Longer Delivery Times Reflect Supply Chain Disruptions

IMF Blog, October 25, 2021

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Longer Delivery Times Reflect Supply Chain Disruptions

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Bibliographic details

• Authors: Parisa Kamali, Alex Shiyao Wang
• Published: October 25, 2021

Overview

• Authors: Parisa Kamali, Alex (Shiyao) Wang
• Publication date: October 25, 2021
• Theme: Supply chain disruptions since the start of the COVID-19 pandemic have driven big increases in freight costs and delivery times, posing a major challenge for the global economy.

Measurement and index construction

• Data source cited: IHS Markit’s suppliers’ delivery times index (constructed from Purchasing Managers Index business surveys).
• Historical coverage: data goes back to 2007.
• Survey question: Purchasing managers are asked if their suppliers' delivery times are, on average, slower, faster, or unchanged compared to the previous month.
• Interpretation rules:
  • Readings above 50 indicate faster delivery times.
  • Readings at 50 signal no change.
  • Readings below 50 indicate slower delivery times compared with those of the prior month.
• Empirical observation: Suppliers’ delivery times in the United States and the European Union have hit record highs since late 2020.

Causes and economic effects

• Contributing factors listed:
  • Shutdowns of factories in China in early 2020.
  • Lockdowns in several countries.
  • Labor shortages.
  • Robust demand for tradable goods.
  • Disruptions to logistics networks.
  • Capacity constraints.
• Effects on prices and output:
  • The recent sharp drop in the delivery times index reflects surging demand, widespread supply constraints, or a combination of both.
  • During such times, suppliers usually have greater pricing power, causing a rise in prices.
  • Supply chain delays can reduce the availability of intermediate goods which, combined with labor shortages, can slow down production and output growth.

Near-term outlook and downside risks

• Expected easing condition: Once the number of new COVID-19 cases starts to decline, capacity constraints and labor shortages should ease, taking some of the pressure off supply chains and delivery times.
• Factors that could prevent swift relief:
  • Elevated demand during the holiday season in some of the world’s largest economies.
  • Another wave of new COVID-19 cases.
  • Extreme weather events, if they materialize, could cause continued supply chain disruptions.

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IMFBlog (views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board; the IMF is an organization of 191 countries).