3 ms·

You're still missing the point. Even when the supply chains are fully operational there is no slack. There is no oversupply anywhere in the system because tha

by bsder 4y ago

You're still missing the point. Even when the supply chains are fully operational there is no slack. There is no oversupply anywhere in the system because that would be "inefficient". If I need an extra 25% of supply, I'm out of luck because there isn't any upstream. Consequently, you can't lower prices and pick off a competitor's customers since you can't supply any of the customers you just gained.

walterbell 4y ago
> Even when the supply chains are fully operational there is no slack. In 100% of worldwide supply chains, across products with wildly varying BOM cost ratios of parts and labor? Companies in certain sectors have been able to take advantage of the state of emergency of pandemic and war to raise prices in ways that are not possible in normal times. When prices rise more than costs, profit margins increase ... In the United States, companies are now recording the highest profits since the end of World War II. Did pre-2020 prices exhibit the same dynamics as 2023 prices, because of zero-slack supply chains? Could you share a few industry examples of these zero-slack supply chains?
- bsder 4y ago
  Since before Covid, but Covid simply highlighted the issue. A Taiwan earthquake shuts down the entire disk drive manufacturing system. A fire in a single manufacturer wipes out Toyota's ability to deliver cars. A single manufacturer controls 25% of the market for eggs. The US military can't get any more black powder because a single facility blew up. etc. This is the end state of rampant consolidation for economies of scale.
  - walterbell 4y ago
    Those are relatively transient emergency conditions which affect specific goods. The article above describes profit trends across multiple sectors: > Profit margins of firms in critical sectors have increased, as ECB data show. Since the end of 2019, profits have overall grown more strongly than wages; the surge in profits is concentrated in sectors such as agriculture; mining and utilities; trade, transport, food. In the last few years, tariffs and sanctions have started moving _some_ supply chains in the direction of resilience and deglobalisation, including national investments like the $50B US CHIPS Act, https://archive.is/TMZQm https://archive.is/TMZQm > Emerging markets in Latin America, Africa and Asia, for example, are building regional production networks for crucial goods. Ultimately, this could create more resilient trade pathways and new development models that aren’t entirely pinned to exporting cheap goods to a handful of rich nations across long transport routes that are becoming more expensive and politically contentious.
woah 4y ago
Couldn’t you just buy some more and make a killing? Couldn’t a distributor after having sold out a few times see the opportunity and make a killing? How is this vast conspiracy keeping all of its thousands of participants in line? Your theory doesn’t make sense.
- bsder 4y ago
  There is no conspiracy here--just self interest. You could do exactly as you say. But what's your incentive? You have to invest a lot of money up front for a possible killing on the back--but you could get burned horribly. Or you can leave the system at capacity and jack up your prices for a known increase on the front with very little risk. What you are really asking is: Why don't companies face new competitors regularly? Why is there no competitor to Apple and Android? Why are Kansas City Southern and Canadian Pacific trying to merge instead of compete for each other's customers? Why are there so few auto companies? Why was there no competitor to SVB such that their portfolio became to loaded with a specific type of company? Why is there no competitor to Cal-Maine who controls almost 25% of the egg supply? The answer to that is: a combination of anti-trust and monetary policies. Lax anti-trust enforcement means it is almost always cheaper to buy a competitor than compete and put them out of business. Monetary policies in the US favored creating passive things like real-estate holdings rather than active businesses. (Side note: Future Electronics, in fact, did exactly what you would expect in the middle of the Covid supply chain breakdown. They had more inventory than average so made a LOT of money while it lasted. However, even they eventually succumbed to not having any upstream supply.)

by bsder 4y ago

walterbell 4y ago

> Even when the supply chains are fully operational there is no slack. In 100% of worldwide supply chains, across products with wildly varying BOM cost ratios of parts and labor? Companies in certain sectors have been able to take advantage of the state of emergency of pandemic and war to raise prices in ways that are not possible in normal times. When prices rise more than costs, profit margins increase ... In the United States, companies are now recording the highest profits since the end of World War II. Did pre-2020 prices exhibit the same dynamics as 2023 prices, because of zero-slack supply chains? Could you share a few industry examples of these zero-slack supply chains?

bsder 4y ago
Since before Covid, but Covid simply highlighted the issue. A Taiwan earthquake shuts down the entire disk drive manufacturing system. A fire in a single manufacturer wipes out Toyota's ability to deliver cars. A single manufacturer controls 25% of the market for eggs. The US military can't get any more black powder because a single facility blew up. etc. This is the end state of rampant consolidation for economies of scale.
- walterbell 4y ago
  Those are relatively transient emergency conditions which affect specific goods. The article above describes profit trends across multiple sectors: > Profit margins of firms in critical sectors have increased, as ECB data show. Since the end of 2019, profits have overall grown more strongly than wages; the surge in profits is concentrated in sectors such as agriculture; mining and utilities; trade, transport, food. In the last few years, tariffs and sanctions have started moving _some_ supply chains in the direction of resilience and deglobalisation, including national investments like the $50B US CHIPS Act, https://archive.is/TMZQm https://archive.is/TMZQm > Emerging markets in Latin America, Africa and Asia, for example, are building regional production networks for crucial goods. Ultimately, this could create more resilient trade pathways and new development models that aren’t entirely pinned to exporting cheap goods to a handful of rich nations across long transport routes that are becoming more expensive and politically contentious.

woah 4y ago

Couldn’t you just buy some more and make a killing? Couldn’t a distributor after having sold out a few times see the opportunity and make a killing? How is this vast conspiracy keeping all of its thousands of participants in line? Your theory doesn’t make sense.

bsder 4y ago
There is no conspiracy here--just self interest. You could do exactly as you say. But what's your incentive? You have to invest a lot of money up front for a possible killing on the back--but you could get burned horribly. Or you can leave the system at capacity and jack up your prices for a known increase on the front with very little risk. What you are really asking is: Why don't companies face new competitors regularly? Why is there no competitor to Apple and Android? Why are Kansas City Southern and Canadian Pacific trying to merge instead of compete for each other's customers? Why are there so few auto companies? Why was there no competitor to SVB such that their portfolio became to loaded with a specific type of company? Why is there no competitor to Cal-Maine who controls almost 25% of the egg supply? The answer to that is: a combination of anti-trust and monetary policies. Lax anti-trust enforcement means it is almost always cheaper to buy a competitor than compete and put them out of business. Monetary policies in the US favored creating passive things like real-estate holdings rather than active businesses. (Side note: Future Electronics, in fact, did exactly what you would expect in the middle of the Covid supply chain breakdown. They had more inventory than average so made a LOT of money while it lasted. However, even they eventually succumbed to not having any upstream supply.)