Dreams of improved supply chains are ‘shattered’ in short term: Citi [Video]

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Shortages of semiconductors, auto parts and other key items moving through supply chains are expected to persist for the foreseeable future, Citi warned in a new note.

“Ultimately, we find that supply chain pressures have proven to be more persistent and seemingly deeply entrenched than we anticipated just months ago,” the economist-led strategists wrote. Citi Research’s global chief, Nathan Sheets, in a detailed note. “And the Russian-Ukrainian conflict appears to be further amplifying tensions. Given these realities, any hope for short-term improvement in supply chain conditions has been dashed. The challenges in the months ahead appear to be as acute as at any time during the past two years.”

Inflation, labor shortages and rising household savings are some of the headwinds currently facing supply chains, according to Citi, and these pressures will ease when the pandemic will really fade away.

(Source: “GLOBAL SUPPLY CHAINS: The complexities multiply” by Citi Research.)

“To relieve the stress on global trade, we ultimately need to see an improvement in the pandemic,” Citi said. “Some specific supply chain issues are beginning to resolve, but there are still a number of unknowns.”

Pandemic status is critical, Citi explained, because the pandemic has demolished the idea that global supply chains were fully optimized.

“Until the pandemic, the broad consensus was that supply chains were ‘optimized’ and running smoothly,” the strategists wrote. “Companies were thought to have largely solved the conundrum of how to maintain lean inventory and simultaneously ensure a reliable flow of inputs for use in production. … Rather than a predictable, steady flow of demand, production and transportation – the past two years have seen growing demand for final goods coupled with episodic disruptions in the availability of inputs needed to produce those goods.”

The damaged part of the container ship Ever Given, which blocked the Suez Canal for nearly a week in March 2021, at a ship repair dock of Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd.  in Qingdao, east China's Shandong Province, Oct. 11, 2021. 4, 2021. (Photo by Li Ziheng/Xinhua via Getty Images)

The damaged part of the container ship Ever Given, which blocked the Suez Canal for nearly a week in March 2021, at a ship repair dock of Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. in Qingdao, east China’s Shandong Province, Oct. 11, 2021. 4, 2021. (Photo by Li Ziheng/Xinhua via Getty Images)

Supply chain stress continues to be most acute in the tech industry.

Apple is expected to unveil a new Macbook Air today at its Worldwide Developers Conference. But the latest Apple hardware could be in short supply in the coming weeks and months due to COVID-19 lockdowns in major Apple manufacturing regions in China.

Semiconductors, meanwhile, continue to be in short supply, largely due to China’s zero COVID-19 policy amid strong demand for PCs and automobiles during the pandemic.

“We’re about halfway through [the chip shortage]Intel CEO Pat Gelsinger told Yahoo Finance Live on the sidelines of the World Economic Forum in Davos, Switzerland, in late May (video above). “I now expect that to continue until 2024. And the big problem that we have in addition over the last six to nine months is the equipment that comes into the [fabrication plants].”

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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