It’s Not Just About Shipping: Q2 2024 Supply Chain Outlook

Mexico’s proximity and preferential access to the US market will remain its main competitive advantages to attract nearshoring investment, and Mexico already has surpassed mainland China as the largest supplier to the US. However, the scheduled review of the United States-Mexico-Canada Agreement (USMCA) will generate uncertainty over trade rules until 2026.

S&P Global Market Intelligence.

• Supply chains are in a permanent state of flux and disruptions, with the Baltimore bridge collapse being just the latest example.
  
• Logistics networks find a way to succeed, shown by Red Sea shipping disruptions where 79% of container ships now route around the Cape of Good Hope. There’s little chance of the causes of canal disruptions being resolved in the coming quarter, but supplier delivery times indicate the downstream effect is being managed and container shipping rates have more than halved from their peak.
  
• It might be too soon to judge the final impact until the peak shipping season starts with exports from China in July and August. Other bottlenecks to deal with include the risk of US east coast port strikes, with shipping starting to divert to the west coast.
  
• Political risks are rising in the remainder of 2024, with likely continued increases in sanctions against Russia and key elections in the second quarter including those in India and Mexico as well as the European Parliament.
  
• Looking further ahead, the US elections carry risks for supply chains connected to China, including those via Mexico. There are also risks to EU-China relations from the former’s review of the latter’s electric vehicle industry, which could start to crystallize with an initial decision in July.
  
• Supply chain regulations in the EU remain incomplete, including for the Carbon Border Adjustment Mechanism — where firms also have to deal with volatile carbon permit pricing — and the Corporate Sustainability Due Diligience Directive. The US Drug Supply Chain Security Act is also due to come into force later in the year, with imports of pharmaceutical ingredients down by 10% in the past year.
  
• Supply chain activity is picking up. While manufacturing new orders are still in decline, S&P Global Market Intelligence forecasts global trade will grow by 1.8% year over year in 2024, driven in part by electronics supply chains. There’s an upside risk to activity later in the year if firms preempt potential future US tariff increases, based on experience from the last round of tariff hikes.
  
• Investments in supply chain resilience remain more important than ever. Spending on supply chain visibility technology is increasing, though third-party support is increasingly needed. Reshoring remains in favor, particularly in the light of future tariffs, and has occurred in a substantive way in 38% of all US product lines.
  
• Inventories and supplier diversification meanwhile remain in decline as firms seek to manage costs in a high interest rate environment.

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