EY: Supply Chains Showing Resilience Amid Challenges

The supply chain landscape continues to shift due to the adoption of AI-driven digitalisation to improve efficiency and resilience, sustainability regulations and nearshoring. 

Organisations must begin to focus on decarbonisation, supplier diversification and circular economy strategies to manage raw material scarcity, geopolitical tensions and climate-related disruptions. 

In a bid to decipher this change, consulting giant EY has released its EY Supply Chain Quarterly Update for Q1 2025, indicating that, while conditions appear to be improving, companies must remain alert to effectively manage rising logistics costs and trade policy disruptions. 

Sumit Dutta, Principal for Supply Chain & Operations at EY, explains: “The trucking industry has shown signs of resurgence, with spot trucking rates indicating a potential recovery from a two-year freight recession. This uptick, along with forecasted increases in both spot and contract rates, points toward a tightening market that may influence shipping costs and carrier contract strategies in the near future.

“On the policy front, the developments related to proposed trade tariffs by the US government necessitate strategic shifts in sourcing and production network. Organisations are proactively adjusting to these changes, aiming to mitigate any potential impact on supply chains and maintain operational efficiency.”

Easing supply chain pressure

Supply chain pressures are beginning to ease, with the Global Supply Chain Pressure Index dropping from -0.31% in January to -0.07% in February 2025. This means organisations stand to benefit from reduced costs, greater stability and enhanced efficiency. 

Lower transportation costs, fewer delays and better raw material availability mean companies can improve their cash flow, optimise inventory levels and meet customer demand effectively. 

Meanwhile, labour productivity in the US increased YoY in Q4 of 2024 alongside gradual improvements in output per hour of work and efficiency across the year. Manufacturing PMI in the US also reported improvement and expansion in January 2025 (reporting 50.9 in January and 50.3 in February). 

These improvements in labour productivity and Manufacturing PMI indicate a rise in efficiency, supply chain performance and economic growth. 

Organisations can reduce costs and enhance profitability with higher productivity, while a rising PMI (over 50) leads to greater demand for logistics services and raw materials as manufacturing activity continues to expand. 

This often leads to further investment in supply chain optimisation and automation, unlocking greater competitiveness and resilience.

The rise of regionalised supply chain models 

Third-party logistics providers (3PLs) experienced a 9% rise in warehouse easing by the end of 2024 (compared to the previous year).

Companies are beginning to utilise 3PLs to enhance scalability, efficiency and cost-effectiveness across their supply chain.

3PLs, many of which are strategically located in Pennsylvania’s I-78/81 corridor and California’s Inland Empire, offer expertise in transportation, warehousing and supply chain optimisation. This allows businesses to focus on core operations without looking after logistics internally. 

By the third quarter of 2024, 3PLs held a market share of 34.1% and accounted for 41% of bulk leasing activity in seaport markets by November 2024, highlighting their growing influence. This indicates a movement to more regionalised and flexible supply chain models that improve agility and responsiveness to market changes. 

By utilising 3PLs, businesses can reduce risks from geopolitical tensions and trade disruptions while scaling operations and diversifying suppliers across several regions.

What impact are trade tariffs having?

EY’s Supply Chain Quarterly Update highlights several concerns over US trade tariffs, such as the 25% trade tariffs on Canada and Mexico and an extra 20% tariff on China imposed by US President Donald Trump. 

Potential tariffs could disrupt global supply chains, increase costs for businesses and force companies to redesign supply chains and seek alternative sourcing strategies. 

Uncertainty around tariffs is encouraging businesses to utilise nearshoring and regionalisation to mitigate potential risks. 

Even though supply chain conditions seem to be stabilising, these policy changes could create new operational challenges and cost pressures throughout 2025.

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