The Supply Chain Has Been Blown Up And It’s Not Coming Back Anytime Soon.

Investors are familiar with the breakdown of global supply chains and the impact this is having on both availability of goods and services as well as prices.

We see it in the form of empty shelves in the supermarkets. It’s not that all shelves are completely bare as they were in East Germany in the 1950s. It’s the case that certain shelves are bare on a floating basis. One week the store is out of your favorite juice. The next week the egg section is half-empty. And so on.

It’s not that everything is gone; it’s just that something’s missing every time. You also see it most clearly at the gas pump where the $45.00 fill-up is now $75.00.

But, much of the problem is invisible. Supply chains don’t just run from distributor to retailer. They involve many intermediate steps beginning with raw materials and continuing through transportation lanes, manufacturers, warehouses, and truckers who deliver goods to the store.

Higher gas prices don’t just affect you at the pump; they also add transportation costs to the things you buy, which add to retail prices just as surely as higher input costs and energy costs.

Supply chains are such large complex systems that when they break down they cannot be put back together. They have to be rebuilt almost from scratch with new manufacturing sites, new input suppliers, and new transportation lanes.

The biggest loser will be China, which is the starting place for many global supply chains today. China will be ignored in the future because of Communist Party mismanagement, a bizarre Zero Covid strategy, and human rights abuses.

One of the big winners will be India. As described in this article, Apple has just announced that it will begin manufacturing its iPhone 13 in India.

In terms of a productive workforce and low wages, India is competitive with China. It is far more attractive than China because it is a democracy, English is widely spoken, and it does not have the types of human rights abuses found in China, despite large problems with rural poverty.

It will take time to rebuild global supply chains. Based on this story from India, the process has already begun.

Corporate leaders and institutional fiduciaries looking to incorporate state of the art predictive analytics to their risk mitigation and strategic analysis should click the link to learn more about Raven Predictive Analytics®.