Are the US supply chain problems over?

The tangled supply chains that have helped fuel runaway inflation are slowly untangling, offering hope of relief to cash-strapped consumers.

But the United States faces geopolitical tensions, a shortage of truck drivers and a potential railroad strike that all jeopardize recent progress.

The New York Federal Reserve’s Global Supply Chain Strain Index hit an all-time high in December 2021 and has remained high for much of this year before falling in recent months, reaching its lowest level. in almost two years last month.

The coronavirus pandemic initially shut down major economies, leaving businesses understaffed and unprepared for the explosion in demand that followed, making products scarcer and more expensive. Soaring inflation is now forcing consumers to spend less, slowing demand and helping supply chains recover.

“There has been a positive recovery. But we are never going to return to the levels of stability we had before COVID,” said Sergio Gutierrez, CEO of freight logistics company RPM.

Global prices for shipping containers, a key indicator of supply chain chaos, have fallen 70% from their record high a year ago, according to freight services firm Freightos.

While products more often arrive on time at US shores, companies are struggling to move goods across the United States due to limited trucking and rail freight capacity.

These difficulties have contributed to driving up the cost of food, which has increased by 13% per year, and other essentials. A June study by the San Francisco Federal Reserve found historic inflation “will not fully ease until labor shortages, production constraints and shipping delays are resolved.” “.

Trucking, freight rail struggles

Logistics experts say long-haul trucking and rail freight still can’t keep pace with shipping demand, largely because industries don’t have enough workers.

The American Trucking Associations said Tuesday the industry was facing a shortage of 78,000 drivers, down slightly from last year’s peak of 81,000. With truckers tending to age, the deficit could reach 160,000 within the next decade.

“The good news is rising wages and other factors have helped the industry attract new drivers,” Bob Costello, the trucking group’s chief economist, said in a statement. “However, this influx is still not enough to make a substantial difference to the shortage – particularly in the long-haul truck-for-hire sector, the part of the industry hardest hit by the shortage.”

Railroads, which move nearly a third of U.S. freight, laid off nearly 30% of their workforce in the years before the recent surge in demand. This has resulted in persistent delays in shipments of fresh food, fuel, fertilizer, auto parts and industrial chemicals.

Meanwhile, the supply chain is threatened with a nationwide railway shutdown in November if contract negotiations between the railways and their workers fail.

The Biden administration helped mediate a tentative deal to avert a strike last month, but it’s unclear whether workers upset with tight schedules and a lack of sick leave will vote to approve it. Only six of the railway’s 12 unions have ratified new contracts, and workers in two unions recently rejected tentative agreements, raising the risk of a walkout.

The Association of American Railroads estimates that a rail shutdown could cost the US economy $2 billion a day and tie up huge amounts of product that would have no other way to reach its destination.

“We are not in the normal course of business where there is excess capacity left,” said Bindiya Vakil, CEO of supply chain mapping firm Resilinc, which estimates that 169,000 manufacturing and distribution sites in United States representing nearly 400,000 products are at risk.

“We are missing 80,000 truckers. And so you can’t just bring in a bunch of people and say, “Go drive a truck. That takes time. It’s about skilled labour, specialized people, and it takes a lot of trust because this cargo is really valuable,” she added.

Even barges, a relatively reliable mode of transportation in recent years, currently cannot cross the Mississippi River due to droughts that have lowered water levels. They typically move 13% of US grain through the main channel, putting added pressure on food prices.

Global tensions add more uncertainty

Russia’s invasion of Ukraine has shaken supply chains, disrupting access to fuel, grain and fertilizers and driving up prices.

Now, companies are keeping a close eye on the increasingly hostile relationship between the United States and China, two major connectors for global supply chains. An escalation in the US-China trade war poses huge danger to the global economy, and a Chinese invasion of Taiwan would be catastrophic, experts say.

As large multinational companies try to diversify their supply chains and become less dependent on Chinese-made products – Apple has moved some of its iPhone production from China to India – the process of “decoupling” is expensive and time consuming.

“It’s probably very, very rare to find an industry where there’s no reliance on China, just because somewhere along the chain they’re going to make some of your components,” said Gerard DiPippo, a senior fellow at the Center for Strategic and International Studies and a former analyst of China’s economy at the CIA.

The Biden administration announced rules earlier this month aimed at preventing China from accessing advanced microchips designed or manufactured by American companies, raising fears that Beijing could retaliate with its own export controls or trade restrictions.

“Challenges to our supply chains will become the rule, not the exception,” Volkswagen CEO Oliver Blume said in an earnings call on Friday, citing geopolitical tensions and growing obstacles to transfers of power. technology between rival superpowers.

China’s COVID-19 lockdowns have shown how important the nation is to the global supply chain. The prolonged pandemic restrictions in Shanghai earlier this year created a huge bottleneck, blocking hundreds of ships and causing containers to pile up at ports.


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