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Why Global Supply Chains Have Become So Snarled · Stephanomics

0:06
Speaker 1: Hello, and welcome back to Stephanomics, the podcast that is
0:09
Speaker 1: once again bring the global economy to you with help
0:12
Speaker 1: from a global team of reporters, economists and experts, and
0:16
Speaker 1: me Stephanie Flanders, head of Bloomberg Economics. Now, I don't
0:20
Speaker 1: think you have to be an economist who have noticed
0:22
Speaker 1: that large parts of the economy are out of sync.
0:26
Speaker 1: On the one hand, people are going back to offices again,
0:29
Speaker 1: at least in Europe and the US. We're going to
0:31
Speaker 1: crowded parties again, or the movies. We stopped living eight
0:35
Speaker 1: of our lives online at least for over sixteen But
0:39
Speaker 1: when you go to that restaurant, you might find it's
0:41
Speaker 1: open shorter hours, there's a smaller menu, or you're told
0:45
Speaker 1: that machine part you need is going to take six months.
0:49
Speaker 1: Here in Britain, we're even seeing empty shelves for some
0:52
Speaker 1: goods in the supermarkets. And as I record this, I
0:56
Speaker 1: don't actually know where I'm going to get my next
0:58
Speaker 1: tank of fuel. Our local station in West London hasn't
1:01
Speaker 1: had any for a week. In short demand has come
1:05
Speaker 1: roaring back, but supply has not. What that means for
1:10
Speaker 1: the shape of the global recovery and inflation will probably
1:13
Speaker 1: be talking about a lot in the weeks to come.
1:15
Speaker 1: But first I wanted to get up close and personal
1:18
Speaker 1: with this great supply chain snarl up, get a sense
1:21
Speaker 1: of what it looks like feels like in different parts
1:24
Speaker 1: of the world. So later we have a report from
1:27
Speaker 1: Lizzie Burden in London with angry drivers lining up for
1:30
Speaker 1: petrol in the street where she lives. And a chat
1:33
Speaker 1: about staff shortages with restaurant our and TV star Willie Dagel,
1:37
Speaker 1: and an expert take from a trade economist Chanela remya jam.
1:42
Speaker 1: But to kick things off, here's Bloomberg senior reporter and
1:46
Speaker 1: a current in Hong Kong. What was supposed to be
2:06
Speaker 1: a temporary shortage of goods has morphed into something much bigger,
2:11
Speaker 1: with warnings that supply chain disruption will now last well
2:14
Speaker 1: into next year. That's why I've come back to the
2:17
Speaker 1: waterfront of Hong Kong's Port, one of the world's biggest.
2:21
Speaker 1: Across from me are stacks of containers that will bring
2:24
Speaker 1: goods to every corner of the globe. Since I last
2:28
Speaker 1: visited here in January, costs for shipping containers and raw
2:31
Speaker 1: materials have continued to soar and energy crunch in China
2:35
Speaker 1: is just the latest complication. I caught up with manufacturing
2:39
Speaker 1: and shipping executives to gauge where things go from here.
2:47
Speaker 1: For my first visit, I went to meet Daniel Yip,
2:50
Speaker 1: managing director of gew International Corporation, who makes electronics products
2:55
Speaker 1: like coffee machines, coffee grinders and toasters from major markets
2:59
Speaker 1: in Europe as actually Germany. Shortages of integrated circuits or
3:03
Speaker 1: i C, along with expensive shipping, have hit YIPS operations hard.
3:08
Speaker 1: Even if he can get the integrated circuits and other components,
3:12
Speaker 1: he will pay several times with their ordinary price. Yip
3:15
Speaker 1: explained to me that the cost to make a household
3:18
Speaker 1: coffee machine is up ten percent over pre pandemic times.
3:22
Speaker 1: The single biggest problem that we are facing this year
3:25
Speaker 1: is the shortage of IC. Before you know, we when
3:29
Speaker 1: we buy the I see it, we only need about
3:31
Speaker 1: three months orderly time. Now we are facing from changing
3:36
Speaker 1: from six to nine months of orderly time, you know.
3:39
Speaker 1: And then because the supply of the i C is
3:42
Speaker 1: not very stable, so now we will keep a bit
3:45
Speaker 1: more infantry than normal, you know, So we are keeping
3:48
Speaker 1: free four months of icy you know, of supply you
3:51
Speaker 1: know inside my factory. But it's not just chips that
3:55
Speaker 1: are in short supply. The other area is that all
3:58
Speaker 1: the copper past. You know, as you can agent in
4:00
Speaker 1: a coffee machine in the boiler area, in the in
4:03
Speaker 1: all these accessory and the components area, we use a
4:07
Speaker 1: lot of copper. And the copper price has been up
4:11
Speaker 1: significantly because again you can imagine, you know, most of
4:14
Speaker 1: the copper is coming from South America. The shipping cause
4:17
Speaker 1: and the availability of the shipment has driven the cause
4:20
Speaker 1: up dramatically. The shortage of semiconductors is hurting a range
4:30
Speaker 1: of manufacturers. The work from home Boom is part of
4:34
Speaker 1: that story. So I went along to the launch of
4:37
Speaker 1: new headphones by Sole Nation, a company whose products in
4:40
Speaker 1: the past have been promoted by celebrities such as athletes
4:44
Speaker 1: Usain Bolt and the rapper Ludicrous. Today at our events
4:55
Speaker 1: here today we're launching one of our latest products called
4:59
Speaker 1: the Ocean Series. That's Gary so, chief executive of Sole Nation.
5:04
Speaker 1: The main design concept um behind this series is that
5:09
Speaker 1: they're able to handle calls very well. Um it's got
5:15
Speaker 1: very good microphones inside, so you can actually just take
5:18
Speaker 1: conference calls zoom calls with these headphones. The company is
5:21
Speaker 1: adapting to the supply chain issues by making sure it
5:24
Speaker 1: has enough inventory. We have the play safe. Um. So
5:27
Speaker 1: what what we have to do is we do have
5:29
Speaker 1: to risk by certain long lead time materials such as
5:34
Speaker 1: chip sets and semi conductors, just in case. But we
5:36
Speaker 1: won't necessarily over purchase the entire the product. That that's
5:41
Speaker 1: kind of how we control the cost. Even when products
5:44
Speaker 1: are made, getting them to a shelf near you has
5:47
Speaker 1: become an expensive endeavor. While the cost of shipping containers
5:51
Speaker 1: has soared. The alternative of air freight isn't cheap either.
5:55
Speaker 1: You just get pushed back, right, it's as a domino effect.
5:58
Speaker 1: If they're behind on one shipment, then yours is going
6:02
Speaker 1: to be behind as well. Right. There is only a
6:04
Speaker 1: certain amount of production mines in the in the at
6:06
Speaker 1: the factory. So I would say that this year, um,
6:10
Speaker 1: more so than ever, we have been doing a lot
6:12
Speaker 1: of air freight, which is not ideal. Next, I met
6:23
Speaker 1: Tim Huxley, the chief executive of Mandarin Shipping, who has
6:27
Speaker 1: been in the industry for over forty years. Well, here
6:30
Speaker 1: are on the waterfront at the entrance to Hong Kong
6:32
Speaker 1: Harbor near Green Islands, Lama Channel in front of us,
6:36
Speaker 1: and the Lama Channel is really the access point for
6:39
Speaker 1: all of shipping that comes into Hong Kong. We can
6:42
Speaker 1: see that over to our right, uh, and that is
6:45
Speaker 1: absolutely running flat out at the moment it's running. It's
6:49
Speaker 1: one of the most efficient ports in the world. A
6:52
Speaker 1: lot of cargo comes in here from around the region
6:55
Speaker 1: and then gets unloaded and put on onto bigger ships
6:58
Speaker 1: that then go across the cific. So this is a
7:01
Speaker 1: crucial artery for world trade. Ships waiting to unloaded ports
7:07
Speaker 1: have not gone consequences delaying goods getting to your local
7:11
Speaker 1: shopping center. While Hong Kong has avoided those delays, other
7:15
Speaker 1: ports are log jammed. The cost of moving a container
7:18
Speaker 1: from Asia to the US, I mean a year or
7:21
Speaker 1: so ago, when COVID first struck and there was the
7:25
Speaker 1: economy ground to halt, that cost dropped to about just
7:28
Speaker 1: over two thousand U S dollars. Now it is over
7:31
Speaker 1: twenty tho U S dollars to move that container. Now
7:34
Speaker 1: that's all going to feed through with ultimately inflation to consumers.
7:39
Speaker 1: So that's really where we are. It's not just shipping.
7:42
Speaker 1: It's not just that we've got a shortage of ships.
7:45
Speaker 1: We have that we will probably resolve. I mean there's
7:48
Speaker 1: been a huge raft of new ships ordered. I mean,
7:50
Speaker 1: and you've now got about of the world to container
7:54
Speaker 1: fleet is actually sitting in shipyards being built, but they
7:57
Speaker 1: won't come out until five. In a sign of how
8:01
Speaker 1: far this crunch has to run, chartered chips are now
8:05
Speaker 1: being rented for years at a time. According to Huxley,
8:08
Speaker 1: that there doesn't really seem to be any any prospect
8:12
Speaker 1: of at easing much into first half the next year,
8:16
Speaker 1: which is about as far ahead as I can look.
8:18
Speaker 1: I mean, you've got a sort of peak season Christmas season.
8:21
Speaker 1: We're now well into that, and that has really compounded
8:24
Speaker 1: the problem. But even when that easy is around Chinese
8:27
Speaker 1: New Year time, it doesn't look like there's much chance
8:30
Speaker 1: of there being a surplus of capacity. I think this
8:34
Speaker 1: is with us for quite a while to come. For
8:37
Speaker 1: the final award on this, here's Daniel yep Agan, who
8:40
Speaker 1: hopes for a circuit breaker in the supply crunch. Soon,
8:43
Speaker 1: when you're during a couple of coffee, think about you
8:45
Speaker 1: know what happened to the supply chain in in Asia
8:50
Speaker 1: and the current Bloomberg news. Now I promised to bring
9:04
Speaker 1: you a sense of what this bumpy road to recovery
9:07
Speaker 1: looks like from different parts of the world. So that's
9:10
Speaker 1: why we're heading from Hong Kong to the US now
9:12
Speaker 1: to talk to Willie Davil. You may have seen him
9:15
Speaker 1: on the Food Network. He's the owner of the Uncle
9:17
Speaker 1: Jack Steakhouse chain, which has four restaurants in Georgia and
9:20
Speaker 1: two in New York, as well as being a TV star.
9:24
Speaker 1: Mr Daviel, Uh, Willie, you've asked me to call you.
9:27
Speaker 1: Thanks very much for joining us on stephonomics. But we
9:30
Speaker 1: hear a lot about shortages and supply chain issues. How
9:33
Speaker 1: difficult are you finding it to get the stuff you need?
9:37
Speaker 1: You know, New York and Georgia, great States. We're getting things.
9:42
Speaker 1: A lot of stuff is back ordered, a lot of
9:45
Speaker 1: stuff is out. We're building a new restaurant right now
9:47
Speaker 1: in Lawrenceville. It's a small city in Georgia. Walking boxes,
9:52
Speaker 1: different pieces of equipment, furniture, tables, chairs, you name it.
9:57
Speaker 1: Things have extended lead times. What's you have to adapt?
10:02
Speaker 1: If you thought you were gonna go with this chair
10:04
Speaker 1: and it was a special order, maybe you gotta go
10:07
Speaker 1: with a simple chair that's in the States and it's
10:10
Speaker 1: simplified and it's a bulk style chair. You have to
10:14
Speaker 1: keep adapting. You have to keep adjusting. You can't quit.
10:18
Speaker 1: You gotta do. What you can do is get open
10:20
Speaker 1: and execute. But it's hard. And what about getting people
10:24
Speaker 1: to what about people getting to work in the restaurants.
10:26
Speaker 1: So during COVID, the restaurant industry got really hurt because
10:30
Speaker 1: so many staff members found other jobs. So many kitchen
10:34
Speaker 1: staff members found other type of jobs, whether it be landscaping, construction.
10:40
Speaker 1: A lot of people moved out of the state of
10:42
Speaker 1: New York to find new jobs, new careers. So it
10:46
Speaker 1: was like I call it the life changing moment. Everyone
10:50
Speaker 1: had to look in the mirror. They had to say,
10:52
Speaker 1: what am I doing? This is an opportunity now for
10:55
Speaker 1: me to rethink. So a lot of people think they're
10:58
Speaker 1: gonna be a boss, and they're gonna become entrepreneurs and
11:02
Speaker 1: they're going to go to start their own business. There's
11:05
Speaker 1: nothing wrong with that, but you're gonna go through this process.
11:08
Speaker 1: Then now in September, a lot more people are looking
11:12
Speaker 1: to come back. And then people are coming back and
11:15
Speaker 1: wanting these huge packages like oh my god, I'm worth
11:19
Speaker 1: way more, show me the money, show me how you're
11:23
Speaker 1: gonna set me up thinking they're like NBA players. And
11:27
Speaker 1: are you paying people more? What kind of wage growth
11:30
Speaker 1: of you know, yes, in all in steady positions, in
11:34
Speaker 1: management and chef and salary employees, people across the board
11:39
Speaker 1: got more money in the last two years. In you know,
11:42
Speaker 1: in New York, all the labor rates got increased in
11:45
Speaker 1: the last five years, which it's almost put us out
11:49
Speaker 1: of business. So food prices are up, menu prices are up.
11:54
Speaker 1: What's available, what's not. But to keep the business open
11:58
Speaker 1: when you're or to open this the new restaurant that
12:00
Speaker 1: you're talking about, are you having to you know, is
12:03
Speaker 1: your sort of start starter base pay as a waiter?
12:07
Speaker 1: How much higher is that now than it would have been,
12:10
Speaker 1: say a year ago? So just the COVID effect you no,
12:13
Speaker 1: for where's with tipped employees and my restaurants, the base
12:17
Speaker 1: pay in New York is ten dollars an hour. In
12:20
Speaker 1: Georgia it's almost three dollars an hour, big difference. But
12:24
Speaker 1: if you're really good in Georgia, we give you five
12:26
Speaker 1: hours an hour base and we move you up from there.
12:29
Speaker 1: So yes, all the base past have gone up a
12:32
Speaker 1: little bit, not too much in New York for tipped
12:35
Speaker 1: employees because our restaurants running with a minimal staff and
12:39
Speaker 1: control in the hours, Actually the staff is making more
12:42
Speaker 1: money right now than they ever did before. So every
12:46
Speaker 1: state is a little different, every operation is a little different.
12:54
Speaker 1: And just I guess finally we're all wondering whether these
12:58
Speaker 1: kind of supply chair in issues are going to get better.
13:01
Speaker 1: I mean, if you step back, you know, forget about
13:03
Speaker 1: COVID for a minute, there's just a sort of feeling
13:06
Speaker 1: that we're recovering. We the sort of our social lives
13:09
Speaker 1: are recovering faster than the real economy, you know, and
13:12
Speaker 1: there's this sort of catch up process where the supply
13:15
Speaker 1: everywhere and the container ships and all of that has
13:18
Speaker 1: to kind of catch up with where people are in
13:21
Speaker 1: terms of how much they want to go back out
13:22
Speaker 1: to restaurants and things like that. So I just if
13:25
Speaker 1: we think of it in that kind of economist type
13:27
Speaker 1: way that we've got too much demand and not enough supply,
13:30
Speaker 1: does it feel to you like some of those kinks
13:33
Speaker 1: are getting worked out, that things are getting smoother, or
13:35
Speaker 1: with the fuel prices going up, do you feel like,
13:39
Speaker 1: actually we could be in for quite a difficult winter.
13:42
Speaker 1: You know, I feel it's going to get caught up.
13:45
Speaker 1: We know that all the supply lines and everything got
13:49
Speaker 1: backed up because they didn't have a lot of employees.
13:52
Speaker 1: Trucking went through the roof. I built houses in Anton's
13:55
Speaker 1: are bring up from North Carolina, Georgia, Florida, trees and
14:00
Speaker 1: plants and direct and all of your trucking tripled. Why
14:04
Speaker 1: because they were in such demand. There wasn't that many truckers.
14:08
Speaker 1: So as everyone comes back to the workforce and you
14:12
Speaker 1: have the manpower to regulate, it's it's it's capitalism and
14:16
Speaker 1: it's fine, is right if it's what people are willing
14:20
Speaker 1: to pay. So it will slowly trickle down. The more
14:24
Speaker 1: people come back to work, we will catch up. Will
14:26
Speaker 1: it take time? Yes, you know you've got You've given
14:30
Speaker 1: us such an interesting perspective and quite a lot of
14:33
Speaker 1: economic theories in there, which we're going to be testing
14:35
Speaker 1: out with an economist later in the show. But Willie Dago,
14:38
Speaker 1: thanks very much, so I want to move quickly to
14:48
Speaker 1: our next item. If only for the change of accent.
14:50
Speaker 1: The UK has had its own special cocktail of supply
14:54
Speaker 1: chain snarl ups, made all the more challenging by Brexit.
14:59
Speaker 1: Here's Lizzie Burn outside my window in London. A line
15:07
Speaker 1: of angry drivers is queuing for the gas station a
15:10
Speaker 1: mile away. Across the country, grocery staples are out of stock.
15:16
Speaker 1: Charities are warning that a million households will have to
15:19
Speaker 1: rely on extra blankets to keep warm this winter as
15:22
Speaker 1: heating bills double. This was supposed to be the year
15:26
Speaker 1: the UK broke free of the European Union and forged
15:29
Speaker 1: ahead as a buccaneering free trader. Instead, a confluence of
15:33
Speaker 1: crises has forced the government to deploy soldiers to drive
15:37
Speaker 1: fuel trucks, energy suppliers to go bust, and panicked shoppers
15:41
Speaker 1: to stockpile, all while COVID nineteen is still rife. Governor
15:47
Speaker 1: of the Bank of England Andrew Bailey jokes that perhaps
15:49
Speaker 1: next he should expect a plague of locusts. The immediate
15:55
Speaker 1: challenges facing the UK stem from the loss of a
15:58
Speaker 1: vital pool of labor after Brexit. A dearth of truckers
16:02
Speaker 1: is raising fears not just about toys or turkeys for Christmas,
16:06
Speaker 1: but whether people have enough food and fuel this winter.
16:10
Speaker 1: At the route of the UK's troubles, though, is its
16:13
Speaker 1: dependence on trade an asset before the pandemic that now
16:17
Speaker 1: magnifies the damage from leaving the EU and COVID disruption.
16:22
Speaker 1: Here's Shane Brennan, chief executive of the Cold Chain Federation,
16:26
Speaker 1: which represents businesses along the UK's food supply chain. We
16:30
Speaker 1: spent too much time worrying about who's to blame, and
16:32
Speaker 1: not enough just accepting the reality that our supply chain
16:35
Speaker 1: does not have the capacity that it needs to do
16:37
Speaker 1: the job right now, and it won't for some weeks,
16:41
Speaker 1: if not months to come. As we think about that,
16:43
Speaker 1: we need to be thinking how do we take the
16:45
Speaker 1: pressure off the people trying to do the job today,
16:47
Speaker 1: because if we don't, we're just gonna make the problem
16:49
Speaker 1: worse as more and more people leave the industry. So,
16:52
Speaker 1: whether it's the Brexit red tape, whether it's the pandemic,
16:56
Speaker 1: ending a furlough, whether it's the issue of immigration visa as,
17:00
Speaker 1: we need to be thinking about how we relieve the
17:02
Speaker 1: pressure in the short term to give business the time
17:05
Speaker 1: to readjust for the next phase of our economy. The
17:10
Speaker 1: narrative in the first half of one was how the
17:14
Speaker 1: UK's world beating vaccination program allowed the government to unshackle
17:18
Speaker 1: the economy from COVID restrictions. Since then, though, Britain's vulnerabilities
17:24
Speaker 1: have become clearer with fewer people to choose from. Wages
17:28
Speaker 1: have already risen. Supermarkets such as Waitrose have hiked pay
17:33
Speaker 1: for new hauliers and are dangling bonuses to lure recruits,
17:37
Speaker 1: but the structural changes in the economy approving more painful
17:41
Speaker 1: than expected. I spoke to James Withers, chief executive of
17:46
Speaker 1: Scottish Food and Drink. We've now got a crisis of
17:50
Speaker 1: labor shortages right through our food supply chain, from gaps
17:53
Speaker 1: and jobs on farm through to the manufacturing sector, whether
17:58
Speaker 1: that is seafood or red meat or deer re We
18:00
Speaker 1: are seeing shortages in retail and the hospitality genera. Obviously
18:04
Speaker 1: we're seeing a shortage and drivers the wheels that we
18:07
Speaker 1: need to get our products from farms and factories onto
18:09
Speaker 1: supermarket shells and onto into restaurants and hotels. So huge
18:13
Speaker 1: amount of pressure and I don't think anything that's been
18:16
Speaker 1: done thus far is going to make any real difference
18:18
Speaker 1: to the crisis that we've got. And we're heading towards
18:21
Speaker 1: peak Christmas trading period and the fear is that some
18:23
Speaker 1: of the gaps, who've seen the supermarket shells that just
18:25
Speaker 1: aren't going to get any better. To be sure, pockets
18:32
Speaker 1: of workers shortages are cropping up across Europe, and the
18:35
Speaker 1: whole continent will feel the pinch of record energy prices,
18:39
Speaker 1: But Britain's also paying for its exceptionalism. Take the truckers.
18:44
Speaker 1: A quarter of Europe's estimated four hundred thousand shortfall for
18:48
Speaker 1: lorry drivers affects the UK alone. That's partly because tougher
18:53
Speaker 1: visa rules have meant that those who left during the
18:56
Speaker 1: pandemic have struggled to return after Brexit. In response, the
19:01
Speaker 1: Department for Transport pulled a U turn after months of
19:05
Speaker 1: pressure from lobby groups. It made five thousand visas available
19:09
Speaker 1: to EU drivers of food and fuel for three months.
19:13
Speaker 1: Ruby McGregor smith, president of the British Chambers of Commerce,
19:17
Speaker 1: says that's a feeble solution. The supply of EU labor
19:22
Speaker 1: was turned off with no clear roadmap as to how
19:24
Speaker 1: this transition would be managed without any disruption to services
19:28
Speaker 1: and to supply chains. The government's announcement of temporary visas
19:33
Speaker 1: for lorry drivers and food workers is the equivalent of
19:37
Speaker 1: throwing a thimble of water on a bonfire. With food
19:41
Speaker 1: and energy prices climbing, the Bank of England's Andrew Bailey
19:45
Speaker 1: has the unenviable task of figuring out how to keep
19:48
Speaker 1: a lid on inflation without choking off the recovery. Here's
19:53
Speaker 1: Bloomberg Economics Dan Hansen. I think it's fair to say
19:56
Speaker 1: that bank has a really tough balancing act over the
19:58
Speaker 1: next few months. On the one hand, the economy faces
20:00
Speaker 1: a number of headwinds from ongoing supply disruption and reduce
20:04
Speaker 1: fiscal support, and on the other inflation is surprised almost
20:08
Speaker 1: everyone with how quickly it's picked up. Now, the key
20:11
Speaker 1: thing for the timing of any rate rise will be
20:14
Speaker 1: how the labor market responds to the end of the
20:16
Speaker 1: furlough scheme. If the unemployment rate stays steady, then a
20:20
Speaker 1: rate hike is likely to follow quite quickly. But if
20:23
Speaker 1: there are signs the jobless rates on the rise, then
20:25
Speaker 1: expect the bank's cool expectations around any tightening in the
20:29
Speaker 1: near term. But now that leaves the Brexit dream looking
20:33
Speaker 1: more like a nightmare. So we're going to pull all
20:47
Speaker 1: the different pieces of this supply chain disaster together now
20:50
Speaker 1: with Shanella Rajanaya jam a trade economist who keeps close
20:54
Speaker 1: tabs on all of us for HSBC in London. Shanella,
20:58
Speaker 1: welcome to Stephanois. We've we've had a taste of what's
21:02
Speaker 1: happening in practice in different parts of the world, what's
21:06
Speaker 1: happening in theory. I mean, how do you explain these
21:08
Speaker 1: supply chain issues apparently getting worse at a time And
21:12
Speaker 1: we might have all thought, you know, we've becoming out
21:14
Speaker 1: of the wood by now, yeah, well, thank you for
21:16
Speaker 1: having me, and yes, over the past year, there's been
21:19
Speaker 1: a lot of issues around container availability, around port congestions,
21:23
Speaker 1: surging freight rates, and this is due to a combination
21:27
Speaker 1: of factors. First, there was really strong demand from Western
21:31
Speaker 1: economies for goods during the pandemic and that's still continuing today.
21:36
Speaker 1: And then that's coupled with all the movement and lockdown
21:39
Speaker 1: restrictions due to COVID, which is leading to the congestion
21:42
Speaker 1: at major ports. And so the key issue at the
21:45
Speaker 1: moment is that we're in the midst of peak container
21:47
Speaker 1: shipping season, so demand for goods still remains elevated. Plus
21:52
Speaker 1: there's limited capacity, so containers are not really in the
21:55
Speaker 1: right place. Air freight capacity is quite restricted, and so
22:00
Speaker 1: all of these are really contributing to ongoing supply chain disruptions.
22:04
Speaker 1: People who listen to seconomics a lot, God help them,
22:07
Speaker 1: would have heard quite a lot of conversations at various
22:09
Speaker 1: times about supply chain issues and certainly about containers waiting
22:13
Speaker 1: in line outside l A port and other ports. I
22:16
Speaker 1: just would have thought maybe that this would have been
22:18
Speaker 1: starting to decline. So so why is it getting worse?
22:22
Speaker 1: Why is it still going on? So previously the volume
22:27
Speaker 1: of goods trade was quite high. This has been exacerbated
22:29
Speaker 1: by the current peak container shipping season. But as you
22:33
Speaker 1: mentioned that rotation away from spending on goods and to
22:36
Speaker 1: spending on services is well underway. There's evidence to suggest
22:40
Speaker 1: in the UK and also in the US that consumers
22:43
Speaker 1: are starting to spend a little bit more on services
22:45
Speaker 1: and including on services exports and imports. But really the
22:50
Speaker 1: issue remains the COVID restrictions and the factors restricting the
22:55
Speaker 1: movement off workers, but also the labor and equipment shortages.
23:00
Speaker 1: And when you think of the mean inflation effect, we're
23:03
Speaker 1: certainly seeing it in the cost of freight and shipping.
23:07
Speaker 1: Costs just seem to keep going up. And that will
23:09
Speaker 1: I'm sure feed into I mean that we can see
23:12
Speaker 1: it's already feeding into input prices and maybe ultimately the
23:15
Speaker 1: prices that we pay in the shots. Is that something
23:18
Speaker 1: that you'd expect to last. Yes, So, supply chains challenges
23:22
Speaker 1: are certainly impacting the price of consumer goods. However, the
23:26
Speaker 1: conventional view, and largely our view as well, is that
23:29
Speaker 1: inflation will prove to be transitory, because if you think
23:33
Speaker 1: about some of these supply chain disruptions, it's unlikely that
23:36
Speaker 1: they will continue to keep prices high and say one
23:38
Speaker 1: or two years time, so that certainly should come off
23:42
Speaker 1: the boiler a little bit. The issue really is if
23:45
Speaker 1: these high spot rates start to feed through into the
23:48
Speaker 1: longer term contain a contract rates, end of supply chain
23:51
Speaker 1: disruptions persis, then we might see a bit more inflationary
23:54
Speaker 1: pressure and that could last for a while. Yet. So,
23:58
Speaker 1: right at the beginning of the Panda, when businesses were
24:02
Speaker 1: discovering that it was actually quite bad news to be
24:04
Speaker 1: heavily dependent on China for their production, we had lots
24:07
Speaker 1: of conversations about people bringing production back home, about how
24:11
Speaker 1: this was going to change supply chains forever, and then
24:13
Speaker 1: that kind of went away a bit because I we
24:16
Speaker 1: certainly talked to a lot of business. As you said,
24:18
Speaker 1: you know, we've invested so much in our supply chain
24:20
Speaker 1: in Asia, We're not going to go anywhere anytime soon.
24:24
Speaker 1: Do you think that these the kind of frictions we're
24:27
Speaker 1: seeing and the delays we're seeing at the ports, is
24:30
Speaker 1: going to reopen that debate and we are maybe going
24:32
Speaker 1: to see some permanent change in the way the global
24:35
Speaker 1: economy works as a result of this. Well, I think
24:39
Speaker 1: the point in is that supply chains were already reconfiguring.
24:42
Speaker 1: So even prior to COVID, even prior to you, as
24:44
Speaker 1: China trade tensains escalating supply chains, particularly in the ASA Pacific,
24:49
Speaker 1: we're rejigging, and so China was already moving up the
24:53
Speaker 1: value chain. You saw the rise of emerging Asian economies
24:56
Speaker 1: in China was increasingly outsourcing its production to the these countries.
25:01
Speaker 1: COVID could certainly accelerate that trend, but I think it
25:05
Speaker 1: still takes a lot for a business to actually decide
25:07
Speaker 1: whether to lift and shift production, and so they really
25:10
Speaker 1: have to consider all these other factors like the availability
25:13
Speaker 1: of workers, the access to raw materials before they can
25:17
Speaker 1: actually change their supply chains permanently. So when you're looking
25:22
Speaker 1: forward to next year, I guess just in terms of,
25:24
Speaker 1: you know, the conversations that you're having around the forecast,
25:27
Speaker 1: when you think of the role of supply chain issues
25:31
Speaker 1: and the effect on growth in two how much are
25:36
Speaker 1: you still expecting it to figure in twenty two or
25:38
Speaker 1: how much do you think is going to be just
25:40
Speaker 1: it will have disappeared by that, So we don't expect
25:43
Speaker 1: it to play as larger role as it did this year,
25:46
Speaker 1: particularly because many of these supply chain shocks are expected
25:49
Speaker 1: to be temporary. And also, even though global goods trade
25:53
Speaker 1: has performed remarkably well in the wake of the pandemic,
25:56
Speaker 1: there is science that the best of the global goods
25:58
Speaker 1: trade rebound is hind Us, so exports might not necessarily
26:02
Speaker 1: be the same driver it was next year as it
26:05
Speaker 1: was in the recovery from the pandemic. Okay, final question
26:09
Speaker 1: and most important of all, is Christmas canceled? Definitely not,
26:14
Speaker 1: but I will say it probably is worth looking to
26:17
Speaker 1: buy your Christmas presents a little bit earlier this year.
26:20
Speaker 1: That is bad news for many of us. Shanella Rod
26:23
Speaker 1: and Iya Jam thank you very much. Thank you So
26:32
Speaker 1: that is it for this episode of Stephanomics. We'll be
26:34
Speaker 1: back next week to tell you who had the better
26:36
Speaker 1: response to the COVID jobs crisis, Europe or the US.
26:41
Speaker 1: In the meantime, please rate the program or re rate
26:44
Speaker 1: it if you need to, and follow US Economics on
26:47
Speaker 1: Twitter for more news and analysis from Bloomberg Economics. This
26:51
Speaker 1: episode was produced by Magnus Hendrickson, with special thanks to
26:54
Speaker 1: Lizzie Burden End the Current, Willie Dagle, and Shanella and
26:58
Speaker 1: Iya Jam. Mike Sassa is executive producer of Stephonomics and
27:02
Speaker 1: the head of Bloomberg Podcast is Francesco Leading m h