3/21/2023 0 Comments Supply chain issues![]() ![]() Every car in existence is a tribute to process planning, organisation, production engineering and manufacturing logistics. Indeed, it is no mean feat to put all those parts together in the right order. That is a lot of material to bring together and provide integrity for the final product. For a period of several months, Americans paid much higher gasoline prices than they had over the prior two years.A typical motor vehicle can contain anything between 15,000 and 25,000 component parts – depending on how they are measured and the design engineering of its major systems. ![]() The price of a barrel of crude oil topped out at $123.70 in March 2022. Similar trends occurred in the energy sector. 2 However, if supply should again become a challenge, it could impact construction prices in 2023. Publicly traded lumber futures contracts, which topped out at more than $1,500/thousand board feet in May 2021, and were as high as $1,400/thousand board feet in February 2022, dropped to $373.70/thousand board feet by the end of 2022. 1 As supplies improved, prices came down. Since that time, according to surveys of contractors in the construction trades, availability of some products, including lumber, showed substantial improvement. That drove prices of lumber and other materials dramatically higher. For example, in the spring of 2021, there were significant shortages of building materials, hindering construction of new homes and remodeling projects for existing homeowners. This was evident in broader commodity markets by the end of 2022. Over time, aspects of the supply chain situation improved, and became less of a hinderance to the global economy. While that effort sought to lessen demand, as Hainlin notes the Fed has little control over the supply side, and those issues persisted. In March 2022, the Federal Reserve (Fed) took aggressive steps to cool demand, such as raising short-term interest rates. Accelerating inflation became evident in early 2021 and issues intensified into 2022. Pandemic-related business interruptions limited production, creating a scarcity of desired goods.ĭuring the early stages of this surge, supply chain issues developed. This surge in demand for specific segments of the economy outpaced supplies. Consumers, unable to spend money on services and leisure activities (such as eating out, visits to health clubs and travel) instead directed their discretionary cash toward goods, such as exercise equipment, home improvement projects and new homes to adjust to the ‘work from home’ culture. Household balance sheets improved with the support of these policies. At the same time, emergency government policies provided financial support to consumers and businesses to assist them through the pandemic’s economic challenges. Governments forced many businesses to temporarily close to limit the spread of the virus, except those deemed “essential” services. Supply chain issues first emerged early in the 2020 COVID-19 pandemic. ![]() What role might supply chain issues play going forward and what could it mean for the markets? In addition, transportation challenges mounted, including a backup of shipping traffic in some ports and a shortage of truckers to haul freight over long distances. Some companies had difficulty keeping up with demand, sourcing components needed to manufacture products or finding enough workers to fill production needs. Yet supply chain issues affecting a wider range of products also contributed to the problem. For a time, the war interrupted some shipments of commodities from those countries. Russia is a major energy supplier and both countries are typically major agricultural exporters. The war between Russia and Ukraine exacerbated the challenges. Energy and food products were leading drivers as inflation soared. “Higher inflation reflected a restricted supply of goods at the same time that there was strong demand for many of those same goods,” says Tom Hainlin, national investment strategist at U.S. This represented a shortage of commodities, parts or products that created an imbalance in supply and demand, forcing prices higher. Supply chain shortfalls were a major concern during inflation’s surge that began in early 2021. Find a financial advisor or wealth specialistĪlthough the inflation picture has improved since inflation peaked (growing at a rate of 9.1% for the previous 12-month period) in June 2022, challenges remain. ![]()
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