The single largest supply chain bottleneck

Wednesday, 18 May 2022 — Albert Park

[5 min read]

Dear Reader,

As Jim Rickards has explained in his recent editions of The Daily Reckoning Australia, supply chains are currently facing a big problem. But one of the biggest things impacting the supply chain collapse is the shipping bottleneck.

Most people have heard about the issues with container ships at the Port of Los Angeles. But what you may not have heard is just how bad it really became around Christmas last year…

Below, Jim looks at the issues with the ‘city of containers’ and its impact on the supply chain breakdown.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

Much attention has been paid to the container cargo situation in the Port of Los Angeles. This is the largest port in the US and one of the largest single supply chain bottlenecks in the world.

According to recent data, the Port of Los Angeles has 540,000 containers waiting in the harbour. The capacity of the port to unload containers is 18,000 containers per day. At that rate, it would take 30 days to unload the waiting containers. The problem is that about 29,000 new containers arrive every day. This means that the backlog increases by 11,000 containers per day. At that tempo, the backlog will be cleared…never.

The situation is even worse than those numbers reveal. The unload tempo of 18,000 containers per day assumes the port has somewhere to put the newly arrived containers. They don’t. Containers already unloaded are stacked as high as possible and cover all the available storage space. The situation is clearly unsustainable.

Shippers will stop directing vessels to the Port of Los Angeles (if possible) or simply stop shipping entirely if they can’t unload in a timely way. Of course, redirecting container traffic to other ports such as Tacoma or Houston simply moves the problem to another destination and causes backlogs at those ports.

There’s more to this port backlog than mere delay. Leaving containers on vessels anchored offshore is extremely costly. The vessels themselves are effectively out of service until they can be unloaded. This imposes huge costs on shippers or operators (called demurrage).

Due to delays, goods onboard may be unwanted or go out of fashion. Who wants to buy Christmas gifts the day (or month) after Christmas? Also, goods in transit are a form of inventory for the shippers. Every dollar of inventory is one less dollar in cash and creates huge financing and opportunity costs to the importer.

Experts estimate that up to US$90 billion in trade could be delayed in the coming weeks. Still, that figure only accounts for the gross value of goods delayed in transit. It doesn’t account for inventory financing costs, impaired customer relations, lost jobs (as some parts of the supply chain go underutilised due to delays in upstream parts), and the costs of spoilage, obsolescence, and receiving out-of-season deliveries. It’s not a stretch to suggest that the global economy could be looking at annual losses of US$1 trillion or more due to the supply chain breakdown.

The online option doesn’t work anymore

Some analysts naively suggest that people who can’t find what they need in stores should simply shop online. That’s ridiculous. Online shopping was a good option during the 2020 pandemic lockdowns, when bricks-and-mortar stores were closed, and consumers were afraid to venture outside. The difficulty then was not the supply chain but the contagion.

Today, online stores are subject to the same supply chain constraints as bricks-and-mortar retailers. It’s not as if online sites get their goods from different sources. All jeans, shirts, dresses, shoes, and electronics come from the same factories and pass through the same distribution channels regardless of whether they’re sold online or over the counter.

If you shop online, you’ll find user-friendly websites with attractive pictures of the merchandise you want. It’s only when you try to order that you’ll discover the outlet doesn’t have your size, style, or colour in stock.

I recently tried to buy some jeans online from Brooks Brothers. I found the webpage and item without difficulty, but the only waist size available was 30 inches. Sorry, my waist size is slightly larger. My online experience was no different than going to a store and finding empty shelves. Online shopping is not exempt from supply chain disruptions.

Most Americans have encountered the supply chain fiasco firsthand and don’t need statistics to know what’s going on. As explained above, the supply chain breakdown isn’t just an American phenomenon — it’s a global problem.

But as the world’s largest economy — driven 70% by consumption — it’s fair to say the US is ground zero in this disaster. Effects aren’t limited to the paper goods aisle at Costco like they were during the pandemic. The effects are everywhere.

There are bare spots on shelves in every aisle of the supermarket. Liquor stores can’t get certain kinds of wine. Garages can’t get auto parts. Doctors can’t get certain medical devices. If you’re going shopping for a very particular list, you should prepare for disappointment…

Regards,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

Dear Reader,

Today, let’s turn to the question we left you with the other day: How many people will die because of the Fed’s efforts to ‘save lives’ during the COVID Panic?

Trigger warning: we are coming dangerously close to earnest indignation.

In 2020, much of the economy was shut down, and trillions in fake money (newly created by the Fed…neither earned nor saved) was distributed to offset the lost output. We’re paying part of the tab now. GDP is going backward. Real wages are falling. And consumer prices are rising.

On that front, we got news last week that inflation was slowing down and speeding up at the same time. Last month, the official inflation rate (CPI) declined by 0.35%...from 8.54% to 8.26%.

The very next day came the PPI, producer price index, telling us that coming our way is a 15.6% increase. This is the second highest reading since we were born (1948).

Counting the (real) cost

It gets worse. On MSNBC Friday morning was an economist (whose name we missed) arguing that the core prices for families are up 19%.

Food, shelter, transportation — those are the ones that drain the family checking account. As for food, actual price increases are far above the BLS’s Index. Beef is up 14%, chicken 15%, wheat flour 33%, orange juice 17%, coffee 70%.

Shelter, too, is much pricier than the BLS says. Zillow computes the average rent people actually pay: it’s up 17% over a year ago, it says. The average price paid to buy a house is also 16% higher than a year ago.

And fuel? A gallon of gas averaged US$3.11 last May. Now, it’s up 40%. Inquirer/Business:

‘WASHINGTON—US gas prices reached a record high Tuesday, as President Joe Biden said fighting inflation is his top domestic priority.

‘The average price at the pump hit $4.37 per gallon, according to the American Automobile Association (AAA), surpassing the last record of $4.33 set on March 11.’

But wait…there’s more! A lot more. Inflation is not just a matter of money.

‘Everything happens at the margin’, say economists. And at the margin, people die.

Most of us have a substantial margin of error. If beef is too expensive, we can switch to chicken. If fuel goes up in price, we can stop making unnecessary drives…ride a bicycle…and turn the thermostat down.

Millions doomed?

But what about people who live on US$10,000…or US$1,000? The World Health Organisation says that 6.2 million people have died from COVID over the last two years. (Probably overcounted in some areas and undercounted in others.)

But there are said to be some nine million who die each year from hunger-related problems. And now, thanks largely to the money printing, phony interest rates, stimulus programs, shutdowns, and social distancing…the price of food is rising worldwide. From WSWS.org:

‘The FAO Food Price Index (FFPI), which measures change in international prices of a basket of food commodities, reported in September that prices were 32.8 percent higher than they had been a year prior. The prices of the most basic staples rose even more sharply; wheat was up 41 percent and maize 38 percent from September 2020.’

The numbers are all over the place. But the UN reports that the number of people facing a ‘critical’ lack of food has grown by 60 million over the last two years…and now nearly 200 million are thought to be in danger.

WSWS.org continues:

‘Every day more than seven hundred million people, 8.8 percent of the world’s population, go to bed on an empty stomach, according to the UN World Food Programme (WFP). Hunger and malnutrition mean shortened life expectancies, stunted mental development, the premature death of loved ones; it means widows and orphans and childless parents.’

What is the real cost…the final tab…for the Fed’s ‘heavy touch’ failures? Did the feds save a few old, plump people by sacrificing young, skinny ones?

Did they save no one…and doom millions?

More tomorrow…including another visit to the Incompetents Hall of Fame.

Stay tuned...

Regards,

Bill Bonner,
For The Daily Reckoning Australia