Quantfury Gazette


The global supply chain challenge

Iván Z contributor
The global supply chain

In recent times, we have seen how several of the products we consume on a daily basis are not immediately available.

This was seen since the beginning of of March 2020, when all factories were forced to stop production in the face of the global pandemic.

Many of the manufacturers slowly resumed production, but are far from recovering to their pre-pandemic level. This means that in some cases bottlenecks have been created, or manufacturing has stopped, leading to shortages of some products.

But not everything is the fault of the pandemic. We must also consider the climate problems we are experiencing, such as the cold-waves that are being recorded in the northern hemisphere. These generate an excess demand for raw materials, such as natural gas (NYMEX: NGZ21), oil (NYMEX: QMZ21), coal, among others, which are used for the production of energy for everyday use.

Renewable energies are not sufficient to supply the energy needs of the European Union, which is forced to sign agreements with different countries in order to meet the demand of its citizens.

Let’s look at another situation in which the supply chain was affected; let’s take the particular case of computer chip production.

The origin of the largest chip manufacturer is in Taiwan, an island close to the Asian mainland. There, the company Taiwan Semiconductor Manufacturing Company (NYSE: TSM) has the highest technology in the creation of chips; but for such manufacturing a large amount of fresh water is required, which is lacking due to the low rainfall in that area.

As we can see, in addition to the problems of the pandemic, there are also futher climate problems, such as the lack of water for personal consumption or for the creation of new technologies.

What is coming is a challenge to prioritize which chips to manufacture. There is a kind of technological race, in which Tesla (NASDAQ: TSLA) was the winner in securing a large amount of chips of the latest technology. This last fact is very important because Tesla should not be affected in the manufacturing of their cars. This is not the case with factories like Ford (NYSE: F), Volkswagen (BATS EU: VOW3) , among others, as these manufacturers use older generation chips, and are not demanded with the same volume. For this reason, TSMC decided to slow down their production, causing bottlenecks, delaying the manufacture of Ford and Volkswagen cars, among others.

In its last presentation, Intel (NASDAQ: INTC) mentioned the possibility of moving a portion of its manufacturing to southern Mexico, but this option was quickly discarded due to the high costs that the company would incur, and the time it would take to normalize production.

Recently, the chip shortage was also reflected in the graphics card industry. Gamers could not find the new graphics cards sold by NVIDIA (NASDAQ: NVDA), generating a price increase of these products due to the lack of supply in the market. This problem also affected miners of certain cryptocurrencies that depend on GPUs.

As we can see, the pandemic brought with it several difficulties that we must overcome, but the climate is worsening the problem, and this is detrimental to our standard of living. Something that seemed straightforward previously is now quite a challenge to carry out.

Speculation is the order of the day, but there is no reason to rush to take a position. We must think clearly and see what is to come and see which company can better cope with their current problems. At the end of the day, when one decides to invest in a company, we must see who is at the forefront to determine if they will be able to overcome the obstacles that may be presented.


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