Amateurs talk strategy, Professionals talk logistics: the Critical Importance of Supply Chains
Watching all the issues happening with the Los Angeles and Long Beach port gridlock, I got a good tip from logistics expert https://twitter.com/man_integrated, aka Huntsman. Wanting to learn more, I watched some videos (check out this one: https://www.youtube.com/watch?v=25rt3SvOBMw) and went down the rabbit hole. One of these rabbit holes was the book “Ninety Percent of Everything” by George. Wow, it really gives a great perspective on how critical yet hidden this industry is to our everyday modern lives. 90% of the world’s goods are brought to you via shipping on the sea. Oil from the Middle East, low end manufactured products like Toys from China, clothing from Bangladesh or Vietnam, advanced semiconductor chips from Taiwan, raw iron ore from Australia or Brazil.
Globalization of our economy shows how interconnected we are. Whatever happens in China or Vietnam or Saudi Arabia directly affects things in America. Built as Just-in-Time Systems. When things operate smoothly it’s like a symphony. This is why your local grocery store or retail shop only needs to stock a few days of product on the shelves. When it runs out, there is a new order triggered and it’s filled “Just in time” like a conveyor belt with its long lines running all the way around the world: between farms or manufacturing plants, trucked or trained to ports, shipped or flown to the end market. These are then sent on trucks or via railways to a regional warehouse storage/ distribution depot and then trucked to the local store. It’s a very long, complicated and complex chain.
But like all chains, it’s brittle as it’s only as good as its weakest link. When things break, they break badly with all the knockdown effects along the rest of the chain. War. Covid pandemic. Natural disasters like a hurricane hitting Texas gulf lands. Energy shortages in China.
All these cause Supply chain issues.
We’re seeing too much demand as we slowly come out of the pandemic but accompanied by lowered supply. After oil prices dropped to below costs in 2020, energy prices in 2021 are going way up. Actually the price of almost everything is going up. For example, look at the shortages of automobiles in the world, which is due to there not being enough advanced semiconductor chips.
We have seen in 2020 that many countries started focusing on redundancy & self-sufficiency not efficiency. I expect this trend only to further accelerate. With the growing US-China Trade war, reshoring of key manufacturing back to US or Close to US like Latam and Canada. It’s already happening with the Japanese and South Korean heavy & electronics industry.
At a macro level things we probably can’t do too much about except for understanding them better. This is why I am so excited about the technology aspects to improve the micro effects and shocks. That is why I’m such a fan of the work Dynamo Ventures (https://www.dynamo.vc), Up Partners (https://up.partners) and Bryan Laung Aoaeh at Refashiond (https://angel.co/v/back/refashiond-seed) are doing with their focus on investing in logistics and supply chain startups.
At a personal level, I expect we will continue to have these supply shocks over the next few years. Some of these shocks might even affect our day to day stocks of food. This is why it’s not a bad idea to pick up some of the Prepper or Mormon habits of keeping a few months of non-perishable foods in storage. Or even better, learn how to grow some vegetables and fruits and chickens. All these can help reduce the shocks and your dependence on supply chains.
Globalization is being rolled back and in a growing decentralized world, we should be focussing more on local markets and supply. This is not necessarily a bad thing. It’s a forcing function. Better to be prepared and not need it, than being unprepared if things start to go badly. Sadly as we know, most people only learn after and from trauma.