Aren’t We in 2021?

July 19th, 2021

Our accounting firm finished our business tax returns last week.  I printed out 1,078 sheets of paper to mail to five jurisdictions in which we operate and are subject to filing tax returns.  These jurisdictions, which include the technologically advanced havens of California and Massachusetts, require paper copies of their returns along with your federal return to be mailed to them.  Fortunately, several enlightened jurisdictions, predominantly located in flyover country, allow us to e-file, thus eliminating printing and mailing obscene amounts of paper.  When I talked to one of our accountants, she reminded me how much worse it used to be, when no jurisdictions accepted electronic tax filings. 

I wonder if anyone actually reads these monstrous tax returns.  My guess is the first thing the recipient does is have someone scan the file into their database so they do not have to store all the paper!  Efficiency at work. 

What can be digitized is being digitized. Even government entities will eventually catch up to trends that started decades ago.  Economic friction used to be a source of profits in the economy.  Those profit streams have been replaced by companies whose products and services reduce economic friction.  As I have written in the past, the more friction you reduce, the more money you can make.  For government entities, instead of trying to raise revenues (i.e. raise taxes), think about making your tax filing and collection system a little more efficient.  The private sector has made itself more efficient.  Now it’s your turn.   

A Few Percent Here, A Few Percent There.

July 12th, 2021

Either for posterity’s sake or because I am a glutton for punishment, I keep a folder in my email inbox titled “Price Increase Letters.”  Between January 1st and July 3rd, I received 85 emails from suppliers indicating a price increase.  Some of our suppliers are old school and still send actual letters.  I have a stack of 19 price increase letters sitting on my desk.  That period represented 131 of the 261 business days in 2021.  We received at least 104 increases over those 131 days.  That is almost one increase letter a day.  And I wonder why our purchasing team is cantankerous. 

Many of our main vendors are on round two or three of price increases for the year.  They also indicate that they still see cost pressures in their supply chains.  Through the magic of compounding, three, 5 percent price increases result in an overall price increase of almost 16%.  To put it in real terms, what cost us $100 at the beginning of the year will probably cost $116 by the end of the year.       

As our fearless monetary officials repeatedly tell us, they believe the inflation we are seeing is “transitory.”  Of course it is, nothing lasts forever.  16% transitory inflation is significant.  If I were in the press pool, the question I would ask Fed Chairman Powell and his cronies is, “Are these high prices the new normal?  Do you expect prices to come down at any point?”  Here’s a hint to the answer:  prices are sticky.  Once they go up, it will take a recession for them to come down.  Be careful of what you wish for if you want prices to decline. 

A Eureka Moment

July 6th, 2021

As part of his high school experience, our son has to perform volunteer work.  He has spent the first four weeks of his summer vacation volunteering at a day camp in an inner-city school in Cleveland.  His first few days were eye opening.  The third and fourth graders he was working with did not demonstrate the self-discipline he experienced in school.  Outbursts and fights were common.  He would come home exhausted from his day.

I would often ask him what he was learning from the experience.  From a 15-and-a-half-year-old that knows everything, the typical answer was, “Nothing.  I just want my summer back.”  Occasionally, I would get something like, “Kids are a pain” or “Kids don’t listen.”  Last week – the final week of his volunteer requirement– a eureka moment occurred.  I asked him what he learned that day.  His response, “You know, dad, they’re really not bad kids.  They just need someone to listen to them and talk with them.”  He talked about how many of the kids come from challenging home lives.  Later, he even told my wife and me how fortunate he is.  He said he wants to continue volunteering.

We all need someone to listen to us and talk with us.  Reach out to someone today – a relative, a friend, a customer – and just ask how they are doing.  They’ll appreciate it. And you will benefit as well.

We All Need a Little Americana

June 28th, 2021

I attended my ten-year old nephew’s little league baseball game last week.  Grandparents sat in lawn chairs laughing and smiling.  Little kids ran around.  Dogs barked and wagged their tails.  Siblings complained that the game was taking too long.  The concession stand was even open and the smell of fresh popcorn drifted over the stands.  For the baseball fans, the teams combined to score 10 runs in the first inning with only one ball hit out of the infield.  Some things never change!

It was a scene out of a Norman Rockwell painting.  It was a feeling I have not experienced in a year.  It felt like the community was returning.  Attending the game put a huge smile on my face. 

As we celebrate the 4th of July, remember the things that bring us together.  Forget the red and blue divide.  Don’t talk about elections.  Don’t talk about covid.  Celebrate what we have in common.  Celebrate the fact that we can be together.  Celebrate freedom.  Enjoy your 4th

Be Nice To Your Freight Carriers

June 21st, 2021

Fed Ex Freight, Fed Ex’s LTL (less than truckload) carrier, not so quietly fired approximately 1,400 customers.  Fed Ex sent a notice to customers on Friday, June 11th, that said:

Starting June 14, 2021, and until further notice, FedEx Freight will begin implementing customer specific actions to control capacity and avoid backlogs in the most capacity constrained freight service centers…” (Emphasis added.)

As the article mentions, shippers normally give more than a one business day notice before changing terms of service.  Carriers usually reduce “bad” business by raising prices.  Fed Ex’s action indicate how tight freight capacity is right now.  The boldness of Fed Ex’s maneuver also tells me that they do not expect conditions to change anytime soon.  It is one thing to send a customer a price increase; it is completely different to directly tell a customer you will not sell to him. 

Not too long ago, customers had power over carriers, particularly in the LTL market.  If you were not happy with your carrier’s service or prices, there were carriers lined up to compete for your business.  Consolidation, driver shortages, and a surge in demand have swung the pendulum wildly in favor of the shipping companies. 

Send your carrier rep chocolates.  Buy drivers lunch.  Do whatever you can to stay on the good side of your shipping partners.  Without them, business comes to a screeching halt.  The carriers know that they have the upper hand right now.  And that isn’t changing in the near future. 

June 14th, 2021

Last week, I stopped in a quick service restaurant.  For the youngin’s, we called it fast food before the marketeers took charge.  The drive thru line was long, so I went in.  On the door was a bold-lettered sign: “LOBBY CLOSES AT 5 PM DUE TO LACK OF STAFF.  CALL CONGRESS IF YOU WANT THIS TO CHANGE.”  I enjoyed the political commentary. 

A brief reminder from economics 101:  Supply curves slope upward (“Supply towards the sky!” is how it is presented in introductory classes.), meaning as prices increase, so will supply.  Demand curves slope downward: as prices increase, demand drops.  The equilibrium point is where supply and demand meet. 

https://www.britannica.com/topic/supply-and-demand

In many markets today, demand exceeds supply.  In my fast-food example, the demand for labor exceeds the available supply.  The fast-food business has a choice:  raise prices (wages) to induce more supply or reduce demand for labor (cut hours).  Our esteemed politicians, most of whom have never had to make a payroll, generally assume most businesses will raise wages to attract workers.  They seem to have forgotten how markets work:  markets allow choices. 

It is unnatural for a business to walk away from sales.  That is essentially what this business is doing by closing its lobby early.  Its owner is making what he believes is a rationale business decision based on the current conditions of the labor market.  Note that as demand drops (or shifts to the left), prices go down.  As businesses restrict hours, in theory, the price of labor should go down.  The government has essentially put a floor on wages with the current unemployment benefits it offers, limiting the potential reduction in wages.  What does this all mean?  If conditions do not change (specifically, an increase in labor supply), we will eventually have stagflation:  low growth, higher prices.

The market is beginning to adjust in ways the government did not expect.  Expect more surprises as the world opens up. 

Convenience Has a Price

June 7th, 2021

We needed a new coffee grinder a few weeks ago.  Like Pavlov’s dog, I got on the world’s biggest e-tailer’s website and ordered it.  It appeared on our doorstep two days later.  It was very convenient.

I was in a store over the weekend.  For giggles, I went to look to see if they had coffee grinders.  Indeed, they had the exact same coffee grinder I bought.  It was 20% cheaper than what I paid.  It was not on sale.  I justified my extra expense by putting value on my time to go to the store.  The economist in me started an internal debate: “On the one hand, you paid a premium for delivery but saved time.  On the other hand, you enjoy going to stores and given your profession, it probably makes sense for you to go to stores.  I think you’re valuing your time too much.”  At that point, I was mumbling to myself in the car and our teenage son reminded me how annoying I was.  He’s good that way. 

Last week, FedEx announced an increase in surcharges for residential deliveries.  This is on top of the surcharge that went into effect January 4, 2021.  As I have written in the past, home delivery is much more costly than business delivery.  The carriers are going to continue to pass those costs on to consumers who have gotten used to home deliveries. 

https://www.fedex.com/en-us/shipping/current-rates.html

The great economist Milton Friedman is credited with saying, “There’s no such thing as a free lunch.”  The “free” lunch e-tailers, delivery companies, and our government provided during covid are going to cost a lot over the next few years.  Start thinking about how you are going to pay those costs now. 

Let’s All Take a Deep Breath

June 1st, 2021

Last week, I was driving on a two lane road with no passing allowed.  A motor scooter was in front of me.  The driver was going exactly the speed limit.  A little annoying, but I wasn’t about to illegally pass him.  A car came up behind me.  The driver started swerving into the other lane to see why I was going so slow.  Eventually, he saw an opening and flew by both of us.  Again, we were on a two lane road with a solid double yellow line. 

The motor scooter driver proceeded to give the passing driver a one finger salute.  Of course, we were less than a half mile from a light.  The passing car got stopped at the light.  The motor scooter got up next to him, started screaming at the car’s driver and took his picture.  I did not witness any violence, as I turned at that light, but I certainly feared witnessing a bad situation.

Everyone seems to be on edge.  We seem to have lost all common courtesy, especially while driving.  Drivers act like red lights are optional.  Drivers weave in and out of traffic.  Courtesy seems to have vanished on the roads.  To understate the obvious, the last 14 months have been psychologically challenging.  

I have thought about the driver who passed the scooter and me.  Maybe he was on the way to the hospital to visit someone.  Maybe he was late to work.  Maybe he was just a selfish idiot.  I will never know what his situation was.  What I do know is I am going to try to give people the benefit of the doubt.  I’ll let you know how it goes.  I have a feeling my stress level will decrease. 

My Life is a Seinfeld Episode

May 24th, 2021

A memorable scene from “Seinfeld:”

Jerry I don’t understand. Do you have my reservation?

Rental Car Agent We have your reservation, we just ran out of cars.

Jerry But the reservation keeps the car here. That’s why you have the reservation.

Rental Car Agent I think I know why we have reservations.

Jerry I don’t think you do. You see, you know how to *take* the reservation, you just don’t know how to *hold* the reservation. And that’s really the most important part of the reservation: the holding. Anybody can just take them.

https://www.imdb.com/title/tt0697648/characters/nm0000632

Last week, I placed an online order with a major retailer.  According to the retailer’s website, the item was in stock and would be ready to pick up in an hour.  I was supposed to get an email when the order was ready. 

I waited a few hours and did not get an email.  I called the store.  My conversation:

Brian: “Hi, I’m Brian Gale.  I placed an online order a few hours ago for store pick up.  I haven’t gotten an email saying it was ready.  My order number is 1234.”

Store Agent:  “Let me look.  We don’t have the order yet.”

Brian:  “But your website said it was in stock and it would be ready in less than an hour.”

Store Agent: (Laughing) “Well, our website is wrong.  Sometimes, we don’t get online orders for days.”

Brian: “Why does your website say it will be ready in less than an hour?”

Store Agent: “You have to ask the corporate staff.”

Fortunately, I went to the store and was able to get my item.  And, for you Seinfeld fans, I did not even have to use the line about insurance!

Convergence between the physical and digital world was occurring prior to covid.  Covid certainly sped that trend up.  Managing inventories in disparate locations is not easy.  Trust me, I know from direct experience.  Your systems should not make promises your operations cannot keep.  Setting unrealistic expectations sets you up to disappoint customers.   

If you need a laugh, the Seinfeld clip is below. 

Transitory is the Groupthink Word of the Day

May 17th, 2021

Not surprising to those of us in the real world, the Producer Price Increase (PPI) rose significantly in April.  From CNBC.com: 

The Producer Price Index rose 0.6% from March, according to the U.S. Bureau of Labor Statistics. Year over year, the PPI spiked 6.2%, the largest increase since the agency started tracking the data in 2010.

Economists polled by FactSet were expecting a 0.3% monthly increase in April and 3.8% year over year. (Emphasis added.)

https://www.cnbc.com/2021/05/13/producer-prices-april-2021.html

I do not know if I should laugh or cry that economists got this so wrong.  Do they not leave their ivory towers?  Do they talk to anyone that is actually in the real world and buying raw materials?  Have they gotten a freight quote recently?  Heck, do they eat chicken wings? 

More importantly, we treat economists as if they are experts able to see the future.  The hubristic economists that lead the Federal Reserve are confident they will know when to cut back on monetary stimulus in order to contain inflation.  Based on this data, the inflation cat is out of the bag.  Why do we think their long-range forecasts will be any better than their short-term forecasts? 

We are already hearing the pontificators talking about inflation being “transitory” and saying it will abide as the spikes due to one-time events end.  Yes, some of the inflation we are experiencing now is transitory.  Storms will not always damage plastic plants.  Pipelines will not be hacked (although that is not in this data).  But, as I wrote a while ago, we place too much emphasis on exact data (precision) and not enough emphasis on trends.  https://briansblog.idimages.com/we-obsess-with-precision-when-trends-are-what-matter/

We have labor shortages due to demographics.  Free trade is decreasing.  Regulations are increasing.  Shipping small packages directly to consumers costs more than shipping large packages to retailers.  These trends will lead to an inflationary environment that we have not seen since the 1970s.  Don’t count on the Federal Reserve or any government entity to provide any help in navigating these trends.