Rising Risk of Inflation
I am not sure what you are seeing at the moment, but for me I see signs inflation is coming. Shipping rates are quite high and continue to rise. Shipping lines are not rushing to deploy ships to fill the demand as they are now able to raise rates for the first time in awhile. Physical container availability is very tight to the extent it is now difficult for companies to get shipments delivered. There has been a lack of ships to pick up and redeploy empty containers, and when companies are able to get containers, shipment costs are skyrocketing. Many ports, including Sydney, are on a go slow further exacerbating the problem. Los Angeles port has reached a record number of ships waiting to get into port and unload. The additional on-the-water costs of the gridlock will soon find its way through to the consumer as each leg in the supply chain passes on these additional costs.
Bond market yields are also showing signs inflation is on the move. The world’s reserve banks are flooding the market with cheap money. Something has to give, but when is the big question.
A senior researcher from a global research company said:
“The other lesson from the past decade … is that the forces of deflation are powerful and persistent.”
Much of that is due to the shift to China as the world’s factory. Relations with China are obviously strained, the recent calls to re-shore manufacturing in many countries, especially the USA and Australia to a lesser extent, growing louder every day – all points to a growth in prices. Will this inflation growth become out of control like the ’70s? Only time will tell. But to ignore these movements would be foolhardy I believe.
In an environment of inflation and a more normal economic cycle post COVID-19 one has to look at who is generating cash flows, further reinforcing the need for all executives to closely monitor their cash flow, maintain or implement sound inventory control behaviours and ensure you are generating a positive EVA. If your EVA is negative, you are eating away at your company’s value not adding to it. How are you dealing with this?
If you or anyone you know is looking to:
- improve the way their business operates;
- improve the way they leverage their current ERP system;
- replace their ERP current system;
give me a call for a confidential discussion on the best way to achieve this.
Until next month…