Time to Prepare if You Haven’t
As the pandemic wreaked havoc in many different countries last year, and as it affected their economies, consumers turned to panic-buying. Now, as the economy rebounds, companies are trying to stock up but everything is running extremely low.
Many different industries currently try to buy more materials than what they actually need to accommodate the swift recovery of demands for their goods. Because of how fast the rate of demand is rising, as well as having the fear of running out, this pushes the supply chains to work to the point of breaking down. Currently, the shortages, transportation bottlenecks, and the spike in prices approach record-high levels in recent memory. This makes many concerned about the possibility of a supercharged global economy stoking inflation.
The world is seemingly low on everything, from metals like copper to pantry items like coffee. Tom Linebarger, Cummins Inc.’s chairman and CEO, stated that the economy is running low on whatever one may think of.
According to Jennifer Rumsey, the president of Cummins Inc., clients have been trying to acquire everything that they could get due to projected high demand.
World Economy Running Extremely Low on Everything With No Clear End In Sight
What the difference between past shortages and the one in 2021 is the scale and that this time, no one really sees a clear end. Not a lot of companies are spared in this scenario, big or small.
A long and growing list of calamities rocking the commodities sector makes matters worse. One such case is the freak accident that happened in the Suez Canal back in March. A ship blocked the Suez Canal, causing global shipping to seize up. Drought has also greatly affected agricultural crops, while in February, a deep winter freeze and massive blackout stopped energy and petrochemical operations in the central United States. To add to this, just a few weeks ago, hackers managed to bring down and stop the operations of the largest fuel pipeline in the United States.
A Paradigm Shift
For anyone looking to see how this will all play out, look at the economic indicator called Logistics Managers’ Index. It’s based on a monthly survey among corporate supply chiefs that asks them for a projection of inventory, transportation, and warehouse expenses. They’re asked for a current projection and one in 12 months. Currently, the index sits at the second-highest level since 2016 while the projection a year from now doesn’t offer much respite.
According to Zac Rogers, an assistant professor at Colorado State University, there’s a paradigm shift. Before, the three said areas have been optimized for low costs and reliability. Now, given the high demand for e-commerce, many warehouses moved from cheap locations in the outskirts of urban areas into prime locations where they can make quick deliveries. Also, now, a bigger inventory is sought after while transport costs might not go down until the demand does.
As per Rogers, it’s difficult to have supply match the demand. Because of this, price increases will continue to happen in the next year.
Inflation Likely to Quicken
According to experts observing the situation, inflation may likely quicken.
However, many policymakers presented several reasons why they don’t think inflationary pressures will go out of hand. They partly blame the big spikes on skewed comparison to last year’s steep drops. Additionally, many companies that held the line regarding price increases for several years are still reticent about them now.
This strain has made its way back to the global output of raw materials. It may also persist since the production capacity of scarce materials remains slow and expensive to increase in scale.
Crude oil prices increase, along with the prices of industrial materials. This also goes for food costs. Additionally, some of these increases are already trickling down to store shelves.
Meanwhile, many means of transportation that move components along the global production process and that deliver finished goods to the market, are running close to or at capacity. This causes a blockage and delay in deliveries. It also caused a rise in pricing for product shipping and transport services.