Supply Chain Matters highlights two additional indices of global and US supply chain volatility relative to July 2022 global supply chain activity levels.
In a prior published Supply Chain Matters commentary, we provided highlights of the various July 2022 PMI indices across select global supply chain regions. The overall takeaway from the July data was that global production momentum had begun to stagnate and in some regions such as the Eurozone, Taiwan, and to some extent, certain manufacturing regions of China, PMI values had reached contraction levels.
Global Supply Chain Pressure Index
According to the July 2022 Global Supply Chain Pressure Index (GSPI), compiled and published by the Federal Reserve Bank of New York, overall pressures reportedly declined once again in July. This index complies 27 different variables to include transportation movement and costs, global PMI sub-indexes reflecting delivery times and order backlog. The index is such that a value of zero indicates pressures of normal value, positive values above zero are an indication of standard deviation above the average.
This index was reported as 1.84 for July, compared to a value of 2.31 reported for June, and 2.59 reported for May. The July report narrative indicated that the decline in the pressures index was similar to that over the past two months and was uniform across most of the subcomponents of this index. That stated, this particular index remains at historically high levels, especially since pre-pandemic levels as noted in the below chart.
Additional Data- U.S. Logistics Managers Index
The Logistics Managers Index Report®, compiled by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP), reported a July 2022 value of 60.7, down 4.7 percentage points from the reported reading of 65 in June. The July reading was noted as the lowest since May of 2020 and consistent with trending reflected in two published U.S. PMI reports for July.
Specifically indicated by report authors for the July report: “Fueling this deflationary pressure are levels of growth in available Transportation Capacity (reading in at 69.1) that we have not seen since April of 2019. Interestingly, the downshifts we observed in transportation metrics were much more muted in the last week of July, leaving open a possibility for a bit of recovery as we move towards peak season. Warehousing and Inventory metrics continue to buoy the logistics sector. Inventory Levels remain high (and are responsible for dragging down U.S. GDP in the second quarter), and warehouses continue to struggle to hold and manage the volume.”
The report authors additionally added that the significant development for the July reading was the movement of transportation prices from expansion to contraction and noted as a marked change from the trends of the last two years. Other trending July data reflects overall inventory levels as well as inventory costs declining.
Additional Supply Chain Matters Perspectives
Our readers are likely aware that overall supply chain volatility remains high for certain industries or certain businesses and thus the GSPI volatility index should be viewed as a generalized context. Volatility can ease when global wide production and direct materials purchasing levels are moderating.
The open question remains as to whether seasonal holiday fulfillment surge that typically ramp-up over the next three months will materialize this year, or more muted goods spending by consumers and businesses will further dampen global supply chain activity and volatility levels.
Similarly, transportation and logistics cost volatility remains uncertain.
Last week, number two ranked global container shipping provider Maersk, and number six ranked shipping provider and Hapag-Lloyd, each raised their operating profitability forecasts for this year in anticipation of high shipping prices. In the case of Maersk, it was the second upward revision, with anticipation of $31 billion in profitability, compared to an earlier estimate of $24 billion. Hapag-Lloyd indicated that rates are about 80 percent higher than in the first half of 2022, according to reporting from Bloomberg. What’s interesting is that spot market rates for ocean transit are trending lower, but many businesses elected to establish shipping contracts with various carriers at prevailing contracted rates when agreements were struck earlier this year. Industry watchers now anticipate that businesses will attempt to renegotiate contract rates if spot rates remain trending lower.
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