World economy is running low on everything

Once viewed as liabilities, fatter inventories are back in vogue

A year ago, as the pandemic ravaged country after country and economies shuddered, consumers were the ones panic-buying. Today, on the rebound, it's companies furiously stocking up.

Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The corporate buying and hoarding is pushing supply chains to the brink of seizing up. Shortages, transportation bottlenecks and price spikes are nearing the highest levels in recent memory, raising concern that a supercharged global economy will stoke inflation.

Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. "You name it, and we have a shortage on it," Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month. Clients are "trying to get everything they can because they see high demand," Jennifer Rumsey, the Columbus, Indiana-based company's president, said. "They think it's going to extend into next year."

The difference between the big crunch of 2021 and past supply disruptions is the sheer magnitude of it, and the fact that there is as far as anyone can tell no clear end in sight. Big or small, few businesses are spared. Europe's largest fleet of trucks, Girteka Logistics, says there's been a struggle to find enough capacity. Monster Beverage Corp. of Corona, California, is dealing with an aluminum can scarcity. Hong Kong's Momax Technology Ltd. is delaying production of a new product because of a dearth of semiconductors.

Further exacerbating the situation is an unusually long and growing list of calamities that have rocked commodities in recent months. A freak accident in the Suez Canal backed up global shipping in March. Drought has wreaked havoc upon agricultural crops. A deep freeze and mass blackout wiped out energy and petrochemicals operations across the central US in

February. Less than two weeks ago, hackers brought down the largest fuel pipeline in the US, driving gasoline prices above $3 a gallon for the first time since 2014. Now India's massive Covid-19 outbreak is threatening its biggest ports.

For anyone who thinks it's all going to end in a few months, consider the somewhat obscure US economic indicator known as the Logistics Managers' Index. The gauge is built on a monthly survey of corporate supply chiefs that asks where they see inventory, transportation and warehouse expenses the three key components of managing supply chains - now and in 12 months. The current index is at its second-highest level in records dating back to 2016, and the future gauge shows little respite a year from now. The index has proven unnervingly accurate in the past, matching up with actual costs about 90 per cent of the time.

To Zac Rogers, who helps compile the index as an assistant professor at

Colorado State University's College of Business, it's a paradigm shift. In the past, those three areas were optimized for low costs and reliability. Today, with ecommerce demand soaring, warehouses have moved from the cheap outskirts of urban areas to prime parking garages downtown or vacant department-store space where deliveries can be made quickly, albeit with pricier real estate, labour and utilities. Once viewed as liabilities before the pandemic, fatter inventories are in vogue. Transport costs, more volatile than the other two, won't lighten up until demand does.

"We're going to continue to see some price increases over the next 12 months," Rogers said.

A growing chorus of observers are warning that inflation is bound to quicken. The threat has been enough to send tremors through world capitals, central banks, factories and supermarkets.