Supply chain snarls loosen for U.S. companies, but plenty of problems remain (updated)

Graco

13/10/2022 18:33

By Timothy Aeppel
       Oct 13 (Reuters) - John Ehresmann loves that the cost of
shipping an ocean container from Asia to a U.S. port or buying a
load of lumber has fallen back to earth.
    If only that were true for everything he buys - but it’s
not.
    Some parts of his supply chain have clearly improved, said
the vice president of global supply for Graco Inc  GGG.N , the
Minneapolis-based maker of fluid handling equipment such as
paint sprayers. But the complex nature of global supply chains
means that companies like Graco are still struggling, since the
shortage of just one part can hobble them.
    "Not having that one micro-controller can still stop you in
your path," said Ehresmann, referring to an electronic part
common in many of the company's products that remains scarce.
    The COVID-19 pandemic set off a crisis in global supply
chains, which is showing signs of healing. The cost of shipping
a container from Asia to the U.S. West Coast just clicked below
$2,500, after peaking late last year at over $10,000, according
to booking platform Freightos Group, and big backups at U.S.
ports have dwindled. Lumber prices are the lowest they have been
in over two years, while the cost of steel and aluminum have
moderated.
        Getting supplies of everything flowing more freely again
is key for the U.S. Federal Reserve, which hopes that will help
pull down inflation.
  
    For now, inflation remains uncomfortably high. On Wednesday,
the Labor Department reported that the Producer Price Index - a
gauge of what suppliers charge other businesses - rose more than
expected in September. This suggests falling prices for some
goods and services are still far from working their way fully
through the economy.
        The 
    PPI for final demand
     rose 8.5% in September from a year ago, though that's a
notch down from the 8.7% annual increase in August and was the
smallest annual increase since July 2021.     
  
    Lower producer prices are needed before consumers can expect
much inflation relief. A closely watched report on consumer
prices released Thursday showed that slowing demand and
loosening supply chains were starting to filter through into
lower prices for some things. Apparel prices fell 0.3% and
prices for used cars and trucks declined for the third straight
month, according to the Labor Department's report on the
consumer price index.
        The upshot is that core goods prices were
unchanged--mirroring a similar reading in the producer price
report.
  
    SHIFTING DEMAND
    Another gauge of supply chain health - an index compiled by
the New York Federal Reserve - showed stress in the global
system eased in September to the lowest level since December
2020. The regional bank’s Global Supply Pressure Index tracks
data on shipping costs, delivery times, backlogs and other
statistics into a single measure compared to historic norms. The
September report marked the fifth straight month of declines in
the index.
    "If you talk to an average company, there's a lot less
concern about shortages now than there was six months ago - but
it's not zero," said Daniel Swan, a supply chain expert with
consulting firm McKinsey & Co.
    This marks a major change from when companies couldn’t fill
orders because they couldn’t find components to build goods or
the trucks to transport them. The challenge now, said Swan, is
that it’s unclear what will happen with demand. "Many producers
can get all or most of what they need," he said. "But the demand
outlook is less clear."
    This uncertainty is also creating headaches for companies
that now find themselves holding too much inventory — the
opposite problem they faced not long ago, when consumers stuck
at home during the pandemic were spending heavily on goods like
furniture and appliances.
    Arnold Kamler, chief executive of bicycle manufacturer Kent
International in Fairfield, New Jersey, said that the price of
many of the commodities he needs - like steel, aluminum, and
plastic - are coming down. And that should eventually help him.
But right now, his two U.S. warehouses are full, and he’s cut
back on ordering more goods from the Far East, so he’s not able
to benefit as much from lower shipping costs either.
    "The good news for me is that bicycles aren’t strawberries -
they don’t go bad," he said.
    Back at Graco, Ehresmann said he can now more easily get
plastic resins that were in short supply during the darkest days
of the pandemic. But some of the chemicals he needs to add to
the resins to produce finished plastic are still scarce.
    And he has yet to see big overall savings. The price of many
items, including carbon steel and aluminum, are down -  but
those decreases are offset by increases in labor and, until
recently, fuel costs. 
    "The inflation flywheel," he said, "just keeps spinning."
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Global supply chain strains have eased    https://tmsnrt.rs/3c8d2uv
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 (Reporting by Timothy Aeppel; Editing by Dan Burns and Andrea
Ricci)
 ((Tim.Aeppel@thomsonreuters.com;))