Yoni Mazor: Three Amazon and Supply Chain Predictions for 2022

With a hectic 2021 over, 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 for 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.

The 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 rose 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.

2. Inflation

Most of 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 Reagan was 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 is 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.

3. Amazon

The global pandemic benefited the e-commerce industry and Amazon, the industry juggernaut, when it broke out in early 2020. It accelerated the adoption of shopping online by many consumers in the U.S. by a few good years, as consumers stranded at home could only shop for products they needed online. During 2021 Amazon’s financial results continued to grow at a rate of about 18% year on year, however not as dramatically as the 37% YOY rate in 2020.

As the largest online marketplace in the U.S., Amazon very much reflects the U.S. 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 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. Andy Jassy took over 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 U.S. government cracking down on Amazon’s perceived marketplace dominance. The U.S. government will continue to challenge Amazon to oversee that company’s power is neither 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 trend, in turn, could cause consumers to look for alternatives in other marketplaces if it 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 other competitors.

Signs of weakness and volatility

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 and their effects, and try to assess where it might be all going next.

Yoni Mazor is the chief growth officer and co-founder of GETIDA. He began developing GETIDA after successfully operating a $20 million yearly Amazon business, selling fashion brands internationally. GETIDA specializes in Amazon discrepancy analytics and consulting. By utilizing data visibility technology, GETIDA focuses on discovering and managing financial and inventory-related discrepancies with billions of dollars of transactions managed daily. He previously served in special Navy intelligence. This Expert Opinion is exclusive to Broadband Breakfast.

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