Watch: Navigating Today's Supply Chain Finance Challenges

Fermin Caro, managing director of boutique bank ComCap, discusses how to deal with today's supply chain challenges.

When many of us think about supply chain risks today, what may come to mind are such things as navigating cybercrime, trade group disruption, labor availability and supply chain shocks, such as terrorist attacks in the Red Sea. That’s the so-called new normal that we’ve been dealing with in recent years.

On the earnings growth side of things, keeping up with the boom in demand between 2020 to 2022 was a challenge for businesses. Then demand muted somewhat the following year. “We saw some declines there, and much of the earnings growth came from cost-cutting initiatives and margin-expansion initiatives,” Caro says. “Most of those have been identified and are in execution mode going forward. For 2024, we're seeing some resumption of traditional lower single-digit type of growth. The only way that you can generate continued growth on the earnings front [will be through] a little bit of margin expansion. But market share, diversification and value-added services are going to be part of those equations.”

To those who feel they’ve initiated sufficient cost-reduction measures, Caro says, there are many uncertainties ahead. “We're expecting to see costs increasing across the logistics industry.”

Mergers and acquisitions in the industry were “pretty high-flying” in 2021 and 2022, Caro says, but M&A volume slumped nearly 40% last year. Yet surveys tracked by ComCap suggest that about 40% of logistics and retailers are looking to do M&As. “What we can expect is those cycles are going to be a little lengthier,” Caro says.

But there is optimism in the sector. “Frankly,” Caro says, “when we look at the broad landscape of technology innovation, the funding mechanisms that exist from late stage to mid-stage to private equity, we are continuing to see a strong emphasis in canvassing of these groups going after technology start-ups.”