Key Podcast Highlights

Will There Be More or Less Supply Chain Issues Going Forward?

  • Supply chains are getting back to normal because the freight industry has slowed.
  • The Baltic Dry Index, which is a measure of freight costs through the Baltic Sea, is around it’s normal five-year level. This means freight costs have normalized.
  • Additionally, domestic freight costs have decreased significantly since 2022 and are approaching levels that we saw pre-pandemic.

Transcript

The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

You’re listening to the Small Biz Ahead podcast, brought to you by The Hartford.

Our Sponsor

This podcast is brought to you by The Hartford. When the unexpected strikes, The Hartford strikes back for over 1 million small business customers with property, liability, and workers compensation insurance. Check out The Hartford’s small business insurance at TheHartford.com.

Gene (00:02):

Hey everybody, it’s Gene Marks and welcome to the Hartford’s Small Biz Ahead podcast. Thank you so much for joining me today. This week, let’s talk about the supply chain, right? Are we looking at more or less supply chain problems in the near term or not? So I just wanna share a little bit of data with you if you are running a business that is impacted by supply chain and just some takeaways here. First of all, the bottom line is this, supply chains are getting back to normal because the freight industry has actually slowed. And let me give you some data behind this. For starters, there is a metric called the Baltic Dry Index. The Baltic Dry Index is a measure of freight costs through the Baltic Sea.

Gene (00:49):

It is really a good indication of global shipping rates and what they are. And it has fluctuated a lot, as you can imagine over the past few years, particularly during COVID. But right now, when you look at the numbers and particularly compare it to the past five years, you’ll see that the Baltic Dry Index is around its normal five year level. So things have sort of normalized on freight costs. If you look at domestic freight costs, according to some people that follow it, the monthly index for demand of domestic freight costs, this is trucks cross and rails that has also been decreasing significantly since 2022 and is approaching levels that we saw pre-pandemic. When you look at container ships and fleets, I’m not sure if you know this or not, but ocean carriers as a result of the pandemic have been taking delivery of a record number of new container ships.

Gene (01:44):

New container ship numbers have increased dramatically in just the past few years. The abundant availability on these vessels means that importers are now pulling back on new partnerships that they forge with carriers and freight forwarders during the pandemic field scramble to secure space on these ships. So there’s an excess in capacity on container ships. There are too many ships with additional capacity and that is having a pressure on freight prices as well. There is something called the Net Trucking Authorities Index and again, you can look this up, but the Net Trucking Authorities Index basically measures permits that are being issued for freight transports around the country. And if you look at the Net Trucking Authorities Index over the past few years since, since the beginning of the pandemic, you’ll see that the numbers of permits that are issued have actually been declining. They’ve actually been going down, which basically means there were less participants in the market, less truckers that are applying for the permits needed to ship materials around the country. And because of that, that is also having an impact on supply chain, on freight. A positive one, freight costs are going down because of it.

Gene (02:58):

Also supply chain issues was having less stress. When you look at port traffic around the country, specifically on the West Coast, Los Angeles area ports, that’s L.A. and Long Beach, they handle about 40% of the nation’s container port traffic. Now, imports were up in January, about 21%. Exports were also up about 2%. When you look at the levels of these ports, you will see that they’re pretty much at pre-COVID levels right now at the ports. Now this is in Los Angeles and Long Beach. By the way, this is the same on the East Coast, but one thing just to be aware of is that there’s potential strikes at some of the East Coast and Gulf Coast ports, in September, which could have an impact on freight and supplies and supply chain issues. But right now, levels are pretty much where they were.

Gene (03:49):

And when you talk about root problems around the world, we’ve been reading about and hearing about the problems in the Red Sea and because of the war in Ukraine. Well, for starters, let’s know that Mexico in 2023 has now surpassed China as the United States’ largest trading partner. So a lot of the goods that we’re getting is actually coming from Mexico as well as Canada, not necessarily overseas from China. Now, in the Red Sea, the main materials that are transported through the Red Sea are grain and oil and consumer goods mostly heading to Europe. So there are some European countries that are seeing some impact of some of the violence that’s happening in the Red Sea, but not necessarily in the U.S. Now, the Panama Canal has some of an impact as well.

Gene (04:41):

And there’s been a significant lack of rainfall in the Panama Canal area in the past year. That’s had an effect and reduced the number of vessel transits through the canal. But overall, the roots that ships are taking are still in pretty good shape from a supply chain perspective. Even those ships that have decided not to go through the Red Sea and instead take the longer route around the Cape of Good Hope and in South Africa, they’re taking about nine days longer to transport their goods. So it’s a bit of delay and a bit of a disruption, but it’s not a devastating thing. As a result, inventories across the country are trending back. So when you look at the Logistics Managers Index, which is an index of all U.S. companies index around the country, inventories are down about 19% year over year. Many of the manufacturers and people that keep inventory are trending back to adjust in time, inventory management because it used to be just in case they were overbuying inventory ’cause they were afraid of supply chain issues. But you can see that logistic managers are getting more comfortable with the supply chain situation and they are now ratcheting down their inventories. One other factor…

Gene (05:56):

About inventories is because of high interest rates, it’s become that much more expensive to keep inventories on hand. So that’s also contributed to a decline in the amount of inventories that are on hand. Bottom line is this, though, there is something called the New York Fed’s Monthly Global Supply Chain Pressure Index. It’s an index of 27 monthly indicators. It includes the Baltic Dry Index, which I discussed something called the Harper’s Index of Freight and Shipping, as well as supply chain related components from the Purchasing Managers Index from various manufacturing firms and seven major countries around the world. And when you look at the New York Fed’s monthly Global Supply Chain Pressure Index from 2006 to today, the levels themselves are significantly down. In fact, the index is really down to like the levels before the great recession in 2009. So the New York Fed is basically telling us by all the index that it’s looking at, is that the supply chain issues, all those big issues that we had during COVID have really not only come back under control, but are actually at historically low levels, at least for like the past 10 years.

Gene (07:08):

So the takeaway is this, if your business is driven by the supply chain, if you’re looking to order goods maybe for next fall or next Christmas already, you’re starting to think about that or you’re trying to manage your inventories. Inventory levels are coming down. Most logistics managers are getting back to that sort of just in time inventory tracking. And in addition to that, we’re seeing that the pressures on supply chains, even with some of the problems in the Panama Canal and through the Red Sea, has not contributed to such an issue that it’s having a major disruption in the world’s supply chains. In other words, 2024 our supply chains barring anything really unforeseen should be okay. My name is Gene Marks. You have been listening to the Hartford Small Biz Ahead podcast and I hope this information has been helpful to you. If you need any other advice or tips or help in running your business, please visit us at SmallBizAhead.com. I thank you for listening. I’ll be back next week with some other bit of advice or help to help you run your business. I look forward to that. See you then.

Download Our Free eBooks