Reports on Global Supply Chain Mixed, With Signs of a Recession Looming

Although the global supply chain has a long way to go to reach pre-pandemic recovery, there are some notable signs that indicate the situation appears to be stabilizing.

According to a report from logistics company Flexport, the time it takes as of July 10, 2022 for goods transported on an ocean freight to reach port is 95 days. This is a significant decrease from the times recorded in October 2021, which was more than 110 days. The report notes while this may not seem like a large drop on the surface, it has a strong impact on consumers who are now used to two-day shipping.

Other signs can be seen in the Baltic Dry Index, a composite of several major shipping costs. According to this metric, costs have now reached levels comparable to April 2021, and less than half of the peak costs recorded in October 2021.

In several different markets, customers are now reporting for the first time in quite awhile an excess in goods. This is particularly notable in consumer goods, with companies such as Target, Walmart, and Dicks implementing large-scale markdowns. Even the semiconductor industry, the shortage of which has had a detrimental impact on industries ranging from automotive to healthcare, is seeing supply increases. South Korea’s Ministry of Economy and Finance, for example, recently reported that Korean chipmakers are currently sitting on a growing stockpile of unsold chips — a development they have not seen since 2018.

Such a market state, however, comes at a cost. According to Micron Technologies, such sudden changes in consumer demand may be signs of a looming recession. Micron’s smartphone division in 2022 will ship about 130 million fewer chips than originally expected, and its PC division will cut sales by about 30 million chips—a 10% drop in both categories.

The automotive industry appears to be the exception to these changes, with major OEMs such as Toyota, Honda, and General Motors all reporting shortages of the semiconductors necessary to maintain consistent production. According to a report from AutoForecast Solutions, overall vehicle production is approximately 2.2 million short of what was expected at the beginning of the year.

Some of these developments can be seen as positive, but with signs of a recession in the global supply chain becoming more worrisome by the day, manufacturers should be taking steps now to ensure business continuity.