlike in 2008, much of the stimulus went to individuals, so many consumers have cash to spend.
Economists and business leaders have largely assumed that, with the psychological feelings of isolation and deprivation over the last year, the result will be a large wave of consumer consumption.
“We have a very optimistic view for growth this year,” owing not just to stimulus but progress in vaccination and curtailing virus spread, says Thomas.
Estimates of growth from 5.6% to as high as 7% “are all pretty attainable,” says R. Andrew Butters, an assistant economics professor at Indiana University. But year-over-year comparisons start with disastrous 2020 results, so numbers aren’t necessarily as good as they seem. Butters believes at least 6% GDP growth is necessary to get above pre-pandemic levels.
“Without a shadow of a doubt, online marketplaces, whether B2C, C2C, or B2B, will continue in the fashion they have,” Parra says.
“With e-commerce – particularly in retail – having accelerated beyond anyone’s expectations, I think you will see a lot of that growth stick even as traditional retail outlets begin to reopen,” says Sureddin.
According to figures from the U.S. Census Bureau, e-commerce in the first quarter of 2020 totaled $160.4 billion. The number spiked to $211.6 billion in the second quarter, when shutdowns came into full force. In the last quarter, that slowed to some degree, but still amounted to $206.7 billion.
Upper estimate of percentage growth in the U.S. economy in 2021
Value, in billions of dollars, of U.S. e-commerce in the second quarter of 2020
Spratt notes that many bricks-and-mortar retail stores shifted their fulfillment strategies because of shutdowns. “For some, this meant a permanent shift to a ‘dark store’ model, in which traditional retail stores are converted to local fulfillment centers,” he says. Customers can opt for pickup or delivery while reducing strain on main retailer fulfillment hubs.
Other areas, like energy, will also improve. “People will start driving again,” says Thomas. And food services as well as hospitality should begin to rebound, though it will take time for the extent and manner of growth to become clear.
Some sectors, however, may be more up in the air. Increased demand during the lockdown for bigger living spaces that better facilitate remote work and study led to a shortage of houses on the market – which pushed prices up and precipitated a building boom. Yet nearly three million homeowners are behind on their mortgages, according to government figures. That could mean a wave of foreclosures and a fall in housing prices.
The basics of supply chains are strong, but there are significant hiccups that can impact on demand satisfaction. “COVID-19 and this year-long global crisis have affected supply chains,” says Ben Ruddell, professor and director of the School of Informatics, Computing and Cyber Systems at Northern Arizona University. “There have been a lot of small disruptions and changes.”
Take paper goods, such as paper plates and towels, as an example. Normally, half of consumption is at commercial establishments: restaurants, entertainment venues, stores and office buildings. There wasn’t enough consumer supply when people had to stay home. Jumping from one customer segment to another isn’t easy.
“You think of all the stuff that has to change for those materials to be delivered to another consumer,” Ruddell says. “You have to abandon one set of contracts and very rapidly build another set of contracts. Ships and trucks and planes are going to be packed.” There will be backlogs. Many prices are already on the rise as a result.
“Companies are urged to have a solid logistics strategy and a multicarrier approach in place to be prepared for surges in volume, and for the 2021 holiday peak season,” says Spratt. “A multicarrier approach provides the flexibility to tap into various existing relationships with logistics operators to help reroute or expedite shipments when needed.”
Supply chains involve trade. “By and large, the trade flows haven’t changed,” says Goldberg. Continuing tensions between the U.S. and China, though, could mean more ongoing issues in economic cooperation. Nevertheless, given the interdependence between the U.S. and China, those major trade relationships will continue.
“There is always tension because it’s competitive and there is always trade,” Sureddin says. “Beyond a successful vaccine rollout, I think the most positive thing we can expect from the outset is a normalization of trade relationships with partners around the world. Today, it’s so global, products are going to move.” Relations with China, in particular, won’t seriously deter trade. “China is such a large economy, there are so many imports coming from there, it is just going to happen.”
Still, trade tensions drove multinationals to better diversify their supply chains into other countries to avoid being stuck. Another possibility would be to bring certain types of sensitive manufacturing – semiconductor chips or medical products, for example – back to the U.S. The reduction of supply risk can more than make up for the loss of somewhat lower production prices overseas.
“Puerto Rico was a big manufacturer of life science products,” says Goldberg. And it could be again. Intel has large semiconductor manufacturing facilities in the U.S., and other companies could follow suit. But no matter what the industry, rebuilding capacity takes time and investment and also raises a question: “Do we have the technical capabilities to produce things in the U.S. that we haven’t produced in a long time?” he asks.
Smaller businesses also face disruption risks. Whether directly or indirectly, all businesses depend on supply chains. New COVID-19 variants could complicate risk mitigation efforts. Should new upswings in infections and resulting shutdowns occur anywhere in Asia or Europe, that could again affect supply chains and have “an impact on microsized and medium enterprises,” said Parra.
Whatever the industry, companies must consider operational and strategic adaptations they might have to make.
“People throw around the phrase ‘the new normal’ because it’s fun to say, but we have to think of what the implications of the new normal are,” says Giacomo Santangelo, a senior lecturer in economics at Fordham University.
An example is video streaming. As people get out of isolation, chances are good that figures for streaming will drop and that audiences might shrink. “At this point, everyone in the United States of America who was going to get Netflix got Netflix,” Santangelo says. Where can companies in that space expand next?
People who feel uncomfortable near others as businesses reopen might demand bigger waiting spaces. In motor vehicle care, for example, one popular U.S. auto repair chain allows customers to stay in their cars while getting an oil change. Competitors might need to match the feature.
But such considerations are part of the constant change that businesses face. Strategies change and companies always need to adapt tactics. Despite all the concerns, it’s important to remember the many reasons to be positive.
“Our outlook is bright,” Parra says. “We saw a boom in e-commerce and B2B. We’re moving vaccines. Right now we see a brighter light as millions a day are vaccinated. More than a million people are flying every day again. Maybe we’ll see the hospitality sector come back as well. We see hope in the U.S.” — Brian Mulvey
Published: June 2021
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