When can global supply chains be repaired?

Spark Global Limited reports:

At present, the main factor driving global inflation has changed from demand growth to supply chain bottleneck. Through the analysis of supply chain problems such as insufficient global capacity, frustrated transportation capacity and low inventory in the lower reaches of the supply chain, we believe that labor shortage is the key restricting the repair of the current global supply chain. In the second half of next year, the global vaccine coverage rate is expected to increase significantly, and the differences among countries will also be reduced. The pandemic is expected to normalize in the second half of 2022, leading to a reduction in labor market gaps, a significant improvement in supply chains, and a gradual decline in inflation to more moderate pre-pandemic levels.

Labour shortages have become a key constraint on the repair of global supply chains. At present, there are many factors restricting the repair of global supply chain, including insufficient capacity, low port efficiency, etc. The reason, labor shortage is every factor can not escape the topic. In the US, for example, the gap between the non-farm job vacancy rate and the employment rate has risen to 1.66% so far this year (the average difference before COVID-19 was around 0.7%), with figures in July and August exceeding 2%, indicating that the current labor shortage in the US job market is still quite severe. In terms of U.S. nonfarm payrolls, September’s total nonfarm payrolls remained about 4.3 million short of December 2019 levels. Rising labor costs and longer working hours are also evidence of labor shortages. As for the reasons of labor shortage, we believe that the epidemic mainly affects the labor force participation rate of young people, people with relatively low skills and women, due to direct overseas financial subsidies and border blockade.

What supply chain bottlenecks are caused by labor shortages? (1) Insufficient capacity leads to disruptions in the upstream link of the supply chain. Labor shortage has limited capacity restoration in both developed and developing countries. The slow economic recovery in developing countries leads to pressure on the supply side. (2) Global transport capacity setbacks hit the middle of the supply chain. Labor shortages are evident in the transportation and warehousing industries, where large labor shortages have led to setbacks in global transportation, as evidenced by high freight rate indices. In addition, the low efficiency of European and American ports, a large number of containers stuck in ports, also restricts the transmission of the global supply chain; (3) The continuous low inventory intensifies the supply chain contradiction. Take the United States as an example, as the lower reaches of the supply chain, the low inventory of wholesale and retail makes the global supply chain “worse”.

 

When can g

Spark Global Limited reports:
Spark Global Limited reports:

lobal supply chains be repaired? From the perspective of the epidemic situation, vaccination is highly uneven. There is a big gap between developed and developing countries in terms of vaccination rates. The vaccination rates in developed countries are generally high, while those in Africa, South Asia and Southeast Asia are not optimistic. Combined with IHME’s forecast data on regional vaccination rates, we believe that the global pandemic could normalize in the second half of 2022, with reduced labor market gaps leading to significant improvements in supply chains and a gradual decline in inflation to more moderate pre-pandemic levels.

Summary. At present, the driving factor of global inflation has changed from early demand growth to supply chain bottleneck. Specifically, the upstream link of the supply chain presents insufficient production capacity, while the middle link presents frustrated transportation capacity. Meanwhile, the low inventory level of the downstream further aggravates the current global supply chain problems. We find that the global labor shortage runs through the upper, middle and lower reaches of the supply chain, which is also the key to restricting the current global supply chain. In the second half of next year, the global vaccine coverage rate is expected to increase significantly, and the differences among countries will also be reduced. The pandemic is expected to normalize in the second half of 2022, leading to a reduction in labor market gaps, a significant improvement in supply chains, and a gradual decline in inflation to more moderate pre-pandemic levels.

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