Supply Chain Resilience

Supply chain resilience is the trade-off between cheapest sourcing and dependable sourcing. Howard Marks' 2022 memo "The Pendulum in International Affairs" frames Russia/Europe energy dependence and semiconductor concentration as examples of the same hidden vulnerability.

The Pendulum

For decades, globalization rewarded cost minimization: offshore production, just-in-time inventory, foreign energy dependence, and complex cross-border supply chains. The benefits were real: lower prices, lower inflation, higher corporate profits, and growth for exporting countries.

The risks became visible when conditions changed:

• Europe depended heavily on Russian energy when Russia invaded Ukraine.
• The U.S. and Europe depended heavily on Taiwan and South Korea for advanced semiconductors.
• Just-in-time supply chains had little slack when pandemic disruptions hit.

Marks' thesis: the pendulum is swinging from cheapest/easiest sourcing toward safest/surest sourcing.

Investment Implication

The swing away from pure globalization may create opportunities in domestic production, resilient infrastructure, energy security, semiconductors, logistics, and redundant capacity. It may also reduce efficiency and increase costs.

Sources

• the-complete-collection-howard-marks - "The Pendulum in International Affairs."