Tag Archives: Supply Chains

Here’s Why U.S. Supply Chain Problems Will Only Get Worse, by Brandon Smith

The more governments try to control things, the more things get screwed up. Count on it. From Brandon Smith at theburningplatform.com:

Here Is Why U.S. Supply Chain Problems Will Only Get Worse

It is an economic rule which free market philosophers like Adam Smith have tried to explain to governments and monopolists for centuries:

Less liberty and more centralization equals less production and less overall wealth.

Governments and central banks have sought to circumvent this rule by printing money from thin air, thinking that they can create wealth while at the same time suffocating public financial interactions and trade with authoritarianism. This, of course, only leads to inflation or stagflation, and thus wealth is never actually created, it is projected like a hologram in order to trick the masses into thinking that all is well – until everything breaks, that is.

Inflationary policies inevitably lead to speculation

To be sure, capital is concentrated under this system into the hands of a select few, but the currency itself is devalued swiftly and buying power is truncated. Speculative assets and many commodities start to see a burst of activity as the inflation grows out of control.

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Are California’s Strict Emission Laws Causing US Supply Chain Chaos? by Eric Worrall

The short answer is yes. From Eric Worrall at wattsupwiththat.com:

Governor Gavin Newsom just signed an executive order suspending weight limits on trucks servicing Californian ports. But does this order address the real cause of the problem?

Governor Newsom Signs Executive Order to Help Tackle Supply Chain Issues

Published: Oct 20, 2021

Formalizes state agencies’ partnership with the Biden-Harris Administration’s efforts to address state, national and global supply chain challenges

Directs state agencies to develop longer-term proposals that support port operations and goods movement for consideration in the January 10 Governor’s Budget

SACRAMENTO – Amid global disruptions to the goods movement supply chain, Governor Gavin Newsom today signed an executive order directing state agencies to identify additional ways to alleviate congestion at California ports. The executive order builds on earlier efforts this year by the Governor’s Office of Business and Economic Development (GO-Biz) to ease supply chain issues by engaging the diverse network of stakeholders along the supply chain to discuss key challenges and identify short-term and long-term solutions. Record demand for imported goods combined with capacity issues across the entire supply chain have slowed distribution at ports on the California coast.

“California’s ports are critical to our local, state and national economies and the state is taking action to support goods movement in the face of global disruptions,” said Governor Newsom. “My administration will continue to work with federal, state, labor and industry partners on innovative solutions to tackle immediate challenges while also bringing our distribution processes into the 21st century.”

Today’s executive order directs state agencies to continue coordinating with the Biden-Harris Administration Supply Chain Disruptions Task Force to address state, national and global supply chain challenges. The executive order also directs the Department of Finance to work with state agencies to develop longer-term solutions that support port operations and goods movement for consideration in the January 10 Governor’s Budget, which may include port and transportation infrastructure improvements, electrification of the goods movement system from port to delivery, and workforce development.

Additionally, today’s executive order directs state agencies to identify state-owned properties and other locations that could be available to address short-term storage needs once goods are unloaded from ships; to identify priority freight routes to be considered for a temporary exemption to current gross vehicle limits to allow for trucks to carry additional goods; and to create workforce training and education programs. AB 639’s (Cervantes, 2020) implementation is also expedited through this executive order.

Earlier this year, GO-Biz launched the California Supply Chain Success Initiative, a partnership with the California State Transportation Agency, the Port of Long Beach, and the CSU Long Beach Center for International Trade and Transportation to engage the diverse network of stakeholders along the supply chain to discuss key challenges and identify creative solutions. This effort, which brought together federal, state and local leaders, is focused on both short-term and long-term steps to address port congestion, including implementing a new 24/7 environment across the supply chain, a move the state worked with the Biden-Harris Administration on, improving collaboration, and exploring policies to remove obstacles and improve the movement of goods.

A copy of the executive order signed today can be found here.

Source: https://www.gov.ca.gov/2021/10/20/governor-newsom-signs-executive-order-to-help-tackle-supply-chain-issues/

A week ago, a Facebook post by Don Helms, who owns North Idaho RV Rentals, triggered a social media storm when he blamed changes to labor laws and California’s strict environment laws for causing supply chain chaos.

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We’re Living in a Chaos Economy. Here’s How to End It. By Mark Thornton

The solution is simple—get the government and its central bank out of the economy—but alas, given present day politics implementation will be impossible. From Mark Thornton at mises.org:

The Federal Reserve has been increasing the money supply at an explosive rate. The federal budget, deficits, and the trade deficit are record levels. Governments, both foreign and domestic, have locked down people, restricting production and consumption. How should this be viewed by an economist?

There is clearly chaos in the economy, and hardly a day goes by when I don’t find unusual if not unprecedented situations in day-to-day economic life. However, many people and economists are either oblivious to the problems or in denial. Things are normal for them. Politicians are mostly in this camp. For economists and investment promotors, inflation is “transitory.” They don’t know how the economy works and they expect near perfection from the economy and entrepreneurs. This view is wrong.

The chaos is all too real for most others. Homemakers who spend household income are seeing their purchasing power shrink, their choices disappearing, and more of their time consumed stretching the family budgets. Christmas shopping will be worse than normal.

Chaos deniers are further entrenched in their experience by the mainstream media (MSM). The problems are either not reported by the MSM or are masked by aggregate statistics like price inflation, i.e., the Consumer Price Index, low unemployment, wage increases, and extremely high stock markets and real estate, especially housing prices. These stats make people feel good, or at least less nervous.

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Breaking The (Supply) Chains, by Nick Colas

Much of the current supply chain problems are rooted in just-in-time inventory management. From Nick Colas at DataTrek Research via zerohedge.com:

“Supply chain disruptions” has become a catch-all phrase to explain product shortages and inflation. But how exactly does that work, and why is this problem taking so long to fix? For Story Time this week, Nick uses his 30 years of experience analyzing the US auto industry to explain what’s going on. It all comes down to “lean manufacturing”, which started in Japan after World War II and caught on worldwide in the 1980s/1990s. The pandemic has created systematic challenges to “lean”, enough that structural inflation is a threat.

Here is a story about how supply chains work and why they are so snarled just now. Yes, a grimy topic compared to some of our others, but important and my personal history as a long-time (30 years) auto industry analyst gives me a unique perspective on the issue.

To understand how global supply chains operate the way they do today, you really need to go back to Japan just after World War II.

The country, defeated and impoverished, desperately needed to restart its industrial base. It did so by producing what it could with a minimum of capital. That meant, for example, no capital-intensive vertical integration; there were parts suppliers, and then there were final assembly companies. It also meant keeping the supply chain tightly integrated to maximize throughput.

This spawned a new production model, now commonly known as lean manufacturing, and Japan’s auto companies led the way in its adoption.

Parts like exterior metal stampings and interior trim like seats and dashboards all arrived at automotive final assembly plants from suppliers within a few hours of when they were installed in a vehicle moving down an assembly line. Also, vehicle designers thought not just about how a vehicle looked or drove, but how it would be assembled. They designed for ease and cost of manufacturability and long-run quality as well as for consumer tastes.

For decades, this process was mostly unique to Japanese manufacturing.

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“Not Transitory” – US CEOs Warn Inflation Is “Unprecedented” And Becoming Structural, by Tyler Durden

Business CEOs have a pretty good idea of what’s going on with prices. From Tyler Durden at zerohedge.com:

Some of the biggest names in business virtually attended the annual Morgan Stanley Laguna conference last week and warned about the complex nature of soaring inflation.

Much of the discussion was centered around the soaring cost of raw materials, labor, and logistical nightmares. Corporate leaders from 3M Company to Trane Technologies to General Electric Co., among others, all warned about increasing inflationary pressures, according to Bloomberg.

3M’s Chief CFO Monish Patolawala shocked attendees by calling inflation “unprecedented.” He said the impact of higher commodity prices and soaring freight prices would impact its 2021 earnings.

Trane Technologies Plc’s CFO Chris Kuehn told a very similar story: “Unprecedented is the word we’d use around the inflation side.”

At the virtual event, Morgan Stanley analyst Josh Pokrzywinski joked that everyone could check the word “unprecedented” on their 2021 bingo cards.

But what has become an increasing concern, pointed out by General Electric’s CEO Larry Culp, is that inflationary pressures are “increasingly getting structural in nature.”

David Petratis, CEO of lock maker Allegion Plc, said inflationary pressures might stick around two to three years. He said his company is preparing for more persistent inflation, adding “it’s not a transitory situation.”

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Supply Chain Shipping Hell: ‘Just Get Me a Box’ Says Logistics Manager, by Mike Mish Shedlock

Shipping containers stacked high on container ships have become the symbol of international commerce. Now that trade is grinding to a half because of container supply constraints. From Mike Mish Shedlock at mishtalk.com:

Two years ago, the cost for a 40-foot container to transport goods from Asia to the U.S was under $2,000. Today it’s as much as $25,000.

When I saw this Bloomberg headline I thought it was about cardboard boxes. Instead, ‘Just Get Me a Box‘ is about shipping containers.

It’s mid-August, and logistics manager RoxAnne Thomas’s phone won’t stop pinging. Her faucets, sinks, and toilets are waylaid near Shanghai, snagged in Vancouver, and buried under a pile of shipping containers in a rail yard outside Chicago.

“Every step of the process, there’s still backlog,” said Thomas, 41, in one of several interviews from late July through August. “The beginning of the supply chain in China—I don’t think that’s going to get better for a year.” And the outlook more broadly? “A year and a half before things are truly back to normal.”

Although the pandemic has shuttered factories and shaken supplies of raw materials, Thomas’s chief challenge is freight, and it starts with what used to be cheap, plentiful commodities: shipping containers.

Two years ago, a 40-foot container cost less than $2,000 to transport goods from Asia to the U.S. Today the service fetches as much as $25,000 if an importer pays a premium for on-time delivery, which is a luxury.

The fear is we’re ordering all this stuff for demand, and the demand is going to fizzle out before the product gets here,” Thomas says. With summer winding down, the big test of the global trading system’s resilience might still be ahead.

Bloomberg also reports Commodity Shipping Rates Post Biggest Daily Gain in a Decade

Average rates for giant Capesize bulk carriers — which can carry products like coal, iron ore and grains — jumped by $6,700 a day on Monday, the most since 2010, as owners continue to benefit from strong demand for raw materials. The rally extended Tuesday, pushing the daily rate to almost $53,700, the highest level in 11 years, Baltic Exchange data show.

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Peter Schiff: Too Much Money; Not Enough Stuff

Too much money, courtesy the Federal Reserve, chasing to little stuff, courtesy the massively overblown Covid reaction, produces rising prices, colloquially known as inflation. From Peter Schiff at schiffgold.com:

For the first time in nine months, the government CPI data came in under expectations. Prices rose by 0.3% last month, just below the 0.4% projection. Year on year, the CPI was up 5.3%. Core inflation, stripping out more volatile food and energy (for those of you who don’t eat or use energy) was up 0.1%. Core inflation is up 4% on the year.

In his podcast, Peter Schiff took a deeper dive into the numbers and explained why this doesn’t prove inflation is “transitory.” He also drilled down to the root cause of rising prices – too much money chasing not enough stuff. Given the current monetary policy, that doesn’t appear set to change anytime soon.

Focusing on the headline number of 0.3%, a lot of people were relieved because we finally got a cooler than expected inflation read. In the minds of many, it also validated the Federal Reserve’s narrative that inflation is “transitory.” But as Peter put it, “One month does not transitory make.”

First of all, 0.3% in one month, in-and-of-itself, is still a lot of pricing pressure. Because if you annualize 0.3, well, that’s almost 4% per year. So, if we got this ‘good number’ 12 months in a row, that’s a 4% gain in consumer prices, which is almost double what the Fed claims it wants, which is a rate slightly above 2%. Well, 4% isn’t slightly above 2%. It’s almost double 2%. So, this is not a great number in-and-of-itself.”

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The U.S. Economy In a Nutshell: When Critical Parts Are On “Indefinite Back Order,” the Machine Grinds to a Halt, by Charles Hugh Smith

For want of a nail . . . From Charles Hugh Smith at oftwominds.com:

A great many essential components in America are on ‘indefinite back order’, including the lifestyle of endless globally sourced goodies at low, low prices.

Setting aside the “transitory inflation” parlor game for a moment, let’s look at what happens when critical parts are unavailable for whatever reason, for example, they’re on back order or indefinite back order, i.e. the supplier has no visibility on when the parts will be available.

If the part that blew out is 0.1% of the entire machine, and the other 99.9% still works perfectly, the entire machine is still dead in the water without that critical component. That is a pretty good definition of systemic vulnerability and fragility, a fragility that becomes much, much worse if there are two or three components which are on indefinite back order.

This is the problem with shipping much of your supply chain overseas: you create extreme systemic vulnerability and fragility even as you rake in big profits from reducing costs. Speaking of costs, let’s look at the costs of having a large, costly, complex mechanism sitting idle in a non-functioning state due to some broken element for which there is no substitute available. Whatever productive capacity the mechanism, process, etc. had is now stuck at zero.

Buying a new replacement is extremely costly, and that’s not always available for all the same reasons that parts and components aren’t available. Finding someone to fabricate a new component is not easy due to the wholesale transfer of manufacturing moxie and capability overseas.

You might be able to find someone to weld a replacement strut, but try finding someone to fab a new bicycle derailleur or better yet, a multilayer semiconductor chip. What about 3-D fabrication? Doesn’t that solve this problem? If the part can be “printed,” yes, but there are limits on what can be 3-D fabbed. You can’t 3-D fab a complex thermostat or controller, for example. You can’t 3-D fab a rubber gasket, either, or a great many other bits of petrochemical-based manufacturing.

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99.9 % of What you Need Equals Zero, by Nickelthrower

As if the lockdowns weren’t bad enough, the monetary response to Covid is killing even more small businesses. From Nickelthrower at theburningplatform.com:

As of the last census, 444,000 Americans owned a small business that was involved with manufacturing. These small businesses employ about 3% of the total workforce. Of course, you’d have a much greater chance of running into a doctor (985,000), lawyer (1,300,000), or real estate agent (1,300,000) than someone the produces things. That means that just 0.0013% of our current US population finds themselves in the same position that I find myself – the owner of a small business that manufactures real-world items.

Manufacturing real-world items require real-world inputs. As for myself, I need steel for the housings, epoxy and dyes for the knobs, aluminum for the face plate, copper for the circuit boards and wire, plastics, diodes, resistors, capacitors, LED’s, relays and on and on and on and on right up to and including various semi-conductors.

Luckily for me, I invested a decade and put in place a system where everything from hand-wound transformers to the cable harnesses materializes within a few days of each other and then the precision tools that I designed can be assembled, tested, and shipped. To make sure this system works, no one that supplies me anything gets paid until the finished product ships and I have the tracking numbers because, well, that is when I get paid.

When working, this just-in-time way of doing business is a wonder to behold. Watching how quickly it all fell apart is also a wonder to behold. 99.9% of what you need is zero.

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The Monstrous Flow of Free Money and the Shortages, by Wolf Richter

The insane fiat debt binge since the Covid outbreak began is causing massive distortions in the economy and financial system. There will be consequences. From Wolf Richter at wolfstreet.com:

Free money destroyed the pricing mechanism, and demand has soared despite much higher prices.

The shortages are not at Costco or Safeway, though they too might run out of a few weird items here and there. But other retailers are complaining about them, including apparel retailers and shoe retailers – yup, it took five weeks for my running shoes to arrive after I ordered them online, when normally I’d get them in a day or two.

There are shortages cropping up in different types of equipment and appliances and electronics. There are reports of shortages of certain types of fasteners and all kinds of doodads that you’d normally take for granted.

The shortages are all over the auto industry, driven by the global semiconductor shortages that keep getting dragged out and are now expected to abate maybe, hopefully, possibly in 2022.

It isn’t that there aren’t any new vehicles out there, but there are not enough of them. Inventories have been depleted in a historic manner. And customers are buying vehicles as soon as they come off the car carrier, or they order them and wait patiently till they arrive.

There are now huge storage areas around auto manufacturing plants were automakers store vehicles that are essentially ready to go but are still missing a component or two because some chips couldn’t be made, and when those components arrive, they’ll be installed and the vehicles will then be sent to dealers.

These semiconductor and component shortages have shut down auto assembly plants in the US and around the world for weeks at a time, all year long.

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