Meanwhile, the supply is mostly in Asia, where many countries – first and foremost China – still face lockdowns and a difficult recovery from the pandemic. This created tensions between global trade channels, manufacturing centers and logistics networks. How businesses and policymakers overcome these challenges that now weigh on growth will be critical. Bloomberg columnists Brooke Sutherland, Daniel Moss and David Fickling joined Bloomberg Economics’ Tom Orlik to discuss the pressure points and factors at play, the reaction of industrial companies and what consumers need to be prepared for. Here are edited highlights from their conversation, moderated by Bloomberg Opinion’s Anjani Trivedi.
Trivedi: All the demand is in the United States, and a lot of the supply comes from Asia. What have you seen with shipping and logistics on the trade front?
Inconstant: If you look at trade volumes, the trend growth in global trade volumes – which tends to increase at a fairly constant rate – essentially came to a halt in 2018 with Trump’s trade wars. Before the great macroeconomic upheaval of the Covid, there was this macroeconomic upheaval of a kind of rather unprecedented stock in the growth of the volume of trade. There is yet another cycle, these very long cycles of overcapacity and undercapacity that we see in the shipping container industry.
At this point, the global container transport fleet is the oldest since 2008. So they’re really not being sustained even without what’s happening with the Covid rebound. With the shift from services to goods in consumer spending, we still don’t really have a suitable marine fleet or shipping infrastructure for use. The trade slowdown in Trump’s trade wars has covered this to some extent. Now we are looking him in the face.
Trivedi: When we think of the pricing power for American manufacturers, what do we really see in the numbers?
Sutherland: In general, the profit margins were good, and I think a lot of it came down to the pricing power. We just saw some really incredible pricing power from these industrial companies. They have also become very creative in terms of re-routing cargo to less congested ports. One trend that has just started over the past couple of weeks is that we have seen a number of US companies take steps to further integrate their supply chains internally by integrating vertically. One of them that I found really interesting is that American Eagle has acquired two logistics companies, which is very unusual for such a specialty retailer in the United States to buy companies from logistics. But they wanted more control over their operations so they could offer affordable same-day and next-day delivery and compete with Amazon and Walmart, which obviously have much larger logistics operations.
Trivedi: What’s going on on the supply side in China?
Orlik: What is happening in China right now is really interesting. There are a few factors of work, which contribute to the slowdown in growth in China, but also tensions on world supply. The first is China’s zero Covid strategy. There aren’t many cases of Covid in China, but even when there are one or two in a city, that city is on lockdown. Because China is the largest source of global manufactured goods, this can impact the global economy. When you have energy shortages, it makes it harder for the industry to function, which also contributes to supply tensions.
Mousse: This supply chain story is as much of an issue in Asia as it is in Western Europe or the United States, with a few caveats. First, the prices of many things are largely controlled by government policy in important parts of Asia. If you are a country like Singapore, even if you are big in logistics, you are big in freight, you are big in port, you are big in transit … In lockdown, these things don’t necessarily work for you. If we can’t get our things back, what are we going to do? This opens up a whole host of existential issues – not just on TVs, refrigerators, and personal computers, but on things as basic as food. Was there a discussion here at the New Economic Forum about how we make sure the vaccine supply chain – absolutely essential to everything – is kept running?
Orlik: The big takeaway is that supply shortages are really at a historically high level. We haven’t seen so much pressure on the supply chain in 10 years – in 20 years in some countries. The second point to remember, and it’s really just kind of a very tentative sign at this point, at least in the US, our gauge shows that supply chain tensions may have peaked. . The peak happened a few months ago. Supply flows are still historically high, but they are not as high as they were at the end of the third quarter.
Trivedi: How does energy play a role in the functioning of supply chains?
Inconstant: All of the ships that ply the seas are all fueled by fuel oil, but this is surprisingly not the biggest factor in the cost of transportation. The place where it really matters is in China itself. For all the major commodities – aluminum, copper, steel, all those industrial qualities that are the very basis of these supply chains – China manufactures roughly 50%. They are very energy intensive. In fact, they are so energy intensive that the Chinese government has made some pretty serious efforts to crack down on these industries. They want to reduce production and above all reduce emissions because of their own goals.
Sutherland: Even though the United States has reopened and been further ahead than some other parts of the world, you can fly today. You can go to the movies and people spend on those things. Bank of America is releasing some very interesting credit card data, and it showed airline spending turned positive on a two-year basis for the first time this year in the past two weeks. Entertainment spending is up about 4% from pre-pandemic levels, and yet we still see insane spending on goods. Furniture spending is still up nearly 35% on a two-year basis, home improvement store spending is up nearly 50%. It’s interesting that even though we’ve seen this reopening trend, the American consumer is still very willing to spend on goods, and this contributes to some of the supply chain challenges we’ve seen.
Trivedi: We’re starting to see corporate spending on solutions increasing. Are there other concrete solutions we need to think about?
Orlik: What do we need to have more resilient supply chains? Lots of capital investments to diversify sources of supply and strengthen logistics. You need a huge amount of management bandwidth at the enterprise level, leadership bandwidth at the government level to think through these issues, and boots on the ground to start making things happen on the ground. projects.
Trivedi: Should we be ordering Christmas presents right now?
Sutherland: If there is an item that you really want or your kids really want, you should definitely order it ASAP. Part of this is definitely in the retailer’s best interests to get you to buy really quickly. It helps them manage their supply chains. It helps them not to give you a ton of deals this holiday season. If there is one thing you really must have, you definitely should have bought it yesterday. But in general, you will probably be able to find your Christmas presents.