Dividends and Flooding in central China threatens supply chains

In every country there exists cities because of their location, seemingly central to every other part of the country the city grows. In China, one of the cities that is a top national transportation hub is Zhengzhou. The city is located about 1,000 miles south west from the capital Beijing and has 12 million people, but it is the junction for major north-south and east-west high speed rail lines. China uses coal for generating electricity and many of the trains come through Zhengzhou, as well as the province of Henan is a major producer of grains, raw materials and manufactured goods.

In an article by Dominique Patton of Reuters, in July in 3 days, one year of rain fell which flooded the rivers and flooded the city. If you ever have watched what happens when a dam breaks, a rush of water flows through the downstream and the water has the forces to wipe out anything in its way. For us that means roads, bridges, cellphone towers, poles which carry electricity and the list goes on. The water picks up dirt along the way and deposits it whenever it reaches buildings which means when the water eventually goes down everything is dirty or needs to be cleaned or tossed out.

In planning for disasters such as floods the first response is people, then infrastructure and somewhere near the end homes. For people not in the city, after the people the first concern is the supply chain which has been not out, when will it be able to function. For a city such as Zhengzhou, analysts worry about which companies have significant production facilities and how long will they be non producing.

Linking to dividend paying stocks, all profitable companies typically have more than one location for their suppliers although they typically receive more from one location than another, but they have back up for just in case. It is good practice and production can be increased at the other facility, although it does take time. For the companies you invest in, what does their supply chain look like? how did the company handle the last time there was an shutdown in the supply system and with global warming how would it handle longer delays?

There are more questions than answers, till the next time – to raising questions.

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