Global Supply Chain Pressures Index Remains High for Shippers
RedStone Resource
August 17, 2022
Inside This Edition
Global Supply Chain Pressures Index Remains High for Shippers
The New York Federal Reserve released its latest Global Supply Chain Pressures Index and it came in at 1.84, which is still historically high when compared to data stretching back to the 1990’s. A balanced market would show a reading of zero and the index hit its all-time high of 4.32 in December of 2021.
Producer Price Indexes for Trucking Mixed in July
The Producer Price Index (PPI) for the two primary forms of trucking were mixed in July. The PPI for less-than-truckload was slightly lower month-over-month, falling by 1.0% amid a drop in diesel prices. But on a year-over-year basis, it was still 23% higher and it remained at a steep rate.
Air Cargo Inbound Price Index Softens, But Remains Historically High
The international air cargo index came in at 249 points which is weaker on a month-over-month basis, it fell 7.3% between June and July. On a year-over-year basis it was up just 0.1% but it was 55.6% higher when compared to levels just prior to the pandemic.
ECONOMIC BRIEFING
Low Rhine River Water Levels Hit Global Supply Chain
A bottleneck on arguably the most critical body of water in Germany has hit a critically low level. The water near Kaub, which is in the middle of the Rhine River, hit 14.6 inches of water on August 13th which is lower than the minimum water level for larger, heavy ships. If the water level goes below 11.8 inches, the river becomes impassable.
Major corporations that count on the river for moving heavyweight freight is scrambling for freight resources that are difficult to get. The demand for thousands of truckers to carry the cargo that moves up and down the Rhine will likely have a big impact on the global flow of products. This part of Germany is typically a critical piece of multiple global supply chains spanning automotive and other types of manufacturing. It also feeds the region with key energy and raw material components which will be very difficult and far more expensive to move using other modes.
This also comes in what some are calling the “summer of labor unrest”, strikes and threats of strikes across the UK and EU are continued to create supply chain uncertainty. The latest is a threat of dock worker strikes in Liverpool as they demand more pay. This comes on the heels of trucker and drayage worker strikes earlier in the summer and disruptions stemming from passenger rail labor issues. All of this adds up to a challenging time for the European market. More than 30% of the S&P 500 obtain their revenue from European sources, it can have a sizeable impact on the US domestic market.
Global Supply Chain Pressures Index Remains High for Shippers
The New York Federal Reserve released its latest Global Supply Chain Pressures Index and it came in at 1.84, which is still historically high when compared to data stretching back to the 1990’s. A balanced market would show a reading of zero and the index hit its all-time high of 4.32 in December of 2021. In fact, typically the measure has been in negative territory, signaling that shippers typically have a slight advantage in the market and supply chain planning is more common and operates more smoothly.
Notable issues stemming from Covid lockdowns that continue to be ongoing in China, supply chain and energy issues in Europe, and continued pressures at US ports continue to keep the index higher than expected (keep volatility elevated). But the trend is positive for shippers, and global supply chain congestion and disruptions could be easing faster than expected. Capacity is improving in some lanes and across some modes, although bottlenecks and component shortages continue to challenge supply chain continuity.
TRANSPORTATION BRIEFING
Producer Price Indexes for Trucking Mixed in July
The Producer Price Index (PPI) for the two primary forms of trucking were mixed in July. The PPI for less-than-truckload was slightly lower month-over-month, falling by 1.0% amid a drop in diesel prices. But on a year-over-year basis, it was still 23% higher and it remained at a steep rate. The theme appears to be near-term deceleration in price, they still remain in the upper end of a historical range as the economy goes into peak season.
Truckload prices also slipped 1% month-over-month but were 25.9% higher year-over-year. Capacity dislocations were more commonplace as smaller firms opted not to take loads in lanes with chronic backhaul issues. Easing diesel prices could work to improve load acceptance rates, especially in smaller markets with fewer outbound shipments.
Port congestion also continues to be a factor, especially with regard to drayage capacity. Container chassis availability remains tight and the NRF is projecting a 5% increase year-over-year in total inbound TEUs in 2022. Even though there are pockets of slowing economic activity, the global transportation sector is still attempting to “normalize” itself.
Air Cargo Inbound Price Index Softens, But Remains Historically High
The international air cargo index came in at 249 points which is weaker on a month-over-month basis, it fell 7.3% between June and July. On a year-over-year basis it was up just 0.1% but it was 55.6% higher when compared to levels just prior to the pandemic. The global airline industry is still suffering from a reduction in capacity amid a global pilot and crew shortage. Since the end of the pandemic, many airlines (both passenger and cargo) are still facing shortages of qualified crewmembers.
As supply chain urgency has softened in recent months, the index has come off of peaks hit in January of this year when it touched 296.2 points. But as mentioned, prices remain elevated. The global pharmaceutical supply chain is still grappling with emergency demand for cold chain air cargo services to move vaccines. With China experiencing weekly outbreaks of Covid, constant disruptions to production and output are common. Many Chinese manufacturers need to expedite smaller shipments of products that can keep assembly lines moving, and demand continues to remain stronger than historically might have been the case.
