Horizons Newsletter – week 44 // 2021

Horizons Newsletter – week 44 // 2021

In this week’s Horizons, we dive into the root causes of the global supply chain problems and discuss the effects on consumer Holiday season spending. Furthermore, we discuss how “the rule of four” could potentially minimize future mass shortages.

Broken Supply Chains

Since the coronavirus outbreak, global shortages of spare parts for cars and bikes, raw materials, semiconductors, food and medicines have been dominating newspapers. Prices of containers, ships and aviation timeslots are skyrocketing. The approaching festive season and warnings from the Dubai Port Operator and U.S. Transportation Secretary Pete Buttigieg do not point at a quick solution. Experts argue that the current supply chain problems are a result of a quick economic recovery, a shortage of workers and a lagging production of containers in 2019 and the start of 2020. As problems will not be resolved anytime soon and are expected to reoccur in the future due to, for example, climate disasters, we should rethink global supply chains. Open Markets Institute founder Barry Lynn proposes a “rule of four” to ensure there are at least four makers of any essential good and no more than 25% of any crucial supply comes from one place. By implementing such a rule, the risk of new mass shortages could be minimized.

Broaden your horizon?

In this section we share content that may be of interest to you:

  • Peking University Finance Professor and Senior Carnegie Fellow Michael Pettis discusses the implications of a possible implosion of Chinese real estate giant Evergrande in Bloomberg’s Odd Lots Podcast.
  • Just nine months after the acquisition of Plaid by Visa bounced, Plaid is creating a more efficient, less costly account-to-account payments option that taps into consumers’ growing use of digital wallets. As such, Plaid’s move may be a direct threat to card network dominance.
  • Historian Peter Norton warns that technology can’t cure the urban problems that cars created in his new book, Fighting Traffic.

Christmas comes early this year

The broken supply chains are also affecting consumers, in particular with the Holiday season approaching. Since manufacturers have no other option but to raise their prices to offset the increased (transport) costs for components, (part of) the rising costs are passed on to consumers. Empty shelves are another indicator of the issues. According to Adobe, the prevalence of out-of-stock messages has risen a whopping 172% compared to the pre-pandemic period (Jan 2020). With fewer stuff to sell, there should be a lower need to drive incremental demand with advertising. That, however, does not seem to be the case. While performance marketing aimed at driving sales has been hit somewhat, many brands have decided to start their holiday campaigns earlier than usual. Shoppers too are likely to start buying their gifts earlier than usual (see graph), concerned as they are about stock-outs and delayed shipments. Do not expect many discounts however. Adobe expects discounts will be in the range of 5% to 25%, versus the usual average of 10% to 30%. So, Christmas will be earlier and more expensive this year.

Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, sign up here.

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