Supply chain bottlenecks eased in March, but it won’t be for long. Widespread lockdowns in China and prolonged geopolitical conflict in Ukraine will most likely assure another round of supply chain snarls ahead.
Our RSM US Supply Chain Index rose 4.5% to 2.76 standard deviation below neutral. The slight improvement came largely from higher inventory levels and domestic industrial capacity utilization, offsetting inflation pressures and increasing freight traffic on the month.
Looking ahead, the COVID-19 lockdown in China will slow down improvement in inventories produced overseas, while inflation pressures on input costs will remain stickier than expected.
The bright spot, though, might come from continuing increases in domestic production that have become more important to fill the void left by global supply chain disruptions.
Still, the index remained historically low despite posting the best result since February 2021. What had been expected to be global supply chain normalization this year will most likely be pushed back until next year.
But normalization won’t look the same for global supply chain linkages. With what has transpired in Eastern Europe and China, companies have been planning to redirect and diversify their input sources, which includes reshoring.
Reliance on a few countries for important input and raw materials has proven to be detrimental to businesses during the pandemic.
Building new factories and setting up new supply chain infrastructure will take time to come online. But trading off short-term efficiency for long-term sustainability is a necessary step for the global economy to become more resilient.
