How much glue is the supply chain?

T.He is a general The public has learned so much about the supply chain over the last year that it probably cared. There have been many disruptions in production and shipping that have interacted with the increase in demand for commodities and rising prices for the production of empty shelves. Although product supply was low, the number of supply-chain tracking problems has expanded at an impressive pace in recent months. Everybody paints a picture of a historically high level of distraction and an uncertain path ahead.

Listen to this story.
Enjoy more audio and podcasts iOS Or Android

Your browser

One gauge is a “sea time indicator” published by the American logistics firm Flexport. It reports how long it takes a shipment from the supplier’s warehouse to the exit gate of the destination port, for two major freight routes from China: to Europe and America. It took less than 60 days to travel to Europe three years ago, and less than 50 days in America. Travel time has gradually increased since the epidemic hit. But in recent months the trends on the two routes have changed a bit. Shipping time in Europe has dropped from 110 days to 108 days. Transportation in America, during a total of 114 days of travel, takes longer than before (chart, see top panel).

The global supply-chain pressure index, compiled from a variety of indicators by economists at the Federal Reserve Bank of New York, tells much the same story. The highest reading of the index before the epidemic (which researchers calculated in the 1990s) took place in April 2011. Since then, problems related to earthquakes and tsunamis in Japan have pushed the index above the 1.7 standard deviation long-run average. In the spring of 2020 the measure increased significantly from the average of 3.9 standard deviations; It rose further last year, reaching 4.4 in October. It has since retreated, but with just one touch, a high level of pressure signal continues (chart, see panel below).

Another indicator, Capital Economics, maintained by a consultancy, considers the deficit of both goods and labor across the country. Yes7 major economy groups. This further suggests that the pressure was intense towards the end of 2021. Freight rate rocketed in the first nine months of 2021 before flattening in the last quarter of last year. Yet as higher rates turn into negotiations in long-term shipping agreements, improved costs could continue into 2023 and beyond.

Things will improve when and where the virus and the global economic recovery will now improve depending on the course it takes. The presence of Omicron variants in some parts of China could lead to lockdowns and further disruptions at ports. In the United States, a record number of Covid-19 cases mean fewer longshoremen and truck drivers are working. Hopes are fading that a break in production associated with the Chinese New Year holiday in early February could allow ports to operate through existing backlogs.

In the rich world, especially in America, leisure may come instead of cold demand, which in 2021 showed an indifferent appetite for all kinds of products. Morgan Stanley, a bank analyst, has created an index of supply-chain stress that shows both supply and demand conditions. Their measurements suggest that the latter are largely responsible for reducing stress by the end of 2021 For example, trade growth slowed due to declining demand for both consumer and capital goods.

Flexport predicts that while Americans’ demand for products will be unusually high in 2022 compared to their appetite for services, the imbalance should be less pronounced in the months ahead than last year. If people are starting to hear a little less about supply-chain snoring, then why explain their own shifting shopping habits. 3

This article was presented in the section “Finance and Economics of the Print Edition” under the title “Chain Response”.

Leave a Reply

Your email address will not be published.