Finances

Supply chain pressures: four reasons to be optimistic

The worst effects of the pandemic are beginning to diminish, and analysis from NatWest Markets shows businesses can look forward to some more positive international trade conditions.

14 Feb 2022 . 2 min read

Recent insight from Peiqian Lui, Chief China Economist at NatWest Markets, suggests that the current supply chain crisis is starting to ease. Not only are businesses seeing international trade volumes pick up, but economies are improving, too.

Global trade data provides promise of uplifted activity

Global trade grew 2% month on month in November 2021, following a 1.1% rise in October. It has now returned to its 20-year-old long-term trend.

For the UK, exports grew more than 8% month on month in November and imports over 4%, both well above global figures.

Why the pick-up in volumes is good news for business

In 2021, businesses had to deal with surging shipping costs and bottlenecks in supply chains, leading to operational disruption. In the early weeks of 2022, however, four key factors give rise to some much-needed optimism.

1. Costs for container shipping on major trade routes are easing:

In January 2022, global ocean freight rates were 8.6 times higher than their January 2020 levels, which is down from the 10 times multiple seen in September 2021.

2. Prices for dry bulk materials are cooling off:

The Baltic Dry Index, covering more than 20 shipping routes and providing a proxy for global dry bulk shipping stocks, peaked at just over 5,700 points in October 2021. By the start of February 2022, it stood at just under 2,000 points.

3. Ports are witnessing a rise in container throughput:

The volume of containers passing through the world’s top five shipping ports increased in December 2021, with the exception of Ningbo-Zhoushan. Volumes seen at four other key international ports are now well above pre-pandemic levels.

4. Delivery times continue to improve:

Average suppliers’ delivery times began to drop in December 2021, which is a sign that goods and labour shortages may be easing.

While these are encouraging signs, businesses need to bear in mind that the lunar new year, which contributes to factory delays and port closures, will likely weigh on trade.

The risk of new restrictions in response to the spread of the Omicron – or another Covid-19 variant – will persist into 2022 and reinforces why businesses need to prioritise supply chain resilience and agility.

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