Time for my “every so often” update on the always exciting world of industrial distribution. For those interested, you can check it out after the jump.
It has been a year and a half since the Commie Crud (copyright Sgt. Mom) started to mess everything up and I have been blogging on how it has affected industrial distribution as we have moved along. For those who don’t know, I own an HVAC distributor, and we are a subset of industrial distribution.
It looks like we are going to get through the Summer just fine. We only have another month, maybe 45 days of true Summer left in these parts and our inventory levels are good. Note, we have been concentrating our growth on our current customer base, not trying to poach my competitors customers. With the volatility of the supply chain, there isn’t really a way to predict how or when stuff will be coming in (still!) so we restricted equipment sales to “the family” (meaning our existing loyal dealers). I worked very hard all last Winter to make sure we had inventory and it has paid off. Our safety stock is super high and it is really hurting us with turns but it is what it is. Until things are a bit more predictable, that is just the new model. You either have it and win, or you don’t and you lose. There is no middle ground when it comes to HVAC.
Prices are increasing like never before. Raw materials spikes and market shortages are causing our vendors to raise prices like crazy. In the past, everyone would scream and bitch a bit when prices went up, but now everyone just shrugs their shoulders and moves on with their day. The question is “do you have it”, not “how much is it” – especially in the commercial world.
The stuff that we get from overseas, in particular ductless mini splits is completely hosed. They are having chip issues and freight woes (ports and sea shipping are a nightmare, still) and this combination has them with lead times that will put the arrival of their cooling units well into Fall and early Winter. There isn’t really anything we can do. I don’t feel too bad about this one – usually I kick myself a bit when we are out of stuff but nobody else has anything either so that makes me sleep a little better.
Chips – I am hearing that there may be chip issues coming with the manufacture of the boards that control furnaces. If this materializes, it is going to be a rough Winter. I heard one of the major manufacturers of furnaces (that we don’t sell) is already bracing their dealers for shortages.
Parts – in general, parts are available and plentiful. There are issues here and there but for the most part this has been a pleasant surprise the whole time. One of the things that I definitely got wrong when the commie crud started.
Accounts – there is the usual bad debt write off, but nothing unusual. I am very happy about this as I thought for sure when this all started that we would see a lot of guys going out of business and burning us along the way. But it simply didn’t happen and proves that HVAC is a business that everyone needs and is resilient in all sorts of economic turmoil.
Freight – LTL is still moving super slow and the level of damage and loss is still high. This is a tough situation and one that I don’t think will improve for some time.
In general, things are OK in the new normal. The hours are long but we are being rewarded for being very proactive and making the right investments in inventory.
Thanks again. Really like this series.
Do you have any intuition about being able to have enough stock for next year? As you said, imports are a total disaster, and it looks like that isn’t going to be resolved anytime soon.
@Brian – absolutely no idea. Fortunately the bulk of the items we sell are made domestically – that is hard enough. Anyone who is depending on imports (at least in my world) are in a world of hurt. It is impossible to forecast that stuff right now.
Dan: “Fortunately the bulk of the items we sell are made domestically”
That raises the interesting (possibly important at a future date) issue of the sources of the components & tools used in domestic manufacture. Transformers & electric motors, for example. Or nuts & bolts. Or voltmeters. Or the lightbulbs in the domestic factory. ‘The kingdom was lost, and all for the want of a horse shoe nail’, according to the rhyme that many of us learned as children.
The damaging economic effects of the Lock Downs are likely to rumble on for a long time. And still there is no coherent plan from the Political Class to roll back the self-imposed barrier of excessive regulation and genuinely encourage re-shoring of manufacturing.
I hear you Gavin. However many manufacturers have gone to double sourcing, getting some stuff from Mexico and other places while dealing with the Asian slowdowns. That has helped. Most items are still slow. It’s a grind.
Dan — I am a simple-minded believer in Supply & Demand. When we look at the US Trade Deficit, it is clear that supply & demand are out of balance.
There was a time when the excess dollars flowing into China through the trade imbalance were offset by China’s desire to invest in low-risk US Treasury Bonds — but it seems the Chinese Communist Party has now woken up to the possibility that those bonds are no longer low risk. CCP could follow Billy Gates and switch to buying US tangible assets like farmland — but that risks expropriation if/when things go pear-shaped.
Bottom line, supply & demand suggest that at some point the international value of the dollar will tumble — which in turn means that the cost of imports in dollar terms will skyrocket. Inventory economics look quite different if one assumes that the dollar price of items in inventory are going to increase year on year.
As an aside, my hope is that the coming collapse of the dollar will have highly beneficial consequences — destroying our unsupportable Political Class, sweeping aside over-regulation, and finally encouraging massive reshoring of industry and jobs. Long term optimist!
“my hope is that the coming collapse of the dollar will have highly beneficial consequences”
So, is there a single historical example of currency collapse having beneficial consequences? I mean, our system needs a thorough purging, and for our “elites” to go the way of the Bourbons would be a benefit, but how to do that without The Terror?
Brian: “how to do that without The Terror?”
I would guess there is no way to go through the collapse of the dollar without things getting very nasty indeed during the process. And there is no guarantee that dollar collapse will eventually lead to good consequences either — the collapse of Weimar’s currency led to you-know-what.
But I remain hopeful about the longer term after the chaos, mainly because places like Russia, Brazil, & China will carry forward with technology and preserve the Complete Works of Shakespeare — regardless of the stupidity of our Political Class and our complicity in allowing them to destroy what they could never have built.
Near-term pessimist; long-term optimist.
“But I remain hopeful about the longer term after the chaos, mainly because places like Russia, Brazil, & China will carry forward with technology and preserve the Complete Works of Shakespeare”
LOL. We’ll be saved by North Dakota and Wyoming, not by Russia and China.
Depends what the meaning of the word “saved” is, as Billie C might have said.
Population of Wyoming & North Dakota combined is about 1.3 Million — or roughly comparable to the annual number of illegal immigrants Resident Biden* is encouraging to cross the border to claim free government cheese. WY and ND also have about half a percent of the US population. Think about it! We have a roughly similar chance of dying from Covid as we do of being a resident of WY or ND. :)
If I recall correctly (always chancy!) Brian, you once commented that the US today is not the country you grew up in. I wholeheartedly concur with that sentiment! It is an easy prediction that the US of tomorrow is going to be significantly different from the US of today. The question is — Will we end up like Venezuela or Argentina, where a rich country with smart people backs itself into a permanent poverty-stricken mess? Or will we end up like Russia, where after suffering through a painful collapse, life for most Russians today is much improved over what it was under the USSR?
I am optimistic about the longer term, but there are no guarantees.
ND sounds glorious…AND they have real winter!
as to Russia, it is better to use “life for some” than “life for most”. Chancy, as you say.
Dan’s observations of this particular industrial/consumer segment is a valuable preview of the PRC’s inevitable military invasion of Taiwan. Taiwan Semiconductor Manufacturing Co. supplies over 1/2 over the world’s chips. When Chairman Xi takes over the ROC he’ll be in the catbird seat.
mainly because places like Russia, Brazil, & China will carry forward with technology and preserve the Complete Works of Shakespeare — regardless of the stupidity of our Political Class and our complicity in allowing them to destroy what they could never have built.
David Goldman has an article about how many Chinese kids are learning classical music. I’m not sure the CCP will remain in power in China but that, of course, is optimism.
TSMC has fabs in a lot of places besides Taiwan, especially here. Their Taiwan fabs were running up against limits in water supplies and power five years ago or more. If I was a big enough customer, I’d be willing to bet they would tell me about plans they have in place for this, including safeguarding the IP of their customers.
The simple answer about the boards controlling every damn thing is they can usually be fixed. All you have to do is find someone that can do it. We’re out here.
Mike K: “I’m not sure the CCP will remain in power in China”
Big Wheel keeps on turning. Success contains the seed of its later failure — as we in the once-successful West are learning. The CCP will learn that too.
Interesting point about China is that it is run by Xi’s generation, who were personally given hard times in the Cultural Revolution (sent off to do hard labor in poverty-stricken areas) and saw their successful educated parents abused and even murdered. They remember being hungry. They remember the hate from their fellow citizens. It is no surprise they have focused on improving living standards for ordinary Chinese.
But their children — cosseted, over-educated — will become the next generation of CCP leaders, even though they are effectively trust-fund kids with little contact with ordinary Chinese life. That is when the problems will start for China and the CCP, maybe 30-40 years from now. Of course, by then the US will be something we would not recognize today — hopefully better … but possibly worse.
Gavin…”It is no surprise they (Xi’s generation) have focused on improving living standards for ordinary Chinese.”
Have they really focused on that any more than the previous leadership did? My perception is that the Xi group is more focused on *total control* than was the previous crew.
You would know better than me, MSC, but I see one US fab facility in Washington State and one planned for AZ. Abroad I see one in Singapore, one in Shanghai, and one in Nanjing. The rest are in Taiwan. It will be telling to which plants TSMC assigns 3nm fabrication.
CapitalistRoader,
You may be closer to right than I am, I didn’t look and relied on my memory, maybe too much. In which case, if I was a customer, I’d have some really pointed questions. The problem is that for some things. they’re the only game in town. Industrial and automotive tends not to be on the bleeding edge like PC’s and graphics cards. A big issue is that they are a foundry which means they build chips designed by others rather than like Intel who build their own designs. How will they guaranty the IP of their customers or their supplies in the case of some sort of invasion? It’s hard to think of anything much more vulnerable than a fab and Taiwan has the ability to make any invasion very expensive. Think invading across 90 miles against thousands of anti-ship missiles.
In other news, it now seems to cost $20,000 to get a container from China to here.
https://gcaptain.com/china-u-s-box-rates-sail-past-20000/
David F: “My perception is that the Xi group is more focused on *total control* than was the previous crew.”
That certainly is the assessment of people who focus on China, like Barry Naughton and Andrew Batson. They suggest that Xi’s increasing centralized control is a weakness which may hurt China down the line — just as growing centralized control has hurt the US.
But we do have to give credit where credit is due. Since the death of Mao, China’s leaders (including Xi) have done wonders for the living standards of the average Chinese person.
No more famines! Arguably, China’s leaders realized they needed to earn the Mandate of Heaven. As time goes on, and especially when the generational change takes place, China’s leaders are likely instead to adopt the Pelosi Mantle of Entitlement, with the results that history tells us to expect.
The reason why people like to locate fabs…which are water-intensive as well as electricity-intensive…in Arizona is…..
My understanding is that all or most of the water is recycled. Arizona has its act together for electricity with a plurality generated by NatGas and >28% nuclear, unlike CA in which a bigger proportion comes from unreliables. As a result CA has to import electricity from AZ and other Southwest states which makes electricity in CA much more expensive.
Once upon a time, a lot of water would have gone into cooling towers for the climate control to be evaporated. Keeping a million and a half square feet at precisely 68° and (I believe) 45% RH takes a lot of cooling. Just the heat load from lighting is substantial and one place where LED’s are helping. Controlling the humidity is much easier in a dry climate. In someplace like Seattle, you have to super cool the air to wring out the water, then reheat it. I don’t know if cooling towers are still used for that. The large installations I’ve seen recently seemed to use air-air heat exchangers.
I know that server farms still consume a lot of water for that purpose.
Mcs,
Cooling air below its dew point, typically to 45 degrees or so in an ac system, is a commonly used dehumidification method. It’s why you window ac drips water.
But there is another way, chemical dessicants. This is a big 6-12 feet or more wheel of honeycomb ed silica gel.
This explains how they work. Generally more cost effective than cooling/reheating though it depends on application.
https://www.munters.com/en/solutions/dehumidification/
China is blaming the shipping and other supply problems on kung flu. That doesn’t make sense to me. Their rate of infection seems way low.
China has had a total of 94, 000 cases (36,000,000 USA), 96 new cases(853), total deaths 4,600 (633,000). Deaths/million pop 3 (1,900) us numbers in parens
If the worldometer numbers are correct, and I do have concerns, or even roughly correct, they have virtually no kung flu.
It looks to me like China is trying to hype the impact of kung flu to hide how little it really affects them. If we knew how little it affected them people might start thinking that China used all that genetic info harvested from ancestry, 23andme and other DNA test sites (all processed in China) to develop a virus that only attacks people of European ancestry.
This would certainly be an act of war and would require a kinetic response in our part if the American people ever decided this was the case.
So would the Chinese cripple their supply chains, assuming that their shipping restrictions really hurt them, just yo keep the illusion going?
Being paranoid doesn’t necessarily make me wrong.
John Henry….”If we knew how little it affected them people might start thinking that China used all that genetic info harvested from ancestry, 23andme and other DNA test sites (all processed in China) to develop a virus that only attacks people of European ancestry.”
One indicator would be: how susceptible are Americans with non-European ancestry to the virus? Seems to be pretty high for African-Americans; I believe numbers are relatively low for Asians, but may need to get to a more granular level of detail.
Also, if that explanation is correct, why were the initial reports out of China so devastating?…all play-acting?
John H: “China has had a total of 94, 000 cases (36,000,000 USA)”
As many have said, it is a “casedemic”, not an epidemic. How many of those 36 Million USA “cases” (mostly without signs & symptoms of illness) were False Positives? A related (unfortunately unanswerable) question is — If those same tests had been applied in the same way 10 years ago, how many people would have been deemed to be “cases”?
“This would certainly be an act of war and would require a kinetic response …”
Except that any US attack on China would destroy the manufacturing facilities on which modern life in the US depends. It would be like a junkie killing her dealer — guaranteed very painful withdrawal.
When we learned (to the surprise even to those of us who are paranoid) that something like 90% of US medications are based on Chinese supply, it should have been a wake-up Sputnik Moment. But it was not. Unfortunately, a hard rain is going to fall … on us.
David foster wrote
Also, if that explanation is correct, why were the initial reports out of China so devastating?…all play-acting
If the USA/China numbers in worldometer are even roughly correct, yes. Play acting.
Analogous to how the Brits would build huge fires out in the country to attract German bombers.
Even if this was not intentional it still helps take the heat off of them.
It woul be interesting to see numbers for Chinese Americans broken out.
David F: “why were the initial reports out of China so devastating?…all play-acting?”
Can anyone think of any plausible alternative explanation for those never-repeated cell phone photos of well-dressed working-age men collapsed in Wuhan streets? Never-repeated anywhere else in the world.
And now, when civil society in the West is severely stressed between those who live in fear and those who want to return to normal, there is (Surprise!) a reported new Covid outbreak in China. Keep the fear going for another couple of months, and we will be back into normal flu season, even if the media calls the cases Covid.
Occam’s Razor — the West (specifically the US) has been under economic attack at a variety of levels from China for at least two decades. With the US manufacturing sector now gutted and the US heavily dependent on the continuing kindness of the Chinese Communist Party, the CCP is moving in for the kill. The CCP does not need to conquer the US to achieve its aims — simply to collapse the US economy and pervert the US Political Class.
Gavin
I have a great deal of doubt about the us stats and have since the beginning. I’ve discussed my doubts in various venues, though not here perhaps here.
I think that our death count may be off by as much as 90%. That still leaves it at more than 60,000. Vs china’s 4,600 on a billion more people. If off by a factor of 10,china is still only 46,000
Ditto the other numbers cited.
I don’t trust China’s numbers either.
Even assuming that both sets of numbers are off, That’s a huge difference in impact. I’d be interested in why.
Re the harm to the US from kinetic action, I agree. But if this attack theory got implanted in the public mind, I think the public would demand something be done and damn the consequences.
First: Any Chinese numbers publicly available are fabricated with the sole purpose of furthering the goals of the CCP, period.
To the extent that any true numbers exist, ascertaining them will require an intelligence effort comparable to any other tightly held information such as war plans or weapons.
I remember saying back near the beginning of all this that the attested Chinese death rate looked very much like a successful deployment of a biological weapon. If I was a Chinese senior citizen, I would not expect to survive finding my life in the way of the government’s plan.
The age/mortality curve would very likely be all the immunity that a government that has killed millions through various mechanations throughout its existence would need. Something to keep in mind about depending on China as the leading source of new swine/avian flu variants for surveillance and early warning.
The Sinovac vaccine that has garnered such a poor record when it’s been used in the world may not be the same as the one in use in China.
I pointed out last week that it is very suspicious that China is locking down again now. According to their “official” numbers, there were a few thousand deaths in Wuhan in Jan/Feb or so, then literally *zero* in the entire country ever since then. But now they are locking down cities again, shutting down factories, etc. Looks to me like they’re trying to either push Western countries to re-ramp up lockdowns, or trying to throttle back their production/exports to further damage global supply chains, or both.
Gavin…”When we learned (to the surprise even to those of us who are paranoid) that something like 90% of US medications are based on Chinese supply, it should have been a wake-up Sputnik Moment. But it was not.”
Trump clearly understood this, and was prepared to act accordingly. Few others in the political class seemed (seem) to grasp it.
Trump clearly understood this, and was prepared to act accordingly. Few others in the political class seemed (seem) to grasp it.
TRUMP 21!
John H: “But if this attack theory got implanted in the public mind, I think the public would demand something be done and damn the consequences.”
If our revered leaders cared about what the public thinks, they would be doing something about the hundreds of thousands of potential Covid carriers walking across the southern border.
If someone did release data showing that the Covid virus had been engineered by the CCP to afflict those of European ancestry, we all know what would happen — Twitter & FaceBook would de-platform anyone who reported it; Google would suppress searches for it; and then the New York Slimes would print a dense article asserting that Americans suffered more from the disease than the Chinese because we are obese & unhealthy — women & minorities hardest hit. If the controversy continued, Nancy Pelosi would launch an investigation into President Trump’s failure to stop the virus.
Sadly, we are where we are, with a dysfunctional & probably corrupted Political Class, because too many of us have been too apathetic for too long. That is probably not going to change until the economic collapse hits us in the guts.
According to this, China has shut down a 7 million TEU per year terminal because of a single case. (TEU is a 20 foot container or half of a 40 footer)
https://gcaptain.com/ningbo-terminal-closure-could-spark-new-congestion-crisis/
That works out to around 10,000 40 foot containers a day that won’t be going anywhere. This doesn’t look like a rational response to a single case.
MCS: “This doesn’t look like a rational response to a single case.”
That depends. If the focus is medical, then shutting down an export terminal for a single case of a disease with a fatality rate in the same ballpark as flu does not sound rational. On the other hand, if the focus in reality is to use a hyped-up “pandemic” as cover for waging economic war by ceasing exports which the importers cannot do without, then the closure seems perfectly rational.
This is the second large terminal to be shut down under similar circumstances. The stalled containers represent billions of dollars of goods that Chinese businesses aren’t going to be paid for until they get where they belong. Many of these live very much hand to mouth so there are likely lots of payrolls that won’t be met. It’s also a sharp goad to their customers to move production elsewhere.
Whatever the CCP’s long term goal is, the short term effect will be lots of unhappy, broke people milling around in the cities without jobs. That hasn’t been happy formula for the government or the people in the past.
Some congestion problems at US intermodal terminals as well. Comments by Burlington Northern RR CEO Katie Farmer:
https://www.railwayage.com/intermodal/bnsf-to-stb-on-maintaining-supply-chain-integrity-during-periods-of-heightened-volumes/
MCS: “It’s also a sharp goad to their customers to move production elsewhere.”
Well, Biden’s handlers don’t want that production moved to the US. Damn it, we are GREEN! That means we don’t make anything (too dirty!), and instead we print dollars to exchange for their real goods. What could ever go wrong?
Moving production is not an overnight thing — nor a risk-free action. Factories to be built, workers to be found & trained, electric grids to be expanded, port facilities to be built, roads and railways to be constructed, supply networks to be created, financial networks to be put in place. And spend all that money knowing that China Inc can choose to undercut the investment by dropping their own prices as Chinese efficiency improves. Let’s not even think about possible political upheavals in the countries to which production is moved.
If a country chooses to make war, dealing with unemployed workers and idle factories is a whole lot cheaper and safer than having to deal with body bags and bombed-out cities. Just saying!
If a country chooses to make war, dealing with unemployed workers and idle factories is a whole lot cheaper and safer than having to deal with body bags and bombed-out cities. Just saying!
Not necessarily. Unemployed young workers have been the prelude to war in a number of instances. One is Iran. China has a demographic problem. Afghanistan is a small example.
Mike, none of us can predict the future; but we need to be honest with ourselves about the present. The days are long gone when the US was a forward-looking vigorous productive First World nation and China was a poverty-stricken backwater Third World nation. Portland and Seattle are probably more similar to the Afghan situation than any city in China.
If war is the continuation of politics by other means, consider the possibility that international trade is the continuation of war by other means. And ask yourself if you are comfortable depending on the Chinese Communist Party for much of the material goods which life in the import-dependent US requires.