By Jeffry Bartash
Companies face new delays in obtaining supplies
The Federal Reserve's fight to restore low U.S. inflation could face another temporary hurdle: ongoing difficulties for businesses in obtaining supplies.
While supply shortages have decreased considerably in recent years, they have not completely disappeared. More recently, disruptions in the Suez and Panama canals โ two major conduits of global trade โ have added to the problem.
The result: the cost of container ships has risen again and companies are finding it harder to get space.
"The container shortage has increased costs and slowed the supply chain," a senior executive at a management company told the Institute for Supply Management in April.
A major global supply shortage played a key role - perhaps the most important - as US inflation soared in 2022 to a 40-year high of 9.1%. Companies were unable to obtain enough supplies to produce all of their goods and services, prompting them to raise prices.
The situation now is not so bad. About 80% to 90% of companies were suffering from acute shortages a few years ago, compared to less than half now.
Still, the New York Fed found some worrying signs.
About a third of service businesses and half of manufacturers surveyed in the state said they experienced "at least some difficulty getting the supplies they needed over the past month."
"These indices indicate that supply availability has been improving overall since early 2023, but in recent months, the improvement has stalled," the New York Fed said. "This trend is worrying."
The latest supply constraints have pushed some companies to raise prices or reduce production, the Federal Reserve said, although not as much as a few years ago, when bottlenecks were much worse.
There doesn't seem to be much relief along the way either.
The shipping problems in the Suez Canal are linked to attacks on cargo ships in the Red Sea by Houthi insurgents in Yemen. Those attacks continue to occur, forcing ships to travel around Africa and take a longer, more expensive route.
The busy summer season is quickly approaching, adding even more stress to shippers.
The Suez Canal is not the only problem spot.
There has been a reduction in the number of ships passing through the Panama Canal due to low water levels. The destruction of the Key Bridge in Baltimore after it was hit by a freighter hasn't helped.
Water levels appear to be returning to normal in Panama, and Baltimore finally ejected the ship that destroyed the Key Bridge. Its removal will allow the full reopening of Baltimore's busy port.
Executives surveyed by ISM said they were monitoring the situation in the Red Sea, Panama and Baltimore.
Ironically, shipping executives had been preparing for a sharp drop in cargo prices because many new ships will soon join the global fleet.
So relief is on the way, but not for a while.
-Jeffry Bartash
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05-20-24 1312ET
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