Supply Chain Issues Expected to Ease per New Global Pressure Index
The Federal Reserve Bank of New York recently developed a new gauge of global supply chain disruptions. The report shows that supply chain pressures are the highest they’ve been since 1997, according to Bloomberg, but the index also shows that said economic pressures may peak — at least temporarily — in 2022.
The new model, called the Global Supply Chain Pressure Index, takes into account 27 variables that relate to international supply chain influences — given that today’s supply chains are based on global factors — including international transport costs and nation-specific supply chain challenges, obstacles, and processes.
The index uses “zero” to indicate an average value. Positive numbers would therefor show deviations that are above the average. The new gauge shows spikes during historic financial and international crises, including the Great Recession of 2008 and the U.S.-China trade dispute that began in 2017. However, the index also revealed that those blips “pale in comparison to what has been observed since the COVID-19 pandemic began,” per Bloomberg.
Notably, as the index approaches its peak, experts say supply chain delays “might start to moderate somewhat going forward.”
The index considers data related to:
- Costs of shipping raw materials (such as coal and steel).
- Worldwide prices for container ship charters.
- Changes in air-freight rates to and from the U.S. (based on the U.S. Bureau of Labor Statistics).
- New orders, product inventory, delivery times and backlogs.
In spite of projections that the supply chain may begin to normalize as pandemic-related factors diminish, experts are citing other pressures which will continue to affect the global supply chain.
Climate change and extreme weather events, including typhoons, hurricanes and tornados, are poised to present ongoing challenges. Jason Jay of the MIT Sloan School of Management told Bloomberg: “It’s not the next big supply-chain crisis. It’s the next big supply-chain crises, plural.”
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