Business Leaders Warn Of Supply Chain Crash



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  • Things appear to be getting worse, not better, along the global supply chain, which was upended by the coronavirus pandemic over a year ago. That means entire companies and industries are going to have to deal with more extremes for the foreseeable future, making business investment a shaky decision that compounds the original problem. The volatility and uncertainty also destroy demand as prices become too high for consumers. The phenomenon, called the "bullwhip effect," could end up damaging the economy in the short-term, with violent swings in a range of goods. Seeking Alpha discussed the possibility back in May, but it looks like the situation is now in play.
  • Warning bells: In an open letter to the United Nations General Assembly, business leaders from the International Chamber of Shipping, IATA and other transport groups (that account for more than $20T of annual global trade) sounded the alarm on the risks of a supply chain meltdown. "We are witnessing unprecedented disruptions and global delays and shortages on essential goods including electronics, food, fuel and medical supplies. Consumer demand is rising and the delays look set to worsen ahead of Christmas and continue into 2022. Our calls have been consistent and clear: freedom of movement for transport workers, for governments to use protocols that have been endorsed by international bodies for each sector and to prioritize transport workers for vaccinations... before global transport systems collapse."
  • Some of the effects were on display this week as three more U.K. energy companies were pushed out of business by sky-high natural gas prices. China is also considering raising power prices for factories as an energy shortage there has unleashed turmoil in commodities markets and prompted silicon makers to dramatically slash production. Over in the U.S., the Commerce Department delayed a decision on solar tariffs with the price of panels set to rise, while Dollar Tree (NASDAQ:DLTR) said it would sell more items above $1 to offset cost increases on a range of goods.
  • Do something! This time around, higher prices have put central banks between a rock and a hard place. Inflation is traditionally fought off by raising interest rates, but that might not be effective at the present given the supply chain issues taking place across the globe and the stage in the economic recovery. On the other hand, if easy monetary policy is left in place, price pressures could be compounded and result in a reduction in purchasing power or lead the economy to overheat.

Courtesy of Seeking Alpha


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