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Last month, retailers reworked inbound logistics, manufacturers built inventory against possible disruption, tech companies watched material and energy costs and global businesses focused on just how much production should stay in China. Amazon also opened more of its logistics system to outside businesses; European companies weighed China’s cost advantages; and chipmakers managed conflict-related materials, freight and energy roadblocks.
Even with a prolonged conflict in the Middle East still very much weighing on global trade, the world’s supply chains and logistics networks kept moving, adjusting and recalculating.
Manufacturing Activity Hits 4-Year High
There was good news on the manufacturing front: The S&P Global Flash U.S. Manufacturing Purchasing Managers' Index climbed to 55.3 in May from 54.5 in April. This was the strongest reading since May 2022. In PMI readings, anything above 50 signals growth, so the May number points to a healthier manufacturing sector than companies saw earlier this spring. Factories reported stronger production and hiring, but inventory building also helped drive the gain as companies prepared for shortages, higher prices and longer supplier lead times.
S&P Global says the war in the Middle East kept impacted supply chains with higher input costs, rising energy prices and delivery delays. Factories reported the longest supplier delivery times since August 2022, while export demand weakened and goods exports fell again. “Demand also looks set to cool further in response to rising prices,” adds Chris Williamson, chief business economist.
While the 55.3 reading points to stronger manufacturing conditions, the rest of the report showed cost and supply challenges lurking under the surface. Services stayed sluggish, overall employment fell for the second time in three months and selling prices rose at the fastest rate since August 2022.
War is Hampering AI Supply Chains
Last month, companies that are building the underlying hardware powering the current AI boom warned that the Iran war is impacting their supply chains and profitability. “A spiraling conflict in the Middle East has seen oil prices skyrocket and supply chains crucial to the tech sector hamstrung,” CNBC reports. “Shortages of key chipmaking materials, including helium, are expected as the U.S. and Iran remain locked in a standoff.” For example, TSMC said the situation in the Middle East could impact its profitability, with prices for certain chemicals and gases likely to increase. Foxconn singled out events in the Middle East as a key challenge this year. And Infineon said costs would rise for precious metals, energy and freight as a result of the war.
VAT Group, which supplies components to chipmakers, said it experienced supply chain disruption and had to reroute shipments of goods to customers as a result of the war. And according to CNBC, semiconductor testing equipment maker Advantest said that the “business environment surrounding the company remains unpredictable due to concerns of escalating tensions in the Middle East potentially leading to a slowdown in the global economy.”
Amazon Opens up its Logistics Network
After spending nearly three decades assembling, perfecting and honing its own logistics network, Amazon announced that it’s opening it up to companies that want to use the established infrastructure to get their own products to market.
According to Amazon, the company is opening its full portfolio of freight, distribution, fulfillment and parcel shipping capabilities to businesses of all types and sizes. Its goal is to expand its third-party logistics (3PL) capacity to support businesses in the healthcare, automotive, manufacturing, retail and other sectors. Some of the companies already using the service (ASCS) include Procter & Gamble, 3M, Lands’ End and American Eagle Outfitters.
“Amazon is bringing the infrastructure, intelligence, and scale of its supply chain services, proven over decades, to businesses everywhere, much like Amazon Web Services did for cloud computing,” said ASCS VP Peter Larsen in the company’s announcement. “…with the launch of ASCS, we’re confident we can give any other business access to the same cost efficiency, reliability, and speed that we’ve built for Amazon customers.”
