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Running out of everything

The early 2020s will be remembered for ever more as the time of the Covid pandemic. But a subsidiary label might be that of the shortages years.

It’s not so much a question of what’s in short supply as what isn’t. The world is suffering a lack of many valuable materials and services, from semiconductor chips, cement, lumber and commodities to water, workers and housing. It’s a theme that regularly crops up in this publication – see Oliver Telling’s news story or Alex Newman’s “golf belt” comment piece on the housing crisis – and it’s reflected in stories elsewhere such as in the FT’s newly arrived Dublin correspondent lamenting the lack of available properties to rent in that city (which at the start of August was at its lowest level on record), car buyers shocked by the soaring price of second-hand vehicles, now in demand because of difficulties supplying new ones, employers struggling to fill vacancies, particularly those for HGV drivers – and this is as big a problem in the US as it is in the UK – through to German manufacturers expressing concern about the supplies bottleneck. Chip shortages don’t only impact obvious users such as car, games consoles and phone manufacturers. There aren’t many companies that don’t use technology somewhere along the line and their inability to replace and install equipment will impact their ability to operate at full capacity and to grow.

Covid-19 is behind a lot of the problems. Factories closed down for lengthy periods, container ships stayed in port, demand for deliveries soared, new drivers could not be trained and home workers needed lots of tech to enable them to work, causing demand to outstrip supply. But it’s not the only reason. Brexit is also a factor in the truck driver crisis. But many of the issues have been brewing for years as demand for certain goods and materials has kept rising strongly.

The bottlenecks will eventually clear, but it may take years rather than months and that poses a threat to economic growth and could fan inflation. Intel itself says the chip problem will take two years to resolve and this month’s Lloyds Business Barometer reveals that 44 per cent of firms surveyed expect to raise prices of goods and services and a third expect pay to rise by at least 2 per cent. What we shouldn’t expect is that manufacturers will abandon just-in-time ordering. That’s because maintaining lean inventories means cost savings and bigger profits (and studies show these have often benefited shareholders through dividend payouts and share buybacks). What the current disruption might do is cause a shake-up of stale practices as managers attempt to find solutions and in so doing create opportunities for other companies and suppliers. Just beware the risk of a glut before equilibrium is re-established.

 

I have been asked the same handful questions by several readers, and it might be helpful for others if I answer those questions here.

First, has John Hughman left the IC? Yes, after nine years in the editor’s seat, John made the decision to leave. We are currently recruiting for a new editor and the appointment will be announced in due course. Second, has Phil Oakley left? Yes, some months ago Phil decided to leave the IC. We have split his heavy workload between our two new analysts, Steve Clapham and Robin Hardy. Steve is a former hedge fund analyst who trains professionals in forensic accounting, runs an online school for private investors and is the author of The Smart Money Method. Robin Hardy is an experienced analyst who began his City career six weeks before Black Monday in 1987 and left the day after the 2019 general election, with a five-year break in between to set up and manage his own internet services business.

I will answer two more frequently asked questions next week.