My investing muse - how to pivot with supply chain challenges (26Oct2021)

I am sharing my inputs as a supply chain professional.  Please do not constitute this as financial advice without doing our own due diligence.

when Covid hit, the world entered a lockdown.  Many countries closed down their factories, keeping only the essential services at work.

people started to work from home.  With the restriction of movement & travel, people started to invest in a home office, virtual office software like $Zoom(ZM)$, home entertainment like$Netflix(NFLX)$.  What was previously budgeted for travel and services, people started to turn to online shopping.  The USA stimulus package simply powered on this consumption - some for basic essentials, some for home office, some for retail therapy.  Essentially, the inventory within the USA was depleting.  This led to replenishment orders being placed.  Factories around the world resumed production and this started the ramp-up of the supply chain activities.

1.  Congestion at the ports

With Asia being the world's factory, this ramp-up of orders continued to push the limits of the global supply chain.  For most of the imports into the USA, these are via the ocean route being a much more economical option compared to air freight.  The western ports of Los Angeles and Long Beach (LALB) were receiving 40% of the entire US imports.  This led to a backlog of vessels, each carrying 9,000 to 16,000 containers.  Each container carries the precious replenishment required by the businesses.  For those planning to buy for the coming holidays, the cargo needs to reach by September.  For those who are planning for Christmas buying in the USA, you would need to start buying now as the congestion at the ports is not expected to ease immediately.  Despite the recent introduction for the ports to work 24/7, the expected easing is about mid-2022.  This is due to ...

2.  Trucking shortage

With a decreasing pool of truck drivers, there is a reduced capacity of how many containers can be trucked out of the ports to the warehouse receiving the cargo.  This adds to the challenges as every port has limited space to store the containers that are unloaded from the vessels, limited capacity to remove the containers from the vessels and then to mount these containers to trucks.  Trucking has an ageing pool of drivers.  Covid19 has also caused some truckers to change their jobs - from doing long-distance trips from ports, there is a sizeable number of them who have chosen to take up driving jobs that allow them to be with their family daily.  thus, we have lost drivers who used to do the trucking jobs of trucking out from the port.  These containers need to be trucked to the warehouses where the cargo are unloaded, consolidated for orders.  These could be picked up by truckers who will truck to the shops or regional warehouse, further inland, further from the port.  This is the shortage that brings the greatest concerns.

3.  Rising fuel &  energy costs

Rising fuel costs will just increase the supply chain costs.  Unfortunately, this is likely to be passed on to the consumers.  With crude oil hitting over USD$80 per barrel, some analysts have predicted that oil may even hit USD$100 per barrel in a few months.

4.  Weather extremities

Climate change is a major factor.  If Covid19 is likened to a great white shark, then the impact of climate change is easily a megalodon.  With more extreme weather like the prolonged drought in California, wildfire, hurricanes and more, this will continue to disrupt our supply chain as infrastructure such as roads, powerlines, bridges, flyovers are damaged.

5.  Infrastructure challenges

The current Biden Administration has proposed a few infrastructure bills.  In March 2021, The American Society of Civil Engineers gives the nation's infrastructure a grade of C- minus on the quadrennial report card.  This simply means that most of the infrastructure is in less than adequate condition.  with the increased natural disasters, the strain on the infrastructure will be greater. The costs of the new infrastructure need to be built to withstand such weather challenges, with carbon-friendly materials.

In essence, the road ahead will not be easy.  But with every crisis, there are always opportunities.  Every challenge post an opportunity for companies to step up to provide solutions.  Personally, I am monitoring the stocks of some shipping lines.  $Amazon.com(AMZN)$ could be one of the companies that will benefit as they build on their supply chain capabilities. here is wishing all good health and safe trading.