“Companies will have a new focus on resilience. That means having more options. Multi-shoring and higher inventories are two likely outcomes.”
— Michael Zimmerman, partner A.T. Kearney
“Companies should avoid clustering suppliers in one region and around similar supply chains, reconsider whether it makes sense to create isolated supply chains and understand the location risks in every tier of the supply chain.”
— Tim Lawrence
“This will still include a global factor, but the long-term rebalancing will limit exposure by avoiding single-region or single-supplier sourcing. A balance of global, regional and local sourcing will prove to be less risky and more efficient in the long run.”
— Steven Melnyk, Professor of Supply Chain Management
“Without data you’re just another person with an opinion.”
— W. Edwards Deming
“The real competition is between supply chains, not companies.”
— Martin Christopher
“The supply chain stuff is really tricky.”
— Elon Musk
“The line between disorder and order lies in logistics.”
— Sun Tzu, 496 BC
“Products can be easily copied. But a supply chain can provide a true competitive advantage.”
— Yossi Sheffi, MIT
“Two basic rules of life are: 1) Change is inevitable. 2) Everybody resists change.”
— W. Edwards Deming
End of the world – yet again? More accurately, it is truly the end of the world as we knew it. Enormous changes globally are underway. A new world order is being created. Of the many changes facing us, those related to supply chains and shortages may have the most immediate impacts. Vital to know what these are even if you can’t do much about them.
Supply chains and their associated shortages are things that most of us never had to know or think about until COVID days. Stuff we needed was almost always there when we needed it. COVID changed this happy situation hugely and forever. The changes involved are happening now.
Why should us normal non-supply-chain folks have to be concerned with the inner workings and situation here? Well, you don’t if you can really get along without essential stuff, or with much-higher-priced stuff, or with seriously unreliable availability of stuff.
Oh yes – there is also the minor matter of massive global economic and political changes that are a major part of what is going on with our stuff. This is the really big part of the story.
Nothing much that any of us can do about whatever is happening out there, but it seems vital that we have some idea about what is actually going on. In the near future, your very existence may depend heavily upon such knowledge.
The big picture
COVID-related lockdowns and business closures, along with subsequent mask and vaxx mandates, created huge disruptions in production and distribution of almost everything. Some folks think that the current mess was intentional and planned long ago, but this is not really relevant to what is affecting us today. It is effectively in the category of “stuff happens”. Always.
We are now in World War III, thankfully non-nuke so far, as the result of whatever may be going on in the Ukraine. This is the U.S.-NATO gang vs. the Russia-Eurasian gang. It looks like the Russia-Eurasian gang is getting the better of the mess so far, while the U.S.-NATO gang seems preoccupied with self-destruction. Who knows where it goes from here.
Apart from this major battle to see which side can destroy itself first, it has caused a huge disruption and restructuring of production and supply chains globally. U.S.-NATO sanctions have already begun the destruction of Europe and are probably going to mess badly with the U.S. as well, beginning yesterday. The Russia-Eurasian folks have inconveniently benefited from the sanctions, but this may only be temporary.
The immediate and greatest impacts have been on production and supply chains globally. For some reason, nobody trusts anybody much anymore. Self-reliance is now the thing.
Peter Zeihan got a bit ahead of the crowd on this big picture happening with a recent book cautiously titled “The End of the World Is Just the Beginning: Mapping the Collapse of Globalization”. From Amazon’s 2022 book pitch:
“For generations, everything has been getting faster, better, and cheaper. Finally, we reached the point that almost anything you could ever want could be sent to your home within days—even hours—of when you decided you wanted it.”
“America made that happen, but now America has lost interest in keeping it going.”
“Globe-spanning supply chains are only possible with the protection of the U.S. Navy. The American dollar underpins internationalized energy and financial markets. Complex, innovative industries were created to satisfy American consumers. American security policy forced warring nations to lay down their arms. Billions of people have been fed and educated as the American-led trade system spread across the globe.”
“All of this was artificial. All this was temporary. All this is ending.”
“In The End of the World Is Just the Beginning, author and geopolitical strategist Peter Zeihan maps out the next world: a world where countries or regions will have no choice but to make their own goods, grow their own food, secure their own energy, fight their own battles, and do it all with populations that are both shrinking and aging.”
“The list of countries that make it all work is smaller than you think. Which means everything about our interconnected world—from how we manufacture products, to how we grow food, to how we keep the lights on, to how we shuttle stuff about, to how we pay for it all—is about to change.”
“A world ending. A world beginning.”
So, good news: The world isn’t ending – just the world as we knew it
This is kind of what Zeihan seems to be saying, yes? Maybe. In any case, the more accurate way to describe what is happening is that the world today is undergoing some huge and irreversible changes. The “world” will still be here, but much changed. This inconvenient situation has happened many times before, as I have noted in this post.
The U.S. Fed seems to be committed, until it isn’t, to taming the currently-high inflation. Even if the cure is a serious recession. New York University professor Nouriel “Dr. Doom” Roubini has recently predicted a “severe, long and ugly” recession dead ahead:
“He made his dire prognostications in Bloomberg News which was reworked in a RT (Russia Today) article on September 20, 2022:”
“According to Roubini, large debt ratios of corporations and governments will lead to recession. As rates rise and debt servicing costs increase, ‘many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die,’ Roubini said. ‘So we’ll see who’s swimming naked.’”
“’It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly,’ Roubini said.”
Kind of like the Great Depression of the mid-twentieth century? Hard to imagine worse, but we are governed today by experts fully capable of creating new extremes of “worse”.
This rather dismal situation is what us normal folks have to deal with while our supply chain and shortages world is in a truly awful mess. A few examples:
Diesel fuel shortages
“Many People will Starve & Die from Freeze While Fighting Global Warming: No Diesel = No Food”. This from a source that I generally respect. It will remain unnamed as a courtesy.
You of course will see the fallacy here immediately. “No” is used here to mean “None”, as in “scary”. The problem seems to be that this minor distinction has been missed by an increasing number of prognosticators. You would almost think that they are trying the stir up some new fears, now that COVID has largely been relegated to the back pages, or the vapors.
There will always be – a nuked-world excepted – huge volumes of diesel fuel available. Just not where we need it and probably not as much as we are used to having. And for sure costing a lot more. This is where the supply chain wizards are focused. Diesel prices are already very high and cleverness in sourcing can pay off big time. Maybe even some of the presently shuttered refineries will be enticed to start back up again.
While supply chains get changed to reflect our current global reality, we will have shortages and nasty prices to deal with. You can bet that this situation will get fixed in pretty short order. Oil companies have a lot of very smart people. But politics will make certain to mess with whatever happens (see below).
Supply chains are getting redesigned very quickly
John Gallagher of FreightWaves … “North America’s Reshoring Of The Global Supply Chain.”:
“’Every disinflationary trend of the last 75 years has flipped, and every inflationary trend is back at the same time. We are looking at 9% to 15% inflation for at least the next five years — and that’s independent of anything the Fed does,’ he said.”
“If at the end of the five-year period we’ve succeeded in building out the industrial plant, we go back to a much tamer system that will be lower for longer, because the supply chains will be local, the processing will be local and we’ll be following our own labor metrics, which will have evolved because we will have had to do a lot more with artificial intelligence and automation than we currently have, especially as we bring in electronics manufacturing — we will have a choice.”
“But if we fail to do that, then the 9% to 15% inflation continues and there are product shortages. From my standpoint, it’s a really clear path. The alternative is to go through the worst of it and get none of the benefits.”
“’For companies looking to survive in the new North American supply chain, “anything that makes you more modular and more capable and allows you to adapt more quickly is something I think that can provide an outsized advantage,’ Zeihan said.
“We’re going to have fewer supply chain steps closer to home, and the competitive nature to that is going to be very different from just waiting for things to show up at the dock. We’re going to have the need to do everything that is currently done in Asia but in fewer steps and right in our own world.”
“That’s not just an issue of a capacity increase. That’s an awareness of what the cargo is on a micro level and in each container so that anyone can go to anything at any time and find out the best way to route within the system — that’s going to require a lot more information technology.”
Multiple sources, localized sourcing, and business redefinition are going on full blast today. There are many very smart people out there driving and executing these responses. If they are not interrupted by a major nuclear war, they will get this vital job done, not instantly but expeditiously.
West Coast port congestion is easing as clever shippers do their thing
After many months of endless anguish about West Coast port congestion, with at least a zillion huge container carriers anchored offshore waiting and waiting, things seem to have been corrected. Probably by shippers. I’m just waiting for the consequent moaning by West Coast port operators about the lack of shipping business. You, like myself, will of course be most sympathetic in this event.
Natural News has a recent piece of good news: “…Southern California port truckers scramble for loads as supply chain congestion fades”:
“Meanwhile, port truckers in Southern California are scrambling for loads as container imports decline. The traffic jam of container ships off the Southern California coast, which used to be the center of U.S. supply chain congestion during the Wuhan coronavirus (COVID-19) pandemic, has effectively disappeared.”
“According to the Marine Exchange of Southern California, the line of ships waiting to unload at the Los Angeles and Long Beach ports went down from a peak of 109 ships in January to four vessels in the third week of October.”
“The White House thinks it’s a positive sign. ‘Clearly it is good given how much these supply-chain constraints were drivers of inflation last year,’ said Sameera Fazili, deputy director of the National Economic Council and White House Task Force on supply-chain disruptions chief.”
“President Joe Biden and port administration officials determine a range of factors that have helped ease congestion, which includes a tighter queuing system that had ships lining up further out in the Pacific; new container yards that freed up space on docks; and government initiatives that fostered better collaboration between retailers, ports, railroads and truckers.”
Then we have nothing to worry about, apart from getting nuked?
The supply chain and shortage hassles will probably continue for a few years since these systems are complex, costly, and time-consuming to change. While the powers that be, or that wannabe, continue to mess things up in our otherwise wonderful world, making the necessary supply chain changes will have to be achieved under some rather dynamic conditions.
A current example: the U.S.-UK-NATO geniuses have implemented an oil price cap on vitally needed (by those same folks) Russian oil. Fortunately, some equally clever folks have decided that …
“The United States and its Western allies have agreed that a cargo of Russian oil will only be subject to the price cap mechanism at the first sale of the oil to a buyer on land, sources familiar with the ongoing discussions told The Wall Street Journal on Friday.”
“This means that the upcoming price cap will not apply to the resale of the same Russian cargo. The price cap will not apply to a cargo of Russian crude processed into gasoline when the gasoline is sold, either.”
Take that, you nasty Russians! Ship all the oil we desperately need and humbly accept the huge price increases involved in this clever supply chain workaround. That’ll teach ‘em.
Of course we will still have politics to deal with
Despite whatever happens in the 2022 mid-terms, we will still have crazy politics as usual. I just ran across this gem:
“Video: Biden Says the Quiet Part Out Loud About Climate Change And His Handlers Are Trying To Save The Situation – Moments Later He Announced He’ll Shut Down Coal Plants All Over The USA”.
As this country (along with many others) struggles with electrical power shortages, shutting down major coal plants won’t make things any easier. We might hope for a clever solution here along the lines of the oil price cap for those nasty Russians. I’d count on it. We the people probably won’t like living in the cold and dark for long.
Some naïve folks like myself may even begin to think that the New World (dis)Order folks are somehow involved in helping create and increase such shortages and supply chain disruptions. Heaven forbid.
Supply chain crises and shortages are symptoms, plus vital fix information
If your job is to fix things, you probably want to start with things that show the most serious or urgent need for fixing – via symptoms. Symptoms also show you how well you are doing with your fixes – vital information. No symptoms, no fixing needed. Unless you are a politician, of course.
Folks who fix things that don’t need fixing are called politicians. These folks are also pretty good at discovering and applying what won’t work and what makes things worse. Important to know these, so maybe politicians have value despite much evidence to the contrary.
When things are changing rapidly and seriously, the real fixers are working in a dynamic environment. Big challenge, since you have to account for lags and interactions. This is where computers and AI technology really help out. Unless your AI is more artificial than intelligent, our current world is becoming easier to effectively manage each year. Unless you are a politician, of course.
It is getting worse, at least from a political point of view
As of early November 2022, as mid-term elections are set to roll, here we get some very discouraging information to those who have spent the past two- or three-years fixing things – politically: “Freight companies expect “muted peak season” due to waning retailer demand”:
“Freight companies are now preparing for what executives are calling a “muted peak season” as diminishing shipping demand from overstocked retailers ripples across the country’s shipping markets.”
“According to the Wall Street Journal (WSJ), the changes are cascading across freight operations, cutting into inbound shipping volumes and bringing fewer goods onto the roads.”
“’The fourth quarter is generally the peak of the holiday shipping season,’ the chief executive of Chicago-based trucking and rail freight services provider Hub Group Inc. David Yeager said in an earnings conference call in October. ‘However, judging by the feedback from our clients, this peak will be muted versus historic norms. Beyond 2022, we do acknowledge the potential for a continued softening economy’”.
“As per trucking executives, the biggest impact so far has been on spot-market business, where one measure shows rates falling from August to September for the first time since 2015. (Related: Shipping cost from Asia to US West Coast drops 84% year-over-year as consumer demand plunges.).”
See also “Consumer demand collapses as global economy IMPLODES, factories closing doors, freight demand plummets”.
This situation is beyond inconvenient when you are trying to get (re)elected. We have not only still-very-high inflation, but now we have the economy slowing rather rapidly as well. Even if this nasty stuff was all caused by Russia, it still makes domestic politics a rough go right now.
Bottom line:
End of the world? Not a chance. Big, often painful changes in our current world? For sure. The real message in today’s supply chain disruptions and shortages is that the world has changed hugely and will probably continue to do so as geopolitical alignments and processes adapt accordingly. This means an extended period of temporary shortages and supply disruptions. Our new normal even. Supply chain players will have to get used to this dynamic situation and make necessary adjustments quickly and in a timely manner, probably for some period of years at best.
Related Reading
- As is often the case, consulting giant McKinsey & Company manages to assemble some very useful big picture stuff, such as the one below:
“Bigger buffers and safety stocks are still seen as an important tool for supply chain resilience. Eighty percent of respondents told us that they increased their inventories during 2021; separate McKinsey analysis of almost 300 listed companies found that inventories increased by an average of 11 percent between 2018 and 2021,1 with the largest increases in the high-tech and commodity sectors. Some supply chain leaders have told us that they would have increased inventories even further if suppliers had been able to meet their requests.”
“While higher overall stock levels have become the norm, our survey suggests that companies are now looking for smarter ways to ensure resilience while keeping inventory costs under control. Seventy-one percent of respondents expect to revise their inventory policies in 2022 and beyond (Exhibit 1).”
- Shawn Clark makes an important point in Forbes: “The Great Supply Chain Disruption”:
“Disruptions Are Here To Stay”
“The pandemic highlighted the shortcomings of ‘just in time’ manufacturing, whereby manufacturers develop goods to meet customer demand exactly in time. Now, American companies are rethinking their manufacturing locations, which could spark a need for additional warehousing space close to these locations. Leaders in industrial real estate are reacting to this potential demand through regionalization, nearshoring and reshoring their businesses to minimize risk.”
“Since companies will be forced to store large stock to protect their businesses from supply chain disruptions, they have adopted a new principle of ‘just in case’—replacing the obsolete philosophy that relied predominantly on the steady and reliable production of goods. This revamped [principle] inquires into the methods in which businesses, warehouses and manufacturers weigh the risks associated with prolonged disruption to their inventory levels.”
- Major accounting firm Deloitte targeted some of the specific ways that businesses are using to deal with supply chain disruptions and shortages: “Meeting the challenge of supply chain disruption”:
“Proactively managing multiple tiers. Supply chain executives have been drawn into management not just of their primary suppliers, but increasingly of secondary and tertiary suppliers also. Several executives interviewed noted that previously they did not get involved beyond Tier 1, but the dynamics of the current environment drove a need to increase visibility. For example, if Tier 3 suppliers were unable to give firm dates for shipping, often this potential weak point wasn’t visible to primary suppliers or to the company itself, and potential delays were not flagged early enough. To address this risk, one company interviewed has begun working closely with its own suppliers to apply transparent decision-making based on metrics and benchmarking to that supplier’s suppliers. This can provide the company more visibility and clarity in terms of the companies with whom its suppliers are contracting.”
“Boosting local production capacity. Boosting local capacity is a real and important strategy for today’s manufacturers. US companies are increasing domestic sourcing. For the semiconductor industry, as other global industries, supply chain and logistics challenges are pushing manufacturers to build more local capacity. The solar energy industry, for instance, offers a case for using buyer power to increase production capacity. The US Solar Buyer Consortium was established to boost the domestic production of solar components. The group is focused on the procurement of US$6 billion of solar panels but is also enlisting manufacturers who can increase production to meet the growing demand for solar modules.”
“Engaging multiple and regionally diverse suppliers. The benefits of engaging multiple suppliers are well known but may vary according to company type—OEM or supplier. Nine out of 10 survey respondents have multiple suppliers, but only 44% have regional diversification of suppliers. The study highlights that companies with regional diversification were less affected by recent supply chain disruptions than companies with suppliers concentrated in one region. However, dual sourcing may increase costs: 43% of survey respondents noted cost as the top constraint in having multiple suppliers.”
