March 2022 / Vol. 27 No. 3
By Fred Ashton, Senior Economist, NEMA
Supply chain disruptions have remained a central feature of the global economy since the onset of the Covid-19 pandemic. More than two years after the first recorded case of Covid-19, China’s zero-covid policy continues to cause widespread lockdowns of manufacturing facilities and shipping hubs. Backlogs at ports in the United States persist amid a dearth of ground transportation and related services. At the same time, the collapse of passenger air travel, which carries nearly half of inbound air freight, exacerbated supply chain dysfunction. Domestic manufacturers are left reeling for input materials and supplies with each additional blow to the supply chain.
To help measure the stress on the supply chain, the Federal Reserve Bank of New York recently developed the Global Supply Chain Pressure Index (GSCPI). The index, featured in the nearby graph, aggregates several commonly used supply chain metrics to “provide a more comprehensive summary.” The resulting index is normalized such that a value of zero indicates the index is at its average with a positive value representing the number of standard deviations the index is above this average value.
The initial spike in the GSCPI came in February 2020 as China imposed strict lockdowns measures. The jump in the index accelerated in the following months as other countries imposed their own set of economic restrictions. After leveling off throughout the spring, the index fell back somewhat in the summer months as lockdown measures eased and global production resumed, but the respite was short-lived. As Covid cases surged again in November 2020, countries retightened their restrictions, causing a second spike in the GSCPI. The index continued to climb throughout 2021, peaking in October due to the bullwhip impact of unleashed pent-up demand following the vaccine rollout. The two most recent readings in November and December 2021 ebbed modestly from the record, giving hope that the worst of the supply chain crunch might be in the rear-view mirror.
The cost of air transportation of freight into the United States is a component of the GSCPI. The accompanying graph shows that the overall air freight price index inbound from Europe and Asia soared nearly 67 percent between February 2020 and December 2021. The price index of air freight inbound from Asia rose 82 percent over that same period, and the increase from Europe jumped more than 52 percent.
Early in 2022, with earnings season underway, companies continued highlighting problems in their supply chains. Increased freight costs, labor shortages, and port congestion have become commonplace concerns in earnings calls. While companies are adjusting, these problems are unlikely to subside in the near term and could stretch into the second half of 2022 before meaningful progress is made. ei