By Stefano Rebaudo

(Reuters) – As investors, policymakers, and companies fret about port congestion, freight costs, and chip shortages in the wake of global supply chain stress, there are some signs that this may be changing.

The latest earnings season saw supply chain problems dominate, with chief executives talking about them 412% more often than they did last year. According to BofA data,

These snarl ups will determine if they are a sign of an unfavorable scenario for the global economy and if they can be used to help the recovery process. These will impact how inflation expectations, monetary policies and earnings for corporations are interpreted.

These indicators may indicate that there are problems with easing.

1. SHIPS AND POTS

The Baltic Exchange Dry Index tracks cargo shipping costs and has shown a drop of a third over the last month, after reaching their peak in October 2008 when they were at their highest.

Alibra Shipping data shows that Pacific Ocean route contracts cost $54,000 to $52,500 per month for the Atlantic Ocean and Pacific Ocean routes, respectively. This includes capesizes which are the largest dry cargo vessels. Pacific routes fall to $36,000 for 12-month contracts, while $26,000 is available two years ahead.

Alibra’s Rebecca Galanopoulos (head of research) said that this might mean that the market does not anticipate the port congestion situation to be as serious next year.

Although congestion at Chinese ports has decreased, the huge Los Angeles/Long Beach container port has an unfinished backlog of 222,0000 TEUs (20-foot equivalent units), Michael Tran from RBC said.

RBC’s Time to Turnaround for key U.S. ports is now at 7.5 days, compared to 3.5 days prior the coronavirus panademic. Tran does not expect normality will be restored until May 20,22.

(GRAPHIC: Baltic Dry index – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdlavl/Pasted%20image%201635937608713.png)

2. INVENTORIES

Global delivery times have fallen to 34.8, according to purchasing managers. Anything below 50 indicates that deliveries are taking longer, and the October reading is the worst ever recorded.

According to Jefferies analysts (NYSE:), shortages are expected to increase at the end in 2021 as demand shifts toward services. According to them, this should help ensure that supply chain bottlenecks are cleared by the end of 2022 when seasonal demand falls sharply and inventories get rebuilt.

The purchasing mangers orders-to-inventories ratio in the euro zone has been declining and some manufacturers are already bracing for shortages to turn into gluts https://reut.rs/3nVb9D7.

Paul Donovan is chief economist of UBS Global Wealth Management. Donovan stated, “Today’s level durable goods demand has been unsustainably large.” He believes that consumers will switch from buying products to purchasing more services.

(GRAPHIC: global PMI – https://fingfx.thomsonreuters.com/gfx/mkt/byvrjrznqve/global%20PMI.JPG)

3 CHIPS

It is uncertain what the future holds for semiconductors.

Chip shortages will cut global light vehicle production by 5 million this year, IHS Markit estimates, while some carmakers warn that constraints could last through much of 2022 https://reut.rs/3nND2g.

Toyota executive Kazunari Kumakura, however, said the worst was over https://reut.rs/3nMHfRq.

Capital Group, an asset manager, says that carmakers that cancelled orders after the pandemic struck were caught by spiralling demand for semiconductors from cloud computing and gaming sectors.

The asset manager stated in August that it took approximately four months for auto chips to be manufactured. “The situation will likely improve by the end this year,” he said.

While Malaysian chip suppliers predict it will take two to three years for the market to normalise https://reut.rs/2ZKCIqr more broadly, the industry is also boosting production with Q3 sales rising to $145 billion, the Semiconductor Industry Association says.

(GRAPHIC: semiconductorsales – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdkavl/semiconductorsales.JPG)

4. 4/WOOD, PAPER and METAL

China’s slowdown in growth may be a factor in further rises in commodity prices. The Fitch agency noted that weaker property markets could “cause a drop in iron ore price”.

Beijing also took steps to control energy prices following power cuts that shut down large swathes. These steps slashed coal prices and also slashed metal prices.

Similar to the record-breaking paper pulp market rally in China early this year, which sent global prices skyrocketing, leading to shortages of packaging material. However, Shanghai-traded wood pulp options are now down 30% since May.

U.S. futures on lumber are currently 60% below their springtime peak.

(GRAPHIC: supplyshock – https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkwkqpd/supplyshock.JPG)

5./COVID

Key manufacturing countries, particularly chip suppliers like Taiwan and Malaysia, are seeing higher vaccination rates for COVID-19, which makes production disruptions more unlikely.

UBS predicts that the vaccination rate in Vietnam, Taiwan, Malaysia and Malaysia will be 80% by January 2022.

Jack Janasiewicz (portfolio strategist, Natixis) is hopeful about supply chain, so long as COVID-19 has been tamed.

We’ll have the same problems again and again if we don’t manage COVID. He said that they will continue to come in waves.

(GRAPHIC: lumber – https://fingfx.thomsonreuters.com/gfx/mkt/znvnekdjopl/lumbercorrected.JPG)

(GRAPHIC: shippingindex – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexgxmvw/shippingindex.JPG)