When analyzing the current supply chain crisis, it’s helpful to look at so-called common carrier laws – laws meant to ensure that the business being paid to transport goods/people/data etc. must do so in a way that is agnostic to the thing being transported. Specifically, we are looking at their influence on the implementation of net neutrality laws for telecommunications, the ocean shipping reform acts of 2000 and of 2021, the application of optimal auction mechanisms for transportation problems and, finally, real-time data and analysis available on cargo vessels around the globe.
Overall, we think that this “traffic jam” has to be cleared endogenously via demand destruction and reallocation at current costs of freight. There is no exogenous policy intervention that seems practical or optimal. There are several examples from past interventions to suggest this.
There are still a lot of question marks around narrowing the timing of supply chain normalization, but we remain optimistic that normalization will come faster than the current consensus expects (2H 2022). For now, however, inflation will remain a sharp relief for investors and consumers alike.
From an investment perspective, we expect larger businesses (such as mega-retailers) to be able to outspend smaller competitors and for consumer discretionary items where shipping costs are a high percentage of cost-of-goods-sold to incur increased demand destruction vs. consumer staples.