Is there going to be a Supply Chain Disaster?

Supply chain is royally messed up right now. It isn’t a complete disaster…. YET. The one two punch of inflation and supply chain problems are feeding off each other. It is going to get worse before it gets better. And a people aren’t really recognizing the problems yet.

Latest News

Although most of the news is bad…. here is a bit of good news. Capitalism doing its thing 🙂

Biggest US retailers charter private cargo ships to sail AROUND port delays. https://www.wsj.com/articles/biggest-u-s-retailers-charter-private-cargo-ships-to-sail-around-port-delays-11633858380

What is the supply chain?

It is the infrastructure, ships, ports, railroads, trucks and delivery vehicles across the world. No one person completely controls it, and it is highly independent yet INTERDEPENDENT. Power, fuel, weather, politics and health (ie covid) all impact the supply chain.

Why should I care about about the supply chain?

Because nearly all your food, your electricity, power, all the stuff you buy locally or through Amazon or other websites uses the supply chain.

What Can I do to Prepare?

Stock up on food, paper products, feminine products and other common goods you would buy anyway. I know this action will result in higher demand, but there is no guarantee that the supply chain will recover quickly.

Even if I am wrong you will have supplies of food and paper products that you would have anyway.

  1. Take responsibility for your own well being.
  2. Skip fast food and going out to dinner – and invest that in a few more items in your pantry (build long term food storage).
  3. Learn to cook foods you like. Learn to bake bread, learn to cook at least seven favorite dinners. Try out things while they are available.
  4. Stock up on foods you eat. Buy your favorite canned goods, frozen meat etc. preferably when they are on sale. If you eat rice, dried beans or bake bread, buy a 25lb bag and separate it into 1 or 5 pound mylar bags with oxygen absorbers and put in a food grade bucket. Remember, ONLY buy foodstuff you do know how to use. https://commonsensehome.com/prepping-food-storage/
  5. Buy Rechargeable Batteries so you can recharge your AA / AAA batteries. https://commonsensehome.com/best-battery-chargers/
  6. Plant a garden. Its late in the year, but you could figure out where the garden should go, and read up on gardening. Order seeds EARLY. https://commonsensehome.com/start-a-garden/
  7. Learn how to Preserve Foods https://commonsensehome.com/home-food-drying/
  8. Learn about Home Canning https://commonsensehome.com/how-to-can-food-at-home/
Container ship Stock Photos & Royalty-Free Images | Depositphotos

Shipping Costs

The simplest measure is COST. In 2020 it cost roughly $3800 to ship a contain to either east or west coast (varying a bit). The cost in Oct 2021 was $17,000 a container for the west coast, and $20,000 a container for the east coast. It is likely this will get slightly to measurably worse before it gets better.

Ports are Backlogged

How can i prove this? Look here for real time shipping information for the west coast https://www.marinetraffic.com/en/ais/home/centerx:-125.9/centery:47.6/zoom:3

International ports in Taiwan Mundra Port (India), Port of Shanghai (China), Port of Singapore, Port of Tianjin (China), Port of Guangzhou (China), Port of Ningbo (China), Port of Rotterdam (Netherlands), Port of Suzhou (China), Port of Qingdao (China), Port of Dalian (China), Port of Busan (South Korea) – and nearly all the others are backlogged.

All the ports are a mess, not just California

Graphic showing China Ship Congestion
China Ship Congestion

https://www.marinetraffic.com/en/ais/home/centerx:125.5/centery:25.9/zoom:5

The Ports of Los Angeles, Long Beach, Newark/New York, Savannah, Houston, Seattle, Norfolk, Tacoma, Charleston, Oakland and the other 20 ports are pretty much entirely backlogged. Click the marinetraffic website link above for details on any specific port.

Even when the ships can unload the trucks cant get it out of the way fast enough (or there are none).

Other Supply Chain is getting Backlogged also

Whether it is trains/rail yards, Fedex, UPS, USPS or just semi trucks. The supply chain in the USA is maxed out.

Even Chicago is backed up. https://www.wsj.com/articles/supply-chain-backlogs-turn-chicago-into-new-chokepoint-11627064719. I just saw an update that the trains are backed up 25miles out of Chicago, and starting to be stored in regional railyards.

How is the supply chain supposed to work?

To understand why we are in trouble you need to understand the supply chain when it was working. The supply chain is built out of 1000s of private businesses. Who ships where is mostly based on COST. If one route is cheaper it is used. If you can shorter the supply chain and get closer to just in time you save more money. This has been occurring since the 1950s. We squeezed out a LOT of floating inventory over the years.

Almost the entire supply chain is designed “just in time”. It is designed for nearly 100% use at all times. This means there aren’t huge stockpiles sitting in warehouses. Stockpiles cost money to buy, store, protect and then move again. It is better to move it directly to the consumer so the system is the storage.

Warehouses and stockpiles are extremely expensive. The warehouses that do exist are designed to distribute supplies, goods and such immediately not hold for long periods

Supply Chain Disaster?

Why is the supply chain failing now?

The supply chain is failing because of

  1. COVID backlog (pent up demand)
  2. Economic Growth (new demand)
  3. Normal seasonal demand changes
  4. Fewer people wanting to work for whatever reason.
  5. Interdependence
  6. Supply and Demand

COVID Backlog

During COVID the planet slowed down manufacturing, mining, construction etc. COVID created a backlog of demand. When COVID let up and that pent up demand hit the market. This “backlog” was between 5% and 15% for the entire period (delayed delivery)

Economic Growth

The economy started to pick up (creating a modest increase in demand) in late 2020 and early 2021 as we got out of the 1st parts of COVID. The numbers vary but on the low end its 1% and on the high side its 5%

Normal Seasonal Demand

Shipping “peaks” normally August thru November of each year (so that is the peak capacity). The system runs at lower than 100% from late December through July/Aug of each year.

This means ships, container counts, trucks, ports, trains etc were set up for a certain peak season (and no more). If they had to much capacity they paid for functionality they wouldnt need (lost money).

Fewer People Working

For whatever reason, even though there is demand for workers, people aren’t applying for jobs. This is creating shortages in the supply chain because extra shifts cant be staffed, or more truckers can’t be put on the road.

Interdependence

Delays also pile on top of each other. If you are a chip maker waiting on silicon and the mining company and processors are waiting too you get this cascading effect.

If a ship is waiting (doing nothing) another person is waiting for it so their shipping is delayed also. On top of it, if someone pays a LOT more they get their shipping in over other people (jump in line) and that creates longer delays again.

Supply and Demand

Even though governments control some markets and control some means of production, overall supply and demand rule. So a change in supply like a shrunk supply because a supplier cant get parts impacts that market, and those can overlap into other markets. Paper/Cloth for masks ate up a lot of supply for other paper products such as napkins, toilet paper, etc etc.

Consumer demand adds onto the mess. We want X so the market tries to supply X at a profit.

Also even when there is supply there could be contractual or equipment challenges. If I grow potatoes for french fries and have all the equipment for that all set up just in time, and now the demand for fries drops but the demand for freeze dried potatoes jumps, it isnt easy to switch mid stream. Plus i might not want to switch in case my vendor (the person I supply) might start asking for my product again.

How those 6 factors cause more backlog

We have a system that is designed to run close to 100% from August through November of each year. We saw COVID increase demand by at least 5% to as much as 25% due to backlogs. We saw a 1% to 5% growth.

We are still seeing reduced staffing (compared to demand). So the supply of ships, trucks, dock workers is all lower than the demand.

If we add that all up, the “slow” season ends up slightly over 100% utilization and now we enter the heavy shipping season. We end up 110% to 130% utilization. With no end in sight.

Other signs things are getting worse

There are supply chain special forces teams hired now. They track down supplies that are “lost” (delayed) and manually getting them expedited via other means. These existed in rare cases historically, now they are critical for some business to remain in business, because they cannot get parts.

Unrelated items pile on. Lower wheat supplies, oil and gas issues in Europe and spreading. There are a lot of indicators of bigger problems.

  1. Europe’s Power Crisis Is Moving North as Water Shortage Worsens https://www.bloomberg.com/news/articles/2021-10-03/europe-s-power-crisis-is-moving-north-as-water-shortage-worsens
  2. GRAINS-Wheat futures surge as U.S. supplies drop to 14-year low (supply side of supply chain issues – also pushing inflation) https://www.nasdaq.com/articles/grains-wheat-futures-surge-as-u.s.-supplies-drop-to-14-year-low-2021-09-30

Can we recover?

Yes. The market can recover from this. Assuming there are no more hits. Recovery estimates vary from 12 to 36 months. People will build more ships, more port processing, alternative shipping, offer more money for workers.

If there is money to be made it will happen, but not quickly given the SIZE of the problem. The problem is we are seeing secondary impacts that are hard to follow. Natural Disaster disruption, further COVID challenges, inflation, and/or new cascading supply chain problems.

Unfortunately, I believe the odds are that the problems will be with us for years. My opinion is 1-2 years is about a 20% chance 3-5 years is a 60% chance and 6-9 years is a 90% chance of full recovery. I believe it will take longer because demand is sporadic to begin with, and governments generally make changes without measuring, so they will muck-about in the private sector hindering recovery while hoping to “fix” the problem.

The only things that would speed things up when governments get involved, are tax breaks and simplified regulation for supply chain investment (tech, people and capital).

Do the Supply Chain Problems Increase Inflation?

YES. The supply chain problems are causing inflation. In some cases HUGE price spikes. A specific brand of cooking oil went from $22 to $31 to $44 in a 18 month cycle. That is much higher than the reported 6% inflation.

Car and truck prices are way up. Some electronics are in very short supply or not available at all. The disruption in availability of goods results in increased prices. Lower supply with same demand results in HIGHER cost.

Inflation is an entirely different discussion but at a high level the inflation is fed by and feeds into the supply chain problems. The two are tied together. A robust stable supply chain means lower costs overall. But today 3 full round trips of a large container ship can nearly pay for a new one (without inflation). Something is going to have to shift at some point.

References/Examples

Good link to see a ton of supply chain/inflation related articles: https://t.me/commonsensehome

  1. Food Prices Soaring https://www.bnnbloomberg.ca/world-food-costs-at-risk-of-soaring-as-china-faces-tough-harvest-1.1658980
  2. Used Trucks and Cars Prices Skyrocket. Detroit is seeing backlog on new vehicles because they cant get the computer chips to finish them https://www.freep.com/…/car-chip-shortage-2021/7688773002/
  3. Power Crisis in China will affect supply chain on top of everything else. Figure on wider market visibility a week to couple of months depending on what part of the chain the item is in. https://www.zerohedge.com/markets/power-crisis-deepens-asia-and-europe-what-it-means-shipping
  4. Fertilizer Prices Soar. https://www.agweb.com/news/crops/crop-production/fertilizer-prices-soar-near-2008-highs-supply-shocks-concerns-sprout
  5. No French Fries. https://mattstoller.substack.com/p/shortagewatch-sorry-no-french-fries
  6. Coal Crunch Affecting Fertilizer Pricing https://finance.yahoo.com/news/china-warns-food-security-energy-035319350.html
  7. Britons Facing Christmas Turkey Shortage https://theepochtimes.com/millions-of-britons-could-face-national-shortage-of-turkeys-this-christmas_4018349.html
  8. Europe Energy Crisis https://watchers.news/2021/09/27/europe-s-crippling-energy-crisis-presages-trouble-for-the-rest-of-the-world/
  9. US Meat Prices to remain HIGH https://www.zerohedge.com/commodities/us-meat-prices-remain-elevated-amid-depleted-reserves
  10. UK Meat Supply Threated Due to CO2 supply/costs https://www.agweb.com/news/livestock/poultry/uk-meat-industry-warns-imminent-supply-threat-co2-crisis
  11. America Facing Supply Chain disruption and shortages. Here’s why https://www.theguardian.com/commentisfree/2021/oct/01/america-supply-chain-shortages
  12. This ‘is a perfect storm’ of supply chain issues https://finance.yahoo.com/video/perfect-storm-supply-chain-issues-202039179.html
  13. Kohl’s Stock Plunged After a Double-Downgrade. Blame Supply-Chain Issues. – watch for a LOT more like this https://www.barrons.com/articles/kohls-stock-is-plunging-after-a-double-downgrade-51633016547
  14. The workers who keep global supply chains moving are warning of a ‘system collapse’ https://www.cnn.com/2021/09/29/business/supply-chain-workers/index.html
  15. Lack of workers is further fueling supply chain woes https://www.cnbc.com/2021/09/28/companies-need-more-workers-to-help-resolve-supply-chain-problems.html
  16. Food supply chain issues impacting Kansas schools (expect this to expand nationwide) https://www.kwch.com/2021/10/02/food-supply-chain-issues-impacting-kansas-schools/
  17. Tidal wave of chaos engulfs global supply chains https://www.thetimes.co.uk/article/tidal-wave-of-chaos-engulfs-global-supply-chains-hwpn88xsc
  18. How Long Will It Take To ‘Normalize’… And What Will ‘Normal’ Look Like? https://www.zerohedge.com/markets/how-long-will-it-take-normalize-and-what-will-normal-look
  19. Food banks warn of smaller parcels due to HGV supply shortages https://www.theguardian.com/society/2021/oct/04/food-banks-warn-of-smaller-parcels-due-to-hgv-supply-shortages
  20. Dubai’s Dubia Port- Sultan Ahmed Bin Sulayem expects bottlenecks to continue until 2023 https://www.theepochtimes.com/one-of-worlds-largest-port-operators-warns-global-supply-chain-crisis-will-last-longer-than-expected_4030709.html

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