With the current backdrop of increasing global trade and tariff developments, all eyes remain focused of the ongoing impacts to global supply chain activity levels. The latest August 2018 data points to a slight firming of output data but at the same time, increasing uncertainty as to future output impacts.
The widely monitored J.P. Morgan Global Manufacturing PMI index reached a 21-month low of 52.5 in August, a decline from the 52.8 reading reported for July. While the indices indicated some growth across consumer, intermediate and investment goods industries, new export order growth and input cost inflation remained concerning. The report authors indicated growth in all but five geographic regions (Myanmar, South Korea, Russia, Turkey, Thailand).
As has been the trend for most of 2018, Developed nations, led by the United States, tended to outpace that of Developing Nations. Indices reflecting Eurozone PMI activity have declined over three percentage points since the start of the year, while building uncertainties loom over the impact of Brexit on European supply chain trade flows. The Caixin China Manufacturing PMI edged down to a 14-month low in August, just marginally above the 50 no-change mark.
The Chief Economist of the World Trade Organization (WTO) has recently expressed concerns for beginning signs of a slowdown in global trade growth linked to ongoing tariff actions. The WTO points to reported dips in export orders as well as a slowing in foreign direct investment. With the growing trade war among the U.S. and other major trading regions, there is growing scrutiny and concerns as to the role and the power of the WTO in mitigating these actions.
Ocean container volumes are on the decline as-well and recent financial performance reports from major global shipping lines point to signs of declines in global shipping volumes coupled with rising operational and fuel costs.
The U.S. Trade Deficit reached a five-year high in July with noted declines in the export of soybeans, agricultural goods, and aircraft. Imports hit a record high, no doubt motivated by actions by U.S. manufacturers, retailers, and wholesalers to take on additional inventory before major tariffs take effect. Economists note that such a drag could have a drag on U.S. economic growth in Q3 and Q4.
This week, the Organization for Economic Cooperation and Development (OECD) released its CLI half-year report of economic activity, indicating in-part: “Composite leading indicators point to easing growth momentum in the OECD area as a whole.” While growth accelerated in the three months through June, leading OECD indicator data suggest a slowdown in 2019, but an acceleration of growth in China and India.
The above highlighted data would indicate that continued negative trade and tariff actions have provided added uncertainties for businesses, investors, and multi-industry supply chain teams. A continued escalating trade war involving the U.S. with other major economic regions, and especially with China, can lead to an added drag on global supply chain growth and activity levels.
Supply chain strategists and planners will soon be preparing 2019 sales, operations, and inventory planning in the midst of the current environment. Significant assumptions and corresponding decisions loom in terms of global market growth assumptions or any required shifts in supply network sourcing given short-term or permanent tariff actions.
More than likely, 2019 planning will take on various forms of uncertainty requiring flexible and agile operational plans for 2019. Major supply contracts or new supplier selection are likely to take-on a short-term focus if and until the global trade landscape shows signs of some stability.
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.