January 16, 2024

Since the pandemic disruptions, everyone is concerned about supply chains. Even as many economists do not expressly understand/believe that supply of goods caused a lot of cost pressures driving inflation, managers at the corporate level have made changes.

Just in time is down and a buffer of 1-3 months is operating:

Production capacity is slow to respond to changes as they take investment, building, tooling, and finding workers in different areas of the world. This is more costly than finding storage for midstream products. However, if there is an estimated risk that will continue, production will move.

The questions are:

1. If it moves, where will it go?
2. Will it actually move and not just diversify sources of inputs.

A recent Economist shows that things are going towards fewer suppliers, keeping diversity of production areas open, but not really re-shoring.

If global conflict is on the rise (and it seems to be), then there is risk in moving production just a few countries away in the same region. The Red Sea and the Panama canal are both at threat for different regions, but there are other shipping routes that are vulnerable to disruption.

Europe’s automotive industry ships about 70% of all components coming from Asia through the Red Sea

Prices of shipping containers have spiked again.