This Supply Chain Matters News Capsule Follow Up reinforces our previous stream of commentaries focused on the steep rise in global transportation costs and the implications of this trend.
In a two-part Supply Chain Matters commentary titled: Rising Transportation Costs And Supply Chain Disruptions Precipitate Revising Sourcing Strategies, which was published in late September, we outlined our belief that more visible evidence that that associated cost increases and resulting inflationary cost forces not sustainable. Our belief remains that they will be an added catalyst for the rethinking of existing supply network component sourcing, production and customer fulfilment strategies. Such thinking continues to percolate in C-Suite discussions as more executives conclude that supply chain disruptions are a top threat to business growth and that added control of supply chain processes is paramount.
An additional theme that we have echoed is that global transportation carriers and logistics services providers are reaping the revenue and profitability benefits from this ongoing supply chain disruption. In this commentary we specifically referenced reporting from The Wall Street Journal relative to the explosion of shipping industry profits. We further cited research firm Drewry Maritime Research, opining that if exceedingly high industry rates continue on their existing path, the container lines could collectively haul in $100 billion in operating income in 2021. Reporting on this industry projection, Bloomberg additionally opined that this level of profitability represents more than fifteen times industry generated profits in 2019 (pre-pandemic) and nearly as much as Apple makes in a typical year.
In this light, we now want to specially call Supply Chain Matters reader attention to this week’s report by The Wall Street Journal: Supply-Chain Snarls Deliver Windfalls to Wall Street. (Paid subscription or metered views)
This report outlines how particular hedge funds are reaping lucrative profits and higher stock valuations as well. One former head of investment banking at a ship broker describes that industry investors are on an extreme high in the container shipping business cycle. Reportedly, specific hedge funds have been flipping container ship investments, selling added specific vessel carter deals, reaping the benefits of new lucrative stock buybacks and investor dividends or taking gains on their equity stakes in container shipping companies. Reportedly, bankers and lenders are benefiting as well. These equity and financial stakeholders are now betting that the supply and demand imbalance of global shipping “is unlikely to come into balance soon.” The report additionally indicates that shipping stocks could lose their attractiveness as the industry comes under added pressures to replace the consumption of fossil fuels before 2050.
In the notion of understanding that market dynamics are often the reflection of following the money trail, Supply Chain Matters wanted to ensure that our readers had the opportunity to be able to refer to this report.
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