Have you noticed that its increasingly hard to get certain things these days? We have. So what’s going on?
1. There is a shortage in Semiconductor chips
You would have thought that the one saving grace of the covid crisis was that gamers were now saving the world by staying indoors with the lights off. Unfortunately, Covid sparked off unprecedented demand for computer chips worldwide as everyone scrambled to get ready for home working. Combined with the early 2021 crypto bull run, which had everyone scrambling to mine crypto (needing high end graphics cards) and you can see how demand greatly exceeded supply.
Microchips are in everything these days. EVERYTHING. Car manufacturers are warning that car production is in trouble because of this shortage (a new car can have 1,500 chips in it). With so many industries dependent on microchips any sort of shortage will have long reaching ramifications.
2. Global Supply chains are in trouble
The Ever Given blocking the Suez Canal for 6 days was a bit of a doozy. The Suez Canal is probably the world’s best short cut as it removes 1,500 miles and pirates off the route from Asia to Europe. What’s not to like. Every other ship had a choice wait it out or go the long way.
Most ships opted to wait. The Ever Given was eventually freed and put in custody, finally being released on 7 July 2021. Those 6 days caused havoc for global shipping.
3. Shipping costs have soared
The Construction Times reports on the serious issues facing their industry:
Shipping costs from Asia to the UK soared 500 per cent between June 2020 and June 2021, according to Philip Damas, head of supply chain advisers at maritime consultants Drewry. "We are starting to see super-inflation in transport costs feeding into inflation in construction and other goods," said Damas
They go on to say:
"Price rises and shortages of materials is now a business-critical issue which puts at risk the recovery of the whole construction sector," he said. "The knock-on effects could lead to delays in project programmes but the price rises could have a harmful effect on any contractor who is locked into any fixed-price agreement, particularly for a long time period,"
With the huge infrastructure projects being prepared to stimulate the economy (Build Back Better, Net Zero, the usual NHS costs etc) a huge spike in shipping and construction costs are not going to make things any easier. This is as true in the US (Biden’s $4 trillion infrastructure spend over the next decade) as it is in the UK & Europe.
So where is my PlayStation?
Sony and Microsoft launched their next generation gaming consoles (PlayStation & XBOX) late in 2020. Problem is its still near impossible to get your hands on one without paying a whopping premium in scalper fees. As both products are built in China, require semiconductors and need to be shipped to your home region for a reasonable price you can see the strain these companies are under. You can’t expect to get one anytime soon.
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The Wealth Gap View: Shipping and inflationary pressures is not a topic the mainstream media will ever focus on but it is becoming a serious issue with the potential to trigger some really rather large knock-on effects. As the Covid toilet paper fiasco taught us, its nice to have a few weeks of essentials stockpiled in case of supply chain issues (especially if those essentials are medicines). In the current environment it might be worth having a small stockpile of essentials in case those items stop arriving.
The lockdowns have shown how easily we can shift from one position into an almost Orwellian environment at the drop of a hat. Luckily infrastructure and logistics through 2020 with major food and water supplies were not hugely affected but that will not necessarily always be the case.
We always try to focus on the positives at The Wealth Gap but one would be naive not to point to the “potential” given the macro environment for some very extreme outcomes should we see a simultaneous break down in Financial Markets at the same time as having serious Shipping and Semi Conductor shortage issues. The key takeaway is to consider the things you need in life and look at having a ready supply to enable a successful transition of a short (2-4 weeks) disruption.
Need not Wants.
Untill next time
The Wealth Gap