To understand the purpose and specific need of the latest Executive Order CTH can share a familiar analogy to help better conceptualize the issues.
There are several supply chains that are being affected by the coronavirus mitigation effort; two specific sectors involve healthcare products and food distribution. Today’s executive order targets both.
As a network of U.S. manufacturing continues to increase the production of healthcare products, masks, shields, ventilators and medicines; any hoarding or pricing opportunism around those items is obviously a matter of great interest for overall public health.
However, as time continues to expand, the impacts on another critical sector actually start to worsen…. Most people have no idea the complexity of the field-to-fork supply chain.
Imagine a country where the internal economy was based on two modes of transit, built out over two generations. Fifty percent of all transit in cars, and fifty percent of all transit on motorcycles…. time progresses, generations grow and live, and all known and familiar transportation is based on these two complementary methods; equally distributed, cars and motorcycles.
Over decades the national infrastructure is based on this accepted transit system. There are two independent origination manufacturing systems, each supplying 50 percent of the end user products.
There are ancillary economic systems each based on a service to either car owners, or motorcycle owners. No-one ever thinks about it, and life is just occurring as usual.
At the top of the economy input there is fuel. 50% of the public use fuel for their cars and 50% of the public use fuel for their motorcycles; each is using the same input, the same fuel. Again, no-one ever thinks about it.
150 million people prefer cars and 150 million people prefer motorcycles… it’s an equal distribution across all regions and states; and no-one gives it a thought.
Then, one day, with no advanced notice, the government bans all motorcycle transit.
Now what happens?
300 million people immediately impacted. 150 million people severely impacted. Motorcycle manufacturing is immediately idled. Motorcycle sellers are immediately shuttered. Motorcycle parts, repairs, distribution, and all the ancillary systems that supported those 150 million consumers are immediately shut down.
What happens?
Officials are correct, there’s plenty of fuel; there’s an abundance of fuel. But 150 million consumers of that fuel no longer have a need for it. Additionally, 100 million of the 150 million motorcycle consumers don’t have cars. Overnight, they now need cars.
What happens within the auto industry?
How can the auto industry expand to create products for 100 million new customers. How can the auto industry possibly support a 75 percent overnight increase in demand for their product? What about all of the car providers, mechanics, technicians and auto-workers? How does the auto industry acquire production capacity to meet the immediate need?
Replace motorcycles with restaurants, and cars with grocers, and you see the issue.
There’s plenty of food atop the system, but the 50/50 consumption dynamic has just been turned on its head. The retail grocery supply-chain cannot compensate because there is no upstream production capacity to meet the demand of the end user.
The longer this continues, the worse it will get; and it will get worse – much worse. All retailers are now pulling from the same upstream manufacturers and suppliers. We are now seeing the word “rationing” come into play.
With a national emergency declared, FEMA is now activated and Rear Admiral John Polowczyk is in control of critical supply chain needs.
Think about another familiar analogy. Think about fuel needs during hurricanes.
In preparation for a hurricane impact residents head to the gas stations to fill-up their vehicles and fuel cans preparing for power outages. Generators need fuel, so everyone preps for the power disruption. Then the hurricane hits and power is knocked out.
On the first day without power everyone has their prepared fuel supplies. For the first 24 hours the empty gas stations are an annoyance, but doable. However, starting day two, and continuing on all subsequent days without power, the need for fuel increases at an alarming rate. Within moments of a fuel truck arriving the station tanks are emptied by convoys of vehicles and gas purchasers with cans needing to be refilled.
On day three without power, there’s no amount of inbound fuel delivery that can compensate for the demand. As long as power remains knocked-out, the scarcity of fuel remains. People traveling anywhere to locate gas. People get desperate.
On day four, five, six, it doesn’t get better… it gets worse.
The only thing to stop the cycle is a return of power slowing the demand for fuel. If the power remains turned-off, the fuel demand will always exceed the fuel supply. It doesn’t matter how much fuel is shipped, the infrastructure of fuel supplies and fuel distribution cannot compensate for the overwhelming demand. The only thing that fixes the problem is the return of power street by street, neighborhood by neighborhood, town by town.
Keep the power turned off, and the fuel supply will *always* be short. Period. This has been shown to be demonstrably true regardless of region.
In this example the loss of power is similar to the closing of restaurants. Until the impacted food distribution system returns, the other half of the food distribution system will not be able to fully fill the void.
The manufacturing and distribution infrastructure, the key aspect to the retail food supply-chain, cannot compensate for a consumer demand of such significant proportions.
In an effort to mitigate the supply shortage, stores have limited their hours of operation; but it’s still not enough. Additionally, stores are now going to initiate ever tighter sales limits or ::cough:: “rationing” ::cough:: in an effort to control the outputs. This is one example amid many, but it will expand:
SAN ANTONIO — H-E-B is announcing new product limits shoppers should know about. These limitations are aimed at protecting the supply chain so everyone is still able to get essentials.
[…] The following food items are now subject to new limits and restrictions as of Sunday, March 22:
- Chicken – 2 items
- Ground Beef – 2 items
- Ground turkey – 2 items
- Hot dogs – 8 items
- Water multipacks – 2 items
- Water gallons – 2 items
- Baby formula – 2 items
- Eggs – 2 items
- Frozen vegetables – 4 items
- Frozen potatoes – 4 items
- Frozen breakfast – 4 items
- Frozen pizza – 4 items
- Boxed dinners – 8 items
- Pasta – 4 items
- Pasta Sauce: 4 items
- Rice – 4 items
- Canned Soup – 8 items
- Canned Vegetables – 8 items
- Canned Beans – 8 items
- Canned seafood – 8 items
- Canned meat – 8 items
- Dried Beans – 4 items
- Nut butters – 4 items
- Oatmeal – 4 items
- Cereal – 4 items
- Bread – 4 items
- Milk – 2 items
- Powdered Milk – 2 items
Non-food items
- Acetaminophen – 2 items total (includes baby, trial and travel sizes, OTC)
- Baby diapers – 2 items
- Baby wipes – 2 items
- Sanitary tampons, pads and liners – 2 items
- Bath tissue multipack (SA, Gulf, Border, Central TX, W TX, N TX) – 1 items
- Bath tissue single roll (SA, Gulf, Border, Central TX, W TX, N TX) – 2 items
- Bath tissue (Houston area) – 2 items
- Paper towels: 4 items
- Disinfecting & antibacterial sprays – 4 items
- Disinfecting & antibacterial wipes – 4 items
- Trial and travel size disinfecting & antibacterial sprays/wipes – 2 items
- Liquid bleach – 2 items
- Hand sanitizer – 2 items
- Hand soap – 2 items
- Hydrogen peroxide – 2 items
- Rubbing (Isopropyl) Alcohol/swabs – 2 items
- Latex gloves – 2 items
- Masks – 2 items
- (link)
There is no need to panic, again the top of the system is abundant, but there is a greater need to understand what proactive measures are now being considered by government officials as they look at a much bigger landscape today than they were looking at a few weeks ago.
In October, November and December regional warehouses the size of schools (around the nation) are filled with frozen chicken wings. Yes, chicken wings. Additionally, tens-of-thousands of square feet are filled with frozen pizzas. Why? Because the last week of January and first week of February everyone shops for Superbowl Sunday. Without all that pre-staging, the supply chain could not support the demand.
In June, July August and Sept., millions of square feet of frozen food warehouse space (around the country) is filled with frozen turkeys. All prepared for distribution in October and November for Thanksgiving. Without all that pre-staging throughout the year, the supply chain could never support the demand.
Once emptied in Sept/Oct, cleaned, sanitized and prepped, those deep freeze warehouses start filling up with chicken wings and pizzas again. [In the southeast, space is also leased for FEMA ice storage as part of the summer emergency plan for hurricanes.]
The food supply chain is a massive and complex system with a multitude of component parts that happen in the background that no-one notices. If done correctly, no-one should ever notice; but the system is far less simple than most consider.
When you hear the words “non-essential” consider…. The U.S. food supply chain requires constant supplies of: oil, packaging (and all ancillary), cardboard (and all ancillary), paper, recycling, steel, plastics, stone, hydraulics, rubber, parts to repair machinery, fabric, cotton, mechanics, data analysts, communication experts, accountants, actuaries, refrigeration, coolant, glass, wood, barrels, tanks, trucks, and much more…
Whatever “it” is may seem “non-essential” until you start to realize it is part of a massive and diverse input system into a very complex sector of the economy. Remove one component and the system, already under considerable strain, can freeze or slow.
That’s where “rationing” comes in….
Centinel2012 