In the world of global supply chains, what tends to happen is overtime various parts of the world specialize in one aspect of the supply. There are very good reasons for this including after the first company is successful, other entrepreneurs begin to use the ecosystem that is built up. For example, the companies need a certain skill set, the universities and colleges respond to ensure the students have that skill set. The people who use the skills see it is easier to start and grow their business in the area and more companies are set up to cater to successful ones and the pattern continues. Then the other services build up including banking, accounting, legal firms which know and understand the business cycle that has specialized in the area.

All of the above is good till something in nature happens and we may not know the why the weather is doing what it is doing, but it is doing it. An example was a picture of an airport in Porto Alegre, Brazil, the tarmac is flooded. If you consider an airport which you have flown from and consider the tarmac or where the plane loads and unloads, having 3 feet of water across it, it takes a lot of water to have that result. The reason the airport and the city are flooded is the region has had over 2 weeks of heavy rain and the water has nowhere to go. If the airport is flooded, you can imagine what is happening to the people in the area and millions are affected.

Porto Alegre is in the south of Brazil in the state of Rio Grande do Sul. It is the 12th largest city in Brazil with a population of 4.4 million people. Similar to large cities, this one is a capital of the state and is blessed with a natural harbor which has translated into one of the chief industrial and commercial centers in Brazil. The surrounding areas have rich agricultural soils to grow crops such as soybeans and livestock including cattle and pigs. The region accounts for nearly 25% of Brazil’s pork exports.

Linking to dividend paying stocks, supply chains are important to all industries and generally for a variety of reasons they tend to be concentrated. While economic planners discuss diversification, in reality a concentration tends to happen. While we spend billions on predicting the weather, we can control the weather, but we do know something is happening. When that does supply chains are not as flexible as people think they are. Alternatives can be found but there tends to be a delay, and they tend to go back to where they were because of economics and it seems easier to rebuild. For your investments, do you have an understanding of supply chains?

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