Supply Chain Setbacks

Marcus is excited to share an update on the global supply chain from our colleagues at Goldman Sachs Global Investment Research.

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For more than a year, supply chain issues have made buying all kinds of things from toilet paper to furniture harder, but many of us were hopeful that the problems would soon start to ease. After all, ports on the East and West Coast were reporting fewer backlogged ships out in the water waiting to come in. Delivery times had also been getting shorter. 

But then…you might have gotten an email like this recently (Note: this is a real email about a real product):

Dear customer,

Our 2022 shipment of xxxxx has been pushed back into early-mid May due to another Covid variant outbreak at our Asia factory. Our factory is in a city which has completely been shut down by local authorities... 

In normal times a container takes 3 weeks to deliver to our xxxx warehouse. However, despite some softening, there is still a backup of ships at the port of Los Angeles. Our last container took 6 weeks to deliver.

I hope this level of transparency will help in your decision whether to continue to wait for your order to ship, or cancel.

Yikes! More waiting for things we’ve ordered? More empty store shelves? 

According to our colleagues in Global Investment Research, supplier delivery times improved slightly in April but they’re still near record highs. What’s going on?

Global supply chain issues – the quick facts

  1. Mainland China locked down some regions because of their Omicron Covid wave, the most severe they’ve seen since early 2020. Besides the clear local humanitarian impact, this has led to factory shutdowns and trucking delays felt around the globe, especially for computers, electronics and manufacturing components. 
  2. As the humanitarian crisis continues in Ukraine, exports between the West and Russia – including food, energy and metals – have been disrupted, driving up global prices. 
  3. Supply chain problems have also hit European and US car manufacturers. Many are struggling to get enough raw materials and parts to meet the demand for new vehicles. They’re also still suffering from a lingering shortage of semiconductors, which is taking time to solve. Used car prices were down recently but could rebound in the face of new car manufacturers’ problems. 

The impact on prices in the US

Supply chain setbacks have been worse than most experts (and the rest of us) expected. Not only could they delay the arrival of your personal online orders but, on a larger scale, they could drive US inflation numbers up. 

Right now, our colleagues in Research expect core personal consumption inflation (the price change of US consumer purchases, not counting food and energy, which can be more volatile) to fall to 3.9% by the end of 2022, which would be some relief from the 5.2% level in March. But lingering supply chain issues could keep prices rising more steeply and the Federal Reserve recently acknowledged that virus-related shutdowns in China are “likely to exacerbate supply chain disruptions.”

If China’s problems last longer than we expect, if there are further sanctions on Russian exports, or if auto production doesn’t rebound this year, not only could there be less in the stores and on the car lots for us to buy, but we’re also likely to pay more for what’s there. 

So the bottom line for the global supply chain is this: We’re not quite out of the woods yet. Stay tuned. Be patient. And keep a careful eye on inflation and your budget.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.