Remember

 

when the FED said they expected supply chains to "clear themselves up by late spring? And I said they offered absolutely no proof of why they would expect that to happen?

This was written by the CEO of Freightwaves Craig Fuller, he might know a thing or two about some things...

Craig Fuller is the founder and CEO of FreightWaves, the leading provider of global supply chain market intelligence and news. FreightWaves SONAR is the world's leading freight forecasting platform, and the only one with a complete, reliable view of everything moving in the global freight economy.

Supply chains are never returning to ‘normal’

"The conventional wisdom at this time is that most of the world has moved on from the pandemic (except for China); therefore, supply chains will return to “normal.” Unfortunately, this is not the case. The world has permanently changed and supply chains are going to face continuing challenges for decades to come. Among those challenges are:

Supply chains will remain under constant threat of disruption for the next decade 

Supply chains operate best when the world is peaceful and stable 

(Somebody in Moscow knew that)

A smoothly running supply chain requires “buffer stock,” which is challenging with declining population demographics 

There is a conflict between environmental, social and governance (ESG) goals and supply chains optimized for cost and speed. If we prioritize ESG, we will need to contend with supply chain risks 

Supply chain technology will become the big venture capital category winner as companies continue to make investments in technologies that can help them mitigate their supply chain challenges 

In a world faced with the prospect of tightening supplies, higher energy costs, heightened geopolitical risk, and strained transportation networks, advanced supply chain technologies will become mission-critical for many more companies."

"Labor is key in supply chains

The arbitrage between the developed and developing countries has been massive. The cost of producing goods in countries with cheap labor, lax environmental and labor regulations, and little regard for sustainable natural resources has enabled the world to enjoy unprecedented prosperity and peace.

(Key word here: Has)

Because the goods produced in these parts of the world were so cheap, it made sense that they would be produced in excess. This buffer stock kept inflation in check and provided supply chains with ample supplies that could fend off short-term fluctuations and disruptions. Think about how the cost of televisions and computing hardware has fallen over the past few decades, and how auto prices haven’t risen as significantly as the many improvements in product features and quality were made.

This all happened at a time when the United States was the only superpower and the only expectation that the U.S. had of other nations is that trade should be unobstructed. 

Cheap labor is becoming scarcer, particularly in Asia. This is largely due to aging populations – the average age continues to increase and there are fewer people to work in these manufacturing jobs."

(That last sentence is something you are not going to hear many people talking about anytime soon) 

"Companies have instituted ESG requirements that require disclosures and monitoring of how and where products have been sourced. This pressure means that goods that are produced in factories that don’t match Western standards for environmental controls and human rights may not be available to Western consumers. The factories that do produce goods that match Western standards will often be more expensive and therefore there will be less buffer stock in the system."

  'As the United States has become more insular and has pulled back from being the world’s policeman, and China has started to flex its muscles and create a global competitor to the United States, the world has become far more unstable and less peaceful. This global friction is unlikely to go away. China desires to take Taiwan as its own, risking sending the world into a geopolitical crisis that is more dangerous than at any point since World War II."

(I would argue anytime in the worlds history, not just since WWII mostly because things are more interconnected to each other across the globe they they have ever been before. Did you really think it was all gonna go on forever?)

"Buffer stocks of products are far less likely in the future, as the cost of producing those items continues to rise. Cheap labor, offered by large populations of young people, is largely a thing of the past. This will make it more expensive for companies to produce buffer stock and far less likely that supply chains will enjoy the ability to absorb short-term shocks that are inherent to complex global networks."

You gonna try and tell me the people at the FED don't know all this already?

Mushroom Theory:

It means to be kept in a state of ignorance and told nonsense.

Think about it for a second.

I love you honey :-).