Few supply chain solutions

G7 trade chiefs have few options to ease supply chain woes


Trade chiefs from the developed world’s economic powers, have few options to quickly fix supply chain problems that are driving up inflation and slowing growth, a problem that trade experts say is due to market forces beyond their reach.

G7 trade ministers meeting in London may call for greater efforts to eliminate delays at container ports and other transportation bottlenecks, more infrastructure improvements to speed goods to market, and diversification of sources of key components such as semiconductors, including more domestic production.

But these are all long-term solutions. The market forces that created the excess demand for goods may already be well on their way to correcting the problem.

“These officials have very few arrows in their quiver to address this problem,” said Harry Broadman, managing director of Berkley Research Group and a former U.S. trade official. “Ultimately, this is driven by consumer demand.”

With demand and supply out of sync and logistics struggling to catch up, it could take up to six months for shortages of many goods to ease, he said, and much of the change would be brought about by market forces and private-sector companies filling the gap.

U.S. President Joe Biden last week announced new 24-hour port operations in Los Angeles and called on private-sector logistics companies to “step up” along with major retailers such as Target and Wal-Mart to speed goods onto shelves in time for the holiday season.

U.S. Republican lawmakers, seizing on bottlenecks for political gain, urged Biden in a letter to “address the global supply chain and port crisis before Congress considers any additional social spending and tax legislation.”

But addressing some of the most critical supply chain needs will take time, said William Reinsch, a trade expert at the Center for Strategic and International Studies and former Commerce Department export official.

Adding domestic production capacity for more semiconductors to reduce dependence on a handful of Asian countries will take years, and improving port infrastructure to increase efficiency and throughput is also a long-term effort, he said.

International Monetary Fund European Department Director Alfred Kammer said policymakers can take steps to try to alleviate transportation bottlenecks, but strengthening supply chains will require investments in infrastructure and diversifying sources of key components. He said the current inflationary effects from supply chain disruptions and energy shortages should disappear in Europe next year.

“It’s going to be a very complex issue. The market will take care of part of it, but government policy can also support the adjustment, especially on the infrastructure side.”


Much of the current problem is a mismatch between strong pent-up demand for goods fueled by coronavirus relief checks and savings accumulated during pandemic shutdowns, and supplies constrained by production shutdowns, dwindling inventories and worker shortages.

U.S. Treasury Secretary Janet Yellen described the phenomenon as a “very, very unusual shock” that displaced spending on services such as travel, lodging and restaurants.

“Instead, we’ve been gobbling up goods and commodities like we’ve never seen before,” Yellen told MSNBC in an interview aired Wednesday.

British Finance Minister Rishi Sunak last week called on G7 governments to work together to address supply chain disruptions.

But the consumer boom that has boosted U.S. consumer spending on durable goods 25% above trend this year won’t last and will likely be replaced by lower-than-normal demand in 2022, UBS chief economist Paul Donovan said in a note to clients.


Equity analysts at Jefferies said the supply chain crisis may have already peaked with the passing of a mid-October shipping deadline for holiday goods, freeing up capacity for “baseline” shipping of machinery, automotive goods and home furnishings.

“There are signs that we are past the peak pinch and Jefferies’ analysts expect to see significant improvement by the second half” of 2022, the firm said in a research report.

Data from Tradeshift, a digital platform that facilitates and processes business-to-business trade transactions, indicates that an equalization of demand and supply is already underway.

The group’s index of third quarter order volumes fell by 24 points from the second quarter to 85, well below the 100-point score that is equal to pre-pandemic trend forecasts.

“Buyers are starting to question the wisdom of putting fresh orders into a system that is buckling under an enormous backlog,” Tradeshift CEO Christian Lanng said in a statement. “The longer this situation continues, the more likely we’ll see a more prolonged reversal heading into 2022.”

Source Reuters

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