“A wise human would have an understanding of the supply chain and how the pieces fit together. But it’s against our nature to think about it.” Paolo Bacigalupi

If there was an index to capture the level of frustration in a community, my sense is that it would be at a high level this week.  Whilst we may be more phlegmatic about significant matters occurring in far off lands, witnessed on television, that sense of measured perspective seems to dissipate when the convenience of our daily routines is challenged. 

The angst seemed to start with news of energy providers going bust because of the spike in wholesale gas prices.  For a lot of people this meant uncertainty of continued energy and inconvenience about when and how to switch to a new provider.  In terms of the underlying problem, there seem to be multiple causes for the price spike, although according to the Economist, among them are ‘precautionary hoarding in Asia..’.  So, although changes in weather can be attributed to an increase in demand, it would seem to be the distribution of supply that is pushing the price level up – with imports into Europe down around 20% relative to last year.   

The more visible, indeed visceral, contributor to increased frustration recently has been the fuel shortages at the petrol pumps.  Long queues emanating from forecourts, snaking back and into the hearts of towns have become a regular sight over the past few days.  Akin to what we’re facing with natural gas, the issue seems not to be the underlying availability of the commodity but rather the local distribution to the garages; specifically, lack of HGV drivers.

It is the behavioural dynamics around these events that I find particularly interesting.  At a macro level we are seeing self-interest of regions seeking protection for their own – whether that is in Asia via the ‘precautionary hoarding’ or via the US where lobbying groups are seeking export limits being placed on liquefied natural gas.  At the micro level, the panic buying of people not wanting to be the ones left with empty cars stranded on the roadside. 

On the news this morning was some discussion about the ‘irrationality’ of people’s actions with one of the contributors highlighting that people were actually acting completely rational, if they are being told that panic buying is taking place – it would seem a completely rational act to find a source of fuel when the actions of others are putting it in short supply.  This accords with the ‘prisoner’s dilemma’ where two agents acting rationally and in their own best interests will settle for outcomes that are worse off for all.  Somehow, we need to break the cycle and encourage behaviours that reflect the aggregate good which, in turn, benefits the individual.  One would have hoped that the government’s communication would have ‘nudged’ people into calm, but it seems they have adopted a stance of ‘problem, what problem?’

Whilst I’ve been typing this an email has popped into my in-box.  It is one of the daily missives from ‘McKinsey On Point’, but given what I am writing about today this one truly lived up to its name.  The title of the piece is ‘supply-chain struggles’ and leads with the headline “the average company can expect to lose about 45% of one year’s earnings over the next decade due to supply-chain disruption.”  The piece links to an article in the FT[i] which makes for sobering reading.  This is not a BREXIT-prompted issue impacting the UK, this seems to be a global malaise.  The troubles we’re witnessing in the UK are perhaps here for longer and look to impact a broader base of economic activity.

[i] https://www.ft.com/content/8e2b72f2-b937-4152-a61b-c18758160650?cid=other-eml-onp-mip-mck&hlkid=6e69640eb06c44df8c3f844a8b520f69&hctky=12194960&hdpid=2e953f58-1b67-47e8-a8ee-ad6f438f6bc0

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