Global Supply Chains Pressure Easing
Global supply chain pressures have been showing signs of easing, according to recent data.
The New York Fed's Global Supply Chain Pressure Index (GSCPI) showed stress on global supply chains eased for the third-straight month in July - marking its lowest point since January 2021.
"It's definitely stable," Scott Sureddin, DHL's supply chain CEO in the Americas, told Yahoo Finance Live (video to the right). "We are actually moving volume very, very well. But I will say inventory levels are really building."
Many consumer behaviors are shifting back to pre-COVID patterns. Shoppers are returning to stores, people are traveling, and fans are going to concerts and sporting events while spending less on at-home activities.
And the gradual end of the pandemic-driven supply crunch has caused delivery times to also ease across the globe - signaling modest improvement to pre-pandemic levels - according to the July ISM Manufacturing Purchasing Managers Index (PMI). Current manufacturing PMI is at 52.8%, according to ISM, which stated that "a reading above 50% indicates that the manufacturing economy is generally expanding."
'There's Still a backlog'
As supply chain issues continue to abate, retailers may be forced to get creative.
"It'll be interesting during the peak season, especially with consumer packaging goods and fashion, apparel e-comm, how they get their inventory out, how they're going to discount, how they're gonna do promotional strategies," Sureddin said.
Supply constraints added to the retail woes over the past two years that caused them to bulk up on inventories, putting pressure on their own working capital and forcing them to find ways to clear inventory through markdowns or other measures.
While consumer behavior continues to normalize, there's still the issue of record inflation - though it has also shown signs of slowly ticking down recently.
"With inflation and everything going on, people are getting back to the basics and buying consumer packaged goods, buying e-commerce items that are needed," Sureddin said. "So a lot of volume is going in those sectors or those industries."
Yet, port backups - which have driven many of the supply chain issues - remain significant, as shippers continue to skip some major ports to avoid disruptions. At the Port of Los Angeles, the busiest in the Western Hemisphere, the shipping backlog dropped to 10, which is down from the record of 109 on January 9.
By several measures, there are other signs of a slowdown at sea. Ocean container rates from Shanghai to Los Angeles dropped by 32% when compared to the start of the pandemic.
Contentious negotiations for both rail workers and dockworkers and their employers also factor into the equation. If contract negotiations fall through and workers choose to go on strike, the results would be severe, Sureddin said. "Even though we said we've cleared a lot of backlogs, we've built our inventory," he said
"There's still a backlog. There's still a lot of inventory sitting in warehouses, in the ports, sitting on rail yards trying to get moved. So we've not cleared it all ... We need to make sure that not only their contract gets done, but also we do more automation in areas like that because automation will help us in the future of handling the volume."
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