With supply-chain problems greatly eased, consumers enjoy relief, at least for now

The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since summer.

SHARE With supply-chain problems greatly eased, consumers enjoy relief, at least for now
The container ship Ever Libra (TW) moored at the Port of Los Angeles.

The container ship Ever Libra (TW) moored at the Port of Los Angeles. The supply backlogs of the past two years — and the delays, shortages and outrageous prices they brought with them — have improved dramatically since summer.

Damian Dovarganes / AP

Last January, 109 container ships waited off the California coast to unload cargo in Los Angeles and Long Beach. Consumers, stuck at home amid the COVID-19 pandemic, had unleashed an avalanche of orders for goods so large that it had overwhelmed factories and, as a result, the two ports, which are the nation’s largest.

Importers were paying $20,000 to send a single container from China to the United States — sometimes more than the goods inside were worth. Businesses had to backorder everything from bedroom furniture to kitchen fryers — if they could get them at all.

These days? No freighters are lingering off the Southern California coast. Containers from China go for just $2,000. Restaurants can order fryers and have them delivered in a couple of weeks.

The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since summer. The web of factories, railroads, ports, warehouses and freight yards that link goods to customers have nearly regained their pre-pandemic levels.

“We are in a very different place than we were,” said Phil Levy, chief economist for the supply chain consultancy Flexport. “If you ask, how long does it take to move stuff, there has been notable improvement. If you measure it by how long would it take to get a cargo from Asia to a destination port, dramatically better.”

The easing of supply bottlenecks has begun to provide some relief from the inflation that reached a four-decade peak this year, pummeling consumers and businesses.

The progress has been modest and so far short-lived. Yet it’s still provided a glimmer of good news in the holiday shopping season: Gift items are much likelier to be in stock, perhaps even at lower prices. The government’s latest inflation report showed prices of toys, jewelry and girls’ apparel all fell in October.

“Overall, the shelves are full,” said Zvi Schreiber, chief executive officer of Freightos Group, a digital platform that books international shipping. “We’re not seeing significant shortages of items.”

“Supply chains are really not the problem anymore,” said Timothy Fiore, who leads the Institute for Supply Management’s manufacturing survey and is chief procurement officer for the transportation firm Ryder System. “We’ve had four or five months of supplies looking better. Prices have dropped, too.’’

The main factor behind the improvement has been lessened demand for manufactured goods. Spending on these has fallen for three straight quarters, according to the Commerce Department.

Why? Higher borrowing rates, engineered by the Federal Reserve to try to tame inflation, have reduced Americans’ willingness to buy more things. And inflation has sapped their spending power.

Also, having splurged on everything from lawn furniture and sporting goods to appliances and electronic gear during COVID shutdowns, consumers increasingly have shown a desire to venture out and spend on experiences rather than goods. Demand has shifted toward services — restaurant dinners and plane tickets, hotel rooms and entertainment. As orders for manufactured goods have slowed, so have the price pressures surrounding them.

At the sprawling Southern California ports, the shipping backup has eased — in part because companies have sent cargo to Gulf Coast and Atlantic ports to avoid delays. Port Houston’s cargo volume is up 18% from this time last year.

An index that measures demand for freight shipments had hit a high of 115 earlier this year. Now, it’s below the five-year average of 53.

“We’re returning to the mean and the trend lines that existed pre-COVID,” said Chris Adderton, senior vice president for the Council of Supply Chain Management Professionals.

In addition to the reduced demand that has lightened the strain on supply chains, ports have become more efficient. Additional ships have increased the transportation options.

And, in some industries, new producers stepped in once established manufacturers became overwhelmed. The enhanced competition reduced shortages and helped moderate prices.

In the market for kitchen equipment, for instance, “New manufacturers were able to break into the business — unheard-of manufacturers,” said Kirby Mallon, president of Elmer Schultz Services in Philadelphia, which maintains kitchen equipment for restaurants and cafeterias.

When inflation began surging last year, economists mostly blamed the snarled supply chains.

Fed Chair Jerome Powell predicted soaring prices would prove “transitory” and would ease once it became easier and cheaper to ship products.

Things didn’t prove to be that simple — especially after Russia invaded Ukraine in February, disrupting trade in energy and grains and sending oil, gas and food prices soaring worldwide.

Other problems remain, too. A chronic shortage of computer chips, for example, will likely hamper automobile production into 2024, Kristin Dziczek, an auto policy adviser at the Federal Reserve Bank of Chicago, wrote in a recent paper. Though the shortage has eased slightly, factories remain slowed by a lack of the computer chips that are now ubiquitous in cars.

The average price of a new vehicle is still near a record high, nearly $46,000, and isn’t expected to fall much, if at all, anytime soon. Used-vehicle prices, by contrast, have dropped since late summer. Analysts expect them to fall further, though not to pre-pandemic lows

Automakers are still struggling to acquire enough chips, largely because the number of semiconductors required per vehicle has multiplied. That’s a consequence of more sophisticated auto equipment, from automated safety systems and Internet connections to infotainment, according to Dziczek.

And computer chips used for vehicles are harder to manufacture than chips for consumer electronics because they have to be built to withstand heat, cold and vibration.

The coronavirus lockdowns in China, along with the scattered public protests against them, could still disrupt global production and shipping. Potential problem spots exist in such key cities as Beijing, Chengdu, Nanjing and Shanghai.

“Parts from these regions make their way into just about every product our lives rely on day to day,” said Bindiya Vakil, chief executive officer of Resilinc.

Inflation has eased from the dizzy heights it reached earlier this year. As measured by the Labor Department, consumer prices rose 7.7% in October from 12 months earlier. Though painfully high, that was the lowest year-over-year inflation since January and well below the recent peak of 9.1% in June.

The Fed wants to see annual inflation at 2%.

Levy cautions that inflation has spread from goods, which the Fed can partly control through its influence over loan rates, to services, which are more resistant to borrowing rates.

There’s also the risk that Americans expect future high inflation, as a result,might spend more now to avoid what they expect will be higher prices later and demand bigger wage gains to compensate for a higher cost of living. All of that tends to fuel inflation.

For now, though, businesses face a new problem, a consequence of reduced demand for goods: Rather than lacking enough products in stock to give customers what they want, they often have too many. For instance, Target ordered too much too fast and had to cut prices.

“Is this a good time for buyers?” Fiore said. “Absolutely. Is it a good time for companies overall? Not so clear.’’

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