Supply Chain Recovery: Are We Back to Normal?

Introduction

In the wake of the COVID-19 pandemic, global supply chains faced unprecedented disruptions. As we move forward, a critical question emerges: Have supply chains fully recovered, or are we still grappling with lingering effects? Recent data and industry insights paint a complex picture, suggesting that while significant progress has been made, we may not have reached pre-pandemic normalcy just yet.

Let's delve into the current state of supply chains, examining key indicators and expert analyses to understand where we stand and what challenges remain.

The Global Supply Chain Pressure Index: A Misleading Optimism?

The Global Supply Chain Pressure Index (GSCPI), published by the New York Federal Reserve, recently reported that supply chains are stronger than ever, with the least "pressure" in 25 years. The May 2023 reading stood at -1.71 standard deviations from the historical average, a stark contrast to the peak of +4.31 in December 2021.

While this trend indicates significant improvement, it's crucial to approach these findings with caution. The GSCPI, as a composite measure, may not fully capture the nuanced realities of global supply chains. Let's explore other indicators to gain a more comprehensive understanding.

Ocean Transit Times: A More Telling Metric

Given that over 80% of global trade relies on ocean transport, examining shipping times provides valuable insight into supply chain health. Flexport's Ocean Timeliness Indicator (OTI) offers a broader measure of stress on global ocean shipping, tracking cargo on two of the busiest trade lanes: Transpacific Eastbound (TPEB) and Far East Westbound (FEWB).

The OTI data reveals a more nuanced picture:

• Pre-pandemic (April-December 2019): Average transit days were 54 for FEWB and 46 for TPEB.
• Peak disruption: FEWB reached 122 days in April 2022, while TPEB hit 113 days in late January 2022.
• Current state (May 2023): FEWB at 72 days, TPEB at 61 days.

While there's been significant improvement from peak disruption, transit times remain approximately two weeks longer than pre-pandemic levels. This suggests that supply chains, while recovering, have not yet returned to their previous efficiency.

Factors Influencing Extended Transit Times

Several factors contribute to the persistent elongation of ocean transit times:

1. Blank sailings: While decreasing, these remain elevated compared to pre-pandemic norms.
2. Increased port stops: Carriers are making more stops between origin and final destination ports.
3. Longer transshipment stops: On average, these stops are still days longer than in 2019.
4. Slower ship speeds: Various factors, including weakening demand, higher fuel costs, and environmental regulations, are prompting carriers to reduce vessel speeds.

Material Constraints: A Persistent Challenge

Another crucial indicator of supply chain health is the availability of materials for manufacturers. Surveys across the Euro area, the U.S., and Canada provide valuable insights:

Euro Area

In Q2 2023, 27.8% of managers reported shortages of material and equipment as factors limiting production. While this represents a significant improvement from the 54.3% peak in Q3 2022, it remains more than 2.5 times higher than the 2019 quarterly average of 11.5%.

United States

The U.S. Census Bureau's Quarterly Survey of Plant Capacity Utilization showed an upward trend in "insufficient supply of materials" responses through the end of 2022, ending the year at three times the 2019 average.

Canada

The Bank of Canada's Business Outlook Survey, which tracks "supply chain bottlenecks," saw a sharp improvement in Q4 2022. However, Q1 2023 results showed a slight weakening, indicating ongoing challenges.

Factors Contributing to Persistent Material Constraints

Several factors may explain why material constraints persist despite overall improvements:

1. Lingering uncertainty: The global economy continues to face unpredictable challenges, making it difficult for businesses to plan and secure supplies confidently.
2. Policy changes: New and proposed policies focused on materials, sustainability, and supply chains are complicating procurement processes for manufacturers.
3. Shifting baselines: The events of the past three years may have permanently altered what constitutes "normal" in supply chain operations.

The Role of Digital Logistics Platforms in Supply Chain Recovery

As supply chains continue to navigate these challenges, Digital Logistics Platforms like FreightAmigo play a crucial role in supporting businesses and facilitating recovery. Here's how our Digital Logistics Solution can help:

1. Real-time visibility: Our platform allows clients to track shipment status anytime, anywhere, connecting with over 1000 reputable airlines and shipping lines. This enhanced visibility helps businesses better manage expectations and plan around potential delays.
2. Comprehensive quote comparison: With the ability to compare door-to-door freight quotes for various transportation modes, businesses can make informed decisions to optimize their supply chain operations and mitigate the impact of extended transit times.
3. Streamlined customs clearance and documentation: Our automated shipment document features and integrated customs clearance services help reduce bureaucratic delays, contributing to smoother supply chain operations.
4. Risk mitigation: With built-in cargo insurance options, we help businesses protect themselves against the uncertainties that continue to affect global supply chains.
5. Expert support: Our 24/7 logistics expert support ensures that businesses have access to professional guidance as they navigate the evolving supply chain landscape.

By leveraging these Digital Logistics Platform capabilities, businesses can better adapt to the current supply chain realities and position themselves for success as the industry continues to evolve.

Conclusion: A Nuanced Recovery

While the Global Supply Chain Pressure Index suggests a return to normalcy, a closer examination of ocean transit times and material constraints reveals a more complex picture. Supply chains have undoubtedly made significant strides in recovery, but they have not yet fully returned to pre-pandemic levels of efficiency.

The path to complete recovery may take several more quarters, assuming current trends continue. However, it's crucial to recognize that the events of the past three years may have permanently altered the supply chain landscape. The definition of what constitutes a "normal" or "recovered" supply chain may need to evolve.

As businesses navigate this new reality, Digital Logistics Platforms like FreightAmigo offer valuable tools and solutions to enhance visibility, optimize operations, and mitigate risks. By embracing these Digital Logistics Solutions, organizations can better position themselves to thrive in the evolving global supply chain ecosystem.

We at FreightAmigo remain committed to supporting our clients through these challenges, leveraging our digital capabilities to foster a more resilient and efficient supply chain for all. As we continue to monitor supply chain trends and developments, we'll keep innovating to ensure our Digital Logistics Platform meets the evolving needs of businesses in this dynamic landscape.