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What then are we to become?

What then are we to become?

According to Boris Johnson, the economic dislocation which appears to be gathering pace across the UK is merely “a period of adjustment after Brexit.” In Johnson’s formulation, those who would turn the clock back are tacitly in favour of the low-pay and poor working conditions which were encouraged when the UK was a member of the European Union.  There is, for example, no shortage of lorry drivers in the UK.  More than 230,000 of us hold valid Heavy Goods vehicle licences.  Unfortunately for those who like turkey for Christmas dinner and petrol at any time, the pay and conditions in the haulage industry are so poor that most prefer to work elsewhere.  Cheap Eastern European drivers living out of their cabs and engaging in cabotage helped to paper over the cracks until the lockdowns began and some 20,000 of them opted to be quarantined at home rather than stay in the UK.

In the anti-Brexit narrative, the shortage of drivers, agricultural workers, natural gas, garden furniture and anything else which turns out to be in short supply, is the unintended consequence of an ill-conceived withdrawal from the EU.  But in Johnson’s formulation, the dislocation is no more than the intended first phase of a transition from the low-paid and low-skilled economy of the past to a new, high-paid and hi-tech “global Britain.”  It is not – his supporters claim – the government’s fault that these shortages are materialising now.  It is the fault of employers who – despite having had five years to prepare for Brexit – have failed to train enough workers and offer them decent enough pay and conditions to retain them in their respective industries…

…click on the above link to read the rest of the article…

Breaking The (Supply) Chains

Breaking The (Supply) Chains

“Supply chain disruptions” has become a catch-all phrase to explain product shortages and inflation. But how exactly does that work, and why is this problem taking so long to fix? For Story Time this week, Nick uses his 30 years of experience analyzing the US auto industry to explain what’s going on. It all comes down to “lean manufacturing”, which started in Japan after World War II and caught on worldwide in the 1980s/1990s. The pandemic has created systematic challenges to “lean”, enough that structural inflation is a threat.

Here is a story about how supply chains work and why they are so snarled just now. Yes, a grimy topic compared to some of our others, but important and my personal history as a long-time (30 years) auto industry analyst gives me a unique perspective on the issue.

To understand how global supply chains operate the way they do today, you really need to go back to Japan just after World War II.

The country, defeated and impoverished, desperately needed to restart its industrial base. It did so by producing what it could with a minimum of capital. That meant, for example, no capital-intensive vertical integration; there were parts suppliers, and then there were final assembly companies. It also meant keeping the supply chain tightly integrated to maximize throughput.

This spawned a new production model, now commonly known as lean manufacturing, and Japan’s auto companies led the way in its adoption.

Parts like exterior metal stampings and interior trim like seats and dashboards all arrived at automotive final assembly plants from suppliers within a few hours of when they were installed in a vehicle moving down an assembly line…

…click on the above link to read the rest of the article…

The Coming Trucking Apocalypse – What’s Causing It?

The Coming Trucking Apocalypse – What’s Causing It?

“While you’re sleeping, they’re hauling.  Have you thanked a trucker?” – Anonymous.

Even though the Coronavirus has wreaked havoc in the lives of people worldwide, truckers have been struggling to keep the country moving.  Global lockdowns, massive shifts in consumer spending and supply chain issues, raw material disruptions, cyberattacks, canals getting blocked and backing up freight, and you name it, already put our just-in-time manufacturing and delivery systems in complete disarray.  When these problems also hit the trucking industry hard, as we see now, recoveries are fragile, and further shortages become the current reality and possibly the future norm.  Every year the US economy depends on ten billion tons of every commodity imaginable to be delivered to the tune of almost 700 billion dollars worth of goods. If the trucks stop running, filling stations that sell nearly 300,000 gallons per month and require multiple deliveries per day could run out of fuel in hours or days.  Manufacturers, unable to deliver their products from plastic bottles to toys to tomatoes, would have to halt production and sit idly by.  You would see shortages of just about everything in your stores within two days.  That would spark panic buying and further complicate the problems.  Within a week, the entire economy would grind to a halt if all trucks stopped running.

Are we barreling down the road towards a trucking collapse?  A complete truck collapse isn’t necessary for it to get so bad that every consumer feels the impact in all aspects of their lives.  Several significant problems are facing this critical piece of the supply chain.  If it fails, the whole system will collapse…

…click on the above link to read the rest of the article…

“Global Supply Chain Crisis To Last Until 2023,” Says Middle East’s Largest Port Operator

“Global Supply Chain Crisis To Last Until 2023,” Says Middle East’s Largest Port Operator

Global central bankers have been out and about continuing to promote a narrative that inflation is “transitory.” We’ve seen it from the likes of Powell, Lagarde, Bailey, and Kuroda. Logically, these monetary wonks are right, inflation caused by supply chain bottlenecks will resolve itself, but these officials have yet to provide a timeline because they don’t know.

For more insight on when global supply chain bottlenecks will subside, Dubai’s DP World, one of the biggest international port operators, Chairman and CEO Sultan Ahmed Bin Sulayem spoke with Bloomberg TV at the Dubai Expo 2020 on Friday and said disruptions could last for another two years.

“The global supply chain was in crisis at the beginning of the pandemic,” Bin Sulayem said. “Maybe in 2023 we’ll see an easing.”

For some context on DP World’s operations, it manages the Port of Jebel Ali, also known as Mina Jebel Ali, a deep port located in Jebel Ali, Dubai, United Arab Emirates. The port is the world’s ninth busiest port.

The world’s largest shipping line, A.P. Moller-Maersk, recently warned bottlenecks might last longer than expected, and some shippers have pledged to cap spot rates. DHL and UPS have also warned supply chain disorder will not only persist into next year but could leave a permanent scar.

Before global supply chains splinter further and lead to more shortages worldwide, the question is: How can supply-chain bottlenecks be resolved?

Since the crisis was created by surging demand putting strain on container capacity, suppliers, and logistics companies as they struggled to deliver goods…

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

Blames tangled-up supply chains but not what’s causing supply chains to get tangled up in the first place: The most grotesquely overstimulated economy ever.

Fed Chair Jerome Powell, during a panel discussion hosted by the ECB today, admitted again that inflation pressures would run into 2022 and blamed “bottlenecks and supply chain problems not getting better” and admitted they are “in fact at the margins apparently getting a little bit worse.”

“The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end,” he said.

OK, good, he almost gets it: “very strong demand” is causing this. But where the heck does this “very strong demand” come from?

Here’s where: The most grotesquely overstimulated economy ever.

The Fed has handed out $4.5 trillion to investors in 18 months, and repressed short-term interest rates to near 0%, and long-term interest rates (via the $120 billion a month in bond purchases) to ridiculously low levels, and this has inflated asset prices, including home prices, and beneficiaries are feeling rich and flush, and they’re going out and borrowing against their assets and buying $70,000 pickup trucks, electronic devices, yachts, second and third homes, and a million other things. That’s where much of the demand comes from.

The other part of the demand comes from the government, which spread $5 trillion in borrowed money around over the past 18 months – stimulus checks, forgivable PPP loans (over $800 billion), extra unemployment benefits, funds sent to states to spend how they see fit, to airlines and other big companies to bail them out, which then used this money to buy out their employees that then spent this money.

…click on the above link to read the rest of the article…

A crisis of affordability

A crisis of affordability

Western capitalist economies don’t really do shortages.  There are a few stand alone exceptions such as a music festival or a sporting event, where demand so outstrips supply that queues form.  But for the most part – as we saw last week with the eye-watering rise in wholesale gas prices – when something is in short supply the price increases; and when the price increases enough, the queues disappear.

In economics, this is the difference between demand and desire.  I might, for example, desire a new sports car or a country mansion.  But since I do not have anything like the discretionary income to buy these things, I do not contribute to the economic demand for them.  And unless someone is going to offer them for sale at a ridiculously low price, I doubt that we are going to see queues forming any time soon.  As Tom Chivers at UnHerd puts it:

“Over the long run, the market normally solves coordination problems like this, reasonably effectively. If lots of people want some resource, then the people selling that resource realise they can make more money if they raise the price. At the higher price, fewer people are willing to buy it, but the seller makes more money per unit sold. And, in theory, they can keep raising the price until the lost sales start to outweigh the gain per unit.”

When we witness queues piling up outside filling stations across the UK then, we might be correct in assuming that something – or most likely some things – are being done to artificially generate a shortage where none previously existed…

…click on the above link to read the rest of the article…

UK To Deploy Reserve Tanker Fleet And Military To Ease Energy Crisis

UK To Deploy Reserve Tanker Fleet And Military To Ease Energy Crisis

Gas stations in English metro areas are running dry after six days of buying panic worsened shortages caused by insufficient truck drivers. For days, the UK government has contemplated the use of military truck drivers to replenish gas stations. Now there’s word the government’s reserve tanker fleet will be operational on Wednesday afternoon, and military truck drivers will be coming online in days.

On Wednesday, Business minister Kwasi Kwarteng said the government’s Reserve Tanker Fleet will be on the road by this afternoon to boost deliveries of fuel to gas stations. The force is comprised of civilians and will provide logistical capacity to the fuel industry.

“A senior defense source says troops are set to start driving fuel lorries to petrol stations later this week after the Ministry of Defence approved an official request for assistance.”

Kwarteng elaborated today on the plan to field upwards of 150 soldiers to deliver fuel.

“The last few days have been difficult; we’ve seen large queues. But I think the situation is stabilizing; we’re getting petrol into the forecourts. I think we’re going to see our way through this,” he said.

The Petrol Retailers Association, which oversees about 5,500 independent petrol stations, said 37% of its members’ stations were out of fuel on Tuesday.

A shortage of approximately 100,000 heavy goods vehicle (HGV) drivers caused supply chain stress through the petrol industry – there’s plenty of fuel at refiners. Still, the issue has been the lack of drivers to transport fuel to gas stations.

Besides calling in the military, the world’s fifth-largest economy has begun to issue temporary visas to 5,000 foreign HGV drivers.

The shortage of drivers has fractured supply chains as an energy crisis has also rippled through power markets and the food industry. The scenes playing out in the UK over the last six days are reminiscent of the chaos of the 1970s.

Millions of Britons Could Face ‘National Shortage’ of Turkeys This Christmas

Millions of Britons Could Face ‘National Shortage’ of Turkeys This Christmas

Trees and toys also at risk, suppliers say

Millions of Britons could face a “national shortage” of turkeys, toys, and trees this Christmas due to a lack of skilled European employees following Brexit, according to the chair of a farming association.

The Road Haulage Association (RHA) last month said the UK is facing a shortage of around 100,000 HGV drivers, which along with Brexit, has been further exacerbated by people leaving the industry as well as the pandemic, which halted driver training and testing for nearly a year.

As a result, food supply chains have been drastically disrupted, leading to shortages across some UK supermarket shelves.

Kate Martin of the Traditional Farm Fresh Turkey Association (TFTA) told the PA news agency that Christmas could see a “national shortage” of turkeys on the UK’s supermarket shelves, driven by the declining supply of skilled European workers.

While small British farms that use local workers have been less affected by the undersupply, supermarkets are likely to see the worst of it, the TFTA said.

“This year it’s looking like there is a national shortage of turkeys when we’re talking about supermarket shelves, rather than buying direct from your farm,” Martin said.

“It is the supermarket shelves that will be emptier on turkeys this year than they have been before, only because there have been less turkeys placed on the ground, only because the big processers know that they will not get them processed.”

…click on the above link to read the rest of the article…

Panic-Buying Could Leave 90% Of UK Gas Stations Dry; BoJo Considers Calling In Army To Resupply

Panic-Buying Could Leave 90% Of UK Gas Stations Dry; BoJo Considers Calling In Army To Resupply

UK politicians panic as similarities to the 1970s-style “winter of discontent” of shortages and socio-economic distress have already materialized. Prime Minister Boris Johnson requested the Army to begin fuel deliveries to petrol stations.

According to Reuters, 90% of petrol stations could run dry across major metro areas on Monday after buying panic accelerated the crisis of low fuel supplies due to a shortage of truck drivers.

The buying panic began shortly after BP plc, a multinational oil and gas company, warned last Thursday that a shortage of truck drivers is inhibiting the oil company’s ability to transport fuel from refineries to its network of service stations. By Saturday, lines of cars spilled over into the streets at petrol stations and continued into the new week. The shortage has been made worse because of hoarding.

The Petrol Retailers Association (PRA), which oversees about 5,500 independent petrol stations, said about two-thirds had run dry by Sunday night, and the Reuters figure is 90% by Monday.

PRA chairman, Brian Madderson, said hoarding had worsened the crisis as it may take weeks to restock fuel supplies in the country. He said the government’s plan to increase heavy goods vehicle (HGV) drivers would not be a quick fix.

Speaking with BBC Radio 4’s The World This Weekend, Madderson warned:

“I’ve talked to a lot of our members… They serve the main roads, the rural areas, the urban roads, and anywhere in between 50% and 90% of their forecourts are currently dry, and those that aren’t dry are partly dry and running out soon.”

In a move to boost HGV drivers, the government is considering calling the military to transport fuel to petrol stations. The country needs at least 5,000 more HGV drivers after it lost drivers post-Brexit and after the COVID-19 pandemic, which adds even more woes not just to the fuel supply chain network but has also disrupted food supplies at supermarkets.

…click on the above link to read the rest of the article…

The march of folly

The march of folly

It is of some interest that people have been contrasting images of British petrol queues this weekend with the petrol queues which formed back in 1973 as a result of the OPEC oil embargo.  Not least because a more accurate comparison is with the fuel protests in September 2000.  That is, this weekend’s “shortages” are largely the product of a multinational oil company launching a media campaign aimed at avoiding having to improve the pay and conditions of its drivers.  From past experience – including your rush to get toilet paper last March – you didn’t have to be a genius to realise that publicising a faux shortage of fuel would lead to a run on the country’s filling stations.  They are, after all, just like banks in that if we all turn up at the same time, they break.  And so, in a matter of hours fuel shortages became a self-fulfilling prophesy; aided by ministers taking to the airwaves to urge people not to panic.

If anything, we have become even more dependent upon just-in-time deliveries today than we were 21 years ago.  And back then it only took the loss of 15 percent of deliveries to bring us to the brink of a cascading collapse.  This is because the real economy fails in the same way as Liebig argued that crops fail.  The absence of one component is sufficient to bring about a total failure.  So, for example, in September 2000 several English hospitals ceased treating people because of a shortage of Sucher.  The operating theatres were ready to go.  The surgeons were in place.  The patients were ready to be anaesthetised…

…click on the above link to read the rest of the article…

UK’s Fertilizer Crisis Spreads To EU After Another Firm Slashes Output

UK’s Fertilizer Crisis Spreads To EU After Another Firm Slashes Output

Europe’s energy crisis has claimed another victim, with Austrian fertilizer producer Borealis AG slashing the output of ammonia after the cost of the primary feedstock, natural gas, compresses margins in an industry already facing tight supplies, according to Bloomberg.

Borealis’ ammonia-producing plant uses natural gas to make fertilizer. The high cost of natgas makes fertilizer uneconomical to make. This is yet another sign of deepening woes for the industry after the UK government said it would provide “limited financial support” to help CF Industries restart one of its fertilizer plants this week.

The culprit behind surging natgas prices has been declining flows into Europe via Russia, though there are signs natgas shipments could increase in November. But that won’t alleviate high prices because stocks on the continent are well below average ahead of the winter season, indicating Europe’s energy crisis may drag on for months.

Disruptions of ammonia supply and other fertilizers have had a significant impact on the production of carbon dioxide supply in the UK, sending the industry into a tizzy and rippling through food supply chains, such as slaughterhouses to packaging to carbonated drinks to dry ice production.

Commodity analysts at CRU Group said half the continent’s ammonia capacity could be at risk due to dwindling production because of elevated natgas prices. Spot prices  of ammonia per ton in Western Europe have surged from around $225 per ton at the beginning of the virus pandemic to $700 per ton this month.

Borealis’ reduction in ammonia production is a sign the fertilizer crisis continues to ripple across the continent. The company said Thursday it would analyze the situation” regarding its plants in Austria, France, and the Netherlands – not much detail was given.

…click on the above link to read the rest of the article…

Soaring energy prices in Europe are forcing U.K. factories to shut down

Soaring energy prices in Europe are forcing U.K. factories to shut down

Europe is facing an extreme squeeze for energy supplies, with gas and power prices breaking records day after day

Europe’s energy crunch has forced a major fertilizer maker to shut down two U.K. plants, the first sign that a record rally in gas and power prices is threatening to slow the region’s economic recovery.
CF Industries Holdings Inc. said Wednesday it’s halting operations at its Billingham and Ince manufacturing complexes due to high natural gas prices, with no estimate for when production will resume. European gas and power futures tumbled Thursday on signs energy-intensive industries are curbing consumption.The move comes as Europe is facing an extreme squeeze for energy supplies, with gas and power prices breaking records day after day. The continent is running out of time to refill storage facilities before the start of the winter as flows from top suppliers Russia and Norway remain limited. There’s also a fight for shipments of liquefied natural gas, with Asia buying up cargoes to meet its own demand.

The crisis could have severe economic consequences. Soaring prices are exposing the risk of power outages this winter, according to Goldman Sachs Group Inc. Blackouts would likely send energy prices even higher, compounding concerns about inflation and adding to the rising costs businesses are already shouldering for raw materials.

CF has so far taken the most drastic move of companies operating in the region, but others are warning of the likely blow-back.High energy prices are creating “inflationary pressure on every other cost” that will end up being passed on to customers, said Pascal Leroy, senior vice-president of core ingredients at Roquette Freres SA, a food processing company based in northern France. And France’s top sugar producer, Tereos, warned of surging natural gas prices raising production cost for the company “tremendously.”

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Panic Hoarding Gasoline Begins As UK Plunges Towards “Winter Of Discontent”

Panic Hoarding Gasoline Begins As UK Plunges Towards “Winter Of Discontent”

One day after oil giant BP warned about rationing gasoline and diesel at UK service stations, Brits began to panic buy fuel as the government tried to calm fears.

Lines of cars and trucks are spilling over into the streets at service stations across the country. A BP spokesperson said Thursday that a truck driver shortage has resulted in its inability to transport fuel from refineries to its network of service stations. These words spooked the public, which could cause a more severe shortage due to the hoarding.

The scenes of long lines at gas stations bring back memories of the 1973 Opec Oil Crisis, the 2000 fuel shortage, and the virus pandemic disruptions amid fears the country is diving headfirst into a 1970s-style “winter of discontent” of shortages and socio-economic distress.

On Friday afternoon, Transport Secretary Grant Shapps told Brits on Sky News that there was no fuel shortage and for “everyone to carry on as normal.” His soothing words weren’t enough to stop the buying panic, which is expected to continue into the weekend.

Gasoline and diesel shortages will only stoke higher prices amid an expanding energy crisis that has resulted in another shortage: natural gas. This has caused power prices to erupt and disrupted chemical plants that halted fertilizer production, and has caused headaches for major food supply chains. Brits are also panic hoarding food.

The Daily Mail provides a list of issues that threatens a winter of discontent:

1. A shortage of natural gas causing a spike in gas bills for millions of Britons, along with the possibility of dozens of small energy firms going bust; 

2. However ministers say ‘there is question of the lights going out, of people being unable to heat their homes. There will be no three-day working week, or a throwback to the 1970s’; 

…click on the above link to read the rest of the article…

BP Prepares To Ration Gas At UK Service Stations Amid Supply Woes

BP Prepares To Ration Gas At UK Service Stations Amid Supply Woes

Compounding the ongoing UK energy crisis is BP plc, a multinational oil and gas company, which said it plans to restrict deliveries of gasoline and diesel across its network of service stations in the country amid a truck driver shortage, according to ITV.

ITV, citing a BP spokesperson, said a shortage of truck drivers is inhibiting the oil company’s ability to transport fuel from refineries to its network of service stations.

According to ITV, the disruption is expected to cause BP to announce fuel “restrictions” at service stations “very soon.” 

The spokesperson said a “handful” of service stations have already closed due to the lack of unleaded gasoline and diesel.

Last Thursday, BP’s Head of UK Retail, Hanna Hofer, spoke with the Cabinet Office about the diminishing supplies and said BP had two-thirds of fuel stock levels required for normal operations. She expects fuel stocks to stabilize and began rebuilding in October, but there could be a few weeks of disruptions at the pump.

The spokesperson added:

“These have been caused by delays in the supply chain, which has been impacted by industry-wide driver shortages across the UK and we are working hard to address this issue.”

A lack of truck drivers is due to several factors, including Brexit and the virus pandemic. Since Brexit, there are estimates that several thousand truck drivers from the EU are thought to have been lost.

This is more bad news for Brits, who are already experiencing hyperinflating natural gas and electricity prices, along with other disruptions caused by the energy crisis.

UK Power Suppliers Halt Adding New Customers As Energy Crisis Worsens

UK Power Suppliers Halt Adding New Customers As Energy Crisis Worsens

There’s a growing risk that a bankruptcy wave of power providers is nearing as several small firms stopped accepting new customers Tuesday amid a worsening energy crisis, according to Bloomberg.

Ampower, Green, Igloo, NEO, and Utilita Energy posted notices on their websites earlier today that they weren’t accepting new customers. This comes as several weaker rivals have already gone bankrupt as natural gas and power prices surge to record levels, leaving power suppliers who sold energy at lower prices underwater.

We noted Monday, out of the 55 or so power suppliers, only six to ten will be left standing after the smoke clears. So far, five have gone bust since the start of August, which coincides with surging wholesale costs of natural gas and electricity.

“A lot of the smaller ones are probably going to go,” said Niall Trimble, managing director of consultant Energy Contract Co. “If you were planning to buy gas for 50 pence and it’s 150 pence, that’s a hell of a blow to your finances.”

Bloomberg Intelligence’s Patricio Alvarez said low inventories in Europe ahead of the winter season are primarily the triggers for U.K.’s energy crisis. Here’s more:

Low gas inventories in Europe, ebbing pipeline imports and strong Asian demand driving liquefied natural gas (LNG) cargo diversions form a constructive backdrop for regional wholesale gas prices into heating season. Tapering domestic output, competitive global LNG markets and increased gas burn for power generation amid carbon-price volatility may keep balances tight in 2022 as a post-pandemic recovery unfolds. A mild winter could ease prices from record highs, while piped supplies could improve from higher Norway volume and the potential startup of Russia’s Nord Stream 2 by year-end.

…click on the above link to read the rest of the article…

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