Is the worst of supply chain disruption over?

As companies, investors and politicians worry about jams at ports, freight costs and the shortage of potato chips, some indicators are beginning to show that the tension in the supply chain global may be declining.

Supply chain problems have dominated the last season of company results, and mentions of these problems among executives have risen 412% from last year, according to a tally of BofA.

In the coming months it will be seen whether supply chain problems herald a toxic stagflation scenario for the world economy or are just a bump on the road to recovery. They will also determine how inflation expectations, monetary policy and corporate profits behave.

Here are some indicators that show that the problems may be subsiding:

1- Ships and ports

Maritime freight costs, according to the Baltic Exchange Dry Index, have fallen by a third in the last month, after reaching their highest value since 2008 in October.

Data from the shipping agent Alibra Shipping shows that six-month contracts for the Atlantic and Pacific routes on large dry cargo ships cost US $ 54,000 and US $ 52,500 per day. For 12-month contracts, the Pacific routes drop to US $ 36,000 and then to US $ 26,000 in two years ahead.

“This could mean that the market does not anticipate that the port congestion situation will be such a big problem next year,” said Alibra’s head of research Rebecca Galanopoulos.

Port congestion has eased at most Chinese ports, but the gigantic Los Angeles / Long Beach container terminal is still 222,000 TEU behind (a twenty-foot equivalent unit), according to RBC analyst Michael Tran.

RBC’s metric on turnaround time for the key U.S. port is at 7.5 days, up from 3.5 days before the coronavirus pandemic, and Tran does not expect normalcy to return until May 2022.

2- Inventories

Purchasing managers say lead times for manufacturers around the world are deteriorating, and the global lead times index fell to 34.8 last month. Any number under 50 shows that deliveries are slow and the October reading was the worst on record.

Jefferies analysts expect the shortage to intensify in late 2021, before demand shifts to services. According to them, this should ensure that bottlenecks in the supply chain begin to clear in the first quarter of 2022, as seasonal demand drops sharply and inventories replenish.

The ratio between orders and inventories of purchasing managers in the euro zone has been declining and some manufacturers are already preparing for the shortage to transform excessively.

“The current level of demand for durable goods is unsustainable,” said Paul Donovan, chief economist at UBS Global Wealth Management, who hopes consumers will stop buying goods to spend more on services.

3- Chips

The prospects for semiconductors are darker. The chip shortage will cut global light vehicle production by 5 million this year, according to IHS Markit estimates, while some automakers warn that the limitations could last much of 2022.

However, Toyota executive Kazunari Kumakura said the worst is over.

Asset manager Capital Group argued that automakers that canceled their orders when the pandemic struck were forced to do so because growing demand for chips from the gaming and cloud computing sectors absorbed available semiconductors.

“Given that it takes about four months to make auto chips, the situation is likely to correct itself by the end of this year,” the asset manager wrote in August.

Malaysian chip vendors expect the market to take two to three years to normalize more broadly, but the industry is also boosting production, with third-quarter sales increasing to $ 145 billion, according to the Semiconductor Industry Association.

4- Wood, paper and metal

China’s slowdown in growth may play against further increases in commodity prices, with Fitch reporting that weak housing markets are “causing iron ore prices to plummet.”

Beijing has also taken steps to control energy prices, after electricity shortages closed many factories and mines. The measures have caused coal futures to decline from their all-time highs and have also affected metal prices.

Similarly, the record rebound in China’s paper pulp market earlier this year sent prices skyrocketing around the world, causing a shortage of packaging materials. But since May, pulp futures traded in Shanghai are down 30%.

US futures for lumber, a key component of home construction, are also 60% below their spring highs.

5- COVID-19

Vaccination rates against COVID-19 are increasing in major manufacturing countries, especially chip suppliers such as Malaysia and Taiwan, making production disruptions less likely.

UBS estimates that vaccination rates in Vietnam, Taiwan and Malaysia should reach 80% by January 2022. Jack Janasiewicz, Natixis portfolio strategist, is optimistic about supply chains, provided COVID-19 is mastered.

“If we cannot keep COVID-19 under control, we are going to end up having the same problems over and over again. They will continue to come in waves, “he said.