Hello from London, from where aeroplanes are flying over our heads to take delegates from around the world to Glasgow and make pledges on stemming climate change.
Today we look at the supply chain again. Just when you thought things could not get any worse, measures of global suppliers’ delivery time in manufacturing dropped to a new survey low in October, according to the closely watched global IHS Markit poll. The survey started in the late 1980s, so this is quite something. But what we want to emphasise here is a positive of sorts — that things ought to have been far worse.
Supply chain stress reflects high demand too
The supply chain snags we’re witnessing right now are bad news. They threaten the global economic rebound, not only because they limit how much businesses are able to produce, but also because they generate inflationary pressures, effectively making consumers poorer.
Yet, there is a part of the story that is largely missing: the fact that we are producing and trading more than ever before.
The reason: a shift in demand from spending on services to purchases of consumer durables during the pandemic. The real story, as Neil Shearing, chief economist at Capital Economics, puts it, “is how well the supply chain has held up given the huge shift in demand towards goods”.
Today we want to show you exactly how much more we are producing and trading using fresh company data that analysts Container Trades Statistics kindly shared with us.
More than 80 per cent of exports, in volume terms, reach their destination via container ships. So we’ll start by looking at what’s happened to volumes, as measured using twenty-foot containers.
In the 12 months to September, more than 14m more twenty-foot containers — or their equivalents (most containers are 40ft) — crossed our oceans compared with the same period last year. This year’s figure is up by about 10m on the same period in 2019.
Average monthly global cargo shipping figures even hit a new high of 15m in the 12 months to September.
This is not a small increase; each container can carry up to 22 tonnes of goods. “The pace of the post-pandemic industrial expansion has been unprecedented,” said Alexandra Hermann, economist at Oxford Economics.
Manufacturers who were in a hurry, meanwhile, boosted global international air cargo volumes. In September, cargo tonne-kilometres, a measure of freight traffic calculated multiplying tonne of freight by the distance travelled in kilometres, were up 9.4 per cent compared with the same month in 2019, according to Iata numbers.
While it remains much more expensive to take goods by plane, soaring shipping prices have made air travel look more affordable. In September, the average price to move air cargo was three times more than by sea, down from 12.5 times before the crisis.
It makes sense that, during lockdowns when many services were shut, trade volumes rocketed. But why are we still buying so many goods when gyms, leisure centres and restaurants have reopened in most countries?
The answer is that the expected normalisation in consumer spending habits has not happened yet. As of September, the real value of spending by US consumers on services was still below that of the same month in 2019. In contrast, spending on durable goods, such as furniture, and non-durable goods, such as food, was up by 19 per cent and 14 per cent respectively.
Across most large economies, visits to bars, restaurants and entertainment centres remain down on pre-pandemic levels, according to Google Mobility Data. Use of public transport and travel to workplaces has also not returned to “normal” in most countries, despite the easing of most Covid-19 restrictions.
The result is that, in October, the share of EU businesses reporting lack of demand as a factor limiting production dropped to the lowest since the EU business survey was launched in 1985. At the same time, the number of months secured by current orders — a measure of how full order books are — increased to a record high.
This means even if consumers return to spend on services, rather than goods, it would take some time before businesses have refilled their shelves.
Inventories are so low, Shearing told us, that “you get to the point that shortages can feed one another”. This has played out in the UK, for instance, where a shortage of truck drivers triggered a fuel crisis.
“We do not see a full easing in disruptions before the second half of 2022,” said Hermann. While she expected some of the strains on production capacity to ease naturally as consumers spent more on services, limits on expanding manufacturing capacity and the fleet of container ships remain “key constraints”.
Trade links
Good news in supply chains. Automobile and garment factories are whirring back to life (Nikkei, $, subscription required) in Vietnam and Malaysia as Covid cases fall across south-east Asia. Bad news in supply chains. Mexico’s once-booming car manufacturing sector is having a rough time due to chip shortages.
This Twitter thread points out that, in a lot of instances, supply chain snags start with cheaper parts. The latest edition of Bloomberg’s Odd Lots podcast delves into why the lumber price, after soaring, fell like, err, timber.
Mining company BHP intended to focus its future portfolio on minerals that had “upside potential” for decarbonisation such as copper and nickel, said chief executive Mike Henry (Nikkei, $) at the Nikkei management forum.
The Financial Times has a nice read on the families and friends delighted to see the reopening of the travel corridor between the US and Europe. Francesca Regalado and Claire Jones
Source: Economy - ft.com
