That's by design, along with medical cost and pension and defense budgets.
Why is it taking so long for production to come back?
- Thread starter grampi
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Who cares about OPEC? WE are the number 1 oil producers, or at least we were...
It depends. If his retirement savings are in a fixed income asset (defined benefit pension, fixed annual annuity, bonds and the like) then yes these will be inflated away.
If OTOH it is in an investment fund such as stocks, mutual funds, etc. then investment returns could possibly match inflation.
We may sell some of our stuff oversea if it is too expensive or shut down our well if it is too cheap, it still matters what the "market" price is.
How is that different than any other kind of inventory?
Oil is traded on the open world market.
There's the concept of the swing producer. The US doesn't control its oil producers and the standard operating procedure is to produce as much oil as possible. The opec members sees what's on the market and holds back production to prop up prices. Would normally be illegal if that was being done in the country but it's done on the world stage so I guess it's legal or at least there's no way for the world to stop them. If the US had additional supplies it was holding back, it could flood the market to bring prices back down, but the US doesn't do that so being #1 doesn't mean anything, we just get market value on the oil we produce and sell and shut down production when it becomes unprofitable.
And there are people who still say gas prices are determined by supply and demand and there is no such thing as collusion to effect prices...what a joke...
Energy is never supply and demand, in any single kind of energy, in any nation. It is like defense, there is no such thing as market driven defense.
Don't you think you are overstating your case just a little? We have market forces, though granted, with a very healthy dose of government interference.
Because production is one year behind. So you have 2 years worth of sales and one year of production.
You also have two years worth of goods to ship in a shipping industry that has one year capacity. Just over a year ago it cost in rough number $5700 to have a shipping container shipped from overseas to here, that price is now as high as $27,000 for a small business but can be at times flexible down to $17000 meaning they are slowly catching up.
Add to that, many job openings all over because government made it more profitable to not work then to work.
Its all changing now but will most likely take two years to catch up.
Because global supply determines price.
...and the industry controls supply to control prices...
yes sir...
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I think things will get much worse this fall. Expect prices to spike again towards October.
Your original statement of who cares about OPEC. They dump enough supply to bankrupt the shale industry because shale was flooding the market and hurt OPEC a while ago.
So yeah, who cares about OPEC right? pretty much everyone from Wall Street to a retiree who only cares about how many dollars per gallon.
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I'd say this about covers it! Working in the production end of the bike industry, I'd say all of the above is spot on. The trade war with China already complicated things in ways not expected (or just wasn't that well thought-out). I didn't move the supply chains to the US, it just moved them to different parts of SE Asia--parts that are not nearly as well-equipped to handle a pandemic as China. Travel within Asia has been really difficult, never mind traveling to Asia, and there have been numerous delays within various SE Asian countries, many of which have been trans-shipping goods from China (partial assembly in CN, finished assembly somewhere else to avoid the tariffs). Supply chains are complicated, and dealing with the trade war bent them pretty hard; this on top of it has just broken them.
A couple of additional things: weather: the inordinately hot spring and summer in CN has led to a lot of factory shutdowns/slowdowns throughout the country, as many of them are only operating a few days a week. This is due to an electricity shortage brought about by 1) a deliberate move from coal and 2) higher consumer demand due to the extreme temps they've been seeing.
shipping: whatever you read about the problems with ports, containers, accidents at the port of Taichung, the Suez back-up still having an impact... It's all actually true. It's impossible to get containers, and when they finally do arrive it can be at a 10 times what they normally cost. Yes, 10 times.
Lastly, lots of folks as me "why don't the factories just ramp up production"? It's not that simple. In part because China, Taiwan, and some SE Asian countries have pretty rigorous social benefit programs that have to be paid by the employer--and once you hire someone you have to pay these benefits for a set period of time. And a lot of the factories view the increase in demand as temporary. In short, they don't want to scale up production and incur significant mid-term costs, just to have the rug pulled out in 6-12 months.
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It's very different. Here's why:
I've done business with a factory that was the antithesis of "just in time". The factory would buy parts for 2-3 years worth of production (some parts longer). He'd buy massive quantities for better pricing, and store the parts. Lead time for a finished product would be roughly 45 days from order to completion. *
Of course, there are some pretty big pitfalls here:
- literally would take years to make running changes to the product, since parts were bought so far in advance
- the carry cost of those parts was baked into the price, making the finished goods more expensive (the "buying in bulk" didn't really save all that much and didn't match the carry cost)
- new designed would run on a 3-4 year cycle, making the product out of date
Compare that to the "just in time" factory, who orders each part for a specific production run, and keeps almost NO spare inventory:
- better pricing due to the massively reduced carry cost
- far better flexibility for making small tweaks if there's a QC issue or customer improvement opportunity
- new designs can run on a 12-18 month cycle, keeps the product fresher and more relevant in a changing industry
*post script to the 'non just in time" guy: I ended up buying pretty much all of the parts at his factory when he went belly-up for pennies on the Yuan, because it was just a failed business model. I was unearthing 15 year old parts just sitting, collecting dust. He was simply unable to compete.
Just in time is necessary to a certain extend. Carry cost get pushed upstream but at least your labor is not wasted and the risk quantified to dollar amount is lower (stockpiling raw material is in theory cheaper than stockpiling final products that will depreciate in value rapidly). What I do see is that many customers / middleman feels entitled to no disruption to their on demand purchase at rock bottom price all the time, the reality is our world is volatile and you have to sort of pick a combination of occasional disruption or occasional price spikes, you can't have it both way.
Back in the days propaganda says communism will force us to wear the same clothes eat the same food live in the same apartment doing the same work taking the same salary. Seems like in 2021 "just in time" is asking us to drive the same car wear the same clothes eat the same food using the same computer using the same phone build in the same factory, because that's the cheapest solution. Not a complain though, I like being cheap and I don't mind being the same as everyone else.
Back in the days propaganda says communism will force us to wear the same clothes eat the same food live in the same apartment doing the same work taking the same salary. Seems like in 2021 "just in time" is asking us to drive the same car wear the same clothes eat the same food using the same computer using the same phone build in the same factory, because that's the cheapest solution. Not a complain though, I like being cheap and I don't mind being the same as everyone else.
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