My Recent Recommendation Will Profit from the Global Supply Chain Crisis

Apr 12, 2021

Editor's note: On Thursday, Tanushree will be live online at the India's Revival Summit. Our co-head of research will talk about the best stocks to profit from India's rise to a global power. Two weeks ago, she wrote about one such stock. Read on to know more...

A bizarre incident recently dealt another hard blow to global trade.

EverGiven, a massive container ship, taller than the Eiffel Tower and Empire State Building, got stuck in the Suez Canal. Quite literally!

The ship got pushed off course by heavy winds eventually sailing aground and blocking the entire canal for traffic for almost six days.

The Suez Canal opened for navigation in 1869, completing a dream that had eluded the pharaohs, the Romans, and Napoleon Bonaparte.

The 120-mile-long waterway that links Asia and Europe has been closed just five times in the last 150 years.

Why is this important?

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About 12% of world trade passes through the canal each year, transporting everything from crude oil to grains to instant coffee.

Without the Suez, a supertanker carrying Mideast crude oil to Europe would have to travel an extra 6,000 miles around Africa's Cape of Good Hope. This would add US$ 300,000 in fuel costs.

So, the blockage of this critical pathway, brought a danger that global trade has been dealing with since March 2020, to the fore. That of decades old supply chain networks coming to a grinding halt.

With prolonged COVID-19 crisis, both regional and global supply chains stand fractured.

Countries and companies have, over the last few decades, optimised their supply chains by offshoring to low-cost countries.

With the disruptions in supply chains, every company that relied on inputs from abroad has been severely impacted.

It is becoming evident that the supply chain strategies that were most celebrated in pre-COVID-19 world can no longer be relied upon.

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For instance, the 'just-in-time' inventory strategies that allow manufacturers to maintain minimum raw material, may need to be revaluated.

In other words, there is thus a pressing need to re-engineer global supply chains.

For instance, Japan has earmarked US$ 2.2 bn economic stimulus package to help its companies shift production out of China as the pandemic disrupted supply chains between the two trading partners.

But mind you this is NOT just about moving away from China.

On the contrary, companies and governments will attempt to create alternative sourcing bases.

There will be new logistical plans to do away with even such temporary disruption. This will need new policies, new capacities, and new investments.

India has an exclusive opportunity to emerge as a preferred alternative to fix such broken supply chains.

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Not only because Indian companies are gearing themselves to rise up the challenge but also because India already has most of the resources necessary to become such a supply chain hub.

A tiny chemical company, started by five friends in a chemical laboratory, in the Licence Raj era, for instance has become a supplier of choice to global FMCG giants.

My recent recommendation on the stock was keeping in mind the big structural shift in global supply chain.

And I see many such unique opportunities, coming your way, dear reader, as we progress with India's Revival.

Stay tuned for more...

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)

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1 Responses to "My Recent Recommendation Will Profit from the Global Supply Chain Crisis"

Jamshed Jesia

Apr 12, 2021

Dear Tanushree,

Super tankers (ULCC) do not need to transit Suez canal, there are huge pipelines to carry OIL across at a faster rate
So if Europe customer needs Gulf or Saudi Arabian oil, She/he can easily get it from Port Said or Turkey
Anyway Nigerian and US oil cheaper and better

I am interested in AI, Chemical, Insurance, Logistic, PLI companies
Let see what interesting story you come with on 15th April


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