Recession Killed the Supply Chain Crisis?

Who knew that all it would take to cure the global supply chain crisis was a recession? For more than two years, international commerce has been paralyzed by snafus, from the COVID Zero lockdowns in China to the congestion at Los Angeles, CA, ports. Now that the US economy has slipped into a technical recession, and the rest of the planet is on the cusp of a sharp downturn, demand will be eviscerated. This is what might rebalance market conditions, be it supply chains or the energy sector.

Supply Chain Crisis Data

During an episode of Liberty Nation’s C5 online news program this past summer, it was discussed that the potential solution for the backlogs, traffic jams, inventory shortages, and the myriad of other problems impacting output and input would be a recession. While the supply chain crisis has yet to return to pre-pandemic normalcy, it is showing signs of abating, according to some fresh industry data.

As of Aug. 30, 2022, the number of cargo ships at the ports of Los Angeles and Long Beach stood at just eight, down 93% from September 2021. Sales of Chinese containerized goods to the US and Europe rose just 7.1% year-over-year in August, falling short of the market forecast of 12.8%. In addition, Beijing's exports to the US tumbled by nearly 4% in August. Inbound ocean volume index from China to the US plummeted to coronavirus-era levels. Spot rates for Capesize dry cargo ships collapsed to $5,600 per day on Sept. 9, down from $38,200 in late May. Moreover, as Liberty Nation recently reported, US retailers are purchasing fewer goods because of bloated inventories sustained after they attempted to catch up and ensure they were not going to have shortages following the initial stages of the pandemic.

Is this calamity over? Not by a long shot. This was essentially confirmed by Ford when it announced a plan to restructure its global supply chain following about $1 billion in unexpected supplier costs. Volkswagen also warned that these snarls will linger past 2023 and that its company will prepare for a "new normal" in this area. In other words, please do not get too excited for things to return to where they were in December 2019.

Shaking Things Up

In the aftermath of the first wave of the COVID-19 public health crisis, corporations sprang into action and immediately started investing in diversifying their global supply chains. These efforts consisted of shifting locations from China to regional markets, such as Taiwan, Vietnam, and India. Others poured money into their digital infrastructure, from technologies to software to the blockchain. While the globalized economy has been a prosperous venture for the last few decades, stagnation is a critical component that has exacerbated current conditions. Will this be a lesson learned, or will the same occurrence happen in the next worldwide fiasco?

Recession: The Cure for Everything?

Central banks are getting at least one thing right: killing demand. Across the financial markets, assets are crumbling because investors see the writing on the wall that a global recession is nigh. Crude oil prices have cratered 40% since peaking at $130 this past spring. A gallon of gasoline has plummeted nearly 30% since early June. Agricultural commodities have trimmed most of their gains in 2022. The leading stock market benchmark indexes have slipped into the bear market territory. Consumer demand is waning, business activity is slowing, and money-supply growth is stalling. Suffice it to say, a recession is the panacea to help recalibrate the worldwide economy. It was a sad state of affairs when the coquettish interventionists inflated the Everything Bubble, only to pop it and make everyone as miserable as Hillary Clinton supporters on election night 2016.