Nov 2, 2021 - Economy

How global supply chain backlogs could turn into gluts

Illustration of shipping containers.

Illustration: Brendan Lynch/Axios

How’s this for a contrarian supply chain take: maybe there will be gluts, and soon.

The big picture: A natural response in a supply-constrained environment is to order extra.

  • It appears that’s just what some retailers have been doing heading into the holiday season, Reuters reports.

Why it matters: A real risk in the current environment of backlogs is an eventual overcorrection, which could lead to gluts of certain items.

What they're saying: “I think a lot of companies are double ordering, which is typical any time there are supply constraints,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, tells Axios.

  • “With everything being so backed up, it wouldn't surprise me if we get to January and February, and have a bit of a glut because some products didn't make the shelves by the holiday season,” he adds.

Case in point: Ryan Gunnigle, CEO of toymaker Kids2, tells Reuters that customers “are just flinging crazy orders right now, so it's hard to determine the real level of demand."

The bottom line: Even in normal times, managing inventories and staying ahead of trends in consumer tastes can flummox seasoned operators. The pandemic recovery is anything but normal — so expect these types of extremes.

Go deeper: Health care plagued by new supply chain shortages

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