Walk into a Bed, Bath & Beyond. Read the label where the product is made. Nine times out of 10, unless it’s a Yankee Candle, it’s Made in China. Do the same at Kohls. The entire store comes from China. Tens of thousands of people worked to make those things, while Kohls has maybe two full timers and the rest are part-timers, probably paid minimum wage, or a dollar more, without health insurance.
Okay, so as long as those two stores and the consumers that shop there are buying everything from China, then this is how long the supply chain crisis lasts: as long as the U.S. is importing record numbers of goods from Asia.
Of course, that is not the only problem. That would be an amateur claim. Congressman John Garamendi from California, during a House Committee on Transportation and Infrastructure hearing last week, said “enormous trade imbalances” were partly to blame for the supply chain issues at U.S. ports, mostly in California. Along with multinational shipping companies, led by the likes of Maersk and Hapag Lloyd, that totally tripped the wire last year and into 2021 by destroying the balance of trade when they shipped empty containers back to China instead of filling them with U.S. goods, goods that of course were also needed in Asia to manufacture things that would later be sold here. And truckers. We have a trucker shortage. That, too.
When does it all come to a head and get back to normal? Garamendi said “no time soon.”
Barclays Capital thinks it doesn’t settle down until late in the first quarter of 2022, in the best case scenario.
The drag on economic activity from supply bottlenecks is compounding, whether related to semiconductor shortages, other intermediate goods, energy, shipping containers, or labor, Barclays economists led by Rahul Bajoria in India wrote on November 18.
Supply headwinds continue to intensify and will likely persist through the first quarter, according to cross-industry surveys and company filings.
Among new challenges, congestion at ports and shortages of trucks, especially in the U.S., are causing price increases as wages, logistics costs and inflation all increase along with it.
From a sector perspective, auto production is visibly hampered by ongoing chip shortages, which China hoarded, but other sectors are also saying that supply bottlenecks are a limiting factor for production, but not necessarily a drag on production, so that’s good.
“The supply chain disruption saga started primarily because of supply-demand misalignment,” Barclays report authors wrote. “Initially, unprecedented demand and poor forecasting during the public-health crisis coincided with on-and-off epidemic prevention measures that disrupted components supplies, with shortages most acutely felt in many end applications requiring semiconductors. A long period of under-investment in semiconductors also suggests that capacity additions may not come in a timely manner, which could mean supply shocks evolve into chronic shortages.”
Used cars are the new Bitcoin, maybe.
California remains the worst as that is the direct line to Asia, namely China.
There were 80 container ships anchored at the Port of Los Angeles and Long Beach, according to Marine Exchange on Wednesday. The average length of all those ships combined is 350 meters long, so if you placed these vessels end to end, the length of this congestion is: 91,863 feet, or about a 17.4 miles long traffic jam, says Lori Ann LaRocco, a reporter for FreightWaves and a CNBC producer. LaRocco is the best person to follow on this from a reporting perspective. She has made freight logistics her specialty and is the author of the book “Trade War: Containers Don’t Lie”, published in 2019.
Maybe the supply chain crisis isn’t going away until the summer. Investors should know that China by shutting factories, ports, or hoarding materials as leverage against the Biden administration as Beijing is not hotly involved in ending the Trump-era tariffs against some $300 billion worth of China imports.
Barclays said they are “still positive on the global recovery,” despite a steady drumbeat of negative news surrounding Covid, particularly in lockdown-loving Europe. Analysts said in a report last week that they recommend remaining overweight equity over developed market fixed income.