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(provided by Yonhap News)

An increasing number of analysts are suggesting that the worst may be over for the recent global supply chain woes.

The Wall Street Journal wrote on Sunday that the supply chain problems were showing “signs of easing,” while Bloomberg reported on Friday that the US supply chain crisis appeared to have hit its peak.

Indeed, an examination of the four factors behind the supply chain snags showed signs of easing in the three categories of raw materials, goods, and distribution. If the trend keeps up, the sharp rise in prices caused by the supply chain could ease up in the first half of 2022 as various central banks have predicted.

But other analysts are calling for more caution, noting that the situation could take an unexpected turn amid the uncertainties associated with the pandemic — and that the lack of any signs of improvement in employment issues means it is still too early to rest easy.

The current supply chain issues originated in the global division of labor failing to work properly due to the COVID-19 pandemic.

Various aspects of the world’s highly complex supply chains ended up backed up. The recent supply chain woes have arisen through four main pathways: raw materials, goods, distribution and employment.

The supply chain has been rocked by supply instabilities starting with the most basic raw materials, including energy, non-ferrous metals and grains. Major factors include rapidly rising demand as economies reopen, a shortage of fossil fuels in China and India, and countries’ efforts to transition toward carbon neutrality.

The next stage involves goods — namely the intermediate goods, capital goods and final goods produced in different countries.

Here, too, supply chain problems have erupted as China and the emerging economies — often referred to as the “world’s factory” — have been unable to produce components because of the pandemic. A prominent example of this is the shortage of semiconductors for automobiles.

After raw materials and goods, the next stage of distribution to producers and consumers has also been plagued with problems. Freight volumes have skyrocketed this year amid an explosion in the consumption of goods, which the pandemic had previously been inhibiting. Ports are becoming increasingly backed up, while freight trucks are in short supply.

A shortage of workers has also contributed to distribution troubles. Since the pandemic started, the number of workers loading and unloading cargo at ports and transporting it by truck has dropped.

Of the four pathways, signs of adjustment have recently been visible in three of them: raw materials, goods and distribution.

In the case of raw materials, international West Texas Intermediate oil prices were down to US$78.50 a barrel as of Tuesday, after exceeding US$84 around the end of October. On that day, six countries — including the US, South Korea and China — made the decision to release petroleum from their strategic reserves to rein in the spike in gas prices.

Coal prices have also been rising sharply since August, reaching their peak on Oct. 19 at 194.5% of their level early this year. But on Nov. 15, they plummeted to 56.4% of that high as fears of power supply issues in China and India eased up.

In the area of goods, regional production in Asia is reaching normal levels. The power shortages that hit Chinese manufacturing are being resolved, and business activity indicators in Indonesia, Malaysia and Vietnam are quickly improving.

The Baltic Dry Index, an ocean freight indicator, was down to 2,715 as of Tuesday — less than half of the all-time high of 5,650 it reached on Oct. 7.

The Wall Street Journal observed, “In Asia, Covid-related factory closures, energy shortages and port-capacity limits have eased in recent weeks.”

“Ocean freight rates have retreated from record levels,” it added.

In contrast, problems surrounding employment — the last of the causes behind the supply chain troubles — have yet to improve.

The governments of the US, European countries and various emerging economies are predicting workers will go back to work as unemployment benefits drop off. But analysts are predicting that structural issues — including the retirement of older people due to COVID-19 and women’s reduced rate of participation in economic activity arising from the burdens of childcare — are not matters that can be resolved in a short period of time. Indeed, The Wall Street Journal predicted that labor shortages may persist into next year.

While the supply chain pathways are showing signs of clearing at the moment, the possibility of uncertainties reemerging cannot be ruled out either.

“Among the factors behind the supply chain problems, we’ve seen that things have reached their peak and are easing up in areas like raw materials, goods, and distribution,” noted Ha Geon-hyeong, an analyst with Shinhan Investment.

“But employment issues continue causing headaches, and there’s a possibility the pathways that have been showing signs of easing could become unstable again if COVID-19 lockdown measures are stepped up in emerging economies,” he predicted.

By Jun Seul-gi, staff reporter

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