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Supply Issues Re-emerge

It has been a few weeks since the Red Sea route became the centre of a conflict and within those weeks Suez Canal's total daily traffic is down by 40% and the container costs have gone up by two times. The conflict continues to drag on and has left exporters in many countries to either delay the shipments or pay that increase in cost.

According to the Global Supply Pressure Index, the levels constraint remains higher, especially from mid of last year. Even the recent PMI flash releases pointed towards an increase in supply issues with a certain level of inflation coming back.

There is a high level of uncertainty that creates an unstable environment to conduct business as usual. Currently, China is having a Lunar new year inventory build-up that is putting more strain on the supply chain: There is some level of container shortage as well due to changes in routes for many ships.

It will be important to monitor the level of conflict and its impact on incoming data for the next few weeks as corporates will be forced to cut back on the quarter estimates by the middle of this quarter.

Any escalation in the prices or related issues that might last for more than a few weeks would start to referent in inflation reversal and might lead to a longer pause or even a rate hike by central banks.


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