With a hectic 2021 closing in, it’s a good opportunity to explore 3 Amazon and supply chain predictions for 2022.
Heading into 2022, the world will also be marking the entrance to the third year of recovering from Covid-19 and its effects. At the beginning of 2020, the world was shaken up by the eruption of the pandemic and its spread from Asia all over the world. The challenges of the pandemic on the global economy have been significant; here are 3 predictions for how things might look in 2022.
1) Global Supply Chain
The global economy will probably continue to struggle due to the challenges of constant interruptions in the global supply chain. The new Omicron variant, which proves to be highly contagious as it spreads at record-breaking speed, has already placed numerous countries around the world under travel, work, and movement restrictions.
These limitations that Omicron has imposed on these countries will add another layer of complexity to the interruptions to the global supply chain during the first quarter. It will be compounded by the strain that Omicron will place on the workforce itself.
The costs of shipping inventory and supplies around the world have risen sharply during 2021 and are currently cooling off a bit from the surge. Until the appearance of the new Omicron variant, it was expected that costs would continue to cool down during the year at a moderate pace, however, such predictions are volatile as Omicron is causing the same type of interruptions and price spikes that caused the whole global supply chain to reach this point.
Some of the main strains on the global supply chain that are expected to continue into 2022 are semiconductor supply shortages, shortages in container shipping, and shortages in professional labor for transportation carriers and at seaports. The rising costs of transportation, labor, and energy are challenging the global supply chain while also impacting financial institutions and governments all over the world. The reason: rising costs are another way to describe the next point of our predictions, inflation.
Most people in the current generation in the United States are not familiar with the meaning and challenges of inflation. The last era of significant inflation was in the early 80s when Ronald Regan was the president. Many economists describe inflation as a wild beast that is very hard to tame, capture and place back in its cage once it breaks loose. Another way to describe inflation is like a pendulum that keeps swinging and raising costs in one direction, that later raises costs in another direction, in an unexpected and disruptive way, and on and on it swings.
The Federal Reserve has kept a low-interest-rate environment for the past decade, and usually during inflationary periods, as prices of everything are rising, the Fed is expected to raise interest rates, to help people get more interest on their savings and protect the purchasing power of most households. Nevertheless, inflation during 2021 has already crossed the 6% mark, which is about three times higher than the target of 2% per year usually aimed for by the Fed. Despite that, the Fed has kept interest rates low, and by doing so, it has yet to apply this key tool, of raising interest, to combat inflation.
There is a bit of challenge for many economists and the Fed to try to distinguish between real inflation of the economy or transitional inflation in the economy due to the effects of the pandemic and the global supply chain challenges. This might explain why the Fed has focused on keeping a low-interest-rate environment, as it is more concerned with battling the pandemic and global supply chain strains than with real inflation striking the economy.
It’s not clear how long the Fed will be able to keep its current position if real inflation keeps its momentum and does not slow down. If the effects of the global supply challenges and its inflationary triggers do appear to be cooling off, and real inflation is causing havoc, we can expect the Fed to begin increasing interest rates. The Fed might raise interest rates during the first quarter of the year, or might even stretch into second or third quarters if Omicron places further significant strains on the US economy.
The global pandemic has benefited the e-commerce industry and Amazon, as the industry juggernaut, when it broke out in early 2020. It accelerated the adoption of shopping online by many consumers in the US by a few good years, as consumers stranded at home could only shop for products they needed online. During 2021 Amazon’s financial results have continued to grow at a rate of about 18% year on year (YOY) however not as dramatically as the 37% YOY rate in 2020.
As the largest online marketplace in the US, Amazon very much reflects the US economy. It likewise gets heavily affected by global supply chain disruptions and inflationary pressures. If such challenges continue to affect Amazon’s marketplace and its stakeholders, the year 2022 might prove itself as the most challenging year yet for Amazon. To add to that, it will be the first full year of not having its founder, Jeff Bezos, as CEO of the company since Andy Jassy took the role on July 5th, 2021.
Amazon will be facing challenges in the upcoming years from a few main friction points. The first is the US government cracking down on Amazon’s perceived marketplace dominance. The US government will continue to challenge Amazon to oversee that Amazon’s power is not abusive nor destructive to the economy.
The global supply chain interruptions have challenged Amazon’s sourcing capabilities as well as many of its third-party sellers during 2021. They have all struggled to keep their products in stock on the platform. These supply constraints limit the depth and variety of products on Amazon’s platform with which most consumers are familiar. This, in turn, can cause consumers to look for alternatives in other marketplaces if this trend continues into 2022. One thing is clear about this prediction, third-party Amazon sellers will have to learn the art of Amazon business negotiation to keep their inventory levels in good shape, along with having their cost structures in check.
Another friction point is how inflation is affecting the competitiveness of the products offered on Amazon. It is important to remember that about 60% of Amazon’s marketplace revenue comes from third-party sellers. Most of these third-party sellers are not familiar with, nor equipped to battle inflation. Thus, if they raise their prices on the platform during 2022 to adjust to the cost inflation, and prices become too expensive compared with other traditional and established retailers, it will affect Amazon’s ability to stay competitive and maintain its growth momentum over its other competitors.
Amazon and Supply Chain Predictions Summary
The global economy is a marvelous and complex system that connects dots and lines in many unexpected ways. In the past few decades, this system has provided great prosperity to many countries, however, its complexity during a global pandemic is showing signs of weakness and volatility. By examining the status of the global supply, inflation, and Amazon in the past year of 2021, we can see how they are all interconnected and affect each other in various ways.
This interconnectivity will determine much of where things are heading for us all during 2022. There is no attempt here to predict the future, but an attempt to examine past events, their effects, and try to assess where it might be all going next. With that in mind, I hope you have found these 3 predictions for 2022 useful and insightful.