Thread by @mikebeckhamsm

There is a major storm brewing in the supply chain. It could dramatically impact everyone's life next year, but almost no one knows about it yet.

We are talking empty shelves, crazy inflation, etc.

Here's what I am learning about the problem from my contacts in China 🧵👇

As a communist country, China is centrally planned. That means that things like electricity usage are planned in Beijing by party officials instead of governed by the supply and demand of the market.

At the beginning of the year, China set electricity quotas for each province. As a result of supply chain disruptions from COVID and unprecedented factory demand, many of the provinces have used way more electricity than planned.

Now, China doesn't have enough coal power

The Chinese government has begun restricting electrical usage for the provinces based on how much electricity they have used so far this year. There is a green, yellow, red system that has been put in place. The map below shows the provinces and their color.

Some of our primary production is in a yellow region. These partners now have electricity caps and can work 4 days a week instead of 6. Their production has been cut by 33% and these cuts are likely to last until Chinese New Year.

This is a BIG deal.

In stainless steel drinkware, 93% of the world's production happens in one province in China. Of that production, about half happens from now until Chinese New Year.

What that means is that almost 20% of the world's production isn't going to get built this year!

Products being produced in the more restricted "red" regions are going to be hit even harder. There are already stories about regions having to operate by candlelight due to the power rationing.

yahoo.com/finance/news/c…

The problem with COVID is that it has led to cascading failures throughout the supply chain.

If production drops so dramatically over the coming months then empty shelves will be commonplace. We are talking about a situation where many product types will be completely nuked.

Even more concerning is what will happen on the other side of Chinese New Year. The lack of production caused by the electrical shortages is going to cause an unprecedented amount of demand on Chinese factories in 2022.

It's very likely if that happens that we see the biggest traffic jam that the supply chain has ever experienced.

This year we got a taste of what happens when you apply pressure to the logistics supply chain. Next year we may see a full break in some places.

One additional point is that China is simultaneously rolling out its “2021-2022 Autumn and Winter Action Plan for Air Polution Mangement"

This plan curtails even more production from factories with higher pollution.

Over the past 24 hours I have learned that the problem is deeper than just planning. Electricity prices in China are regulated and capped. Recently the cost of coal has skyrocketed and Chinese power companies have a disincentive to produce more power because it is unprofitable

You can read more here: I contributed my company’s experience to this Wall Street Journal piece on the subject

https://twitter.com/WSJ/status/1443961436821237764