Aug 8, 2022 - Economy

Supply chain bottlenecks beginning to clear up

Illustration of a Tetris interface with red and blue shipping containers as the blocks.

Illustration: Aïda Amer/Axios

Supply chain bottlenecks are beginning to clear up as consumer spending returns to a more normal mix of goods and services.

Driving the news: The New York Fed's Global Supply Chain Pressure Index (GSCPI) fell for the third straight month in July, hitting its lowest point since January 2021.

Why it matters: We've been dealing with one supply chain crisis after another since the pandemic threw the global economy out of whack — and it's been contributing to runaway inflation.

By the numbers: At 1.84 points above typical levels — down from an all-time high of 4.32 in December — the GSCPI's downward movement suggests that products are slowly moving more freely through the economy.

  • "We expect most retailers to reduce forward inventory purchases given lower demand expectations," Fitch Ratings reported Monday. "This should support eventual margin stabilization as inventory levels correct and also ease some supply chain bottlenecks."

Flashback: The pandemic shifted spending from services to physical goods in historic fashion, creating demand that manufacturers, logistics companies and retailers weren't prepared for.

  • They've been trying to catch up ever since.

Quick take: The swing back to services has been under way for months, exemplified most recently by hotel chains Marriott and Hilton reporting booming earnings in recent weeks.

  • That easing of pressure on supply chains is already being felt by retailers.

What they're saying: In consumer electronics, supplies have "not only caught up" but may be barreling toward "a surplus situation," Kimball Electronics CEO Donald Charron said Friday on a conference call.

  • In apparel, Under Armour CFO David Bergman said Wednesday that they are now seeing signs that supply chain disruptions "could find some balance from this point" through the end of the year.

The other side: Port backups — which have driven many of the supply chain issues — remain significant, straining access to certain goods. And the global semiconductor chip shortage, key to the shortage of new vehicles, is expected to take years to resolve as companies like Intel build new on-shore factories.

  • "There’s less cargo flowing," Ocean Audit CEO Steve Ferreira tells Axios, "but there’s still so much backed up."

The bottom line: You might still want to plan ahead on your holiday shopping list. But the situation appears to be headed in the right direction.

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