There’s a plethora of data out there to help supply chain decision-makers, but which ones matter the most? What is the state of trade as we’ve entered the third year of the pandemic? What is the best way to combine all this data together to get business-critical insights?

Flexport’s State of Trade Webinar held on Jan. 19, 2022 discussed the latest evidence for the demand-driven boom in global trade volumes and the state of seasonality in trade activity. Speakers also shared a brief overview of how Flexport Research uses a wide-range of datasets to arrive at an accurate picture of the state of trade. Many of these metrics are updated on a weekly or monthly basis at flexport.com/research.

Taking a Top-Down View

Flexport Research has a long-standing view that the main challenge that logistics networks face comes from the demand side, exacerbated by interruptions caused by multiple waves of the pandemic.

Taking the U.S. as an example, fiscal and monetary support during the early stages of the pandemic offset the expected pinch on consumer spending power. A requirement to stay-at-home and the closure of restaurants and stores drove a shift in spending from services to goods. In turn there’s been a rapid recovery in employment and inflation has accelerated, as shown in Figure 1.

What does this mean for supply chains?

In effect, there are two potential headwinds for consumer spending, and hence demand for goods and by extension logistics services.

The first is the interplay between inflation and higher wages. As shown in Figure 1 consumer price inflation reached 7.1% in December while the trimmed-mean Personal Consumption Deflator—the Federal Reserve’s preferred measure—hit 3.0%. It remains to be seen whether wages, in the context of unemployment, will stay on track and therefore allow consumers to avoid a contraction in real spending power.

The second comes from the limitations imposed by a tighter monetary policy. An increase in interest rates will increase debt financing costs for new consumer goods purchases and potentially make companies less willing to tie up cash as inventory. While the Federal Reserve is not expected to begin raising short-term rates until March, longer term rates have already begun to climb.

Tracking Trade Data Patterns

So, what can the data tell us about the future state of trade?
Flexport has a triumvirate of forecast and tracking measures based on a mixture of widely available macroeconomic measures (including those discussed above), as well as proprietary Flexport data.

Flexport's Post-Covid Indicator suggests that the level of consumer spending on goods versus services will remain well above historic levels during Q1 of 2022, though the recently-released December numbers suggest that this effect may be moderating.

While calculated independent of the PCI, Flexport’s Trade Activity Forecast, shown in Fig. 2 above, indicates that the dollar-value of imports to the U.S. may remain 26% above Q1 2019 levels during Q1 of 2022. That partly depends on commodity prices, which feed both directly into industrial supplies as well as into import price inflation more broadly, remaining elevated.

While backward-looking by nature, Flexport’s Ocean Timeliness Indicator provides a useful guide to the current state of logistics networks. By tracking the time taken from cargo-ready in Asia to destination port departure in North America and Europe it provides a sense of how long shipping takes, and how long it could take to revert back to pre-pandemic levels.

At the start of February 2022, the OTI stood at nearly double its pre-pandemic level. An index of the first stage of the process—from cargo-ready to origin port departure in Asia—is around 7% below its peak but still a long way from normal.

Turning Data Into Business-Critical Insights

Is it possible to boil all these numbers down into a single, decision-driving datapoint?
While it’s tempting to try and implement the “Lord of the Rings” approach with “one metric to rule them all,” it can lead to misleading conclusions and miss signals of early moves or developing bottlenecks.

A dashboard-style approach, as implemented in Flexport’s Logistics Pressure Matrix shown in Fig. 3 below, provides an overview of where different bottlenecks of logistics congestion are developing. It measures the changing intensity of pressure on supply chains, with red indicating more difficulties and green showing it easing.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.

As of early February 2022 it’s noticeable that consumer sentiment and sales pressures are declining while retail inventory industrial demand pressure remains high. On the activity side inland rail handling and port handling are subsiding while shipping rates and timeliness measures remain stressed.

So what is a supply chain planner to do when faced with conflicting data?
Simply put: Eternal vigilance.

The various data sets outlined in this report measure different elements of an economy that is evolving rapidly in the wake of the pandemic. A close and frequent tracking of the data, available via flexport.com/research, should provide a guide as to whether a downturn in spending becomes established and when downstream pressures might begin to alleviate.

Similarly, building insights into your own supply chain via Flexport’s Visibility Service, will enable you to add the top-down and bottom-up views into your planning processes.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.