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New Studies Find Unprecedented Impact from Supply-Chain Turmoil

International shipping costs have swung far more sharply during the pandemic and amid recent supply-chain disruptions than in the wake of the financial crisis over a decade ago, according to a report by the Federal Reserve Bank of St. Louis.

The St. Louis Fed’s analysis seeks to measure the impact the turmoil of the past two years has had on an increasingly critical piece of the global economy.

Prices for moving goods by ocean from China to the U.S. West Coast swung more than 72 percentage points from an early-pandemic low to a peak in 2021’s third quarter of more than 50% above the long-term trend for container shipping rates, researchers at the regional Fed bank wrote in the report released this week.

That compares with a 41 percentage-point swing in the aftermath of the recession triggered by the 2007-2008 financial crisis, when shipping prices peaked in 2010 at just over 14% above the long-term trend, according to the report, which used import data from the Commerce Department’s Bureau of Economic Analysis and an index of freight rates from a shipping service provider.

The St. Louis Fed analysis said supply and demand forces have driven just over half of the increase in rates since mid-2020, a period that has seen shipping demand surge as retailers have rushed to restock inventories that had been depleted during the pandemic. The report attributed the rest to disruptions in shipping operations that have been roiled by issues such as port congestion.

“In the Great Recession, somehow prices didn’t respond so much,” said St. Louis Fed Bank economist Fernando Leibovici, who co-wrote the report with research associate Jason Dunn. During the pandemic, he said, “there’s definitely a role being played by supply factors.”

The report is one of the latest in a series of attempts by economic policy makers to assess the impact of supply-chain strains after nearly two years of turbulence during the pandemic, as issues ranging from commodities costs and the availability of raw materials to transportation costs have affected the global economy.

Economists at the Federal Reserve Bank of New York, writing on the bank’s Liberty Street Economics blog this week, have developed a Global Supply Chain Pressure Index pulling together a range of measures “to provide a more comprehensive summary of potential disruptions affecting global supply chains.”How Companies Are Overhauling Supply Chains to Ease Bottlenecks

Their measure, using data going back to 1997, showed supply-chain pressures swinging dramatically during the pandemic far outside the long-term trend lines and reaching a new high in October 2021. A slip back from that high the following month “seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward,” the New York Fed economists wrote.

Various shipping-sector measures show maritime prices climbed over the past year to record highs. The global price of shipping a 40-foot container rose from around $1,400 at the start of the pandemic to over $11,000 in September, according to an index from shipping technology firm Freightos.

Chris Rogers, principal supply-chain economist at freight forwarder Flexport Inc., said the St. Louis Fed research shows “we’re firmly in uncharted territory in terms of how far rates have gone up.”

He said the major driver of rising rates remains the strong consumer demand for goods that is swamping transportation networks. “If it was just a port closure here or there, or just some shortage of trucking here or there, you wouldn’t have seen anything near the kinds of challenges or elevation in rates that we’ve actually seen,” Mr. Rogers said.

 

SOURCE-https://www.wsj.com/articles/new-studies-find-unprecedented-impact-from-supply-chain-turmoil-11641587220

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