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Overall: The conflict with Iran is now into week 5 and the duration of the closure of the Strait of Hormuz is critical in determining the longer-term impacts on the overall economy. “Second-order” global supply chain impacts have started across Asia, India, Australia, and parts of Europe. Real product stockout risks were growing and will continue to do so if the Strait remains effectively closed through mid-April.
- Generally, economic conditions are good for now. But conflict-created headwind risk is strengthening. Whether this creates a quasi-transportation boom near term (from supply chain scrambling to prevent stockouts) or ultimately leads to a slowdown as demand destruction emerges is the bigger question.
- Diesel prices at retail were approaching $5.53 a gallon at the time of writing and this poses the biggest risk to the broader supply chain. More on this on the last page of this month’s briefing.
- Inventory stockpiling strategies were being reported across global PMI reports in March. Firms were scrambling to secure raw materials and component parts volumes to help safeguard against future stockouts. Short-term lower Section 122 tariffs were also helping push a surge in new order activity (firms were trying to get ahead of the July 24th deadline and likely imposition of new Section 301 tariffs).
- The outlook is shifting to yellow for now, although near-term volumes are trending better, since the conflict is now beyond 4 weeks, broader concerns are emerging that these disruptions are starting to have a dampening effect on the economy and higher inflation risk is rapidly emerging.
Link: LTL Monthly Executive Briefing
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