Two weeks ago, I closed my blog with a reference to ‘supply-chain struggles’; an article written by McKinsey. This was off the back of worrying signs that for a variety of reasons problems were brewing in the system – rocketing gas prices, vehicle fuel shortages, shops without stocks. The issue has clearly not gone away. The cover of this week’s The Economist illustrates empty shelves, save for a single apple portraying the world and bearing the headline ‘the shortage economy’. Similarly, the front page of today’s FT has a photo showing shipping containers stacked high illustrating backlogs as a result of shortage of truck drivers. Further into the newspaper an article is headlined with ‘vacancies hit 1.1m as labour shortage and inflation worries grow’.
I wonder whether what is going on calls for the use of the ‘perfect storm’ analogy? We seem to be seeing the coalescence of a number of factors all vying with one another to disrupt our normal way of being. Indeed, one of those factors is a direct challenge to whether ‘normal’ is right? Are we becoming too complacent in expecting the almost immediate delivery of goods and services from producers located across the planet? Or, if we are to recognise the harm we are doing by pushing carbon into the atmosphere, perhaps we need to start living with a new norm; one that embraces patience and emphasizes local rather than global. Ironically part of the contribution to supply chain problems has been natural disasters; typhoons, floods and wildfires, all of which have impacted the freight market.
Digging into some of the factors, we are witnessing a strange dynamic in the labour market or, as Kitty Ussher, Chief Economist at Institute of Directors, calls it: “..a vacancy paradox … record-high job adverts but still more people unemployed than there were before the pandemic.”[i] The paradox is driven by a skills gap, which in turn is being addressed by employers via wage growth, something not witnessed for a very long time. But layer wage growth on top of growing inflation and could we be about to witness a serious consideration of interest rate rises?
The Economist looks at this issue from a global perspective, arguing that the shortage economy has resulted from two key issues: decarbonisation – the conflict between switching from dirty energy to clean in order to meet environment targets while not truly being prepared for the transition – and protectionism – pointing to examples from around the world of countries putting up barriers to shield their own interests.
Perhaps I am being overly pessimistic in raising this matter and should place greater faith in the invisible hand. If JP Morgan CEO, Jamie Dimon is to believed, this will be a short-term problem: “I should never do this, but I’ll make a forecast. [Supply chain problems] will not be an issue next year at all. This is the worst part of it. I think great market systems will adjust for it like companies have.”[ii]
[i] FT, p.2 Wednesday 13th October 2021
[ii] Speaking at a conference hosted by the Institute of International Finance and quoted by the Washington Examiner, Monday 11th October 2021