Supplier deliveries slow, raw material costs rise as manufacturing improves: ISM
10.02.2020
Dive Brief:
  • Supplier deliveries continued to slow for the 11th- straight month as companies experience transportation issues and difficulty hiring, according to The Institute for Supply Management’s manufacturing report, released Tuesday. The ISM supplier deliveries index was at 59 in September, up from 58.2 in August. Readings above 50 indicate slowing deliveries.
  • «The transportation sector is having difficulty keeping up, too, meaning there’s a lot of last-minute calls for shipments; there’s a lot of shipments that are being made short or requiring another delivery to occur,» ISM Chair Timothy Fiore said on a call with reporters Thursday.
  • Raw materials prices increased for the fourth-consecutive month. More expensive plastics, lumber, aluminum, copper, steel products and transportation have resulted in suppliers passing along more cost to the ISM panelist companies, Fiore said.

Dive Insight:

The overall PMI for the manufacturing sector registered at 55.4 for September, an indication that the industry is growing for the fourth-straight month. But the number does not indicate whether the sector has reached pre-pandemic levels, Fiore said.

The report highlights the industry has learned how to keep supply chains moving during the pandemic, while underscoring the challenges that remain in this new normal.

«About 12% of my general comments were about transportation difficulties, which, that’s the first time we’ve seen those since we were in the growth profile back in late ’17, early ’18,» Fiore said.

One respondent in the computer and electronic products sector specifically indicated issues with long lead times for products coming out of China.

«This is part of the problem; there’s container issues at the ports in China,» Fiore said.

All major carriers are dealing with equipment shortages at Asian ports as demand for ocean freight outstrips equipment supply, according to a report form The Loadstar.

But transportation issues, such as increased rejection and spot rates, are also a leading indicator of a healthy manufacturing sector that’s trying to get the inventory it needs, Fiore said.

Inventories fell for the third-straight month, according to the index. But new orders grew for the fourth-straight month, an indication that buyers are working to refill backrooms and warehouses. With deliveries slowing, this might take longer than some companies would like.

Meanwhile, industries are either preparing for peak season or already in the thick of it with the holiday season fast approaching.

«Its probably going to be a much more difficult season than normal,» Fiore said. «Especially clearing China.»