October 14th, 2021
Will you suffer this holiday nightmare?
Dear Fellow Fed Up Investor,
You better watch out,
You better not cry,
You better not pout,
I’m telling you why,
Santa Claus is coming to town
Why do I refer to this popular Christmas song?
Because if you want your holiday gifts to arrive on time, you’d better get it together fast.
And it’s my hope that burning this tune into your brain will incite you to do just that.
See, procrastinating on your holiday shopping this year could cause a lot of disappointment in your family.
The reason, of course, is our supply chain crisis.
It’s one tangled mess.
For starters, we’ve got a shortage of truck drivers from coast to coast.
That shortage is impacting all manner of deliveries… none more so than those coming from our ports.
I pity the poor truckers who work the ports.
They typically find themselves waiting for shipping containers to be unloaded onto their trucks…
In fact, they routinely wait eight hours!
This is a huge problem for them because most are independent operators who get paid by the load.
So all that downtime nets them nothing.
What’s behind this debacle?
There aren’t enough dock workers to unload all the shipping containers
Worse, foreign ports are working 24/7 to ship us more and more containers.
So they’re stacking up like cordwood at our ports.
Now there’s no room for any more.
It’s a massive headache, especially for the busy Southern California ports in Long Beach and Los Angeles (which account for 40% of container imports to the U.S.).
Right now over half a million 20-foot shipping containers are stuck in cargo ships off the coast of Southern California.
They hold over 12 million metric tons of goods… things like food, clothing and – or course – holiday gifts.
And get this: some of these ships have been bobbing around the ocean for over a month!
There are so many, some are sitting 20 miles off the coast in order to keep shipping lanes open.
The situation’s gotten so bad that President Biden’s asked the executive directors of the Los Angeles and Long Beach ports to operate 24/7.
The Long Beach port has complied… sort of.
They’ve launched a pilot program to run 24 hours a day, Monday through Thursday.
Meanwhile, the Port of Los Angeles is maintaining its normal schedule of two shifts a day, five days a week.
Instead of expanding their hours, they’re (supposedly) focusing on making operations more efficient.
In the end, it doesn’t matter much.
That’s because no matter how many hours these ports operate…
No matter how efficient they make their operations…
They can’t overcome the core problem of a lack of workers any time soon.
Unfortunately, a labor shortage isn’t the only problem.
Most West Coast warehouses are jam-packed
In fact, 98% of warehouses in Southern California’s Inland Empire region are fully occupied.
It’s not much better anywhere else in the Western U.S.
Warehouses there have a 3.6% vacancy rate.
The seeds for this problem, or course, were planted during the worldwide lockdowns of 2020.
After governments eased those lockdowns, consumer demand in the U.S. went through the roof.
To meet that demand, ports in Asia and Europe flooded our shipping lanes with goods.
The result? West Coast ports rapidly went from operating at a standstill to processing historic volumes
Meanwhile, dockworker and driver availability dropped thanks to social distancing rules and Covid quarantines.
All that caused a container quagmire at our ports.
And that quagmire quickly spread to warehouses.
Now there’s another problem that’s making matters even worse.
(You probably haven’t heard about it.)
America’s suffering from a shortage of wooden pallets
We have high lumber prices to thank for that.
In fact, they skyrocketed 406% from May 2020 to May 2021 (from $333 per thousand board feet to $1,686)
As with so many other things in our “new normal,” those prices were caused by our reaction to Covid-19.
Part of that reaction was to shut down America’s lumber mills.
Those shutdowns led to lumber prices hitting all-time highs… which in turn led to a shortage of wooden pallets.
To say wooden pallets are an integral part of the supply chain would be an understatement.
We need them to transport almost anything imaginable, everything from paper goods, food items, auto parts, diapers, you name it.
Now they’re in short supply and absurdly expensive.
In fact, they’ve more than doubled in price in the past year, from $7 to over $15.
According to Bloomberg, pallets are such a hot commodity, companies are hoarding them.
Yes, lumber prices have eased in recent months (they’re about $740 as of this writing).
But pallet prices have stayed sky high.
Thanks to historic demand, they’re likely to remain so.
The silver lining of a pallet shortage
The shortage of wooden pallets is presenting an under-the-radar opportunity for retail investors.
The most intriguing potential play?
UFP Industries (Nasdaq: UFPI).
UFP is a smaller company with a market cap of about $4.7 billion.
They not only produce pallets, they also make engineered wooden components for the red-hot housing construction market.
These components include roof and floor trusses, wall panels, I-joists and lumber packages.
Profits from all these products have helped the company gain about 35% in 2021 (from $56.76 to $76.53 as of this writing).
And since March 1, 2020, the stock’s more than doubled.
I doubt that it’ll double from here.
But with our supply chain woes likely to plague us for some time, high demand for wooden pallets isn’t going to end anytime soon.
That – coupled with the continued demand for essential wood-based products for home construction – makes UFP worthy of consideration.
That’s it for now.
It’s time to get a jump on my holiday shopping.
You might want to do the same.
Contributing Editor, Dear Retail
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