No Goods For You

By: Tom Chatham

As many have pointed out over the past few days, the port shutdown on the west coast will have longterm effects. There has been a slow down at the ports for a few months but now the work has stopped completely. What many do not understand is that the retailers in the U.S. must make their orders months in advance in order to have the product on the shelf when they need it.

Even if the shutdown only lasts a few weeks, it will cause ripples through the distribution system for months. Even if we are still getting goods in the stores now, when the supply system runs out, the shelves will go empty. Even if the goods are put back into the system within a few weeks before the shelves go empty, there will likely be a dead zone where the products have not had time to make it through the system to the stores. That means a temporary disruption of supply on the shelf.

Many in the preparedness community have talked about supply disruptions as one possible danger that can leave society in need of everyday goods. It does not matter if there are shiploads of goods sitting in the port. If it is not on the shelf when needed it might as well be on the moon. When the shelves start to go empty it will not matter if it is just a temporary problem. People will start to panic buy and exacerbate the problem.

One problem is that if this goes on long enough, the seasonal goods that are needed in stores will not arrive in time to be sold when in demand. This delay will carry on for multiple seasons until the distribution system catches up to the supply. It takes time to unload each ship and transport that cargo to its destination. If it carries on long enough, the transport system will not be able to overcome the backlog of goods. You can only transport so much at one time with the available carriers in the system. As the shutdown goes on it could cause more longterm problems if transportation systems go out of business as a result of the shutdown.

In the shipping industry, when the industry slows down owners tend to sell older, marginally productive ships to the ship breakers. This reduces the number of transports over time and when the economy picks back up the ships are not available to use so new ones must be built. This creates a lag in the industry for a few years until the ships can be built. It is a repeating cycle that the shipping industry operates on. Anyone keeping up with the Baltic Dry Index knows it is now at multi-decade lows which is more incentive for owners to sell. This slowdown will likely exacerbate the reduction of shipping available as ships are sold to maintain bottom lines.

This will also put stress on the credit system as goods are not unloaded and sold so retailers can pay for the products. The 30 day credit system that is the mainstay of our economy will breakdown as we know it. It will ripple all the way from the retailer locations to the producers overseas. This is true of the whole distribution system including the transport sectors like trucking companies and railroads. Companies that are marginal will likely go out of business as everything stagnates.

One good aspect of a long shutdown is the fact that many people will then realize how dependent we are on imports and that may spur a call for more local production, but don’t count on it. Americans have a short attention span and once the supplies are back on the shelf they will likely go back to their iphones and sports channels and forget about any problems in the past.

This will likely resolve itself soon but it may be months before we are able to evaluate the damage that is done to a system that is already hanging by a thread. This is just one more reason to be less reliant on the system as it is. A distribution shutdown means lost revenue for companies and lost pay for all those affected by it. In a time when large numbers of Americans are unemployed and the rest are struggling, it does not bode well for the future.

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Posted on February 17, 2015, in Economics, Preparedness and tagged , , . Bookmark the permalink. 2 Comments.

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