Friday, October 22, 2021

Thursday Note on THE Supply Chain - Birth Rate in The United States

 This is just a quick note on some learnings from the last few days.  While there are a lot of issues in supply chain which are well documented both here and other places (i.e., international capacity, truck capacity, shortages of materials etc.) the single biggest issue I hear from all my peers is the labor issue.  So, why is this such a big issue?

First, it appears to be a very systemic issue which is pervasive and has no easy fix.  A lot is discussed about pay rates but the reality is America is running out of workers.  it is simple math.  The chart below from MacroTrends (Source United Nations) shows it clearly:

The birth rate of the United States is the problem.  Combine that with a very restrictive immigration policy of late and you can see the problem.  This was not an unforeseen problem.  5 years ago, at a HBS reunion I heard the head of the Dallas Federal Reserve say this was coming.  Is it COVID related?  Well, like all things, COVID did not help, but this was coming for a long time.  We are just now here.

So, if you are young and fertile… get at it and do your patriotic duty and have kids. 

Second, I hear over and over again from friends in almost every industry in America:  They cannot produce fast enough to meet the demand for everything.  Thus, there is a shortage of everything.  Given how long it takes to spin up large capital projects I would just say we have to learn to live with it.  

Finally, the trend of the markets valuing and investing in technology instead of assets continues.  Flock Freight is now the newest unicorn according to TechCrunch.  Another app to try to help me find capacity.  This, I will admit is a bit unique in that it is not just another brokerage app but more assistance in co-loading.  Co-loading has been the holy grail for 30 years so I will watch this closely but so far, app or no app, no one has seemed to be able to make this work.  

OK, that is it and the song for tonight is in honor of these unicorn companies getting 100’s of millions of dollars:  Winner Take It All, by Abba:

Wednesday, October 20, 2021

Wednesday - Mid Week General Thoughts

 Here is just a quick summary of some things I am looking at this week and also some things which just make you go ... hmmmmmm:

  1. California Ports 24-Hour Operation is Going Unused - WSJ).  So far the 24 hour out gate at the ports of LA/LB are considered a total bust.  Unfortunately, those making these rules don't understand the "chain" in supply chain.  It is not just about time available.  It is about trucks, drivers, port space, all sorts of workers, chassis and a myriad of other things.  If nothing is done on those fronts, the chain breaks and no amount of extra "open" time will fix it.  More to come but so far I rate the 24 hour port plan a F-.  

  2. Driving up and down the highways at night allows you to see a big part of the problem.  Trucks parked all over the highway as they run out of hours and there is no parking for them.  Is anyone addressing this issue?  Does anyone think that parking on the side of the road, with no facilities and with no safety will attract people to the trucking industry?  Remember, for in trucking for every "machine" you employ you have to employ at least one person.  It is not like manufacturing where a "machine" eliminates the need for a number of people.  In trucking the capital employed to human is 1:1.  Treatment of Drivers: F.

  3. Anyone been to Costco lately?  I have been in one in Michigan and one in Georgia recently and guess what?  The toilet paper shortage appears to be coming back.  This time I think it is more about lack of trucking capacity than anything.  Come on Costco, you can get restocked!

  4. Inventory to Sales Ratios both total and just retail show little to no improvement.  This means my "when will this get better" meter is moving to the beginning of 2023 when I had it pegged at mid year 2022.  Still not coming off of the 2022 but the likelihood of it going into 2023 is getting more real. Likelihood of a quick resolution to the supply chain issues in America ending soon - D

    Total Inventory to Sales:

    Retail Inventory to Sales:

  5. Port of Savannah is still the best port out there by far however it has been "found" by some big retailers who are slow to move their boxes off the port.  This has meant some ocean carriers have cancelled calls to Savannah and added the Ports of Jacksonville and CharlestonI think just about everyone is starting to look at "over the water" movements to the East Coast versus getting into the mess of LA/LB then trying to move it over ground. Port of Savannah is an A

  6. JB Hunt  (Stock information: JBHT)is the best run trucking company in America by far.  They knocked their quarter out of the park and they have even better days ahead.  They have transformed from an old school, irregular route trucking company to a high tech, well disciplined supply chain company.  And, the market is rewarding them for it as they have a P/E that values it like a tech company and just about everyone upgraded their stock this week.  YTD J.B. Hunt is up 44.64% as compared to Schneider (SNDR) who is up 19.7%.  (See comparison chart here).  JB Hunt is an A+

  7. Costs continue to rise in all facets of the supply chain:  Various data sources tell us that yes Virginia, there is inflation, and a lot of it. 
OK, I just wanted to pass on some thoughts for mid-week.  Things I am working on include: 

  1. Why is the market not putting capital into asset companies?  Just today another $200M investment in a tech company that is supposed to help you find a truck.  So, we keep building apps but we don't staff trucks.  Not helpful but the folks doing investing must know something I do not know. 

  2. Should there be a reserve corps for Supply Chain Professionals?  I am really thinking we need this.  People join just like you would join the Army reserve except it is a national supply chain corps.  You would get the same protections the old "Soldiers and Sailors Relief act" provided and you would get called up as needed.  This would accomplish the same thing as calling up "the military" but you would get a lot more professionals to join as they would not have to do all the "Army Stuff"
More on those topics later.    I thought it fitting to end this post with "Bad Moon Rising" by Credence Clearwater Revival.  This should be the theme song for all supply chain experts!

Sunday, October 10, 2021

This is Not Just COVID - Supply Chain Disruption Has Been Building for Years

 I will not bore you with all the pictures and the discussion of how many ships are off the coast of LA waiting to get unloaded.  If you are reading this, you already know that fact.  What I do want to discuss is the real problem with supply chains and the root cause of this mess. 

My fear is everyone is attributing everything to covid-19 and covid-19 certainly did not help.  Covid-19 dramatically changed the buying patterns across the world (from experiences to things) and that impacted supply chains tremendously.  However, like a lot of things related to covid-19, the impact merely accelerated a trend which was already growing.  My thesis is this:  The infrastructure of global supply chains was cracking and breaking and Covid-19 sped it up.  What is included in infrastructure:

  1. Driver capacity
  2. Lack of investment in highway infrastructure (just look at the trucks parked all over every night)
  3. Lack of investment in port infrastructure
  4. Lack of connectivity in systems (i.e., you book a container to come to the US but the people on the ground don't know when or even if it is coming)
  5. Lack of a cohesive strategy on chassis management
  6. Massive disruption and economic distortion with "on again and off again" tariffs. 
  7. Lack of investment in real assets.  A lot of money going into apps and other systems for visibility etc. but what we need our trucks, drivers, trailers, containers and ships. 
My belief is until we get a comprehensive national strategy to deal with these issues, much like we have a national security strategy, petroleum reserve strategy etc. we will have these problems forever and what you see now may actually be the "new normal".  If you look at the group that is meeting now with the White House they still signal their belief that this is just a temporary covid-19 problem.  Their newest idea?  Keep the ports open longer!  Will that help? Yes, but does that deal with the core problems?  Absolutely not.  It is the aspirin for a headache which is actually caused by high blood pressure.  Your head will feel better but eventually your heart will burst.  

As much as we may dislike it or may hold an "all things government does is bad" idea we have to develop a national strategy to address these issues.  Remember, the Interstate Highway Network was a project the federal government did, with private industry, to ensure we could defend the country and it had the effect of enabling smooth frictionless commerce.  We need a big idea like that now.  

Don't let the excuse of covid-19 cover up all the issues in the supply chain in the United States. Despite all the billions of dollars invested in technology over the last 5 years, the global and national supply chains are performing worse than ever. 

And, for those of you who just cannot get enough of it, I will provide the obligatory picture of ships backed up at port.