Supply Chain Disruption in Uncertain Times

What we are experiencing now is not the new normal. Uncertain times have always been around; some are triggered by macroeconomic factors (unemployment, inflation, economic output), others by the planet trying to kill off humans, terrorism, or poorly written/enforced retail and commercial <insert your industry flavor> industry laws at the state or national level.

Notable Supply Chain Disruptions:

• 20XX - global forest fires impacting raw materials sourcing and the construction industry
• 2007-2008 - residential lending banking crisis; LIBOR rate collusion and fraud; foreclosure filings increased by more than 81% in 2008
• 2011 - every company using Just-In-Time manufacturing was impacted, as well as all air travel within the US
• 2015 - Avian Flu outbreak in the US; millions of chickens destroyed, egg production drops significantly to cause egg prices to skyrocket
• 2017 - Cyclone Enawo struck Madagascar and wipes out 90-100% vanilla bean production in its Antalaha region and 80% of the crop in Sambava; price of vanilla skyrockets 4x its usual trading price; also, prior to the weather event, vanilla farms in other tropical countries had been cutting back on production in order to produce more lucrative crops such as coffee and palm oil
• 2019 - African Swine Fever - shrunk China's global herd by 55%, expected herd to decline by another 25%, and China pork production to fall by 10% to 15% in 2020;  impact to soybeans produced and exported by US farms for animal feed
• 2019-2020 - COVID-19 affects multiple industries everywhere

You might think that you're not impacted by vanilla bean production since you don't eat sweets, right? Natural vanilla products are in more than just dairy products (ice cream, yogurt, flavored milk), beverages, and baked goods. Vanilla flavor is in 18,000 global products including breakfast cereal, snacks, perfumes, skincare creams/lotions, and cosmetic products. Price per pound of natural vanilla was $300 in 2017, $600 per 2.2 lbs (1 kg) in 2018, and a slight improvement in 2019 as vanilla production gets better at $450 per kg. Remember when real vanilla extract was less than $10 per 16 fluid oz at Costco? Well that same bottle currently sells for $30 today. One ingredient can impact so many businesses.

2009-2019 Price of Vanilla
Image Source: Cook Flavoring Company

Fast-forward to today's supply chain issues among suppliers, distributors, and end-users (consumers, businesses).

What's up:

• companies that are deemed "essential"
• retail stores that offer delivery, take-out, or store pick-up (grocery stores, restaurants, 
• manufacturers of personal protection equipment (PPE) and ventilators
• companies that managed to pivot their production from whatever to PPE and medical supply (e.g., GE, Tesla, GM, beer/spirits manufacturing)
• subscription boxes w/ free or reduced delivery costs (e.g., meal prep kits, pre-made meals, DIY kits)
• Amazon - has now removed the product ban on non-essential products shipping to their warehouses
• Wal-mart - app downloads surpasses Amazon (14.4 mil in the US, 106 mil global uploads)
• software companies that create/support online learning platforms and video conferencing
• furniture and hardware companies that create/support remote office and work from home
• pharmaceuticals working on a vaccine for COVID-19
• distributed computing apps that rely on crowdsourced content, support, donations (e.g., Einstein@home, Folding@home)
• fabric wholesalers or retailers (e.g., JoAnn's)

What's down:

• everyone else not "essential"
• rideshare services (Lyft, Uber, etc.)
• homeshare/rental services (AirBnB, Vacasa, etc.)
• airport & travel services
• outdoor event venues
• movie theaters / entertainment industry
• live performances
• schools, churches, local government offices
• regional seafood supply & production - since dine-in restaurants and schools are shut down; seasonal seafood has nowhere to go
• consumer automotive sales (might have to transition to more online sales)
• ridership on public transit
• global oil demand & decrease in per barrel price
• amusement parks
• city/county parks that attract larger crowds
• trade shows and conventions
• indoor/outdoor festivals and parades (e.g., regional fireworks show)

Coffee and Soda

The Atlantic reports that soda sales in the US are in a free fall, down 40%, while coffee sales have surged up by 50%. This is not surprising given the health backlash from consumers about sugary drinks; except coffee drinks don't have the same stigmas attached.

There are parts of that article that I did find peculiar. For starters, there's a bit about market share and consumer age. I wondered how many 13 yr olds it took to become a statistically significant data point. There are 14.3% of them (in the age group 13-24) that consume coffee drinks. And, there's no mention about the study or the survey size used. The National Coffee Association does track this, and in their study (or at least the preview of it) for 2012, roughly 3,000 adults in the US were surveyed about their coffee drinking habits, but the age cut-off is 18 or older. There's more about coffee drinking statistics at SBDCNet, a clearinghouse for consumer research.

Sprint sprints ahead

This week I've been researching the US telecom market and had been looking into the merger between Deutsche Telekom (T-Mobile's parent company) and MetroPCS. While I was comparing stock performance of top telecom providers, I noticed something unusual... what is Sprint doing that the others are not. The attached chart is just a YTD look at stock price. It compares Deutsche Telecom, Sprint, Verizon, and AT&T. I think it's just a math thing, for Sprint's stock performance; which today trades for $5.47/sh while Deutsche Telekom trades at $10.61/sh, Verizon at $42.82/sh, and AT&T at $33.68/sh respectively.

And then, between Deutsche Telekom and MetroPCS:

This chart makes me wonder what happened in mid-2011. The drop happened 
on July 22, 2011 at a stock price of $17 and fell to $9.53 by Aug 5, 2011.