Supply Chain Recovery: Are We Back to Normal?

Introduction: Conflicting Signals in Supply Chain Recovery

As the world continues to emerge from the disruptions caused by the COVID-19 pandemic, the state of global supply chains remains a topic of intense scrutiny and debate. Recent reports have painted conflicting pictures of the current situation, with some claiming that supply chains are stronger than ever, while others suggest we are still on the path to recovery. At FreightAmigo, we believe it's crucial to examine the evidence carefully to understand the true state of global logistics and transportation.

Let's delve into the latest data and industry insights to determine whether supply chains have indeed returned to pre-pandemic norms or if challenges still persist. We'll explore key indicators such as the Global Supply Chain Pressure Index (GSCPI), ocean transit times, and manufacturer surveys to gain a comprehensive understanding of the current landscape.

The Global Supply Chain Pressure Index: A Positive Outlook

The Global Supply Chain Pressure Index (GSCPI), published by the New York Federal Reserve, has recently reported some encouraging news. According to their latest data from May 2023, the index stands at -1.71 standard deviations from the historical average. This represents a significant improvement from the peak pressure of +4.31 recorded in December 2021.

At face value, this data suggests that supply chains are experiencing the least pressure in 25 years. However, it's important to approach this conclusion with caution. While the trend clearly indicates improvement, we must consider whether this single composite measure can fully capture the complexities of global supply chains.

Ocean Transit Times: A More Nuanced Picture

To gain a more comprehensive understanding of supply chain health, we need to look beyond composite indices and examine specific components of the logistics process. One crucial metric is ocean transit times, which account for 80% or more of global trade movements.

Flexport's Ocean Timeless Indicator (OTI) provides valuable insights into the stress on global ocean shipping. The OTI tracks cargo ready dates to origin port departures on two of the busiest trade lanes: Transpacific Eastbound (TPEB) and Far East Westbound (FEWB).

The data from the OTI reveals a more nuanced picture of supply chain recovery:

• 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 January 2022.
• Current situation (May 2023): FEWB transit times are at 72 days, and TPEB at 61 days.

While there has been a significant improvement from the peak disruption periods, transit times remain approximately two weeks longer than pre-pandemic levels. This indicates that supply chains have not yet fully returned to their previous efficiency.

Factors Affecting Ocean Transit Times

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

1. Blank sailings: While the number of skipped ports or canceled journeys has decreased, it remains higher than pre-pandemic norms.
2. Increased port stops: Carriers are making more stops between origin and final destination ports compared to Spring 2022.
3. Longer transshipment stops: The duration of stops between ports is still, on average, days longer than in 2019.
4. Slower vessel speeds: Reports suggest that carriers are intentionally slowing their ships due to factors such as weakening demand, higher fuel costs, and environmental regulations.

These factors collectively contribute to the extended transit times we continue to observe in global shipping.

Material Constraints: Manufacturer Perspectives

Another crucial aspect of supply chain health is the availability of materials for manufacturers. Surveys conducted in the Euro area, the United States, and Canada provide valuable insights into this aspect of the supply chain:

Euro Area

In the Euro area, the percentage of managers reporting shortages of material and equipment as factors limiting production has decreased significantly:

• Q3 2022: 54.3% (peak)
• Q2 2023: 27.8%

While this represents a substantial improvement, it's important to note that the current figure is still 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 shows a similar trend. Although data for Q1 2023 is not yet available, the "insufficient supply of materials" response rate was trending upward in the last two quarters of 2022. However, it remained three times above the 2019 average.

Canada

The Bank of Canada's Business Outlook Survey, which tracks "supply chain bottlenecks," showed a sharp improvement in Q4 2022. However, Q1 2023 results indicated a slight weakening. The upcoming Q2 results will provide more clarity on the current trend.

These surveys collectively suggest that while material constraints have eased considerably since the height of the pandemic, they have not yet returned to pre-pandemic levels. Manufacturers continue to face challenges in securing necessary supplies, albeit to a lesser extent than during the peak of disruptions.

Factors Contributing to Ongoing Supply Chain Challenges

Several factors contribute to the persistent supply chain challenges we observe:

1. Lingering uncertainty: The global economic landscape remains unpredictable, with conflicting data and diverging indicators creating a challenging environment for businesses to navigate.
2. Policy changes: New and proposed policies focusing on materials, sustainability, and supply chains are reshaping the procurement landscape for manufacturers. These changes may lead to long-term shifts in supply chain dynamics.
3. Regional disparities: Different regions have faced varying levels of disruption. For example, Europe has experienced deeper supply chain challenges due to the combined impact of COVID-19 and the conflict in Ukraine.
4. Evolving definition of "normal": As the global economy and supply chains adapt to new realities, it's possible that pre-pandemic benchmarks may no longer be relevant or achievable in the current context.

These factors suggest that a full return to pre-pandemic supply chain conditions may take longer than initially anticipated, and the definition of "normal" may need to be reevaluated.

FreightAmigo's Perspective on Supply Chain Recovery

At FreightAmigo, we recognize the complexity of the current supply chain landscape and the challenges businesses face in navigating this evolving environment. While significant progress has been made in recovering from the peak disruptions of the pandemic, it's clear that we have not yet returned to pre-2020 norms.

As a Digital Logistics Platform, we are committed to helping our clients adapt to these ongoing challenges and optimize their supply chain operations. Our comprehensive suite of tools and services is designed to address the specific pain points highlighted by the data:

• Real-time tracking and visibility: Our platform provides up-to-date information on shipment status, helping businesses navigate the still-elongated transit times and potential delays.
• Multi-modal shipping options: With ocean transit times remaining above pre-pandemic levels, our platform offers alternative shipping methods, including airfreight and rail freight, to help businesses find the most efficient routes for their cargo.
• Supply chain optimization tools: Our Digital Logistics Solution helps businesses analyze and optimize their supply chains, addressing issues such as material constraints and inventory management.
• Customs clearance and documentation support: We streamline the customs process and automate shipment documents, helping to mitigate potential delays caused by increased port stops and regulatory changes.
• 24/7 expert support: Our team of logistics experts is available around the clock to help clients navigate the complexities of the current supply chain landscape and make informed decisions.

By leveraging these tools and services, businesses can better position themselves to overcome the lingering challenges in the global supply chain and adapt to the new normal of international logistics.

Conclusion: The Path Forward

While the global supply chain has made significant strides in recovering from the disruptions caused by the COVID-19 pandemic, it's clear that we have not yet returned to pre-pandemic norms. Key indicators such as ocean transit times and manufacturer surveys suggest that challenges persist, even as overall pressure on supply chains has eased.

As we move forward, it's crucial for businesses to remain adaptable and resilient in the face of ongoing supply chain complexities. The definition of "normal" in global logistics may be evolving, and companies must be prepared to navigate this new landscape.

At FreightAmigo, we are committed to supporting our clients through these challenges by providing innovative Digital Logistics Solutions that address the specific pain points of the current supply chain environment. By leveraging technology, data analytics, and expert support, we aim to help businesses optimize their supply chains and thrive in this new era of global trade.

As we continue to monitor the recovery of global supply chains, we encourage businesses to stay informed, remain flexible, and embrace Digital Logistics Platforms that can help them navigate the complexities of international shipping and trade. Together, we can build more resilient and efficient supply chains for the future.