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We expect that the worst supply chain issues will start to ease during the summer but the problems will stay elevated well into the second half of the year.
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A full normalisation will take many months, but will most likely be faster than normally due to the extraordinary nature of the current problems.
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For a normalisation to take place we need to see both lower goods demand and a pick-up in productivity and return of labour in ports.
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A rapid opening up from restrictions will boost service consumption and shift away consumption from goods.
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The dramatic drop in real wages following historically high inflation will put a lid on consumption in the coming quarters.
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The broader supply bottleneck problems have hit US inflation significantly more than euro area inflation, hence also the reversal of supply chain and supply demand mismatch issues will have a bigger disinflationary impact on US inflation Supply chain woes still large.
Although freight rates started to level off in late September last year and have since then dropped slightly, the average freight rates from Shanghai to Rotterdam and Los Angeles are still eight times the level before the COVID-19 crisis began. Furthermore, waiting lines outside many, mainly North American, ports remain long. According to the freight forwarder Kuehne+Nagel’s Seaexplorer disruption indicator, there is a persistently high level of disruption in the container business currently, more than ten times higher than normal levels expressed in waiting days1. According to this indicator, roughly 80% of the congestion is in North America, but it affects the whole global supply chain since so many container vessels are tied up in these congestions. Also, both Maersk and Sea Intelligence have stated that around 11-12% of total container liner capacity is tied up in bottlenecks currently.
The Port of LA has just started to publish a daily operations report where they track the number of vessels at port as well as vessels that run at slow steaming waiting to come to port. The number of vessels was 72 at Feb 16. This is down from around 100 vessels a couple of months ago. This could be influenced by the Chinese new year but is none the less a promising sign.
