Supply Chain Disarray

Global Shortages

Semiconductor chip shortages impacting the auto industry are well documented, but how bad are they?  Apparently, bad enough that respected German firm Bosch believes global semiconductor supply chains for the auto industry are no longer “fit” for their original purpose.

Moore’s Law

Over the past few decades, Moore’s Law has played out, and semiconductor chip sizes have shrunk as their power and speed has increased. Chip prices have also dropped, making it more economical to employ the use of computer chips in a growing list of applications and appliances.

No need to turn the faucet handle anymore, a microchip will turn the water on for you. Want to brush your teeth more efficiently? A microchip in your electronic toothbrush will tell you how. Don’t remember if you closed the garage door this morning? No problem. A phone app will communicate with the computer chip in your door opener and let you know if it’s open and let you close it remotely.

In short, the use of semiconductor chips has progressed far beyond the old desktop computer and is woven into our everyday lives.

Problems Not Limited to Chips

Unfortunately, today’s supply chain problems aren’t limited to semiconductor chips. Considering replacing that old couch in your family room? Better plan ahead, because the foam used to make seat cushions in your furniture, your mattress, your vehicle seats, and your boat seats is in short supply as well (here).

A lumber shortage is impacting the furniture and home construction business. COVID-related supply and demand imbalances are impacting steel so much, that China has become a net importer of steel for the first time in 11 years, according to Construction Manager magazine.

Container Ships & Trucking

If these and other shortages aren’t enough on their own, they are all worsened by record breaking container ship backups and truck driver shortages.

It’s a complex problem. In some situations, employers paying higher wages are unintentionally incentivizing truck drivers to work less in favor of more time with family. In other situations, well-intentioned governments are providing enhanced unemployment benefits that may create disincentives to work.

At their essence, all these issues are supply/demand imbalances. The root cause of each imbalance may differ, but the combined impact and many inter-relationships is devastating to global and domestic supply chains.

In future years, companies and possibly entire industries may have to redesign and re-order their supply chains. For now, logistics managers are desperately trying to source enough supply to keep the production lines running and shelves stocked.

Impact on Earnings?

It’s likely these issues will be hitting corporate sales, earnings, and profits. Prices and availability can change at a moment’s notice, and demand continues unabated. With stock valuations already elevated, this is just one more reason to keep some investing ‘powder’ dry in anticipation of potential market hiccups these issues may trigger.

 

 

 

Disclaimer
This material is provided by Schmitt Wealth Advisers for informational purposes only.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.  Opinions expressed by Schmitt Wealth Advisers are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from publicly available sources (unless otherwise noted) and are believed to be reliable.  Schmitt Wealth Advisers, however, cannot guarantee the accuracy or completeness of such information.  Past performance may not be indicative of future results.

 

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