Archive for the ‘Brian’s Blog’ Category

We All Need a Little Americana

Monday, 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

Monday, 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. 

Monday, 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

Monday, 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

Tuesday, 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

Monday, 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

Monday, 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. 

The Great Inventory Reset

Monday, May 10th, 2021

From The Wall Street Journal May 3, 2021:

From The Wall Street Journal May 3, 2021:
Automotive supply chains are swinging to scarcity mode. After decades of keeping inventories low to maximize efficiency and cut costs, auto makers like Volkswagen and General Motors are stockpiling parts and even building their own factories to ensure access to batteries and other components, the WSJ’s Sean McLain reports. Supply-chain disruptions have been battering car makers. The volatility includes spikes in demand for passenger vehicles, semiconductor shortages that halted Ford pickup production lines and a February freeze that shut down a key U.S. resin refinery. That closure crimped output of seat foam, bumpers and steering wheels, shutting production at several Toyota plants and prompting some suppliers to take the costly step of flying resin in from Europe. The repercussions highlight the fragility of the global supply chain as businesses reevaluate long-held assumptions about just-in-time manufacturing and whether they can always get parts when they need them.

The word of the year for supply chain professionals is fragile.  I lost count of how many times I have heard a talking head tell us how covid has illuminated the fragility of our supply chains.  Umm, when you stop making stuff for a few months and have major issues with shipping, yes, the supply chain will break down.  Thanks for the insights.

Imagine the impact on the world economy if the automotive industry decides to carry more inventory.  It will be a one-time adjustment, but it will be major, especially now when commodities and labor are already in short supply.  You cannot sell what you do not have (unless you are Elon Musk).  Companies do not want to lose sales.  Inventories will be built to prevent lost sales.  Prices will go up.  And the government will continue to tell us there is no inflation.  Some things never change…

Other pundits have talked about how we no longer have boom and bust cycles due to the effectiveness of monetary policy.  This has all the makings of a boom that will bust at some point.  Eventually cheap capital will lead to too much building and the bust will come.  As in past cycles, we won’t know the bust has come until it happens.  Enjoy the ride while you can.  If you know when the bust is coming, let me know.  I promise to do the same.  I think we’ve got at least a couple years of higher prices and higher output ahead. 

Are You an “And” or a “But” Person?

Monday, May 3rd, 2021

Most of the coverage surrounding the NFL draft is nauseating.  “Experts” and non-experts alike get an opportunity to talk about college prospects and what each team needs as if the future of the world depends on each draft pick.  Even for football fans like me, it can be a little much.  

I came across a great article featuring the legendary coach, Nick Saban.  Saban tells his players at Alabama, almost all of whom have NFL aspirations and NFL talent, that teams are looking for reasons NOT to draft them.  He uses the words “and” and “but” to explain his point:  

They read the player [draft report]. I’ll take a defensive back,” Saban said. “He’s got quick feet, change of direction, got good long speed, can play man-to-man, he’s a good tackler, he’s got toughness, got really good ball judgement and really good ball skills – and, he’s a really good person, he was a leader on the team, he graduated from school, coaches loved him.”

Saban then described the same player with a “but.”

But – he had a positive drug test, he had a domestic violence incident with his girlfriend, got in a fight at a bar when he was a freshman, strength coach said he wouldn’t p— on him if he was on fire.

“Who do you want on your team: ‘and’ or ‘but’?”

Saban said he constantly tells players not to give teams a reason to say “but.”

“What I tell players is, you don’t realize that as soon as you apply for a job, as soon as you put your name into the draft, people are looking for reasons not to pick you. They’re looking for reasons not to hire you,” Saban said. “So don’t give anybody a reason to say ‘but.’ It’s the only way that you can create value for yourself.”

Wow.  What a great message.  Think about a generic example in the business world:

“He’s a go getter that gets things done and he mentors our young employees.  He’s a great role model.”

“He’s a go getter that gets things done but every interaction is a battle.  People avoid him.”

Which person do you want to work with?  Be the person that creates value for yourself and your organization.  Be an and person!

https://news.yahoo.com/nick-saban-explained-why-tells-150758336.html

Where Have You Gone, Foxconn?

Monday, April 26th, 2021

It was only four years ago that Foxconn, a major electronics manufacturer, announced it was building a $10 billion factory in Wisconsin and creating at least 13,000 jobs.  President Tariff, oops, Trump, touted it as evidence that his tariff and America First strategies were working.  Your humble blogger opined his concerns on the economics of the deal on September 17, 2017.  A link is below. 

Flash forward to today: the investment is now $672 million and the number of new jobs created is estimated to be less than 1,500. In the immortal words of Maxwell Smart, “Missed it by that MUCH.” 

Here is a key line in the article explaining Foxconn’s decision:

But industry executives, including some at Foxconn, were highly skeptical of the plan from the start, pointing out that none of the crucial suppliers needed for flat-panel display production were located anywhere near Wisconsin. (Emphasis added.)

https://www.cnbc.com/2021/04/21/foxconn-mostly-abandons-10-billion-wisconsin-project-touted-by-trump.html

We continue to hear politicians talk about bringing manufacturing jobs back to the US.  Part of that strategy must include bringing back basic manufacturing capabilities.  Many of our current supply chain issues are related to chemicals and other components used to make other products.  Most of our basic chemicals and basic components come from Asia.  Unless we bring those industries back, the dreams of increasing manufacturing jobs in the US will remain just that: dreams. 

https://briansblog.idimages.com/page/19/?_ga=2.137844784.1458870672.1619010022-1339230267.1603216726