The Logistics Crisis That Could Derail Economic Growth - Views on News from Equitymaster

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The Equitymaster Research Digest

The Logistics Crisis That Could Derail Economic Growth
May 25, 2016

  • Supply v/s demand... cost of ignoring the former
  • A logistic crisis that spells trouble for economic growth......
  • Hidden Treasure's Buy at lower price recommendations...

The equity analyst community is obsessed with projecting demand. It's a major rationale for recommending a stock. It's also one of the prime reasons for failed recommendations, as most analysts don't spend enough time or effort analysing the supply side.

Capacity expansion and expected growth used to be reasons brokerages gave buy calls a few years ago. However, muted demand and oversupply have eroded returns and overleveraged balance sheets.

Worse, a lot of these companies with extra capacities are unlikely to benefit from any future demand revival because interest and depreciation costs will eat into the profits. And those forced into asset sales to fulfil their debt obligations will not have enough resources to generate income. Do not ignore capacity utilisation levels when betting on so called 'growth stocks'.

A logistic crisis that spells trouble for economic growth...

Little details often give grand insights. One such detail that I recently read about in is the case of declining truck drivers.

Indian truck drivers- the term brings to mind a person who seems to have aged beyond his years... and with a perpetual weary look in his eyes.

As an article in Business Today suggests, the truck driver is unlikely to remain ubiquitous anymore. In fact, the crisis of diminishing truck drivers has already started surfacing. Small business and traders, along with demand slowdown, are now worried about supply crisis (due to lack of enough truck drivers).

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