As companies, investors and policymakers fret over port logjams, freight costs and chip shortages, some indicators are starting to signal that global supply chain stress may be on the wane.
Supply chain glitches dominated the latest company earnings season, with mentions of the issues by chief executives jumping 412 percent from last year, according to a BofA tally.
The coming months will show if the snarl-ups portend a toxic scenario of stagflation for the world economy or are just a bump in the road to recovery. They will also determine how inflation expectations, monetary policy and corporate earnings pan out.
Cargo shipping costs tracked by the Baltic Exchange Dry index are down a third in the past month after hitting their highest since 2008 in October.
Further out, data from shipbroker Alibra Shipping shows six-month contracts for Atlantic and Pacific Ocean routes cost $54,000 and $52,500 a day respectively for capesizes, the largest dry cargo vessels. For contracts in 12 months, Pacific routes slip to $36,000 and then $26,000 two years out.
“This could mean the market doesn’t anticipate that the port congestion situation will be as big a problem next year,” Alibra’s head of research Rebecca Galanopoulos said.
Port congestion has eased at most Chinese ports but the giant Los Angeles/Long Beach container port still has a backlog of 222,0000 TEUs (twenty-foot equivalent unit), RBC analyst Michael Tran said.
RBC’s Time of Turnaround metric for the key US port is at 7.5 days compared with 3.5 days before the coronavirus pandemic and Tran doesn’t expect normality to be restored until May 2022.
Purchasing managers say delivery times for manufacturers worldwide are deteriorating, with the global delivery time index down to 34.8 last month. Any number below 50 shows deliveries are taking longer and October’s reading was the worst on record.
Jefferies analysts expect shortages to intensify at the end of 2021 before demand shifts towards services. They said that should ensure supply chain bottlenecks begin to clear by the first quarter of 2022 as seasonal demand drops sharply and inventories are rebuilt.
The purchasing mangers orders-to-inventories ratio in the euro zone has been declining and some manufacturers are already bracing for shortages to turn into gluts.
“Today’s level of durable goods demand is unsustainably high,” said Paul Donovan, chief economist at UBS Global Wealth Management, who expects consumers to switch away from buying goods to buying more services. — Reuters
