Demand

The recent strike at agricultural equipment maker Deere, was the first mass downing of tools at the Illinois based company in thirty five years. The production line slowed to a grind as fraught looking managers did what they could to keep the shiny green tractors rolling off the assembly line. The company report numbers this week and analysts are talking about a 15% hit to production volumes for the coming quarters. Margins too will be coloured by the double digit pay rise and succulent, all-you-can-eat $8,500 bonus that each striking employee received for their time on the picket line. With everyone now back on speaking terms, there is a backlog to clear, a backlog that will hit a supply chain that remains under stress. Deere’s tractors, combines and wheel-loaders will also hit a market that is tight, affording management the opportunity wear the estimated $3.5bn fish-in-the-face hit over the six-year contract, by raising prices. The supply chain ruckus is, though, now as much a daily dish of fresh headlines as the up-and-coming energy crisis, courtesy of a sinister polar vortex that is slowly gripping the northern hemisphere as Santa Claus readies his sleigh. Photos of bare shelves abound. Apps showing the log-jam of container ships off ports such LA and Long Beach have also found wider interest than retired sea captains struggling to move on. Whilst there are signs that the supply chain issues are easing, there is no magic bullet. A supply chain is only as strong as its weakest link. Whilst logistics is simple enough on paper, in the real world, shipping a box from Guangdong to Illinois on a just-in-time supply line is, forever, one delayed component from complete collapse. Off loading ships faster might help, but it might also just shift the bottleneck elsewhere. What is ultimately needed to help iron out the creases in the logistical linen, is less demand. As just demonstrated by a global lockdown and wet-lipped money binge, the complex web of interlinked components that is the global supply change, can’t cope with a sudden spike in demand. Hence the mess. And the only way the supply chain issues to really disappear is for demand to ease up. The hope is, that as people stop buying stuff, and start booking up events and packing out restaurants into 2022 this will happen, but with consumers sitting on a near $2 trillion in excess savings and an insatiable modern day compulsion to spend, the easing of demand may take longer than hoped.