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 disruptions, the logistics snafus that became hallmark of the pandemic-era economy are abating.
After a turbulent 18 months — triggered by what industry specialists describe as a “perfect storm” of factors ranging from chronic under-investment and Covid-19-induced closures to a giant container ship getting stuck in the Suez Canal — recent data point to a return to relative calm.
The average cost of taking the standard 40-foot metal box across the world’s oceans is down by about 45 per cent from its peak in the autumn of last year, according to data from international freight company Freightos.
The number of vessels queueing outside the port of Los Angeles has dropped 75 per cent from the start of the year despite the port recording its busiest June in a century. Delivery times for air cargo, tracked by supply chain portal Flexport, are improving too.
The global supply chain pressure index, set up by the Federal Reserve Bank of New York, is down 57 per cent in July from its peak.
Businesses in most large economies reported an easing in delivery times of inputs and materials in July, according to the latest S&P Global monthly survey of purchasing managers. A lack of materials and equipment is no longer a factor limiting production for Europe-based manufacturers, according to surveys led by the European Commission.
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“The supply chain pressures were so serious that businesses were stopping production and shortages meant prices were shooting up,” said Joanna Konings, a senior economist at ING Bank. “Now we are starting to see once again that goods can get to where they need to go. And that the system of international trade is dynamic and can recover.”
Many expect pressures to ease further in the coming months.
More than 40 per cent of US manufacturers polled by the Philadelphia Fed expect improvements in delivery times over the next six months.
On the face of it, this spot of calm amid wave after wave of geopolitical turmoil should be a good thing for the world economy.
However, the trend may reflect weakening demand for goods, as high inflation — which was, in part, owing to the surge in the cost of shipping and materials over 2021 — dents purchasing power.
The closely watched purchasing managers’ index polls for July reported falling orders and a drop in backlogs. That was, according to Jennifer McKeown, of Capital Economics, “further evidence that weaker demand is opening up some spare capacity and allowing supply conditions to improve.”
Logistics hubs, meanwhile, have adapted to the strains placed on them and their workers since the spring of 2021.
“We’ve been able to process cargo [more] efficiently,” said a spokesperson at the Port of LA. “Dockworkers are on [top of] the job, we’re using data to help manage cargo.”
Emile Naus, who leads operations team at the consultancy BearingPoint, says logistics and warehousing companies have become better at managing the capacity they do have. “The uptake in automation is much 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 risks.
The late-summer Christmas rush is just around the corner. “What worries me is that we go into peak season and [carriers] can’t handle anymore, then we’re going start seeing congestion again,” said Josh Brazil, vice-president of supply chain insights at project44, a data platform.
Inflation has also heightened the risk of industrial action. And, while waiting times outside Los Angeles have almost disappeared, there is congestion on the US east coast and in northern Europe.
Nor is it just China’s wrangling with Taiwan and the US that’s a cause for concern. There’s also Beijing’s insistence that its zero Covid stance remains the best way to tackle fresh outbreaks of the disease — a policy that’s led to port and factory closures galore.
Nathan Sheets, global chief economist at Citi, said: “What we’ve seen so far is only a step in that direction, but [some] disruptions are likely to be with us, for months ahead, maybe years.”
Source: Economy - ft.com
