We’ve reached peak supply chain crisis – it’ll only get better from here, according to Jefferies

port of la congestion ships
Container ships wait off the coast of the congested ports of Los Angeles and Long Beach, in Long Beach, California, U.S., September 29, 2021.
  • The global supply-chain crisis is already easing ahead of the spending-heavy holiday season, Jefferies said.
  • There are signs "we are past peak pinch," and "significant improvement" will arrive by the middle of 2022, the bank added.
  • Still, US-China tensions and overwhelming demand stand in the way of a swift recovery.

The shipping mess that's making online orders a nightmare is already healing, Jefferies economists said Friday.

There are signs that "we are past the peak pinch" on the cargo ship delays, port bottlenecks, and labor shortages that have disrupted worldwide supply chains for months, according to economists led by Aneta Markowska. The team anticipates the global supply chain will see "significant improvement" by the second half of 2022, with October likely marking the peak of the problem.

"Between shipping costs, labor shortages, raw materials, and input availability, the global supply chain has been stretched remarkably thin," the economists said, adding "we may be already witnessing the worst of it."

The team expects a rebound once the holiday shipping window closes in mid-October, with improvements will first emerging in "baseline" shipping, or less time-sensitive transportation. Concerns and disruptions for regular goods should improve soon after.

Reviving the supply chain won't be easy

Still, supply faces a steep uphill climb before it matches demand. Spending is still close to pandemic-era highs in many categories despite decade-high inflation, Markowska said in the Friday note. Americans' spending at retailers and restaurants jumped 0.7% to $625 billion in September, trouncing the median estimate of a 0.2% decline. US virus case counts have only declined since, signaling spending at in-person venues could climb even higher in October.

That, coupled with shipping bottlenecks, should intensify shortages during the holiday season, but as they wind down and seasonal trends push more activity toward services, supply chains can heal faster, she said.

US-China tensions could also hamper shipping recovery

President Donald Trump started the process of decoupling the US and China supply chains, arguing it would benefit American manufacturers and help the US catch up in the global economic race. Yet billions of dollars in tariffs were largely passed down to consumers, and both countries' economies remain reliant on each other.

That's made the supply-chain disaster worse. Trump's trade war has contributed to shortages of key products like semiconductors. That's already slowed US car production, worsened electronics shortages, and boosted inflation throughout the economy.

Despite the current shipping issues, the Biden administration has maintained the Trump-era playbook. And new pandemic-era trends are making matters worse, Sean Darby, global equities strategist at Jefferies, said. China's shortages and lack of investment in production have further slammed its ability to shore up supply. Disappointing vaccine rollouts in other manufacturing hubs like Vietnam have kept alternatives from picking up the slack.

Still, the headwinds shouldn't delay recovery too long, the bank said. The supply-chain crisis's impact will ease considerably through the start of next year. So while this year's holiday shopping might be more difficult than usual, it should be back to normal by winter of 2022.

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