Last week, JPMorgan Chase CEO Jamie Dimon predicted that the ongoing supply challenges across the United State had peaked. Dimon said that the free market itself will solve the problem. The forecast came as President Joe Biden moved to issue an emergency decree to keep the Ports of Los Angeles and Long Beach moving shipments over a 24/7 period. Biden said that the government will solve the problem. Oh boy. There’s a lot of blind faith in both.
Jamie Dimon is way off, and Biden is 40 years too late on this Executive Order. You see, there is a big issue that could ravage the supply chains come June 2022. And that’s on top of the general efforts by government officials to try to “solve” the problem. Any time that the U.S. government steps into an emergency and thinks it will improve it is adorable. I don’t get angry. I don’t laugh.
However I did roll my eyes at the absurdity of Pete Buttigieg – a former mayor who couldn’t even fix potholes in Indiana – cosplaying the role of Transportation Secretary. I have ten years of supply chain consulting experience at the global level for several S&P 500 companies. I admit that I couldn’t solve this ongoing crisis with every resource at my disposal.
So how is this man — who looks like his lone transportation experience is the building of a model train set last Christmas — going to solve our problems? Even The Onion struggled to come up with a headline that surpassed the absurdity of our Transportation Department. It appears they succeeded though…
“Pete Buttigieg Learning About Problems Facing Rail Infrastructure By Spending Week Living As Train.”
A Decades Long Supply Chain Problem
The ongoing crunch in the U.S. supply chain didn’t start 18 months ago. It started decades ago with the effective gutting of the U.S. manufacturing sector and ensuing globalization and offshoring. Then it accelerated in the 1980s as MBAs from Harvard took over Fortune 500 companies, eliminated their inventory programs, and started “just-in-time” delivery to cut down costs.
It helped boost stock prices because it saved a fortune on storage and inventory. Of course, they failed to take into account the possibility of this day. It says something that on some days half of all U.S. imports come through just two California ports. What happened? U.S. shipping ports have been gutted over the last decades.
In my hometown of Baltimore, the once proud docks have seen their shipping facilities converted into apartment buildings and condominiums. People want waterfront property it seems. We’ll see how they feel when they can’t access any furniture or toilet paper to put in the dang place.
Timing and Strikes
We are fast-approaching the retail holiday season, and concerns about whether certain toys and other products will be on shelves accelerate. The natural expectation is once that the holiday season passes, demand will slide and these two California ports will no longer have ships waiting 30 to 45 days to unload.
Well, surprise. I worry that everyone is missing a much bigger issue in the year ahead. The Longshoremen have a contract that is up for negotiation come the end of Q2 2022.
The unions have virtually all of the leverage at the moment. And if they don’t get what they want – and I mean, everything they want – what is to stop them from striking? In fact, we witnessed huge supply chain problems six years ago when the ports’ longshoremen unions struck to demand higher wages.
Let’s see where the government comes down on any possible strike at the ports. Let’s see how the White House acts if there is any chatter of a shutdown to the supply. We might see a redux of the Reagan years with air-traffic controllers.
Democrats can’t afford stagnation, inflation, and supply chain delays. So, look for some grand experiment in the future to promote a shift away from the just-in-time supply chain and one that focuses on inventory building.
There appears to be ample investment opportunities in the years ahead in industrial real estate investment trusts (REITs) like STAG Industrial (NYSE:STAG) and Monmouth (NYSE:MNR). These companies will benefit from the shift of manufacturing and storage back to the United States in the years ahead. We’ll dig deeper into this story in the weeks ahead.