Beyond the fixation on inflation and broader growth slowdown, the world economy is in a rather odd spot.
We all know that the COVID pandemic was chaotic, but few people seem to realise just how deeply rooted some of the disruption has been. Take supply chain for instance, in yesterday’s Money Morning article, Selva explained perfectly how this vital industry is undergoing a historic change.
If you missed it, I’d urge you to give it a read by clicking here.
The point is that the pre-COVID era of globalisation has come to a rather unglamorous end. And while there were signs of change before the pandemic, it really pushed things over the edge.
In fact, as of last night in the US, there is now an entire ETF dedicated to investing in companies relocalising American supply chains. Known as ‘Engine No. 1’ and trading under the ticker ‘SUPP’, the people behind this ETF foresee a world where things are ‘closer to local design and demand’.
In other words, expect to see a lot less of the things you buy to be ‘made in China’…
No quick fix
Now, in my view, this is far from a black and white issue.
It’s impossible to expect a localised supply chain to not only be up-and-running, but cost-competitive to a kind of manufacturing output China has in such a short period. It takes years, if not decades, to build out that kind of infrastructure.
Instead, it is likely to be a more gradual shift.
But the important detail is that this shift has begun.
The era of ‘made in China’ is seemingly coming to an end, for better or worse.
The optimist in me knows that this huge level of disruption will be a great source of change and opportunity for long-term investors. Just think about how much we rely on Chinese imports and how big of a market opening that could create if local production is incentivised…
However, the realist in me can’t overlook the challenges in making this into a reality either. We’ve seen how painful broken supply chains can be…but rebuilding them from the ground up could just add further salt to the wound in the short term.
That’s precisely why Jim Rickards is so worried about this issue.
His latest book, SOLD OUT!, outlines the problems he sees in global supply chains right now. And the ramifications are dire indeed when you know what Jim knows. After all, no one is immune to the consequences of a broken supply chain.
Check out Jim’s book for yourself and start following his investment advice by clicking here.
The long game
The silver lining to all this, like I said, is that disruption begets opportunity.
Beyond the actual infrastructure, how we think about and design supply chains is also changing.
For example, you might have heard of the concept of a ‘sentient supply chain’. This concept revolves around turning distribution and shipping networks from reactive systems into proactive systems.
The theory is to essentially give a supply chain the ability to think and adapt in real time.
Here’s how a company pushing for this future describes it:
‘The “sentient supply chain” refers to a supply chain that’s nodes communicate 24/7.
‘This supply chain has been compared to a network of autonomous vehicles by SC professionals. Autonomous vehicles are designed to analyze infinite amounts of real-time data flawlessly while operating. Part of their appeal is also the promise of reduced accidents and more efficiency on the roads. If the world were only comprised of self-driving vehicles, all cars would be communicating with each other in real-time, all the time.
‘A system of these sentient vehicles wouldn’t just analyze data about risks and actions within its own area, but also in their immediate vicinity. They’d take in the larger view to optimize a route, and this includes looking ahead in time.’
I know this may seem hyperbolic right now, but it’s likely where we’re headed.
As technologies like AI, IoT, and blockchain continue to evolve, this concept will likely become reality. The networks that distribute the goods we buy will become a whole lot smarter.
And it all starts with the inevitable end of the current supply chains we’ve relied upon for so long…
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
