Military exercises in the Taiwan Strait bode ill for global supply chains. But aside from the potential for tensions between Beijing and Taipei to cause disruption, the logistical snafus that became a hallmark of the pandemic-era economy are waning.
After a turbulent 18 months – caused by what industry specialists describe as a “perfect storm” of factors ranging from chronic underinvestment 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.
According to data from international freight company Freightos, the average cost of transporting the standard 40-foot metal box across the world’s oceans has fallen about 45 percent from its peak in the fall of last year.
The number The number of ships queuing outside the Port of Los Angeles has fallen 75 percent since the beginning of the year, despite the port experiencing its busiest June in a century. Delivery times for sky freight, followed by supply chain portal Flexport, is also improving.
Global pressure in the supply chain table of contentsfounded by the Federal Reserve Bank of New York, fell 57 percent from its high in July.
Companies in most major economies reported easing in supply and material lead times in July, according to the latest monthly S&P Global survey of purchasing managers. A lack of materials and equipment is no longer a factor limiting production for European-based manufacturers, according to studies led by the European Commission.
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“The pressure in the supply chain was so severe that companies stopped production and shortages pushed prices up,” said Joanna Konings, senior economist at ING Bank. “Now we are starting to see again that goods can get where they need to go. And that the system of international trade is dynamic and can recover.”
Many expect the pressure to ease further in the coming months.
More than 40 percent of U.S. manufacturers, polled by the Philadelphia Fed, expect improvements in delivery times in the next six months.
On the face of it, this calm place amid wave after wave of geopolitical turmoil should bode well for the global economy.
However, the trend may reflect declining demand for goods, as high inflation — which was partly due to the rise in shipping costs and materials in 2021 — erodes purchasing power.
The close polls of purchasing managers indices for July reported declining orders and a decline in backlogs. That was, according to Jennifer McKeown of Capital Economics, “further evidence that weaker demand is opening up some spare capacity and improving supply conditions.”
Logistics hubs, meanwhile, have adapted to the pressures placed on them and their employees since spring 2021.
“We were able to process cargo [more] efficient,” said a spokesperson for the Port of LA. “Doctors are on [top of] the work, we use data to help manage the freight.”
Emile Naus, who leads the operations team at consultancy BearingPoint, says logistics and warehousing companies have gotten better at managing the capacity they have. “The adoption 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 are going in high season and [carriers] If we can’t handle it anymore, we’re going to see congestion again,” said Josh Brazil, vice president of supply chain insights at project44, a data platform.
Inflation has also increased the risk of industrial action. And while waiting times outside of Los Angeles have all but disappeared, there is congestion on the US East Coast and in Northern Europe.
Nor is it just China’s bickering with Taiwan and the US that is worrying. There’s also Beijing’s insistence that its zero-Covid stance remains the best way to tackle new outbreaks of the disease — a policy that has led to numerous port and factory closures.
Nathan Sheets, global chief economist at Citi, said: “What we’ve seen so far is just a step in that direction, but [some] disruptions are likely to be with us for months, maybe years.