We’re seeing ‘the interconnectedness of the supply chain start to fail’: Exiger President – Yahoo Finance

– We also have you covered on inflation. And look, your morning cup of Joe is going up in price. No need to tell you the latest headlines. The producers in Colombia. You remember the old ad for Juan Valdez delivering the coffee beans? Well, they’re not delivering the coffee beans. The growers in Colombia actually had a million bags of coffee they were supposed to deliver. But because prices are surging– prices up 55% this year– they didn’t deliver those bags of coffee. And that means guess what. Mas dinero.

All right. So let’s talk about what’s happening with inflation. Brandon Daniels is the president at Exiger. He’s going to talk with us about not only that issue, but what’s really going on with supply chain. And let’s talk about, for instance, the Colombia situation. I mean, all power to them. Although if they’re violating a contract, that’s another issue. But I noticed it at the grocery store the other day. Everything. Ridiculous. The prices are pretty astronomical, the increases we’re seeing. Is it transitory?

BRANDON DANIELS: A part of it is transitory. So what you’re seeing is a supply chain perfect storm. And I know that you’ve heard this more times than we can probably count. But it’s true. So first of all, you’re seeing the interconnectedness of the supply chain start to fail. You’re seeing Australian coal not going into China because of import blocks, because of higher prices at ports, because of higher prices in logistics. So you’re seeing logistical pricing issues creating a pricing issue for most companies in China to stay open. You’re then seeing geopolitical tensions also affect the supply chain.

So beyond logistics, you’re seeing the geopolitical tensions between the United States, Europe, Australia, and China. Basically, the G7 plus the key other three folks. India, Australia, and South Korea. You’re seeing those geopolitical tensions start to have an impact on global supply chains as people are trying to reform those supply chains to make them more sustainable for the future. And then you’re seeing the reverberation of the pandemic panic buying.

– So Brendan, what I hear you saying– Brandon, what I hear you saying is, no, it’s not transitory. And where it’s leading us– it’s not going to happen in time for Christmas. But the just in time supply chain inventory process now appears to be outdated. Or is it? Is it time to reshore? Will we see reshoring?

BRANDON DANIELS: We will definitely see reshoring and reform. You’re right. The just in time practices that were so prevalent over the last 20 years have started to falter. But some of these issues will resolve, like the logistical issues, the pandemic work shortages. You’ll see some corrections in labor rates. But a lot of what the infrastructure has built in order to allow for immediate and rapid logistics is failing. And we’re going to have to look at higher inventory. We’re going to have to look at larger-scale vertical integration.

In fact, I think 2022, 2023, we may see an interesting acquisition strategy of many companies to not specialize, but instead to vertically integrate to secure supply chains. And so I think what we’re seeing is a reform of just in time delivery, as well as people getting smart about what they need to know in terms of their distributors and supply chain. It used to be–

– Brandon.

BRANDON DANIELS: –that a contract could hold your relationship together, could make sure that your SLAs were met. Today, you have to know who your contractor’s contractor’s contractor is to mitigate risk.

– I want to ask you a question about what you just said and what you’re talking to with your clients. At companies across the United States, that issue of more integrated supply, is that front and center? Will we be hearing them talk about that do you think in their earnings reports this month as we look to the future? What are your clients asking you about that issue?

BRANDON DANIELS: That is absolutely true. So there are three things that they’re focused on. One is supply chain visibility. So they want to know where not only are their suppliers’ suppliers buying from the same place, the same jurisdiction, or literally the same company, the same goods, and they’re creating constrained demand because they don’t have diversity downstream. But they also want to know where the guy across the street is buying their goods and if that is creating a greater supply chain bottleneck.

And so you’re going to see supply chain visibility lead to more targeted M&A. And you’re going to see it lead to more vertical integration in the near future. We’re hearing that across the board. The second thing that we’re hearing is people are going to start thinking more holistically about supply chain risk. So it’s been true in the past that it was just performance and price. But now people are thinking it’s performance, price, location, having a second option.

And then the third piece is really understanding once you’ve gotten a sense of your supply chain, once you understand the risks, it’s partnering with the government, with your prudential regulators, with the other major buyers in your sector to reshore and reform the supply chains, which is going to be a big part of 2022 and 2023.

– So a lot of people listening to us right now are thinking, cha-ching, I can make some money on this. Can you give us insight into which sectors may be front and center on what you’ve just described?

BRANDON DANIELS: Absolutely. So I’m all in on new forms of rare Earth element development. I mean, if there’s one thing that we’ve seen, it’s that the raw elements– it’s the coal. It’s the steel. It’s these composites, these plastic, specialty plastics, that sit at the base of the supply chain that are subject to the worst attacks and create these ripple effects in every product. So I’m all in on rare Earth elements. And I’m also all in on specialty materials.

I think one of the other things I would look at are specialty materials specifically in the microelectronics sector. I think if people can get smart on silicon carbide and the GaN materials and the microchips that are made after them– or made from them– not only are they going to support our 5G networks and our telecom space, but they are going to also help us to have more resilient supply chains in the near future. The second sector that I would look at from a vertical integration perspective–

– Quickly please. Yep.

BRANDON DANIELS: –and getting a key area here is logistics. Shipping companies are going to see consolidation. You might get an opportunity for a good return on your investment.

– I was just thinking one of the areas those of us who are not so sophisticated might consider is good old-fashioned commercial real estate warehousing. We appreciate your being here. Brandon Daniels, Exiger president. Good to have you here. Supply chain and inflation. We’re going to be paying attention to all of that as companies begin reporting their earnings.