Michael Swartz / May 19, 2021

Companies Are Panic Buying, Too

With future inventories questionable, businesses are shelving the “just in time” economy.

Back about, oh, 18 months ago when our economy was humming along, American businesses lived by a credo of “just in time.” This meant suppliers and retailers chose to provide products as ordered and as needed, keeping inventories thin to save on warehouse space and, for some products, tax liability. Once the pandemic hit, though, a massive toilet paper shortage became just the first of many problems — the “just in time” principle meant backstocks were lean and they ran out quickly. Meanwhile, even essential facilities had issues keeping their workforce thanks to COVID and its associated restrictions.

Now, however, while we’re a year past the scariest part of the COVID shortages, we still have massive problems in the supply chain that can’t seem to be unkinked. While the backlog of container ships still waiting to be unloaded off the California coast provides a good indicator of the issue, the East Coast gasoline shortage earlier this month was a case in point that arguably hit closer to home. The mentality of people who were hoarding a flammable and corrosive product in plastic containers was questionable but understandable. After all, we’ve endured a year of shell shocks with shortages and vastly increased prices for a significant portion of our staple commodities such as lumber, appliances, foodstuffs, and even computer chips. Moreover, even if you don’t live in an area directly affected by the Colonial Pipeline incident, you’re still seeing its effects at the pump.

With the more skittish among us reacting with panic to the latest shock of a temporary pipeline breach, it’s easier to imagine that companies are stocking up in the same way, even if it costs more. Bloomberg News spoke with Dennis Wolkin, the CEO of a small foam mattress company, and noted, “Though polyurethane foam is 50% more expensive than it was before the Covid-19 pandemic, Wolkin would buy twice the amount he needs and look for warehouse space rather than reject orders from new customers. ‘Every company like us is going to overbuy,’ he said.”

That fear of being caught short, combined with a potential long-term shift from brick-and-mortar retailing, has made warehouse space an “in” thing — particularly in urban areas and non-traditional locations, such as shuttered former department stores. For that purpose, cost is not an issue.

But the Bloomberg story also uncovers another angle, stating, “The U.S. Federal Reserve is facing new questions about when it will hike rates to stave off inflation — and the perceived political risk already threatens to upset President Joe Biden’s spending plans.”

Uncle Sam can only pay people not to work (and artificially drive up wages) for so long before the excess money supply swamps the lack of value created and stokes the same type of stagflation we last saw in the Jimmy Carter years. We can’t keep interest rates near zero forever, and someone has to pay for Wolkin’s warehouse space for his foam, not to mention the increased cost to his company from the supplier.

In a normal economy, shortages would work themselves out as entrepreneurs would step in to address the market, increasing supplies and eventually allowing prices to level off. In the post-China virus America, however, government meddling and coddling of favored industries and constituents (such as with generous unemployment benefits and, soon, a child tax credit giveaway) will likely prolong the pain until the people can address the shortage of common sense by electing leaders who believe more in equal opportunity and letting the private sector deal with problems than in perpetuating the equality of misery we have now.

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