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AIQ Editorial TeamGlobal Investment Thinking @avivainvestors
In this month’s instalment of our visual series on topical data themes, we focus on the implications of continued disruption to supply chains.
Read this article to understand:
- The impact of labour shortages
- The shipping bottleneck
- The implications of slower delivery times and higher freight rates and prices
Supply chain disruptions have been a major challenge for the global economy since the onset of COVID-19. Just as conditions seemed to be turning around, the spread of the Omicron variant has brought new complications.
In this edition of What does the data say? we look at various challenges in supply chains.
Which areas are hit the most?
At the start of this year, the New York Federal Reserve launched the Global Supply Chain Index (GSCPI) to track trends over the past 25 years. Figure 1 highlights the current level of supply chain pressures is far more acute than we have seen previously.
Figure 1: The Global Supply Chain Pressure Index
Source: Federal Reserve Bank of New York Liberty Street Economics, January 4, 20221
Supply chain troubles have hit companies all over the world, particularly in the US and euro zone. As Figure 2 clearly shows, disruptions spiked in early 2020 and picked back up over the course of 2021, as the reopening of economies led to a surge in demand for all types of goods.
Supply chain troubles have hit companies all over the world
The higher the value in the index, the greater the disturbance in supply chains – with those in China and emerging markets less affected compared to their Western counterparts.
Figure 2: Supply chain disruption by region
Source: Statista, October 13, 20212
The structure of supply chains is complex and fragile. Even a single missing part for a particular good can rapidly cause a breakdown in the production process. Lockdowns and the loss of manpower due to illness or travel restrictions forced many suppliers to temporarily close or significantly reduce output severely limiting their ability to meet delivery obligations.
What has been the impact of labour shortages?
A key issue connected to supply chain disruption is labour shortages, which have hit a record high during the pandemic. Figure 3 compares different sectors and regions with pre-pandemic data (2010 and 2019).
Figure 3: Labour shortages
Source: Aviva Investors, Macrobond as of September 28, 2021
The number of active job adverts in the UK has skyrocketed since the pandemic began
According to the Recruitment & Employment Confederation (REC), a non-profit organisation, the number of active job adverts in the UK has skyrocketed since the pandemic began.3 Figure 4 shows over 1.9 million adverts were posted in September 2021 – this compares to around 1.3 million in April 2020.
Figure 4: Weekly job postings trend in the UK
Source: Recruitment & Employment Confederation, September 23, 20214
Labour shortages have worsened due to workers contracting the virus, as well as those forced to isolate after coming into close contact with a positive test case. The exodus of overseas workers due to Brexit has amplified the issue. According to the Office for National Statistics, 94,000 more European Union (EU) nationals were estimated to have left the UK in 2020 than to have arrived — up by almost 40 per cent compared to 2019.5
What about shipping?
The pandemic has also caused a shipping bottleneck
The pandemic has also caused a shipping bottleneck – hundreds of ships have been stuck outside ports, unable to unload goods due to a lack of lorry drivers and warehouse congestion. Figure 5 shows the queue of vessels lined up outside the terminals of Los Angeles and Long Beach, which handle 40 per cent of containerised imports in the US, hit record highs at the start of 2022.
Figure 5: Container ships at Los Angeles and Long Beach ports (total daily number, awaiting berth in port)
Source: Marine Exchange of Southern California, January 20226
Figure 6 shows the cost of moving a 40-foot container from China to the US west coast soared to over $20,000 in the summer — more than a tenfold jump on pre-pandemic levels.
Figure 6: Freight shipping rates (per 40-foot container in $000)
Source: Freightos, December 20218
Has there been any improvement in delivery times?
As Figure 7 shows, delivery times in the US and EU have got longer since late 2020.
The recent sharp drop in the delivery times index reflects a combination of surging demand and supply constraints
The recent sharp drop in the delivery times index (which means things are getting worse rather than better) reflects a combination of surging demand and supply constraints. During such times, suppliers usually have greater pricing power. Such delays can also reduce the availability of intermediate goods which, combined with labour shortages, slow down production and output growth.
Figure 7: Suppliers’ delivery times in the US and EU
Source: IMF, October 25, 20219
According to Freightos, China-US ocean shipments took an average of 80 days to arrive at their final destination in 2021, 85 per cent longer than was the case in September 2019 (see Figure 8).10
Figure 8: China-US ocean shipment transit time (average days end-to-end)
Source: Freightos, January 21, 202211
Perhaps customers also need to get used to longer delivery times
Thanks to longer delivery times and higher freight costs, manufacturers and retailers are rediscovering the advantages of having their suppliers closer to consumers. But perhaps customers also need to get used to longer delivery times.
