Fishing for PIRRCCH
Challenges and Opportunities
August 2020 — Near the beginning of the current pandemic, JAG’s research team developed an acronym that we used to frame the investment opportunity set in the wake of the global COVID-19 crisis. In a nod to team member and Director of Equity Research Joe Kinnison — an avid fisherman — we chose to use an acronym that is a tortured and misspelled version of a popular game fish — PIRRCCH. PIRRCCH stands for: Prompt Parts, Interest Rates, Remote, Remedy, Cashless, Cleaning, and Home Entertainment.
JAG’s Research Team developed the PIRRCCH acronym below to frame the investment opportunity set in the wake of the global COVID-19 crisis.
Fishing for PIRRCCH — Prompt Parts, Interest Rates, Remote, Remedy, Cashless, Cleaning, and Home Entertainment
Prompt Parts describes the need for short-term solutions to alleviate supply chain disruptions. Remember that, at the onset of the pandemic, the lockdown in Hubei Province interrupted shipments of Chinese-made parts ranging from cell phones to automobile components. When stay-at-home orders hit the U.S., more components went out of production, which ultimately forced some final assembly plants to close. For the production processes that remained essential — especially food and paper products — trucking saw stable demand to deliver materials as soon as they were manufactured. Trucking remains critical today.
While the worst of COVID-19 appears to be behind us, we think difficult memories of this crisis will reverberate with corporate executives for years to come. Supply chain disruptions, especially when coupled with demand shocks, can cause grave — and potentially fatal — injuries to capital-intensive companies. For example, several U.S. auto plants experienced forced slow-downs and shut-downs when component suppliers experienced COVID-19-forced closings. Supplier concentration will likely be rethought.
The need for parts from different vendors was further complicated by the need for parts to be delivered at various times or to different locations. Occupancy limits divided work shifts at many manufacturers, and just-in-time supplies were needed in evening and overnight hours. In addition, not all workers, especially service and repair technicians, were in their traditional industrial spaces. Requirements grew for some parts to be delivered to those working in remote locations, like their homes.
The COVID-19 experience taught manufacturers to diversify vendors and to have at least some of them located closer to production locations. All else being equal, shorter supply chains would be a negative for transportation providers. However, greater complexity in terms of delivery times and delivery locations more than offset the shorter length of haul. Less-than-truckload appears to be a more optimal solution in the new Prompt Parts environment than truckload. Transportation providers with last mile capabilities seem to have found new applications for their services. Not all supply chains are amenable to rapid adjustments like those required during the pandemic outbreak. Companies with large investments in Asian or Mexican production facilities may have some more lasting disadvantages. At the very least, they will be paying for more airfreight in the near term.