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Columns | Go Far With Kovar

Supply Chain

by Taylor Kovar

August 16, 2022

Hi Taylor: I hear more about inflation than supply when people talk about rising costs, but then I read things about supply chain problems. Is that still going on? And still because of COVID-19? - Bailey

Hi Bailey:
That's a great question and a point more people should be making. We've got inflation issues to worry about, but a lot of the sticker shock people are dealing with still has to do with trade and supply in a jumbled global network.

1. Operations keep shutting down. A giant port in Shanghai shut down recently because of a positive COVID test. Warehouses are frequently understaffed or closed, we're still getting things back on track after the Suez Canal closure, and even the functioning ports keep dealing with container shortages. The pandemic halted most industries, and getting things back up and running is proving to be a big headache. That makes every hiccup, big or small, feel like a major disruption. In the beginning, it was that people simply weren't supplying. Now we've got people trying to ramp up supply and hitting significant roadblocks.

2. Cost of shipping is way up. In some routes, the cost of sending a container overseas has jumped more than 300% in the last two years. Shipping channels are so bottlenecked that companies can probably keep jacking up prices without losing any business. Now is a particularly busy time as retailers try to get properly stocked before the holidays, so there's not much hope for that bottleneck going away until 2022. This problem might be the scariest because consumers have already seen prices go up but we haven't had to shoulder much of the increased shipping cost yet. There's concern that a continued rise in container price might have us paying notably more for everything we get.

3. Changing approach. I've read about a handful of companies that have sought out new manufacturers just so they wouldn't have to deal with receiving goods via boat. More and more supplies are being moved by plane, train and automobile, though we're also experiencing a truck driver shortage. These changes have the potential to drive up costs, but we have to wait and see how the ripple effect plays out. It's always impressive to see necessity as the mother of invention in real-time, as businesses will find a way to provide and consumers will find a way to buy. Nevertheless, strained supply will continue to squeeze demand and you and I will feel it at the cash register.

Global inflation, trade issues, and an ongoing pandemic have created a historic convergence of issues. I have complete faith that we'll get things back on track, but it's not going to happen overnight. Thanks for the question!
Taylor Kovar August 16, 2022
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Legal Disclaimer: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.


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