Supply Chain Market Report – August 2022

Welcome to Elementum’s Supply Chain Market Report. Business leaders need to know what’s on the horizon and how to prepare their organizations. This monthly newsletter observes one or two important macro trends through the lens of Supply Chain Management. We review how those trends are likely to impact Supply Chain and what leaders can do to adjust. We’ll also highlight emerging technologies that we believe can have an outsized impact on global supply chains.  

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This edition will cover:

  1. US Dollar strength at historic highs
  2. Business & economic impacts of a too-strong dollar
  3. Strong-dollar impacts on supply chain
  4. Clear signs of tapering demand 
  5. Emerging tech: Intralogistics robots

US Dollar Strength Reaching Historic Highs

After years of relative consistency across most major global economies, the rapid appreciation of the US Dollar is beginning to create its own particular kind of economic havoc. In this month’s newsletter, we explore the crunch a strong dollar poses for many companies right now — and the possible twists and turns in the road ahead.

The US Dollar is reaching peaks that it’s rarely seen before. Since June 2021, the strength of the US dollar has increased by almost 19% — and in July the dollar hit 108 on the DXY. For some historical perspective, the dollar has only been above this level twice in the last 40 years. The first of these events was in January of 1982, preceding the Latin American Debt Crisis. The second was in April of 2000, preceding the Argentine Economic Crisis. 

In simple terms, this means that the global demand for the US Dollar is outweighing the supply. Yes, this may come as a bit of a surprise, considering the Federal Reserve printed $16T in 2 years. See the chart below to see just how big a spike in supply has preceded this new shortage:

M1, Billion of Dollars, Seasonally Adjusted

The direct impact of this phenomenon is weakened purchasing power of other currencies relative to the Dollar. For one salient example, at the beginning of 2022, the Euro was worth $1.13. Now, the Euro is at $1.02. 

How did we get here? 

First, it’s important to understand that, as the world’s reserve currency, countries use the Dollar in three major ways: 

  1. Trade goods and services locally or internationally.  For example, companies who export oil  are paid in dollars. Countries like Panama, trade US dollars domestically.)

  2. Cash reserves. 59% of all foreign bank reserves are denominated in U.S. dollars,

  3. Government and Corporate Debt.

Second, the COVID 19 pandemic triggered governments around the world to take on debt and print money.  Global debt as of 2021 was $303T, up a whopping 34% from the previous year. (In 2020, it was $226T.) This is the largest 1 year increase in almost 90 years. The last time the increase was this large was — you guessed it, WWII.   

As you might have guessed, much of this debt was Dollar-denominated. 

Third, supply shocks created scarcity, raising the price of goods and services. Since a major portion of global trade is done in dollars, this put more demand pressure on the Dollar.

Now, as the Fed has begun steeply raising interest rates, US long-term securities have become an even more attractive safe-haven for foreign investments. Foreign holdings of Long-term US securities were up from $20T in 2020 to $26T in 2021.

While this is an abbreviated history of how we got here, the series of once-in-a-generation events that led to this point are remarkable.

Possible Impacts of a Too-Strong Dollar

The first impact is felt by US companies likely to experience lower earnings from their international markets. With the dollar peaking, US goods effectively become more expensive in foreign markets. This is already impacting even the most prestigious brands, like Microsoft, Nike, and Apple. Others with less pricing power (and more competition) may suffer even more.

International companies exporting to the US will have higher earnings (e.g. Burberry).

Selling products in US markets for USD, and then converting back to local currencies, will be a win- win proposition for those who can do it.

Demand may start to wobble as well, because several countries may find themselves at risk of running out of US dollars. When this happens, they may not be able to pay their debt and may not have enough money to trade.

In this regard, instability in Sri Lanka provides a cautionary tale. As is often the case, a multitude of factors conspired to create significant problems. First, poor policy choices around requirements for organic farming cut Sri Lankan food yields in half. Then COVID shut-downs knocked out their tourism revenue. When Sri Lanka started running out of dollars to import food, central banks started manipulating the local currency to try to keep more US Dollars. This triggered bank runs just as food and other necessities began running out.  As you’ve no doubt seen, this chain of events led to an overthrow of the government.  

Not all countries will spiral as dramatically as Sri Lanka, but any increase in debt defaults can put a huge strain on the global markets. Yes, other countries and institutions such as the IMF can help by bailing countries out or by providing debt-servicing assistance. However, dwindling exports can put a strain even on robust trading partners who rely on those exports — and this in turn can create more supply issues. 

The Too-Strong Dollar: What to Watch For

Experts have commented that an economic boom (high growth) would likely bring the dollar back down. It would reduce trade deficits, lowering demand for imports and, therefore, dollars. As this pressure weakens the dollar, Dollar-denominated debt would become more affordable, curbing inflationary pressures on local currencies. 

However, outside the emergence of a newly discovered technology or energy source, an economic boom seems unlikely at this time.  

Instead, we consider the possibility that the dollar could stay elevated for a long period of time. If this happens, we may see a wave of corporate and governmental bankruptcies — the kind of macro-event that may take years to sort out — with wide ranging ripple effects, exerting an extended drag on the global economy. This would also put pressure on other countries to find an alternative form of currency for trade. BRICS is an alliance between several countries (Brazil, Russia, India, China, South Africa) to do just that. While the group has been somewhat dormant for several years, some countries have recently expressed interest to join the alliance. 

Whatever shakes out, we firmly believe that among all the available economic indicators, the strength of the dollar is one of the most important for understanding the state of the global financial system. We’ll stay on top of this story as it develops, and urge all business leaders follow suit. 

Before we leave this story, let’s look at Strong Dollar impacts specific to the global supply chain.

The Strong Dollar’s Impact on Supply Chain

For US companies servicing domestic and international markets, there will likely be pros and cons for today’s strong dollar.  We’ll look at these in terms of tailwinds and headwinds.


  • Cheaper imports. For US companies, imports will likely be less expensive, which may alleviate some pressure on cost to produce. 
  • Increased earnings in US markets. For multinational corporations, earnings in US markets could be boosted by the strength of the dollar as it’s converted into nominally higher, local currencies. 



  • Weakened earnings abroad. Companies with a large percentage of revenue based in international markets may experience lower earnings. A strong dollar means that local currencies will convert to fewer dollars than they typically do, so even if revenue denominated in local currencies stays the same, earnings will decrease when converted to USD. One potential strain for the supply chain would be pressures for headcount reduction, in order to maintain operating margins. 
  • Demand variability. As you know, every supply chain revolves around a Demand plan. Few things are more difficult to predict than macro-economic phenomena like currency fluctuations. Like weather-systems, there are just too many variables when the timeline extends beyond next week. This will make the demand forecasting models more volatile, and lower confidence.
  • Supply risk. As countries all over the world have fewer dollars than they need, growth and exports will likely be stifled. Countries and suppliers’ financial signals (and available data) should be carefully monitored, to avoid disruption from a supplier shutting down — or worse, a country defaulting on its debt. Right now, any company with its sales in local currency, coupled with US-denominated debt, should be handled with high caution.
  • Inventory-value decay. Companies that hold inventory overseas in local currency will see the value of that inventory decrease. Write-downs and write-offs may encourage extreme discounting or fire sales. Yes indeed: the balancing act for maintaining adequate supply has never been more delicate!

Other Supply Chain News: Clear Signs of Tapering Demand

Many sectors of the economy are seeing contracting demand, as elevated prices and intransigent supply constraints continue to take their toll. 

Oil. In July, the price of Oil fell over 10%. Measured on July 8, the four-week rolling rate for gas consumption in the US dropped by nearly 3% (8.7M barrels per day). 

Chips. During a July earnings call, Elon Musk commented that the chip shortage was forcing Tesla to reengineer their software so that it could be run on fewer chips. GM reported lower than expected earnings, blaming higher raw material costs and ongoing chip shortages. Other car manufacturers are expected to do the same. This early sign signals curbing demand for semiconductors.  

Housing. The housing market is losing buyers, as increased mortgage rates make housing less affordable. The secondary markets are seeing impacts in demand too: furniture manufacturers for one prevalent example. One furniture company speaking to our team said revenue fell by 50% month-over-month due to lost demand.  

Discretionary Retail, Clothing. On July 25, WalMart CEO Doug McMillon announced that apparel would be marked down in stores due to oversupply. Walmart cut profit expectations for 2022 as customers shifted spend to food and other necessities, away from more expensive discretionary items. 

While most people in supply chain have been focused on mitigating stock outs, many are now quickly adjusting to avoid excess and obsolete stock.

Some Good (Tech) News: Intralogistics Robotics

With so many storm clouds in this issue, let’s look at positive news.

Intralogistics is not a new term, but it is one you may hear more about going forward. The concept and underlying technology landscape is evolving rapidly. 

Supply chain veterans know: intralogistics, the movement of inventory inside a company’s warehouse, has always been labor-intensive. Over the past couple years, hiring enough people and coordinating their activities has been very challenging. With the current labor market and high inflation, many companies have begun looking more seriously to automated solutions.

Recently, Locus Robotics began working with DHL to use robotics to automate intralogistics processes. Here’s the word from the front:

[The Locus robots], working collaboratively as a team, enable warehouse associates to continually pick without leaving the zone they are working in. The assisted picking robot guides the picker to the exact location of the item to be picked, and through a simple visual user interface, aids in the selection of the proper SKU, quantity and end location placement of the picked order. Once all picks are completed for a single location, the short-term relationship between the robot and the associate for that specific pick is terminated. The robot then moves on to its next pick.

The impact for DHL? Picking productivity increased 140-170% for warehouses where the solution was implemented.  

For further reading, check out their full report. 

People News and Moves

David Savman joined PVH as their Chief Supply Chain Officer. He previously served as H&M’s CSCO. 

Kohls announced their CSCO Paul Gaffney will be leaving August 1. Gaffney also served as the company’s chief technology officer. 

Deanne McKissick will be promoted to Aristocrat’s Chief Supply Chain Officer role. She previously served as the company’s SVP of North American Customer Order Execution and Supply Chain.

Rishi Grover became Becken Dickison’s EVP of Supply Chain. He came from Carrier where he served as their SVP of Operations.

Kyle Westwood

Kyle Westwood

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