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It’s the first full work week of January, which means it’s time for predictions about the New Year. What does 2025 have in store for those in the supply chain industry? From my perspective, the geopolitical forecast shows both potential challenges and opportunities for companies within our field. Here are the four forces that seem most likely to impact supply chain trends in 2025 and beyond.
The decisive outcome of the 2024 Presidential election made the future a little less cloudy insofar as trade agreements. The incoming Trump administration has indicated a high likelihood that additional tariffs of around 10% will be imposed on imports from China and Asia.
It also suggested imposing tariffs of up to 25% on our neighboring countries, Canada and Mexico. That would effectively eliminate the United States-Mexico-Canada Agreement (USMCA), which established free trade in July 2020 and is slated for renewal in 2026. Additionally, sanctions may very well be imposed on other products and goods imported into the U.S. from Asia, notably steel, electronic components, and software.
For companies that buy goods and materials from these countries, costs will go up. To minimize the impact on the bottom line, companies need to consider and/or develop a business continuity strategy.
Take inventory levels as an example. How does the cost of the tariff compare with the carrying costs of purchasing a year’s worth of goods now? How would acquiring that additional inventory affect their storage capacity and operational processing? The average carrying cost is anywhere from 15% to 30% of the total inventory value; will the tariffs or sanctions be large enough to warrant that kind of purchasing shift? These are the kinds of questions every company will need to consider, regardless of their place in the supply chain.
The new tariffs being considered and discussed may be added to the existing tariffs outlined in the graphic below.
Over the past year, inflation had largely slowed as global supply chain disruptions eased post-pandemic. That, along with the dip in the Consumer Price Index (CPI) to roughly 2%, should spur consumer demand and purchasing. With nearly 70% of the U.S. Gross Domestic Product (GDP) driven by consumer spending, the economy should be strong in 2025.
Lower inflation should likewise prompt the Federal Reserve to continue to lower interest rates. That, in turn, typically inspires higher investor confidence in businesses, real estate, and other ventures. These are all good signs for companies involved in the logistics and supply chain industry.
At the same time, however, tariffs levied by the new Trump administration could potentially be passed on to consumers in the form of higher prices. Those rising costs could also dampen investor confidence. Conversely, this may prompt more companies to bring manufacturing operations back to the U.S. — or to other trade-friendly countries unimpacted by the tariffs, such as those in the European Union. Businesses need to consider both possibilities when determining their approach to 2025.
Unfortunately, Peace on Earth appears to be missing from the forecast for 2025. The war in Ukraine continues, while the Middle East remains a hotbed of turmoil and unrest. And those are just the two regions that get the most press. Africa, the Caribbean, and Southeast Asia all have their own geopolitical conflicts.
European supply chains have already been impacted, as cargo ships originating in Asia are often being rerouting around the southernmost tip of Africa (Cape of Good Hope) to avoid instability in the Suez Canal. By adding another 3,500 nautical miles to the journey, shipments now take up to two weeks longer to arrive.
Further, as we all experienced over the past few years, prices rise when key global shipping routes are disrupted or damaged — whether due to regional conflict, extreme weather, port strikes, or blockades. It’s become that much more important for companies to have a strategic plan in place for assessing and mitigating these risks.
It wouldn’t be an article about the logistics and supply chain industry if we didn’t talk about workforce shortages. Our industry continues to face a lack of available in-person labor, which is driving increasingly higher wages. That trend appears poised to continue in 2025.
On top of limited worker availability and increased wage rates, the overall labor market imbalance has been exacerbated by increased turnover and growing peak season demands associated with e-commerce growth over the past decade. To overcome these hiring and retention challenges, companies have opted to develop operational solutions and utilize technology.
In response, as the cost of automation and robotics technologies continues to shrink, they’ve increasingly been adopted by more operations in the U.S. The integration of automation and robotics solutions into the distribution and fulfillment space has provided strong business cases and solutions to these labor challenges. Among them:
As companies consider automation, robotics, and software solutions to help address operational challenges, it will be important to factor in the timing of the projects. If the prospective technologies are China-sourced, they will likely incur some price hikes due to tariffs. Spare parts costs and availability could also become an issue for the same reason. Alternatively, companies may consider looking at suppliers who source their solutions from locations outside of Asia.
Join the Conversation
Ultimately, leveraging supply chain technologies like automation and software can help companies be better prepared to manage and perform amid any geopolitical scenario. Have any thoughts to share about the geopolitical outlook for 2025? Connect with us to join the conversation.
AUTHOR: Chris Mehl, Sr. Director of Sales, DCS
