Pressures on the global supply chain are easing – for now

Military exercises in the Taiwan Strait do not bode well for global supply chains. Yet aside from the potential for tensions between Beijing and Taipei to spark disruption, the logistical snafus that has become a hallmark of the pandemic-era economy is easing.

After 18 turbulent months – triggered by what industry pundits describe as a “perfect storm” of factors ranging from chronic underinvestment and Covid-19-induced shutdowns to a giant container ship stuck in the Suez Canal – recent data points to a return to relative calm.

According to data from international freight company Freightos, the average cost of transporting the standard 40ft canister across the world’s oceans has fallen by around 45% from its peak in the fall of the year. last.

The number of ships queuing outside the Port of Los Angeles has fallen 75% year-to-date despite the port recording its busiest June in a century. Air cargo delivery times, tracked by the Flexport supply chain portal, are also improving.

The Global Supply Chain Strain Index, put together by the Federal Reserve Bank of New York, was down 57% in July from its peak.

Companies in most major economies reported easing delivery times for inputs and materials in July, according to S&P Global’s latest monthly survey of purchasing managers. According to surveys carried out by the European Commission, the lack of materials and equipment is no longer a factor limiting production for manufacturers based in Europe.

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“The pressures on the supply chain were so severe that companies were halting production and shortages meant prices were skyrocketing,” said Joanna Konings, senior economist at ING Bank. “Now we are starting to see again that goods can get where they need to go. And that the international trade system is dynamic and can recover.

Many expect the pressures to ease further in the coming months.

More than 40% of US manufacturers surveyed by the Philadelphia Fed expect delivery times to improve over the next six months.

At first glance, this zone of calm amid successive waves of geopolitical turbulence should be a good thing for the global economy.

However, the trend may reflect weakening demand for goods, as high inflation – which was, in part, due to skyrocketing shipping and material costs in 2021 – reduces purchasing power.

The closely watched Purchasing Managers’ Index polls for July showed falling orders and lower backlogs. This was, according to Jennifer McKeown of Capital Economics, “further evidence that weaker demand opens up spare capacity and allows supply conditions to improve”.

The logistics hubs, meanwhile, have adapted to the constraints imposed on them and their workers since the spring of 2021.

“We were able to handle freight [more] efficiently,” a Port of Los Angeles spokesperson said. “The dockers are on [top of] work, we use the data to help manage freight. »

Emile Naus, who leads the operations team at consultancy BearingPoint, says logistics and warehousing companies are better at managing the capacity they have. “Adoption of automation is way higher than I’ve ever seen,” he said.

However, the road to pre-pandemic conditions, where just-in-time delivery had become the norm, is paved with risk.

The late summer Christmas rush is fast approaching. “What worries me is that we are entering the high season and [carriers] can’t handle anymore, so we’re going to start seeing congestion again,” said Josh Brazil, vice president of supply chain insights at data platform project44.

Inflation has also increased the risk of industrial action. And, while wait times outside Los Angeles have all but disappeared, there are traffic jams on the US East Coast and in northern Europe.

It’s not just China’s feuds with Taiwan and the United States that are of concern. There is also Beijing’s insistence that its zero Covid stance remains the best way to tackle new outbreaks of the disease – a policy that has led to numerous port and factory closures.

Nathan Sheets, global chief economist at Citi, said: “What we’ve seen so far is just a step in that direction, but [some] the disruptions are likely to be with us, for months to come, possibly years.

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