Category: Uncategorized

Resilience realities

Posted on by Philip J Palin

Nicholas Morales at the Richmond Federal Reserve Bank has authored a helpful Economic Brief that concludes:

The push for resilient supply chains reflects a trade-off between stability and cost. While resilience investments protect against future disruptions, they may raise input prices and inflation in the short term. Given the likelihood of increased climate events and geopolitical tensions, resilience is expected to remain a key priority for firms and policymakers alike. However, resilience-focused policies such as re-shoring, tariffs and incentives for domestic production may place upward pressure on costs, which could have lasting impacts on inflation and productivity.

My approach to a related angle: In most firms which is more likely to receive priority, perpetual price competition or periodic existential risk?

Across my lifetime and still today, perpetual persistently beats periodic.

But the perception of periodic existential risk is amplified by the frequency and recency of such risks. This is especially the case where leadership differentiates between threats and vulnerabilities. Threats are external factors that are often tough to predict or control. As a result, external threats tend to be discounted. In contrast, vulnerabilities emerge from internal choices that, too often, totally neglect periodic existential risks. Explicit decisions to transfer, avoid, reduce, or accept vulnerabilities develops institutional insights and disciplines that pay out both perpetual and periodic benefits.

The Financial Times reports:

Eighty-five per cent of the 1,700 large company executives surveyed by The Conference Board late last year said they were planning to make significant changes to their supply chain, up 15 percentage points from last year, and significantly higher than right after the Covid pandemic. Their focus on supply chains comes alongside growing concerns about the future of global trade. Forty-five per cent of global CEOs in the Conference Board’s report cited intensified trade wars as the leading geopolitical conflict risk for 2025, double last year’s tally of 19 per cent. US executives were particularly worried, with 47 per cent mentioning trade wars as their biggest concern. “There were a lot of executives, particularly CEOs, focused on changing their supply chains . . . It’s returned to the top of the agenda,” said Dana Peterson, The Conference Board’s chief economist. [The Conference Board report is available here.]

Perceived — even demonstrated — existential risk is more frequent (here and here). C-suites, boards, and even shareholders remain preoccupied with the perpetual. But as the recent frequency of existential risk is perceived as increasing, so will attention to reducing vulnerabilities.

Neck strain and hourglass structures

Posted on by Philip J Palin

Tomorrow, Tuesday, January 7, face-to-face negotiations resume between the International Longshoremen’s Association (ILA) and the US Maritime Alliance (USMX). Dockworkers and port operators are facing a January 15 (extended) contract expiration deadline. According to Bloomberg, the crux of the stand-off involves “the use of semi-automated, rail-mounted gantry cranes at port terminals… Such equipment is permitted in the current contract and is already in use at some ILA-operated terminals, but union President Harold Daggett has said he won’t accept a contract that allows for any degree of automation, which he sees as a threat to dockworker jobs.”

In a December 20 statement, USMX argues:

A new Master Contract is essential to keeping our ports open and our supply chains strong. That is why USMX has tentatively agreed to a 62% wage increase for ILA members over the next six years, contingent upon finalizing all outstanding issues—a historic leading wage increase that showcases our commitment to American workers. Beyond the wage increase, central to successfully reaching a new long-term agreement is how we can also strengthen the ability of USMX members to make critical investments in technology and infrastructure to densify and improve the safety, productivity and efficiency of our ports, which provides a direct benefit to both ILA members and businesses in nearly every sector of the U.S. economy. American businesses rely on continuous improvements at our ports to help streamline their supply chains through expediting cargo turn times, attracting more vessel calls, and increasing overall capacity to meet their growing business demands on the export or import side.

On December President-elect Trump met with ILA leadership. Afterward he posted on social media, “I’ve studied automation, and know just about everything there is to know about it… The amount of money saved [instead of employing workers] is nowhere near the distress, hurt, and harm it causes for American workers, in this case, our Longshoremen… I’d rather see these foreign companies spend [profits] on the great men and women on our docks, than machinery, which is expensive, and which will constantly have to be replaced. In the end, there’s no gain for them, and I hope that they will understand how important an issue this is for me” (here and here).

A strike would seriously disrupt maritime flows from Boston to Houston, involving more than half of US container imports (see chart below). Maersk and other ocean carriers have urged customers to retrieve cargo before the end of next week (here and here). US West Coast ports have increased throughput as shippers seek to avoid potential close-downs (here). An extended port shutdown would seriously disrupt, delay, and increase costs across many US supply chains.

While obvious, it is sometimes helpful to be explicit: In most high volume supply chains, midstream functions (at the neck of the hourglass — here and here) are the crucial accelerants or constraints on velocity.

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January 8 Update

CNBC reports that a preparatory discussion was held on Sunday, January 5 between ILA and USMX, “A document produced from the meeting and reviewed by CNBC indicates ports willing to pair any new technology with new union jobs, but it could also introduce new risks to a deal, with added labor costs threatening terms agreed to in October for a 62% pay hike for union workers.”

On Monday gCaptain published a port operator perspective on the negotiations that is consistent with scuttlebutt emerging from my personal network. It is the insider details that matter most, so no pull quote on this one.

The Financial Times frames this particular contract negotiation in a broader context, “What were previously run-of-the-mill negotiations over pay and conditions have mushroomed into larger, more existential disputes over the relationship between humans and machines. Some 70 per cent of the 12mn people represented by the American Federation of Labor and Congress of Industrial Organizations now worry about being replaced by technology, estimates AFL-CIO President Liz Shuler: “Workers are fed up with how they’ve been treated for a long time and are scared about what the future might hold.” Whatever contract the longshoremen negotiate, say analysts, could help provide a template for agreements nationwide.”

January 9 Update: ILA and USMX have reached a tentative agreement. USMX and ILA released a very brief joint statement. (More and more)

Out of gas in Veľké Kapušany

Posted on by Philip J Palin

On January 1 pipeline flows of Russian natural gas across Ukraine to Veľké Kapušany, Slovakia (and elsewhere) came to an end (see map below, principal flows have moved between Sudzha, Russia (yellow NE) and Veľké Kapušany (yellow SW) ).

In February it will be three years since the Russians invaded Ukraine. Despite the war, a preexisting five year transit contract has been honored by Ukraine and deliveries continued. Volumes have gradually declined (here, here, and see chart below). But in 2024 more than 40 million cubic meters per day continued to flow west across the battlelines. (More and more and more.) Since mid-December EU natural gas futures prices have risen about one-quarter, perhaps as much because of cold weather as the anticipated loss of this gas connection (here and here).

There are many reasons that these natural gas flows continued for so long and now have stopped. Where high volume, high velocity channels between motivated buyers and sellers are available, flows are predisposed to persist. Ukraine consumed Russian gas (as did Moldova). Ukraine also earned close to $1 billion in annual transit fees. But as so often happens, “carrier” complications — as in an existential Russian military threat — finally combined to curtail and then terminate midstream flows. Downstream and upstream disruption/ destruction certainly happens (and can quickly devastate network flows), but midstream constraints are more common and can be just as profound.

End of year look-ahead

Posted on by Philip J Palin

Forecasting earthquakes, volcanic eruptions, cyclones, flood, fire, famine, epidemics, cyberattacks, and war is easy. Shifting demand patterns and supply disruptions are de rigueur. Predicting when and where is the tough — typically impossible — task.

Resilient choices are often neglected because we discount directly experiencing where and when. Answering why these threats — and our self-created vulnerabilities — persist and proliferate can prompt vigorous disagreements that dilute investments in resilience. Uncertainty regarding when and where too often undermines strategically mindful choosing.

Acknowledging that precisely when and where are beyond my competence, I am ready to claim considerable confidence that in the foreseeable future we will experience:

Flows disrupted by destruction: Current high volume, high velocity flows of food, fuel, critical materials, manufactured goods, professional services, and more emerged from a vortex of Nineteenth Century engineering (e.g., Suez Canal, railways, sea ports), mid-to-late Twentieth Century trade policies (e.g., free-trade agreements, expanded Major Favored Nation status), and early-Twenty-First Century technologies for expressing demand, developing supply capacity, and transacting trade (e.g., communications, computing, related financial tools, and other cyber-vulnerable functions). These flows have created and tend to reinforce various forms of comparative advantage. Over time these comparative advantages have tended to concentrate capacity (and wealth-producing potential) for particular goods and services in particular places and, often, a small set of commercial players. The more capacity is concentrated in one place and proximate places, the more likely some random event — or intention — will disrupt or destroy such capacity. For example, when more than half of national production capacity for an essential healthcare product is suddenly off-grid, off-road, and flooded. Disruptions and destruction of high-proportion capacity concentrations –upstream, midstream, and downstream — are the consequence of endemic structural characteristics of high volume, high velocity flows. Such events will recur. To the extent demand/supply concentration accelerates, threats intensify, and vulnerabilities are neglected — risks increase.

Flows disrupted by competition: The more capacity is concentrated, the more likely dysfunction and disruption (see above). The more systemic dependencies are exposed by dysfunction and disruption, the more likely challenges to current comparative advantages are stimulated — either as a result of commercial efforts to exploit gaps or as expressions of national /regional self-interest to secure wealth-producing potential. For example, when pandemic-related frictions exposed the capacity concentration in (and constraints on) semiconductor manufacturing both national and commercial interests responded. In the last two years there has been an intense, expensive, and still evolving effort to reduce concentration and diversify geographic sourcing of semiconductors (here and here and here). Diversification — or de-concentration — could eventually generate enhanced systemic resilience. But getting there will be complicated and treacherous. Actions intended to protect or advance one source of capacity will usually prompt a competitive response from other sources of capacity. For example, according to Foreign Policy,

The U.S. Commerce Department announced new export controls that target China on Dec. 2, including controls on 24 types of semiconductor manufacturing equipment, three types of software tools for developing semiconductors, and high-bandwidth memory chips. It will also add 140 companies, many of which are based in China, to an “entity list” that places a licensing requirement on the purchase of U.S. technology. Beijing responded within hours of the U.S. news and struck back by announcing its own export ban on key tech materials such as gallium, germanium, and antimony, which is a seemingly obscure metal that actually has vital defense applications. It also plans to tighten its exports of graphite, a raw material that underpins electric vehicle batteries.

This sort of competitive push and pull — by both macroeconomic and microeconomic players — increases flow volatility, turbidity, and uncertainty. Tit for tat sanctions, tariffs, saber-rattling, warning shots, price manipulation, market-dominant dumping, and most-favored-customer allocations increase systemic friction across demand and supply networks. When and where these frictions may prompt failures are, as noted, tough to predict — and can be very complicated to unravel post-hoc.

Flows disrupted by anxiety. As volatility increases, so does uncertainty. The more uncertain any context, the more widespread actions to reduce individual risk can substantially increase system-wide risk. The most common disruptors (even destroyers) of flows are fear-based sudden, unsustainable shifts in consumption, usually involving more consumption (aka hoarding), but much less consumption can also be disruptive. High volume, high velocity flows depend on upstream and midstream capacity well-calibrated to downstream pull. When sustained mis-calibrations occur response capacity is typically structurally constrained. Too much demand will drain downstream stocks with insufficient midstream capacity to quickly replenish. Reduced demand or increased demand or redirected demand will result in network congestion that further complicates adaptation. The more disruption, the less flow, the more fear, the more complications to restoring flow. For example, in August following a 7.1 earthquake in Southern Japan there was a surge in demand for groceries and other essentials across a wide area of Japan (here and here). A grocery store in Tokyo posted signs explaining, “Potential sales restrictions are on the way” and bottled water was already being rationed due to “unstable” procurement. Both “excess” consumption and “under-” consumption tend to reflect self-amplifying consumer anxiety.

I predict that destruction, competition, and anxiety will persist in the year(s) ahead. I don’t know when, where, or why each — or all — will spike. But I do know that when and where it happens the health and even survival of the impacted population will depend on how well preexisting supply capacity quickly adapts to post-disaster contexts. In most situations this adaptation will happen so effectively that most consumers will barely notice. But I also predict that when preexisting concentrated capacity is also hard-hit, response and recovery will be complicated, ugly, delayed, and more deadly than necessary. In the vast majority of places — even where capacity is most highly concentrated — we tend to discount and even dismiss our risk.

Best wishes for the New Year.

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A small collection of other year-end reviews and forecasts relevant to Supply Chain Resilience.

From the Financial Times: Forecasting the World in 2025. Significant — but transitory — US tariffs are projected. (More and more and more global forecasts.) In 2008 the US National Intelligence Council released 2025: A Transformed World. In my opinion it is an even more interesting read today than then.

From the New Scientist: Global temperatures falling back below 1.5°C. “La Niña conditions are expected to lead to a slightly cooler average global surface temperature in 2025, though it does not mean the planet as a whole has stopped warming.” Recent agricultural production and consumption trends are pointing toward lower stocks, but continued incremental progress toward global food security (more).

GasBuddy is expecting, “the (US) national average for regular gas to fall to $3.22 a gallon next year. That would mark a modest decline from about $3.33 in 2024 and mark the lowest annual average since 2021.” This is consistent with EIA fuel forecasts for 2025.

According to Freightos global ocean and air shipping rates are expected to increase in 2025. “Overall, ocean rates are at least double what they were a year ago and the biggest contributing factor is the Red Sea Crisis… potential changes to de minimis rules could significantly impact air freight, especially e-commerce and fast fashion, as companies may find their goods face new fees as well as costly and time-consuming customs filings.”

The Americas Commercial Transportation (ACT) research company forecasts, “The U.S. economy is projected to grow at a moderated pace of 2.0% year-over-year in 2025, reflecting high borrowing costs and cautious consumer spending. Despite easing inflation, interest rates will continue to weigh on business investment and housing. Consumer spending, while steady, is slowing, underpinning moderate freight demand as industries adapt to a constrained growth environment… Freight demand is projected to decelerate further as retail inventory adjustments stabilize and replenishment cycles slow.”

The Conference Board anticipates, “The (US) economy should expand at an upwardly revised pace of 2.7% year-over-year in 2024 (from 2.6%) and 2.0% in 2025 (from 1.7%). US real GDP growth in 2026 should settle at its potential rate of 1.8%. Inflation is expected to stabilize at the Fed’s 2% target in Q4 2025, later than the original Q2 2025 estimate.” Goldman Sachs projects, “Consumer spending should remain the core pillar of strong (US) growth, supported both by rising real income driven by a solid labor market and by an extra boost from wealth effects…” The Congressional Budget Office (CBO) “expects the slowdown in economic growth and the rise in unemployment to lessen the demand for goods and services and contribute to a downward movement in inflation over the next three years. Measured from the fourth quarter of one calendar year to the fourth quarter of the next, inflation in the price index for personal consumption expenditures (PCE) falls from an estimated 2.5 percent in 2024 to 2.2 percent in 2025, 2.1 percent in 2026, and 2.0 percent in 2027.”

2024 Quick Review

Posted on by Philip J Palin

Amazonia has not recovered from two years of drought. The Sahara desert is expanding (here and here). Despite recent rain, parts of Pakistan are stubbornly dry. One third of the United States is currently experiencing drought. Over the last twelve months flooding in southern Brazil, Spain, Bangladesh, and the Western Carolinas was especially intense.

Even with these challenges, food has been abundant — for those with the ability to pay. Same for fuel. The people of Gaza and Sudan do not have the ability to pay. Grids are stressed — especially in Ukraine, Cuba, and Nigeria (Gaza’s grid is gone) — but recovery has usually been comparatively quick elsewhere (more and more and more).

According to SwissRe, “With 1.54°C above the pre-industrial average, 2024 is set to become the hottest year on record. A warming climate favours the occurrence of many of the natural catastrophes observed in 2024. Europe, in particular, has experienced intense flooding in 2024, resulting in the second-highest insured losses from floods in the region ever, according to Swiss Re Institute’s estimates. The US has been affected by two major hurricanes and a high frequency of severe thunderstorms, making up at least two thirds of 2024’s global insured losses of more than USD 135 billion as of today’s estimates.”  (More and more.)                       

Uninsured global losses are estimated (even more roughly) at more than $470 billion.

Despite constriction of the Suez Canal, global trade flows have mostly persisted and allowed supply to find demand — where needed and value can be favorably exchanged (here and here and here). Panama Canal transits have mostly recovered from drought-related delays and congestion (more). Labor action — and possible action — by dock workers and drivers have from time to time, place to place diverted and slowed flows but goods have mostly been moved from place to place in a timely way.

Where and when disruption and destruction avoids highly concentrated capacity, supply and demand chains have demonstrated impressive resilience. When — more rarely — there is a hard hit on highly concentrated capacity — as here and here and here and here — the consequences have been more troublesome. Still, during 2024 in most places and cases, supply chains have been robust and adaptable.

No thanks to me.

In late 2023 and the first several months of 2024 personal efforts to support Supply Chain Resilience in Gaza were almost total failures. Other than a couple of short-term new delivery routes/locations, most mitigation measures unraveled well before implementation and other efforts imploded soon after implementation (here and here and here).

During the first half of 2024 I completed writing a new book on Supply Chain Resilience entitled Vital Flows: Supply Chain Resilience in Treacherous Times. After circulating the manuscript for pre-publication reviews I decided it should not be published. Reactions suggested that much of what is most meaningful to me is not meaningful to others… at least not yet.

Late spring and early summer I completed a field study of Supply Chain Resilience in a region at risk of catastrophic seismic activity. I identified key strategic vulnerabilities and proposed preparedness/response priorities. This assessment was not persuasive — not even provocative — to those receiving my report. Once again my angles did not intersect with what others find meaningful.

Three strikes, you’re out. I have been up to bat a few more times during the second half of 2024 with a couple of base hits, a double, and a stolen base. But lots of errors too. Fortunately other colleagues had a much better year.

Beyond personal accountability, calling out these failures is meant to acknowledge the challenges facing Supply Chain Resilience. My angles tend to bend toward improved cross-network collaboration. When collaboration is rejected or reluctant or badly implemented, my mitigation/improvement angles dissolve into irrelevance. A recent survey by Ernest and Young found, “there is a notable gap in perception around the need for the supply chain to collaborate across functions and with external partners and customers, as well as the benefits greater collaboration brings to the organization. About two-in-five (39%) supply chain executives admit that one of the top challenges their organization currently faces as it relates to supply chain metrics is proving the value of cross-functional collaboration.” One of their principal impediments is the lack of priority collaboration is given by non-supply chain executives.

On page 199 of my not-to-be-published book, I argue:

I hope most readers – even if you still disagree – will at least play with the notion that high volume, high velocity demand and supply networks are complex adaptive systems. These contemporary supply chains have been created over the last half-century due to necessity and the pursuit of comparative advantage. In case of catastrophe, supply chain continuity or restoration (or sometimes redirection) is now required if the fundamental needs of large populations are to be fulfilled.

There are numerous opportunities to advance Supply Chain Resilience. The preferences and problems I have experienced suggest there are seven core characteristics of contemporary supply chains that enable seven key principles of Supply Chain Resilience strategy, operations, and tactics. When supply chains are challenged and cascading toward catastrophe, constant and careful attention to these core characteristics will empower calibrated, creative, coherent problem-solving.

The events of the last year confirm the complex adaptive characteristics of high volume, high velocity supply chains — for both good and bad. Recent events offer persuasive evidence that when public sector resources are focused on maximizing private sector flows even the worst destruction can be meaningfully mitigated. There is also evidence that public sector actions often have the most destructive impacts on supply chains (cf. Gaza, Sudan, Ukraine, and more). With this evidence as context, the unpublished manuscript continues:

… an effective strategy of private-private and private-public operational relationships will almost always deliver significant comparative advantage in worst cases.

In just about every geography, market-leading competitors for food, fuel, pharmaceuticals, and most other freight flows depend on the same infrastructure: power grid, road networks, fuel pipelines, fuel racks, truck stops, telecommunications, financial services, etc. Most receive flow from the same set of upstream sources, traveling very similar mid-stream routes. Serious external problems for one commercial operator are usually experienced to lesser or greater degrees by all major operators that share geographic proximity. Solving or mitigating these external sources of friction for one operator will often facilitate flows across the entire network. In a serious and sustained crisis, the failure of any market leading provider – upstream, midstream, or downstream – will seriously stress all surviving providers.

Continued commercial flows are fundamental to achieving public sector purposes in a catastrophe. The more quickly and fully flows restart and reconnect with demand, the better for every survivor. The more private sector capacity persists and can be pushed, the more public sector capacity can focus on serving those left outside private sector flows.

This reality was confirmed by a wide range of 2024 events. There is good cause to anticipate this reality will persist in the year(s) ahead.

Feels-like price temperatures moderate

Posted on by Philip J Palin

According to the Bureau of Economic Analysis, “Personal income increased $71.1 billion (0.3 percent at a monthly rate) in November. Disposable personal income (DPI)—personal income less personal current taxes—increased $61.1 billion (0.3 percent). Personal outlays—the sum of personal consumption expenditures (PCE), personal interest payments, and personal current transfer payments—increased $78.2 billion (0.4 percent) and consumer spending increased $81.3 billion (0.4 percent). Personal saving was $968.1 billion and the personal saving rate—personal saving as a percentage of disposable personal income—was 4.4 percent in November.”

Bloomberg highlighted, “Spending continues to be supported by solid earnings. Wages and salaries grew 0.6% in November, the most since March. “

Higher wages, slightly higher disposable income and spending, without much change in the savings rate — with less inflation — describes a basically healthy demand and supply context heading into year-end holidays that will skew month-to-month results.

Downstream demand capacity is good. Upstream supply capacity is well-matched to demand. Midstream capacity — still correcting itself from late-pandemic excesses — is beginning to reach equilibria. Yesterday Todd Davis at FreightWaves sent along, “Demand concerns still exist in the coming year, but the [freight] market is experiencing a strong supply side correction that will carry that momentum deep into 2025. A mild peak season with rejection rates around 9%-10% may be the best thing for the truckload market in the long run as it will tamp down any knee-jerk responses from carriers that are on the fence about deciding to leave or stay.” In other words, the quicker the weakest players leave, the better price-potentials for those remaining.

Another focused-look at food is provided in the chart below. The blue line reflects “real” — inflation-adjusted — grocery prices. In November 2019 US consumers purchased $1075.5 billion in food-at-home. Last month we bought $1171 billion in groceries. Of course the “feels like” temperature for grocery prices is much higher as shown in the red line of nominal prices. It remains mysterious to me why American consumption of food has stayed so high, well above pre-pandemic patterns even in the face of high food inflation. But the new pattern is now well-established — and reflects higher capacity demand and supply for food which enhances systemic supply chain resilience.

Food-At-Home seeks equilibria

Posted on by Philip J Palin

The November Consumer Price Index for Food-At-Home displays some of the volatility that encourages some economists to exclude food (and fuel) from measures of so-called “core inflation”.

The Bureau of Labor Statistics reports, “The food at home index rose 0.5 percent over the month. Four of the six major grocery store food group indexes increased in November. The index for meats, poultry, fish, and eggs rose 1.7 percent over the month, as the index for beef increased 3.1 percent and the index for eggs rose 8.2 percent. The nonalcoholic beverages index increased 1.5 percent in November, after rising 0.4 percent in October. The index for other food at home rose 0.1 percent over the month and the index for fruits and vegetables increased 0.2 percent. The cereals and bakery products index fell 1.1 percent in November, the largest 1-month decrease ever reported for the index which was first published in 1989. The index for dairy and related products declined 0.1 percent over the month.” In the chart below the behavior of overall food-at-home inflation is shown in blue.

For bakery prices to fall so fast while egg prices sprint higher is quite the trick.

As you’ve probably already guessed, egg production is down due to avian flu. CNBC reports, “Highly pathogenic avian influenza, better known as bird flu, has killed millions of chickens and reduced egg supply. Consumer egg demand is also highest around Thanksgiving and Christmas.” (More and more.)

The cause behind bakery price deflation is not as clear-cut. But — perhaps — what has happened is that this fall bakers have found their maximum price-points. Over the last three years bakery prices have increased by an average of one-fifth to one-fourth depending on what is counted (and who is counting). In the chart below bakery price trends are shown in red (egg prices are conflated with other proteins). October bakery sales were mixed with slow growth and lower comparative volumes — typically a sign of consumer price resistance. November price reductions were — it seems — an effort to increase demand levels. It will be interesting what the Personal Consumption Expenditures survey tells us about November’s direction of demand. Look back in two weeks.

Resilient supply chains rapidly adapt prices to changes in production capacity and demand capacity. The food supply chain is demonstrating cross-product resilience.

335 million take the steps

Posted on by Philip J Palin

The Bureau of Labor Statistics reports, “The all items [consumer price] index rose 2.7 percent for the 12 months ending November, after rising 2.6 percent over the 12 months ending October. The all items less food and energy index rose 3.3 percent over the last 12 months. The energy index decreased 3.2 percent for the 12 months ending November. The food index increased 2.4 percent over the last year.”

A little inflation is a good thing. Increased prices suggest persistent demand growth. When the rate of downstream price increases are calibrated with or less than increased rates of compensation, this pulls a bit more from suppliers, inviting improved productivity, employment, and potential innovation all along the upstream. Regularly taking the steps is good for my health.

Please consider the comparative slopes on on the chart below. Blue is the monthly all items Consumer Price Index. Red is a quarterly index of wages and salaries. Calibration is obvious. Rate divergence can be discerned, especially between early 2021 and mid-2022. This divergence in the rate-of-change between the two slopes has since narrowed.

The Bank of America Consumer Checkpoint finds, “Higher-income households’ spending in November continued to grow at a faster rate than for their middle- and lower income counterparts, although this gap has narrowed in the past few months. Wage growth is still a tailwind for the consumer. After-tax wage growth, based on Bank of America deposit data, for both lower and higher-income households has cooled slightly since August, while middle-income wage growth is steadier. But, overall, after-tax wage growth remains solid for 2024.”

Demand drives supply. Sustained and sustainable broad-based increased demand enhances the potential resilience of supply chains. This potential is achieved or not by enterprise-level operational decisions that often reflect cross-sector strategic priorities.

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This morning Bloomberg Surveillance interviewed Bank of America’s Holly O’Neill on the Consumer Checkpoint findings. See and hear below.

(Not) Talking about tariffs (yet)

Posted on by Philip J Palin

Despite my less frequent posts I have heard from some surprisingly persistent readers. They have each asked for my take on the Trump tariff proposals (here and here and here and here among many more).

Mr. Trump is not yet President. He is well-known for aggressive negotiation tactics. What is promised — threatened — often morphs to close a deal. So, any speculation by me regarding future tariff impacts on Supply Chain Resilience would be mostly noise. Anticipating the strategic threat certainly reinforces principles of capacity diversification and avoiding excess capacity concentration. This is true whether the threat is tariffs, typhoons, or terrorism…

That acknowledged, I will note that, first, many players are making forward-leaning procurements to receive imported products/components before Mr. Trump can act. December and first-half-January container numbers should be unusually strong. Second, supply chains prefer open, flexible, low-friction, high-confidence flows. Uncertainty and sudden impediments increase costs, time-expended, and — often — congestion. Where replacement products and channels exist, adaptation will happen — how long it will take and how costly is very tough to predict.

More later, though probably not before next month. But thanks for asking.

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I’m not the only one not talking. The International Longshoremen’s Association (ILA) is not talking to the US Maritime Alliance (operators of US East Coast and Gulf Coast ports). The current contract extension closes on January 15. The parties have agreed to a 61.5 percent pay increase over six years. But talks have broken down over potential automation (more and more and more). While also a matter of negotiations, this is a much more binary risk to Supply Chain Resilience than more morphable tariff threats.

Steady strong spending (and revenue)

Posted on by Philip J Palin

On the day before Thanksgiving, the Bureau of Economic Analysis, reported, “Personal income increased $147.4 billion (0.6 percent at a monthly rate) in October, according to estimates released today by the U.S. Bureau of Economic Analysis … Disposable personal income (DPI), personal income less personal current taxes, increased $144.1 billion (0.7 percent) and personal consumption expenditures (PCE) increased $72.3 billion (0.4 percent).” (Numbers are NOT inflation-adjusted.)

Bloomberg noted, “Income figures from the October PCE report offer the possibility for healthy spending growth in the months ahead. Inflation-adjusted disposable personal income increased 0.4% last month, the most since January. Moreover, nominal wages and salaries rose a solid 0.5%, while the saving rate increased for the first time since the start of the year.”

Reuters highlighted, “Spending was largely driven by strong demand for services, including healthcare, housing and utilities, financial services and insurance, dining out and hotel stays as well as transportation and recreation. Services spending rose 0.5%.” Real — inflation-adjusted — expenditures on groceries continued to gradually increase. In October 2019 (pre-pandemic) the real PCE for food was $1073 billion In March 2023 US consumers spent $1141 billion chained-dollars on Food-At-Home. This completed a post-pandemic readjustment in food expenditures. Real spending on groceries has increased ever since. Last month the BEA estimates $1177 billion was spent on Food-At-Home. (here)

I am posting these October results on the morning of Black Friday. Expectations abound for record spending today and over the weekend. Tomorrow I will return here for some near-real-time results.

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November 30 Update: Early “flash” estimates suggests Black Friday brick-and-mortar retail sales were flat increasing less than 1 percent compared to 2023. But MasterCard SpendingPlus calculates online transactions being more than 14 percent higher for an overall sales increase of about 3.4 percent (NOT inflation adjusted). The Associated Press explained, “… the prospect of better bargains in the days ahead and the ease of e-commerce drained much of the excitement from the holiday shopping season’s much-hyped kickoff. (More from Reuters)

Flash results can morph. But if these results are more — rather than less — accurate, three supply chain implications can be derived:

  1. Online purchasing with omnichannel fulfillment continues to be intensely competitive. This is where innovation and execution can dramatically differentiate financial outcomes.
  2. Huge demand is growing at a sustainable pace. Suppliers who are effective in tracking and anticipating consumer preferences can reap significant financial rewards.
  3. 1+2=strong justification for investing in high volume and high velocity — especially effectively targeted — supply chains.