Supply chains improve from catastrophically stressed to just very stressed.
By Wolf Richter for WOLF STREET.
Consumer spending in the US has been shifting back from goods to discretionary services, and demand for goods has fallen from the breath-taking stimulus-miracle spike in March and April 2021, as spending on services has surged. In Europe, as similar trend is beginning to evolved. And this trend back to services has started to show up in the world of container shipping.
Average waiting times for container ships at Shanghai, after having spiked to nearly 70 hours in April (14-day moving average), amid the lockdowns that snarled port operations in Shanghai, have now declined to 31 hours, according to VesselsValue.
This is still the longest wait time in the data for this time of the year, about 4 hours longer than the top of the range for the same period in 2019 through 2021, but it’s a huge improvement from April and from the spikes in 2021 when average waiting hours for container ships reached nearly 80 hours in August 2021 (green):
Ocean freight rates to ship containers have also declined globally from the spike that topped out in September 2021. The Drewry World Container Index has dropped by 26% from the September 2021 high of $10,377 per 40-ft container, to $7,625 as of the week ended June 2.
But this is still multiples higher than the old-normal container freight rates before the pandemic: In 2019, the Drewry World Container Index ranged from $1,200 to $1,900.
From Shanghai to Los Angeles, container freight rates fell by 30% from the peak of $12,424 in September 2021 to $8,704 in the week ended June 2. But they’re still over four times higher than they were just before the pandemic.
From Shanghai to New York, container freight rates dropped by 33% from $16,138 at the peak last September to $10,871 as of June 2 (chart via Drewry Supply Chain Advisors):
For the global trade in goods that a are shipped in containers, the past two years have been utter chaos, as a result of many factors, ranging from consolidation in the shipping industry prior to the pandemic to the historic boom in demand for goods, especially in the US, but also in Europe and elsewhere – demand that no one was ready for.
Consumer spending, fueled by many trillions of dollars in central bank and government stimulus, shifted from discretionary services to durable goods, unleashing an explosive spike in imports of goods into the US, resulting in container shortages, massive container congestion at ports and rail yards everywhere, gummed-up operations, spiking freight costs, long delays, and just utter chaos and inefficiencies that made everything much worse.
Supply chain chaos is not over.
The decline in waiting times for container ships at Shanghai, and the decline in container freight rates show that the transportation chaos is getting partially resolved. But the wait times at Shanghai are still longer than they were; and container freight rates are still multiples higher than they were, and nothing has normalized yet.
In the US, the boom in durable goods – many of which are imported or are assembled in the US with imported components, such as new vehicles – was driven from already high levels to fantastical levels in March and April 2021, following the third round of stimulus checks. Even adjusted for inflation, “real” spending on durable goods during the pandemic just blew the lid off. And supply chains could never be ready for the explosion in demand.
Since the peak in March and April 2021, real spending (adjusted for inflation) on durable goods has dropped by 6.5% but it remains at nosebleed levels.
Spending on durable goods continues to be held down by the shortages of new vehicles, which is a big component of durable goods, and I’m not sure what this chart would look like if dealer lots across the US were chock-full with new cars and trucks that consumers could actually buy on the spot, rather than trying to get on endless waiting lists:
For transportation issues and supply chain snarls to get resolved, consumer demand for durable goods would have to decline further and by quite a bit to somewhere near pre-pandemic trend (green line), and that isn’t happening just yet. Maybe some more Fed tightening could do the job:
In response to the supply chain crisis, the New York Fed has developed a new index, the Global Supply Chain Pressure Index (GSCPI), based on data from global transportation costs and the supply chain-related components of Purchasing Managers’ Indexes (PMIs) from manufacturers in the US, China, the Eurozone, Japan, South Korea, Taiwan, and the UK.
Global supply chain pressures peaked in November and December 2021, and then declined, but over the past four months, have flattened after the dip in May. As the New York Fed said today, this suggest “for now, a stabilization of global supply chain pressures at historically high levels”:
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