Where is all the Inventory?

Supply chains are breaking - what it means for you and the larger economy

Have you noticed the growing number of empty shelves at retailers? At first, this was limited to items directly related to spiking demand related to Covid hysteria.

But, now we’re experiencing a supply shock on top of an excess of demand from all the new stimi checks.

Inventories in most categories (from food to autos) seem to be evaporating. This has real implications for your family and the larger economy. And, unfortunately, things are likely to get much worse before they get better.

In march of 2020 as governments shutdown the economy sales collapsed and the Inventory to Sales ratio spiked. But, now we’re seeing the inverse - only more extreme.

Retailers Hate Empty Shelves 

Years ago, I was an investor in a consumer products company and the WHOLE GAME was retail shelf space.  We fought like hell for shelf space and competition was fierce.  

Retailers maximize sales through the “Art and Science of Merchandising”(where/how goods are displayed in the store).  Empty shelves are anathema to a retailer.  You can be certain that If the shelves could be fully stocked, they would be. 

But, the shelves aren’t fully stocked.

Shortages are not limited to only a certain set of goods. Clothing, sun glasses, bicycles, bullets, clothing, and linens are just some of the categories where I found empty shelves.  Take a look: 

Retailers ask the Feds to Intervene In Shortages

Last week, The National Retail Federation sent a letter1 to Biden asking for help.  According to a recent survey of member retailers, the NRF found:

  • Over 97% of retailers surveyed say they have been impacted by port and shipping delays. 

  • The most common challenges respondents mentioned were U.S. port congestion, lack of carrier capacity and lack of available containers overseas. 

  • More than two-thirds (70%) of respondents say they have had to add 2-3 weeks to their supply chains. 

  • All respondents said their costs have increased with a majority (75%) having had to pass along some of the costs to consumers. 

  • Nearly all (85%) of those surveyed say they are experiencing inventory shortages because of the ongoing supply chain disruptions. 

What’s Causing the Shortages?

  1. Fundamental problem seems to be short term planning by governments and businesses with little to no far sightedness. Just in time inventories. Outsource everything but sales and marketing.

  2. Government intervention leading to whipsawing demand:

  1. Labor shortages (many government induced):

    • Not enough truck drivers2 - For the fourth consecutive year, the driver shortage is the trucking industry’s top concern, according to a report by American Transportation Research Institute (ATRI).

    • The pandemic and its restrictions have limited the availability of dockworkers and truck drivers, causing delays in handling cargo from Southern California to Singapore

    • ISM Manufacturers panelists’ comments indicate an overwhelming majority of their companies are hiring or attempting to hire, with more than 50 percent of them expressing difficulty in doing so.

    • United Warns of possible pilot shortage

  2. Real shortage of commodities according to May ISM report3

    Commodities in Short Supply

    Acrylates; Aluminum (2); Aluminum Products; Coatings; Corrugated Boxes (7); Electrical Components (8); Electronic Components (6); Foam Products (3); Labor — Temporary; Lumber (3); Medium-Density Fiberboard (MDF); Nylon Fiber (2); Ocean Freight (2); Plastic Containers; Plastic Products (4); Plastic Resins — Other (3); Polycarbonates; Polyethylene Terephthalate (PET) Products; Polypropylene (2); Polyvinyl Chloride (PVC) Resin; Printed Circuit Boards; Printed Circuit Board Assemblies; Semiconductors (6); Steel (6); Steel — Cold Rolled; Steel — Galvanized; Steel — Hot Rolled (7); Steel — Stainless (3); Steel Bars; Steel Products (4); Steel Tubing; and Wood — Pallets (2).

    Note: The number of consecutive months the commodity is listed is indicated after each item.

One Category in short supply, Ocean Freight, is experiencing explosive price growth:

Problems Continue to Mount

The third largest shipping terminal in the world, Yantian in Shenzhen China closed for a week in late may when some port workers tested positive for Covid; weeks later, productivity has only recovered to about 70% of normal levels.

According to the ISM, global delivery delays haven’t been this bad since April 1974 when the market was readjusting after the end of the 1973 oil embargo.

When Might it end?

According to the Financial Times4:

The delays will persist for manufacturers and retailers across the world for the rest of the year, as will limited availability on cargo ships and record-high freight rates, shipping industry figures said.

Otto Schacht, executive vice-president of sea logistics at Kuehne+Nagel, one of the world’s largest freight forwarders, said the timing of the latest disruption was particularly unfortunate because shipping is close to entering peak season when retailers stock up for the return-to-school and end-of-year buying.

“How quickly are we back at pre-Covid supply chain reliability? Probably six to nine months,” he said.

Jensen of Vespucci Maritime said the Yantian backlog “serves to push the point of time further into the future when we revert to normality”. “There’s a significant risk that we push the point of return into 2022,” he warned.