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Supply Chain Disruptions

Inflation, high gas prices, and 4.3 million Americans quitting their jobs back in August. 

These are the headlines that grab your attention. But what hasn’t gotten much attention is the fact that the United States is faced with a serious, increasing truck driver shortage that has intensified since the COVID-19 crisis and the stress of supply chain disruptions.

Today’s shortage of trucks and drivers has incited a larger problem. Container ships with billions of dollars in consumer products are idling dormant in the waters and pushing up consumer prices.

Moody’s Analytics called the shortage of truck drivers the “weakest link” in the distressed supply chain, contributing to the congestion in the waters outside the ports of Los Angeles and Long Beach, California.

How This Affects Investors

While the stock market doesn’t like bad news or uncertainty, portfolios aren’t exactly shriveling up due to the crisis either. The bull market is alive and well. Perhaps you heard recently the S&P 500 had its best week since July. This actually represents an increase from when the anticipated earnings growth rate for the third quarter stood at about 27.6%.

According to www.FactSet.com, the expected earnings growth rate was 30% based on both actual earnings from companies that have reported and expectations for future results. This marks the third highest year-over-year earnings growth rate reported by the index since Q3 2010, trailing only the previous two quarters.

So, retail investors supporting the markets continue to buy stocks. Some might say it is the time of year, and others say they’re just looking for strong quarterly earnings. Morgan Stanley, Goldman Sachs, Bank of America all topped their third quarter estimates. And as a Hefren-Tillotson client, your portfolio is no longer based on the market’s day-to-day events.

But regarding the supply chain, an optimistic JPMorgan Chase CEO Jamie Dimon said that these ‘hiccups’ would fade quickly. “This will not be an issue next year at all,” he said during a conference held by the Institute of International Finance, CNBC reported. “This is the worst part of it. I think great market systems will adjust for it like companies have.”

When a National Labor Crunch Cannot Deliver the Goods

Kendra Hems, the President of the Trucking Association of New York, said an estimated shortage of nearly 60,000 drivers, pre-COVID, is now predicted to become a 105,000-driver deficit by 2023 if hiring remains stagnant, as Albany’s Times Union’s Shayla Colon reported.

The Southern California cargo traffic jam set a new record for the number of container ships that handle 40% of all cargo containers entering the country as they sat and waited to unload. False media reports and inaccurate social media posts claimed the vessels were “prevented” from unloading their cargo as part of some effort to interrupt the national supply chain. The backup was the result of not having room for more ships in the port.

Once America’s busiest port complex went into standstill mode – due to the lack of trucks and drivers to pick up consumer goods – the overwhelming demand for imported products prompted retailers like Walmart, Home Depot and Costco to charter their own container ships to secure some ocean space. Even Coca-Cola announced that it moved a 60,000-ton shipment in sacks aboard a bulk carrier instead of in containers.

Why is this important? Container ships worth billions of dollars idling dormant in the waters are contributing to pushing up consumer prices and to shortages of children’s toys, timber, new clothes, pet food, holiday buying surges, as well as labor shortages and other COVID-19 related issues. Even the school districts are feeling the crunch from the lack of produce.

By tonnage, about 70% of all US-international trade moves by water through America’s ports. Hearing from experts who say supply-chain disruptions and product shortages are sometimes to be expected, the world continues to navigate a global pandemic and shifts in consumer spending habits, as folks spend more time at home clicking away on their phones.  

With Disruption Comes Growth

Executives were optimistic about the state of the economy and of consumers’ willingness to shed any leftover pent-up demand from COVID-19 to start purchasing earlier in the holiday buying season.

“Consumers shifted their spending from services to goods during the pandemic, and supply chains are struggling to keep pace,” said Jeffrey Michael, executive director of the Center for Business and Policy Research at University of the Pacific.

“Worsening port congestion and delays at LA/Long Beach are keeping Asia-US prices extremely high at more than quadruple their level a year ago. The congestion may also be responsible for pushing North America-Asia export rates up more than 10% to more than $1,000/FEU.” That’s bad news for exporters — and for America’s ballooning trade deficit.

You’ll likely spot growth opportunities as various disruptions occur. However, supply chain disruptions can also result in operational inefficiency and revenue loss, which is why you cannot underestimate them. When you are invested in sectors that are directly involved, know that top-tier corporations put people first, and keeping their planning workforce healthy and productive. This go-forward approach will be typically achieved by supporting new ways of doing things, which indirectly aids in the market’s resilience.

If you have questions, please contact us at Hefren-Tillotson today.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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