The Best Explanation for the Supply Chain Crisis Yet
The Descartes Systems Group (Nasdaq:DSGX) (TSX:DSG) reported stellar results once again last Wednesday (December 1st). Descartes is a software-as-a-service provider of logistics solutions. In some logistics application areas, like global trade compliance, they are a market leader. In the call with financial analysts to discuss the third quarter results, Descartes’ CEO Ed Ryan spoke. Mr. Ryan provided the best, most succinct explanation of the supply chain crises I have seen.
“You can browse headlines on any business news site and see the word supply chain and logistics more than you would have seen before.
“The current state of affairs is variously described as a crisis, chaos, a snarl, a mess, or a challenge. No matter what words you used to describe things, there are real issues out there right now. They’re impacting every participant of the business community and they have everyone’s attention. I’m sure there will be in-depth papers written about this period in history.
“However, at its heart, production in the Asia-Pacific region was severely curtailed for a period of time for issues ranging from the COVID impact on worksites to energy shortages, to port capacity limits. So, there was supply chain disruption. The U.S. is the principal destination for many of these goods. And there was no corresponding demand disruption. In fact, there was more demand than ever from the U.S. for goods, especially in light of the economic stimulus impacting consumers. So, there was a supply disruption and an increase in demand hitting the market at the same time.
“This was a recipe to create supply chain and logistics headlines. As Asia-Pacific production ramped up, competition was on to source the scarce goods and to get access to the limited transportation capacity available to move these goods to their destinations. When there’s more demand than supply, prices go up, as we saw in previous months with record -high prices for ocean and air cargo moves.
“And with these increased prices, you see potential profits for logistics service providers and freight cost pressures for importers. If you want to find the potential weak points in a system, then just put that system under some stress or pressure, and that’s what we’ve seen over the past months with logistics and supply chains.
“We’ve seen logistics port infrastructure stressed past its limits, with vessels anchored offshore on the West Coast of the United States and container yards stacked high with the containers under emergency orders. We’ve seen extreme vessel capacity constraints with customers choosing to charter their own vessels or moving goods that they would historically move by ocean by the more expensive air mode. And we’ve seen vessel carriers turning away less profitable business, resulting in the elimination of some ports of call (and a lower willingness to move) less profitable commodities.
“All these challenges really show how interconnected and interdependent the supply chain and logistics world really is. They also show how critical the sourcing and movement of goods are to businesses and economies as a whole. Supply chain and logistics is not a niche market.
“These are headline issues. These supply chain and logistics challenges are complicated multiparty international issues involving a myriad of people, businesses, technology systems and assets. These challenges are too complicated to be met without the use of technology.”
Mr. Ryan’s statements are based on a sound quantitative analysis of what is occurring. Descartes has a global trade intelligence solution that allows them to quantify import and export shifts, transportation flows, and trade trends.
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