1. The Global Supply Chain Pressure Index (GSCPI) is a new measurement of supply chain conditions, created by the Federal Reserve Bank of New York. The index combines variables from several indices in transportation and manufacturing, such as those related to delivery times, prices, and inventory.
2. The index is meant to help policymakers, businesses, and consumers understand the state of global supply chains.
RELEVANT DATA
1. Baltic Dry Index - measuring raw material shipping costs around the world
2. Harpex Index - measuring container shipping prices
3. US Bureau of Labor Statistics (BLS) Import/Export and Inbound/Outbound Air Freight Indices - measuring air freight prices to and from the US
4. Purchasing Manager Index (PMI) surveys - providing economic insights from senior executives in the private sector.
5. The GSCPI specifically uses PMI data across seven markets: the Euro area, China, Japan, South Korea, Taiwan, the UK, and the US And the GSCPI specifically uses the following PMI subsets:
- Delivery times - which captures the extent to which supply chain delays in the economy impact producers
- Backlogs - looking at order volume that organizations have received but have not been able to complete yet; And
-purchased stocks - which is an inventory measure.
USING THE GSCPI
1. The New York Fed's index shows how global supply chain pressures vary from the average. When the index is high, that means there's more supply chain pressure than usual. When it's low, there's less pressure.
2. The GSCPI shows relatively small changes throughout most of the months measured, up until 2020. Before the pandemic, there was never a period that recorded more than two standard deviations from the average.
3. Some experts think the index isn't useful for business leaders. When supply chain pressures show up in price or congestion measures, that's a lagging indicator of what's already happened in the world, not a forward indicator of what's going to happen.
NOTABLE SUPPLY CHAIN ISSUES
1. Many interrelated issues have caused supply chain pressures since the start of the pandemic. Some of the top problems include:
2. Unusual demand - The pandemic significantly disrupted the traditional balance of supply and demand, and it's taken time to restore that balance. Demand for certain types of physical goods skyrocketed, while demand for service-oriented products plummeted, Farlekas explains. It's taken time for suppliers to recover and figure out the right balance.
3. Congestion - Not only has the pandemic strained how much manufacturers can produce, but it's also led to transportation congestion. Physical infrastructure has limitations, so a massive spike in port traffic, for example, causes congestion.
4. Russia-Ukraine War - More recently, the Russia-Ukraine war has affected global supply chains in several ways. For one, the war sent shockwaves through energy markets, increasing the price of oil. It has also affected the food supply, since Ukraine is a major crop exporter. These factors have affected the cost and availability of goods.
SUPPLY CHAIN IN SEPTEMBER 2022
1. Shipping container traffic that had been severely congested during the pandemic is clearing and shipping prices are falling by a record margin in a sign that snags that had bedeviled global supply chains are finally easing.
2. According to Nomura Research Institute, the number of container vessels waiting offshore of the Port of Los Angeles-Long Beach has declined from more than 100 in January -- when it was at its highest -- to less than 10.
3. The ship traffic jam at West Coast ports began in late 2020 due to the spread of COVID-19. Port workers, as well as the truck drivers that transport containers inland, were in short supply, greatly reducing the capacity to handle loads. Ships were forced to wait offshore.
4. The backlog worsened from summer last year, when it took about 30 days to ship from Asia to the West Coast, two to three times longer than usual.
5. The longer the voyage takes, the fewer vessels are available, and the world's overall transport capacity is reduced. Traffic jams were also occurring at ports on the U.S. East Coast and in Europe, creating disruptions in maritime logistics that became a major factor in global supply constraints.
6. Rates are also falling. Shipping a container from Shanghai to the West Coast cost $3,959 in the first week of September, down 23% from the previous week. This drop was more than $1,000, the largest since 2009 when such statistics first became available.
7. U.S.-China rates serve as the international benchmark, so prices on other routes are also falling. Shipments from Shanghai to the port of Rotterdam in the Netherlands and elsewhere in Europe have also fallen 45% since the beginning of the year.
8. Measures of global supply chain disruption index are improving as well. The New York Fed's Global Supply Chain Pressure Index has fallen four consecutive months through August and is now at its lowest level since January 2021, just before the supply chain problems became serious.
9. Container shipping is not the only supply chain factor improving. The semiconductor shortage, which had hindered automobile production, has also improved. Four major suppliers, including Japan's Renesas Electronics and Germany's Infineon Technologies, have built up inventories of automotive semiconductors to an average of 3.48 months in the April-June quarter, almost on par with the 2019 average of 3.51 months before COVID-19 hit.
10. Normalcy, however, has not entirely returned. The index is declining, but it is still higher than it was before the pandemic. The same is true for container rates. Although falling, they are still double the pre-pandemic level.
11. The easing of the maritime logjam is also due in part to the decline in housing markets as a result of monetary tightening in the U.S., which has boosted mortgage rates. According to the U.S. Department of Commerce, housing starts in July were down 9.6% on the month. Sales of existing homes compiled by the National Association of Realtors also declined for the sixth consecutive month in July.
12. Container ships are used to transport furniture, appliances and other goods. Furniture and appliances account for about a quarter of the cargo from Asia to the U.S., according to Takuma Matsuda, a professor who specializes in maritime shipping at Takushoku University in Tokyo.
13. Maritime shippers ordered large numbers of new vessels as the market boomed during the pandemic. According to Clarkson Research, an U.K. research company, new orders for container ships in 2021 was 4.2 times higher than the previous year, marking the first time in 14 years that a record has been set.
14. Since those ships will not be completed until 2023 or later, a shipping recession could return if a drop in demand comes just as a large number of vessels enter service.
Source:
https://www.businessinsider.com/personal-finance/global-supply-chain-pressure-index#:~:text=The%20Global%20Supply%20Chain%20Pressure%20Index%20(GSCPI)%20is%20a%20new,times%2C%20prices%2C%20and%20inventory.
https://asia.nikkei.com/Spotlight/Supply-Chain/Global-supply-chains-poised-for-relief-as-ship-congestion-eases
