Global Supply Chain to Get Boost from Manufacturing Recovery
RedStone Resource
March 1, 2024
Inside This Edition
Striving for Supply Chain Normalcy
With 10 months left in 2024, it appears that 2024 could be a transitional year into what we hope to be “supply chain normalcy”. After a 100-year event in 2020, global supply chain crisis that followed in 2021 and 2022 and two major conflicts erupting, surge in global inflation, and now a global economic slowdown, managers are looking for normalcy.
Keep an Eye on the Tropics This Year
The Northern Hemisphere is going to come out of a very strong El Nino weather pattern directly into a La Nina pattern. The combination of warm Gulf and Atlantic waters coupled with shifting wind shear patterns (wind shear is less pronounced in the Atlantic during La Nina cycles) could lead to a more active Atlantic hurricane season. The risks for the supply chain are multifold.
Durable Goods Orders Weaker, But Could Keep Freight Volumes Stable
The disruptions in the Red Sea continue to be a hot topic among supply chain managers, and the effects are being felt more broadly around the world. Early in January, Asia to European trade lanes were hit first, and the hardest.
Economic Briefing
Global Supply Chain to Get Boost from Manufacturing Recovery
At the time of writing, global manufacturing monthly surveys were still being released, but preliminary reports show that there was a general global manufacturing recovery underway in February. This is important because there is a direct correlation between US freight volumes and global manufacturing activity. The Flash US manufacturing report showed that the sector improved from 50.7 to 51.5 in February (readings over 50 suggest an expanding market).
New orders reportedly improved in February in the wake of the Lunar New Year, which likely will help propel first quarter GDP to growth of 2% or higher. With businesses resuming activity after the two-week holiday celebration period, new shipping activity will tighten capacity and could begin to shed light on the Red Sea impacts on global maritime activity. Since the disruptions started, the global market has had weather, holidays, and other factors that have slowed freight volumes. The first week of March will provide the first real indication of how much the rerouting of freight around the Red Sea will impact global capacity availability and pricing as a result. Spot rates for maritime service out of Asia were still much higher year-over-year to US and European markets.
Striving for Supply Chain Normalcy
With 10 months left in 2024, it appears that 2024 could be a transitional year into what we hope to be “supply chain normalcy”. After a 100-year event in 2020, global supply chain crisis that followed in 2021 and 2022 and two major conflicts erupting, surge in global inflation, and now a global economic slowdown, managers are looking for normalcy.
In the US, the closure of Yellow and subsequent integration of new terminals and DCs will create a period of adjustment in the LTL sector. Disruptions in the Panama Canal have also temporarily disrupted inbound freight strategies and US distribution systems are adjusting and balancing capacity to handle shifting volumes.
Recent surveys suggest that companies could resort to something like Just in Time (JIT) inventory management after a period of “Just in Case”. Except, as Inbound Logistics mentioned, it might be “Just in the Nick of Time” – allowing a bit of extra room for errors. Fewer companies are listing supply chain problems among their Wall of Worry concerns for 2024, but remaining flexible and diversifying supply chain risk is still a prominent feature of this “return to normalcy”.
Transportation Briefing
Keep an Eye on the Tropics This Year
The Northern Hemisphere is going to come out of a very strong El Nino weather pattern directly into a La Nina pattern. The combination of warm Gulf and Atlantic waters coupled with shifting wind shear patterns (wind shear is less pronounced in the Atlantic during La Nina cycles) could lead to a more active Atlantic hurricane season. The risks for the supply chain are multifold.
First, there have not been any significant hurricanes in the Gulf of Mexico to disrupt offshore oil production. Nor have there been significant storms to threaten refinery infrastructure and production in the Gulf States. Some forecasts put 2024 into a higher risk category for storms this year based on the La Nina factor.
Second, disruptions to freight flows could come as a result. Diversions of activity could be possible if storms affect ports in the Gulf or lower Southeastern US.
But third, it could bring some relief for the regional supply chain. For instance, if southern Mexico were to see more rain in and around the Panama Canal, it could help refill reservoirs that are currently in a severe drought condition and help lift throughput restrictions currently affecting transits through the canal. Other areas of the Gulf states could also get some much-needed water – especially for areas that feed the Mississippi River thus helping improve barge traffic downstream. Most of that will be affected by upstream snow in Canada and the Pacific Northwest, which got good precipitation this year. But hurricanes can help with tributary volumes, which collectively can help downstream Mississippi River throughput.
Durable Goods Orders Weaker, But Could Keep Freight Volumes Stable
The disruptions in the Red Sea continue to be a hot topic among supply chain managers, and the effects are being felt more broadly around the world. Early in January, Asia to European trade lanes were hit first, and the hardest. Rates between Shanghai and Rotterdam are still 158% higher year-over-year (Y/Y) through February 8th, despite softening slightly from the prior week (falling by 5% week-over-week (W/W)). Shanghai to Genoa was similar, rates are up 97% Y/Y but fell 11% W/W.
Perhaps partly due to the timing of the Lunar New Year and also due to the disruption in the Red Sea and stripping of as much as 25% of the globe’s spare capacity, Asia to US rates are rising in the latest week. Drewry showed that Shanghai to LA rates were up 8% W/W and were now 133% higher Y/Y. From Shanghai to New York, rates were up 2% W/W and were up 101% Y/Y.
Rates are likely to soften, but it may take until well into March before that happens. Coming out of the Lunar New Year holidays, a surge of shipping activity coming out of China will likely tighten lanes further. But, over time, the global supply chain will adjust to lengthened transit times and capacity should eventually adjust to real demand conditions.
