Is the Worst Over in Supply Chain Mayhem?

Epic port congestion is easing. Shipping prices are falling from sky-high levels. Deliveries are accelerating slightly. These are signs that supply chain problems are beginning to ease.

Still, we may be a long way from normal.

Businesses continue to grapple with a troubling shortage of truck drivers. Critical components, including computer chips, remain scarce. And the U.S. has seen an uptick again in the number of COVID-19 cases.

Here is a look at the good, the bad, and the unpredictable.

Glimmers of Hope

The backlog of orders index in the Institute for Supply Management’s manufacturing survey fell to 61.9 in November, down from a record high of 70.6 in May. Backlogs are still growing, but at a slower pace. Supplier delivery rates also appear to be improving, albeit from very poor levels.

“It is still going to take a long time for the supply chains across the country to be fully restored, but at least the first steps appear to be in place towards normalcy,” Thomas Simons, economist at Jefferies, wrote in a recent note to clients.

The Dallas Federal Reserve Bank’s manufacturing index showed the level of unfilled orders ticked lower in November and the amount of time to deliver goods fell.

The improvement in delivery times is encouraging, because it is happening even as new orders, production and shipments increase.

“This suggests the improvement is because the surveyed manufacturers’ were better able to get stuff out the door, not just because demand cooled down and the phones stopped ringing,” said Matt Colyar at Moody’s Analytics.

Improvement has been more dramatic in clearing up the traffic jam of container ships parked outside California ports.

As of last week, there were 30 container vessels anchored off the Ports of Long Beach and Los Angeles. That’s down from a peak of more than 80 at the height of port congestion.

In related news, global shipping costs “appear to have peaked.”

“We see the rapid decline in container vessels waiting to unload and falling global shipping prices as possibly leading to some easing in supply bottlenecks,” a Barclays economist wrote, “which if continued, could downstream into other modes of transportation later.”

Notes of Pessimism

“Not only is anyone not seeing a light at the end of the tunnel right now, they are not expecting to see one until well into 2023,” said Geoff Freeman, CEO of the Consumer Brands Association.

Freeman said the consumer-packaged goods industry has a mostly U.S.-based supply chain, meaning it doesn’t feel the benefits of the port improvements as much as others.

“The ports are one modest player in this situation,” Freeman said. “For us, it’s really about trucking, trucking, trucking.”

The shortage of truck drivers is not new, but it has been made worse by the pandemic. The American Trucking Associations estimate the industry is short a record-high 80,000 truck drivers.

The worldwide shortage of computer chips also continues to complicate the supply chain picture, limiting the production of a range of products, including iPhones and new cars.

The chip shortage is having an “extreme impact” on the auto industry, causing the largest decline in vehicle inventories on record, according to Citigroup. And that has caused prices to surge on new and used cars, contributing to the fastest rate of inflation since the early 1990s.

Commerce Secretary Gina Raimondo said this shortage is unlikely to go away until “deep into 2022.”

Fifty-eight percent of economists surveyed by the National Association of Business Economics anticipate that the supply of goods will begin normalizing in the first half of next year, and 22 percent say this process has already started or will by year’s end. What awaits us on the other side of this disruption will likely be different than what we’ve left behind.

“COVID laid bare that we had really weak supply chains,” said Fazili. “Returning to a pre-pandemic norm isn’t what we are aiming for here. We are trying to build back stronger and in new ways.”

Source: CNN Business