Today’s US supply chain issues result from the combination of; (1) outsourcing of US manufacturing to lower cost parts of the world which then require shipping, and (2) the impact of different global strategies around the pandemic. Pandemic restrictions impact labor availability, which impacts throughput for raw material producers and shippers. Perishable products don’t get to market. Durable goods get stuck in transit. Consumer tastes shifted as a result of different global public health policies for the pandemic – these changes could be absorbed were it not for the ripple that those same changes created on the labor market, which constrained downstream activities.
- The Intel Split (Jan 18, 2022) @Stratechery, because it covers how the semiconductor industry roadmap drove capital expenditures, which drove business models, which drives today’s constraints.
- Shipping Companies Had a $150 Billion Year. Economists Warn They’re Also Stoking Inflation – January 18, 2022 (Bloomberg, @markets) – by (@lauren_etter) & (@b_muzz) because it links individual companies, specific changes in pricing, and growing inflation.
Stories, Narratives, Imagery, Tropes & More
- Empty store shelves – especially grocery stores. On a personal note, I was in a pharmacy with many empty shelves this week, mostly CPG.
- The images of the area surrounding the looted Los Angeles container trains are very strong.
- Lots of tie in to climate and sustainability issues.
- For US readers, lots of talk about how spending initiatives can address supply chain issues.
- As always, lots of cargo container pictures! Read The Box by Marc Levinson.
Themes About ‘Supply Chain’
Top hits in Google (1.9 Bn hits):
- New York Times: Supply Chain Woes Could Worsen as China Imposes New Covid Lockdowns (link) January 16, 2022. “At least 20 million people, or about 1.5 percent of China’s population, are in lockdown, mostly in the city of Xi’an in western China and in Henan Province in north-central China.”
- Shipping Companies Had a $150 Billion Year. Economists Warn They’re Also Stoking Inflation – January 18, 2022 (Bloomberg) – written by Lauren Etter (@lauren_etter) & Brendan Murray (@b_muzz)
- “The spot rate for a 40-foot container to the U.S. from Asia topped $20,000 last year, including surcharges and premiums, up from less than $2,000 a few years ago, and was recently hovering near $14,000.”
- “The largest, Mediterranean Shipping Co., is a closely held company based in Switzerland that is controlled by Italy’s powerful Aponte family.”
- “A.P. Moller-Maersk A/S, the world’s second-largest container carrier, was on track for an annual profit last year that would match or surpass its combined results from the past nine years.”
- From Yahoo! Finance on YouTube – “Grocery shortages abound amid supply chain issues and Omicron” (link) – The interview is with an IBM employee – IBM Global MD of Consumer Industries.
- Target’s CEO claims, “people will make fewer grocery trips, order out less, eat out less.”
- Retailers will pursue a ‘hybrid model’ of delivery – pick up at the store, delivery, etc. Of course, there is an IBM product line that will help with this – demand sensing, AI, ML, etc.
- Albertson’s CEO expects issues to continue for 4 – 6 weeks. “Shopping tastes shift from week to week to month to month. Look for products that people can stock up on.”
- Seattle Startups may benefit from Supply Chain Woes (link) – This article also covers the US funding of port infrastructure covered in the local news article below.
- LA freight train looting ‘out of control’ as thieves worsen supply chain bottlenecks (link).
- Local news from Indiana: Army Corps of Engineers gets $14B to help ease supply chains (link). These funds go mostly to ports and harbors:
- $858 million to replace locks on the Ohio River
- $470 million for a new lock in Michigan
- $8 million spent on navigation that will allow larger and more ships to pass at the Port of Long Beach
- $69 million to expand its capacity, after handling 67% more shipping containers in 2021 than it did 10 years ago – Norfolk, VA.
Themes About ‘Manufacturing’
Top hits in Google (1.8 Bn hits total) include:
- FT article on how ‘NetZero’ energy goals will impact heavy industry. Personally, I view this as a costing issue – if services and support are fully accounted for, NetZero appears to be an inevitable outcome. The Manufacturer trade magazine has an article along these lines for the textile industry.
- VW and Bosch collaborating on standards for battery production. “In Europe alone, various companies plan to build cell factories with a total yearly capacity of around 700 gigawatt-hours by 2030.”
- Top Trade Magazines; The Manufacturer, Manufacturing Global (whose header currently focuses on BlockChain), and Quality Mag.
The top seven YouTube videos for manufacturing (420k – 85k views) are all ‘how to’ and educational videos – none are specific to new issues in manufacturing. The first of those shows up in spot #8, and covers three minutes on an Indian capacitor, battery, and cleantech start-up. The #10 spot is an MSNBC video that covers how ‘Workers are Leaving Manufacturing Jobs at Record Numbers.’ The MSNBC article was mostly an interview with a Washington Post reporter who cites increased pay in warehouse and supply chain jobs, an inability to do remote work in manufacturing, and increased covid risk due to the in person nature of manufacturing.
Washington Post columnist Heather Long and Detroit Free Press business reporter Adrienne Roberts join Stephanie Ruhle to discuss their reporting on how the manufacturing industry has changed during the pandemic and why workers are quitting their jobs at record rates.MSNBC
Questions this leads me to ask:
- How do those numbers compare to resignations in other industries?
- How does it compare to the past?
- How do these numbers compare globally?
Best Strategic Article
Stratechery on Intel.
- Wafer fabs are enormously expensive – TSMC is looking to spend nearly $45 billion in 2022, a 50% increase from last year. This makes the US press on ports – $14 billion, seem miniscule.
- TSMC makes chips – integrated circuits (“ICs”) for anybody, not just for internal consumption.
- Intel remained vertically integrated, and when the CapEx for fabs grew higher, which drives manufacturers to focus on utilization, they lost out to the foundry business model by definition.
- Stratechery covers this in detail, including how Intel’s decisions led it to the current position.
Best Non-Traditional Source
Zero Hedge – Experts Are Warning That Empty Shelves And Food Shortages Are Going To Continue For Many Weeks To Come (link).
- This was originally written by Michael Snyder via The Economic Collapse.
- “Social media is rife with images of empty supermarket aisles and signs explaining the lack of available food and other items.”
- From one CEO, “We typically will ship, East Coast to West Coast – we used to do it for about $7,000,” he said. “Today it’s somewhere between $18,000 and $22,000.”
- “Birds Eye frozen vegetables maker Conagra Brands’ CEO Sean Connolly told investors last week that supplies from its U.S. plants could be constrained for at least the next month due to Omicron-related absences.”
- “The consumer-packaged goods industry is missing around 120,000 workers out of which only 1,500 jobs were added last month…”
- The big take-away from this article; “The elephant in the room that nobody really wants to talk about is the fact that our supply chains will never fully return to the way they were in 2019.”