Are Supply Chain Disruptions the New Normal?

[El Presidente]

We were told

• Supply chain disruptions will only last 6 months or so. 
• Inflationary pressures are largely temporary

 10 months later

• Supply chain disruptions have broadened from manufactured goods to fresh produce staples. 
• Worker shortage globally in key industries. 
• Inflationary pace appears to be escalating. 

Interest rates have always been the key tool to "dampen" inflation. However, via stimulus, governments globally have encouraged (since 2008) a high debt populace that is intolerant to the high interest rate tool that has been used in the past.  You can already hear the bleating from the public and rates have barely moved a point and a half.  I am not sure that there is a reserve bank / federal reserve anywhere in the West that has the appetite to move a further 5 points. 

Will the next decade be a dual fight of controlling inflation and securing basic resources? 

Are supply chain disruptions simply the new normal?  

 

 

[benfica_77]

We have had record low interest rates across the world and countries printing money non stop. It lasted much longer than I ever suspected but it had to stop at some point. 

There's several factors at play impacting supply chains related to food and other household goods....

- Ukraine/Russia war....1/3 of all grains in the world is exported from these two countries among other goods like rubber, canola oil etc. Even after the war ends it will take time for the businesses to recover. My best guess 1 more year of war 2-3 after before production is back to normal. 

- Rising temperatures across the world....I don't care if you don't believe in climate change or not the fact is that the world is getting hotter...record setting heat in India...Japan etc. This impacts food production and already has across the world. I just read recently Parmesan cheese in italy production will be cut significantly since the River Po has basically evaporated due to record heat and drought and this river is used to grow the crops to feed the cows that give us the Parmesan cheese. There are countless other examples. 

- Pandemic forced labour markets to change....unemployed people because of the pandemic learned new skills and moved to new jobs and they won't come back. This has decimated the hospitality industry and I suspect will for quite some time. Those were low wage jobs and with inflation we haven't seen in decades it is not attracting new people to replace them....i suspect countries will begin loosening up immigration to fill this void. This will take 1-3 years until it's fixed and depends on government policy. 

- Record inflation with rising interest rates and high personal debt is a recipe for a bad time. In the "Developed nations" the rising consumer debt levels as a ratio of GDP are at all time high in several countries including Canada, US and Japan to name a few. People are going to lose their pants because they are over leveraged and I think it will fundamentally change this generations perspective on saving and consumer spending. 

I'll stop my rant but I expect everything will sort itself out in the next 3-5 years based on information at hand. If China decides to invade Taiwan...a new pandemic....or aliens arrive well then this changes my projection.

What i do know is that the human race always adapts and innovates, it is one of the few good qualities we have. 

[HarveyBoulevard]

Transitory 🤣🤣🤣🤣🤣🤣🤣

[BoliDan]

For the time being it's normal. Company's still are waiting to see if the demand increases actually warrant expansion and increased R&D expenditure. Maybe if it is the new norm we can get back to the sanity of demand driven economy instead of record profits being made and not recycled in to the economy because equilibrium is realized at a demand level that doesn't warrant expansion while still making hand over fist.

[El Presidente]

1 hour ago, BoliDan said:

For the time being it's normal. Company's still are waiting to see if the demand increases actually warrant expansion and increased R&D expenditure. Maybe if it is the new norm we can get back to the sanity of demand driven economy instead of record profits being made and not recycled in to the economy because equilibrium is realized at a demand level that doesn't warrant expansion while still making hand over fist.

Dan, I am not sure that every company's is over the minutae of their direction?

How do you realistically predict the 3/6/12/36 month timeframe?

You sit behind a screen. No precedent?....maybe there is but I can't see one. 

So you have to take a punt. What needle do you move? Price is the obvious one but there are consequences.....maybe...maybe not. 

it is all but a game....with consequences. 

[Fuzz]

3 hours ago, benfica_77 said:

- Ukraine/Russia war....1/3 of all grains in the world is exported from these two countries among other goods like rubber, canola oil etc. Even after the war ends it will take time for the businesses to recover. My best guess 1 more year of war 2-3 after before production is back to normal. 

 

Don't forget Ukraine is/was a major supplier of neon, xenon and krypton gases, all used in the production of semi-conductors.

[anacostiakat]

Yea.  It sure does seem that the "global economy" has risen up and bitten off a piece of the royal rump.  

[Chas.Alpha]

From the construction industry perspective here in the US, there is still a boom in new housing, but don't expect to be able to turn on power for at least 12 months. (a typical 2000 sq ft single story should be move-in ready in +/- 4 months start to finish) Electrical panels and breakers, most coming from SoKo and China have unknown shipping dates and when they do, the boats are floating outside the port of Los Angeles for weeks if not months. Toss in a shortage of truck drivers and a $6.00 gallon of diesel. COVID shut down the lumber mills, so a $1.98 8 foot 2x4 now sells for $10.00. In commercial construction at the beginning of any project, we would make a list of "long lead" items, specialties, one of a kind, etc. At this point, basics such as block, brick, framing studs, sheathing are all considered long lead. I had my roofing materials on site before we were finished clearing.

I haven't seen 10 ct. boxes of Lusi's up for some time...

[Nevrknow]

15 minutes ago, Chas.Alpha said:

From the construction industry perspective here in the US, there is still a boom in new housing, but don't expect to be able to turn on power for at least 12 months. (a typical 2000 sq ft single story should be move-in ready in +/- 4 months start to finish) Electrical panels and breakers, most coming from SoKo and China have unknown shipping dates and when they do, the boats are floating outside the port of Los Angeles for weeks if not months. Toss in a shortage of truck drivers and a $6.00 gallon of diesel. COVID shut down the lumber mills, so a $1.98 8 foot 2x4 now sells for $10.00. In commercial construction at the beginning of any project, we would make a list of "long lead" items, specialties, one of a kind, etc. At this point, basics such as block, brick, framing studs, sheathing are all considered long lead. I had my roofing materials on site before we were finished clearing.

I haven't seen 10 ct. boxes of Lusi's up for some time...

Impossible to schedule. No room on site but stacking grout as high as I can. Split face block no problem. Smooth? HA! Mortar for the block? You wish. Lowe's has pallets of concrete mixers to rent but the shelves are bare. Ready mix, only 3 week lead time. 

Trying to explain to vp's we need to order first THEN schedule. Got scoffed at. That's cool. You'll see. 

Same here, got roofing/decking before I broke ground. Going to get some rope and sky hooks to hold it up. 🤣

( Do not Google sky hooks ) old construction joke. 😁

[Chas.Alpha]

1 minute ago, Nevrknow said:

( Do not Google sky hooks ) old construction joke. 😁

2 days into my 1st year apprenticeship, my journeyman sent me in search of 2 sky hooks and some bubble oil for his level. The other journeymen had me bouncing throughout 18 stories in search. My 1st apprentice? You know it! I needed 2 sky hooks, a pint of bubble oil and a left handed pipe wrench!!! 😂

[Ford2112]

3 hours ago, Chas.Alpha said:

2 days into my 1st year apprenticeship, my journeyman sent me in search of 2 sky hooks and some bubble oil for his level. The other journeymen had me bouncing throughout 18 stories in search. My 1st apprentice? You know it! I needed 2 sky hooks, a pint of bubble oil and a left handed pipe wrench!!! 😂

My bags were nailed to floor joists,pine pitch on my hammer handle,sent on wild goose chases for a wood stretcher. You name it.

[SCgarman]

3 hours ago, Chas.Alpha said:

From the construction industry perspective here in the US, there is still a boom in new housing, but don't expect to be able to turn on power for at least 12 months. (a typical 2000 sq ft single story should be move-in ready in +/- 4 months start to finish) Electrical panels and breakers, most coming from SoKo and China have unknown shipping dates and when they do, the boats are floating outside the port of Los Angeles for weeks if not months. Toss in a shortage of truck drivers and a $6.00 gallon of diesel. COVID shut down the lumber mills, so a $1.98 8 foot 2x4 now sells for $10.00. In commercial construction at the beginning of any project, we would make a list of "long lead" items, specialties, one of a kind, etc. At this point, basics such as block, brick, framing studs, sheathing are all considered long lead. I had my roofing materials on site before we were finished clearing.

I haven't seen 10 ct. boxes of Lusi's up for some time...

Our new Lennar built home here in MB took 6 months to build. The slab sat for a month prior to framing. Then roof trusses became delayed. Thank goodness my mom bought a second house for us to live in. Hate to be in a roach infested dumpy hotel for 6 months with 2 dogs and a parrot! Anyway, the house was worth the wait. We love it so far and Lennar has been very responsive with all warranty claims I filed. Make no mistake, people will slow down buying houses with an increasing mortgage interest rate and high fuel and food costs. 

[El Presidente]

9 hours ago, Chas.Alpha said:

From the construction industry perspective here in the US, there is still a boom in new housing, but don't expect to be able to turn on power for at least 12 months.

Here in Oz, builders large and small are going under  hand over fist. 

Fixed price contracts and skyrocketing material/labour costs = bankruptcy. 

[Greenhorn2]

3 hours ago, El Presidente said:

Here in Oz, builders larger and small are going under hand hand over fist. 

Fixed price contracts and skyrocketing material/labour costs = bankruptcy. 

In my area of the US, there are no fixed price contracts. They give an estimate of what the build will cost plus possible market fluctuations. If you can't agree on that, build it yourself. Lumber prices are finally starting to drop .

[HawkI84]

20 hours ago, Chas.Alpha said:

Electrical panels and breakers, most coming from SoKo and China have unknown shipping dates and when they do, the boats are floating outside the port of Los Angeles for weeks if not months. Toss in a shortage of truck drivers and a $6.00 gallon of diesel. COVID shut down the lumber mills, so a $1.98 8 foot 2x4 now sells for $10.00. In commercial construction at the beginning of any project, we would make a list of "long lead" items, specialties, one of a kind, etc. At this point, basics such as block, brick, framing studs, sheathing are all considered long lead. I had my roofing materials on site before we were finished clearing.

I haven't seen 10 ct. boxes of Lusi's up for some time...

This kind of thing isn't limited to just construction. Asia became the worlds factory, so when demand for shipping and port capacity exceeded supply and trucking labor died from COVID/retired early/said f*** it for the pay, we started running in to months long delays getting stuff from Asia to anywhere else. Shippers took advantage and jacked up rates - and those shipping costs get passed along to pretty much everything. COVID shutdowns of ports, factories, etc just exacerbated the issue. Factory labor became hard to come by, even when unrelated to COVID, and still is even though stimulus payments have dried up. I know those payments took a lot of the blame, but $15/hr and no benefits isn't something people are going to go to work and take the time out of their day for when that barely covers the essentials, if that. Then there was Russia's invasion, which further constrained the supply of a lot of essentials (grain, oil, neon, etc).

Port/shipping capacity and the mismatch in the labor market aren't things that get solved quickly - nor is moving supply closer to demand, which I can assure you, is happening a lot. Powell and his cronies at the Fed were obviously completely out of touch calling inflation "transitory", and given everything that was going on, they should have been able to see it.

 

[Fuzz]

Our Maritime Unions completely screwed up the ports here during Covid (well, they screwed them up before that too). They've been running union action (work to rule, go slows, etc) since their enterprise agreements ended in 2020. In the last 2 years with the least amount of containers coming into the country in 20 years, they wanted a pay rise  when everyone else were getting let go or subsisting on govt payments (and they had guaranteed employment, where the average pay is AUD170k).

Wish we could get rid of the MUA and make the ports non-unionised. Apparently the MUA now gets to decide who gets hired at the ports, not the port owners.

“Recruitment will no longer be left to managerial prerogative, by ensuring 70 per cent of new recruits are put forward by workers and the union.”

Talk about cronyism.

[Ryan]

When China casts a serious eye at Taiwan, and the sanctions that will follow (though they are certainly looking at Russia/Ukraine to see what might be done to avoid sanctions), we’ll all be nostalgic for the global supply situation as it is today.

[...]

In March 2020, I was looking at the reaction and measures put in place and started to tell people the pandemic would likely take 5 years to get resolved, with things being normal again. Now, I feel like I was probably optimistic in my assessment 🤕

[joeypots]

https://bigtechnology.substack.com/p/the-supply-chain-is-improving-flexport