How is the coronavirus crisis impacting supply chains?

Recently, my thoughts have turned towards how our current economic challenges stemming from COVID-19 are impacting supply chains.

When thinking about the auto industry, so far, the economic horizon looks dark for a business that does well when consumer confidence is high.

A recent Bloomberg story reported that demand for cars and trucks in the U.S. is expected to drop 27 percent this year. Part of this challenge is due to the just-in-time nature of the supply lines. For example, one ship carrying vehicles including Nissan SUVs was not able to unload the freight for a week while auto lots nearby were full and overflowing, causing the ship to stay in that Los Angeles harbor for a week — no doubt a real challenge for the crew that had already been on a three-week journey from Japan.

The Bloomberg article called this “a floating symbol of an unprecedented logjam” as nearby storage lots were full of vehicles that Americans (at least for now) have little desire to buy. While some industry experts are still hopeful that the supply-and-demand will eventually open up and these cars can be sold, I’m still watching the economic indicators myself, knowing from experience that when jobs are in jeopardy, most people don’t want to extend themselves financially.

There have been other logjams as well, even more dangerous than too many cars and not enough spaces. NPR recently featured a story that included interviews with food experts commenting on how a lack of employees, along withlockdown restraints, caused restaurants to waste enormous amounts of food. For example, chickens sold as meat are normally harvested at a precise weight for processing. When the food chain breaks down, even by a couple weeks, these chickens become too large to go through the processing machines and cannot be used. The domino effect is less meat available in the market, plus the obvious economic hardship on the companies providing the meat.

As I observe this domino effect, I know, for my own investments, I must add this new information into the risk portfolio.

Through this experience, I am confident that companies have seen how important it is to implement policies and systems to address possible breaks in the supply chain in the future.

Structurally the stock market so far implies direct or indirect government intervention is amazingly effective. The question is whether or not the snap back of the current and coming economic deceleration compounds beyond any intervention.

In the meantime, join my conversations about the economy and investments on Twitter @shervin.