Supply chain crisis threatens to drag global economy, Telecom News, ET Telecom

Last year the global economy came to a screeching halt. This year, he started moving again, only to find himself stuck in one of the biggest traffic jams in history.

New indicators developed by Bloomberg Economics highlight the end of the problem, the world’s inability to find a quick fix and how in some regions the Big Crunch of 2021 is getting even worse.
Research quantifies what is apparent to the naked eye across much of the planet – in supermarkets with empty shelves, ports where ships are backed up offshore, or auto factories where production is held back by a lack of electronic chips. Overlooking it all: Rising price tags on almost everything.

Central banks, which are already moving away from their view that inflation is “transient”, may be forced to counter price increases with earlier-than-expected interest rate hikes. This poses new threats to an already faltering recovery and could take some air out of buzzing stock and real estate prices.

Behind the traffic jams lies a mix of overloaded transportation networks, labor shortages at major bottlenecks, and demand in the United States that has been bolstered by the pandemic and more goods-driven stimulus. than on services.
Supply chain crisis threatens to drag the global economy downIt is not just a problem of displacement. The world is still struggling to do enough too.

Producers have been caught off guard by this year’s rebound after slashing material orders last year when consumers stopped spending.
Supply chain crisis threatens to drag the global economy downIn Vietnam, factories that make Nike shoes have had to cut production because migrant workers had decamped to their home provinces for fear of Covid-19. China, the world’s manufacturing powerhouse, is facing new virus outbreaks and is responding with targeted lockdowns. Its factory prices are increasing at an annual rate of 10%, the fastest since the 1990s.

Putting all of this together, Bloomberg Economics’ supply indices show shortages just off a 20-year high in the United States. The gauges for the UK and the Eurozone are at an equally high level.

The measures are based on a series of data, from ex-factory prices to the inventory-to-sales ratio for retailers, and backlog of orders for companies in the service sector. Readings of zero indicate normal conditions, negative values ​​mean abundant goods, and positive points of stress. The gauges show a sharp shift from oversupply before the Covid crisis to significant shortages today.
Supply chain crisis threatens to drag the global economy downFor global manufacturers like Toyota – which slashed September production by more than a third from 2020 levels as shortages stalled its famous just-in-time production process – as well as companies moving their products to the whole world and buyers awaiting delivery, the big question now is: when will the disruption end?

Even giants like Amazon and Apple – used to bending supply chains as they please – don’t see the situation improving quickly. Amazon said all of its fourth-quarter profit could be wiped out by increased labor and fulfillment costs. Apple said it lost $ 6 billion in sales due to its inability to meet demand and could lose more in the next quarter.

Shipping conditions are expected to start easing after the Chinese New Year in early February, “although the disruptions could last at least until the middle of next year,” said Shanella Rajanayagam, trade economist at HSBC. Even then, with pent-up demand and inventory replenishment keeping the pressure on, Rajanayagam says it could still take some time for supply chains to completely unravel.

What comes next is uncharted territory in part because of the large number of bottlenecks along the route from assembly lines to shopping carts. While a vendor waits for another book, the delays feed into each other.

Logistics systems usually weather the ups and downs of the global economy in predictable ways: growing demand spurs trade, pushing up shipping rates and heralding good times for freight carriers, until they increase their capacity and a crisis ensues.

But the pandemic has turned this cycle upside down. Even amid signs of slowing growth, the international trade pipeline has never been so clogged.
Supply chain crisis threatens to drag the global economy downThe more than 70 ships anchored off Los Angeles, for example, are loaded with enough 20-foot containers full of cargo to stretch from Southern California to Chicago if placed end to end.

And even when these ships dock, their payloads will only hit the thousands already stranded in ports awaiting a journey inland. It will require more truckers and trailers in the short term.

A longer-term solution means harnessing Covid-19, building new infrastructure such as more efficient ports, and improving technology for digital transactions and faster communication.
Supply chain crisis threatens to drag the global economy downElsewhere in the world, shipping bottlenecks have often followed severe weather and virus outbreaks, such as the recent Covid-19 outbreak in Singapore. An analysis of port congestion showed the backlog on Monday at this city-state financial and logistics hub was high, with 53 container ships at anchor, the highest number since Bloomberg began tracking data in April.

That’s a problem for the United States, where the clothes and home electronics that fill buyers’ carts depend on foreign inputs and assemblies. And with vaccination rates still low in many Asian countries, it’s a problem that won’t go away anytime soon.
Supply chain crisis threatens to drag the global economy down“For the supply chain to recover, it will take a certain amount of luck” – avoiding weather disasters or new Covid hot spots – “more time and investment to add more logistics capacity,” said Simon Heaney, Senior Director of Container Research at Drewry in London.

For a global economy emerging from the deepest recession in recent history, supply shortages caused in part by high demand are a good problem to have. The worst would clearly be the opposite: a plentiful supply because the economies remained depressed, with millions more unemployed.

But this less bad option always creates a lot of problems.
Supply chain crisis threatens to drag the global economy downInflation is already high enough to be outside the comfort zone of policymakers. In the United States, it is currently 5.4% and could stay in the 4% to 5% range next year if supply constraints do not relax, according to models from Bloomberg Economics.

That’s not to say the world is ready for a 1970s-style repeat of stagflation. It took a decade of overheating and political missteps to push US inflation above 10% to the top. era. The Fed and its peers are unlikely to make the same mistakes. And unemployment is well below its 1970s highs, and declining.

Yet the current environment – call it stagflation-lite – is a challenge for central bankers.

Keeping rates at their current lows would allow the recovery to continue, but prices are likely to soar if households and businesses come to expect the same. The tightening would reduce inflation not by tackling insufficient supply, but rather by stifling demand. This could become the monetary policy equivalent of the surgeon saying, “Operation successful, patient dead.”

Traders are currently anticipating two Fed rate hikes in 2022, two more than the median member of the Federal Open Market Committee. A Bloomberg Economics model of the Fed’s reaction function – its policy response to changes in the economy – suggests that if inflation is high and unemployment is falling, even two hikes next year might not be enough.
Supply chain crisis threatens to drag the global economy downOf course, predictions of rapid monetary tightening have always been wrong in the past, and they could be wrong again. Demand for goods could cool as the pandemic stimulus wears off or fears of tighter financial conditions erode confidence. A shift in spending from goods to services, already underway in the United States, will reduce the imbalance between tight supply and booming demand. A sustained slowdown in China could affect commodity prices.

And supply chains could also recover faster than expected. The Bloomberg gauge of shortages in the United States has dipped slightly in recent readings – while remaining at historically high levels. It’s just that there is no precedent that sheds much light on when, or how, conditions will normalize.

“The current situation is unique and quite different from the more isolated disruptions the world has experienced,” said John Butler, chairman of the World Shipping Council, which represents the largest ocean freight carriers. “How the current congestion ultimately plays out will also be different.”

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