U.S. Ammunition Shortages

Supply and Demand, or More Than That?

by
Gary Marbut

What are the origins of this problem?  What caused it?  How long will it last?  These questions don’t submit to a simple answer.  The answer involves a complex set of economic, political and social conditions discussed here.

Caveat emptor:  The information contained here is the best information available to this writer at this time.  While this writer seeks to be well-informed, the information is not guaranteed to be exact.  Any opinions offered, while also well-informed and well-intended, are not guaranteed to be the only viable opinions available or the last word on the subject.  Without further disclaimer, let’s dig into this subject.

The Y2K scare of 1999 caused many gun owners to increase personal stocks of loaded ammunition, and ammunition components, bullets, powder and primers.  Because a Y2K calamity was discussed for some time before the actual turn of the millennia, the ramp-up of consumer demand was gradual, appearing to suppliers as a somewhat predictable growth of market demand.

Throughout the 1990s and the following decade, there was a steady increase of both firearm ownership and firearm use in the U.S.  People who had never purchased guns before were buying for the first time.  People already among the ranks of gun owners were buying more guns.  Across the U.S., the legal infrastructure for gun ownership and possession was generally improving.  A wave of shall-issue concealed weapon permit laws swept the U.S., state by state.  This happened hand-in-hand with increasing interest in self-defense, including firearm safety and self defense classes, and growth of defense-oriented competitive shooting disciplines such as IPSC and IDPA.  This expansion in public ownership and use of firearms caused a steady increase in ammunition consumption – marketplace demand.

The federal semi-auto and magazine ban of 1994 was a wake-up call for U.S. gun owners, reminding them of the vulnerability of the marketplace to political acts.  When that ban expired in 2004, the demand side of the marketplace responded with a rush to purchase those products that had recently been illegal to produce and sell.  Not surprisingly, the people buying all these firearms were also shooting them, creating an additional step up in ammunition demand.

During this period of steady growth of U.S. firearm ownership and ammunition consumption, there were two major events that caused earthquakes across the ammunition supply landscape.

China had become the most vigorously growing economy in the World.  China had the enviable problem of having accumulated vast reservoirs of U.S. Dollars (USD) from the oceans of consumer products produced in China and sold in the U.S.  This created financial exposure for China because any instability in the U.S. economy and commensurate down-tick in the value of the USD could cause China a real loss in value for the vast sums of USD held.  China was anxious to minimize this downside by converting its USD hoards into real goods – real wealth that China could actually use.

Meanwhile, China was going through such a wildfire phase of growth and modernization that it had an insatiable appetite for raw materials.  These materials included natural fibers, oil, forest products, cement, steel and many other commodities.  Such demands on World supply created worldwide shortages of cement and rebar, for example.  Most important to this discussion, growth of China’s transportation, energy, housing and communications sectors demanded huge amounts of copper.  Because it both needed to unload vast surpluses of USD and acquire huge amounts of copper for its expansion, it is said that China paid cash to purchase all copper contracts from South America for twenty years forward.  Price didn’t matter much because of the vast holdings of USD China needed to dump to convert to real wealth while the USD still had value.

Consumers witnessed the effect of this global copper raid as an historically unprecedented run-up in the price of copper.  U.S. plumbers and electricians noticed this more than others, but ammunition buyers noticed it too, because of copper jackets for bullets and the copper in brass cartridge cases.

Also during this period, the U.S. military had been drawing down reserve warehouses of small arms ammunition because of increased training and activity in the mid-East.  The U.S. military was burning through the stores of ammunition it usually kept in reserve.  The Pentagon made a serious pitch to Congress for more money for ammunition, both to supply ammunition being used overseas and to refill depleted warehouses.

Congress responded with sympathy and made whopping big appropriations for DoD ammunition contracts.  However, there was a condition.  DoD had been letting ammunition contracts with suppliers in Israel, Brazil, the Philippines and South Korea.  Congress told DoD that it must spend the considerable new appropriation domestically.  The larger U.S. producers immediately went after these lucrative DoD contracts and devoted much of their production capacity to filling these contracts.

The domestic producers’ shift of capacity to military contracts decreased supply to the civilian consumer market.  The reliable law of supply and demand translated this shortage into increased prices, layered onto the increases caused by the China copper demand.

During this period, new second-tier ammunition manufacturers popped up or existing ones grew in attempt to satisfy demand, but not fast enough to supply product quantities to prevent prices from continuing to climb.

Not only was there a continued increase in civilian ammunition consumption, but law enforcement agencies nationwide began to place greater emphasis on firearms training, thereby consuming many additional millions of rounds of ammunition.  This caused more demand and understandable upward price pressure.

With rising prices and increasing consumption, U.S. gun owners began using up personally-held supplies of ammunition, such as those acquired in advance of the feared Y2K phenomenon.  In the face of rising prices, the average U.S. gun owner was willing to dip into his or her personal savings account of on-hand ammunition for ongoing consumption.  This created a deficit in the minds of many gun owners, a disparity between the amount of ammunition he or she believed should be in personal possession and what was actually held in each person’s inventory.

Suppose a person owning a 9mm pistol really likes to keep 500 rounds of ammunition on hand for his or her personal comfort level or preparedness.  But, through ongoing consumption because of practice, and because if rising prices, this person has allowed the personal inventory to fall to 200 rounds.  For one gun owner with one firearm this perceived deficit is no big deal.  But when multiplied by the scores of millions of gun owners and firearms in the U.S., it is a HUGE deal.

During the Summer and Fall of 2008, U.S. gun owners began to get nervous, and then fearful, about two issues:  The economy and the developing political climate.  Because of their anxiety over these two issues, Americans began buying guns and ammunition, slowly at first and then in a growing wave.  As this tsunami approached the coastline of the ammunition supply industry, it fed on itself.  As the ocean floor (supply) got more shallow, the wave (demand) grew.  This wave grew to the point that it exhausted available supplies, the supply chain, and manufacturers’ ability to meet demand.

The nature of the ammunition supply industry causes it to lack elasticity sufficient to spool up quickly to meet dramatically increased demand.  The industry cannot increase its draw of raw materials, train new workers, or increase physical plant or equipment fast enough to mount the ramp of current demand.  Thus, the shelves are essentially bare of ammunition in the sporting goods stores of America.

What does the future look like for ammunition supply and demand?  On the supply side, capital is scarce for business expansion.  Because of the condition of the economy, lenders are less willing to lend.  Manufactures cannot accomplish much capacity expansion from existing cash flow.  Investment advisors are recommending that manufacturers not invest in expanded capacity at this time, arguing that the current demand level is a bubble.

On the demand side, there is certainly a point at which ammunition consumers will simply run out of money to invest in ammunition storage.  What sacrifices and trade-offs consumers will make to keep spending to stock ammunition into personal inventories depends on what the economy does, and what happens on the political scene in coming months.  Neither is very encouraging.

The most likely scenario is that the ammunition supply industry will gradually, slowly catch up with demand as demand tapers – that the shelves of stores will gradually begin to fill.  As personal inventories of ammunition reach levels that meet gun owners’ intersection of what they wish and what they can afford, demand will taper until it falls back within the relatively fixed production capacity of the supply industry.

Are there wildcards that might affect this most likely scenario?  Absolutely.  Further economic downturns could fuel additional demand.  Political Mal-adventure on the national or world scene could spike demand further.  Events could affect the supply side of the equation, such as an administrative ban on imported ammunition, increased regulation of lead for environmental or health reasons, broader application of hazardous materials designation, a micro-stamping mandate, or the recently defeated attempt by the Department of Defense to require destruction of once-fired military brass.

Meanwhile, it is posited that what the U.S. needs to buffer ammunition supply problems is a less monolithic, more regional and distributed ammunition manufacturing industry.  U.S. gun owners are very exposed with the limited number of smokeless powder manufacturers existing in the U.S., and of primer manufacturers.  While there seem to be quite a few viable and distributed bullet manufacturers in the U.S., the same is not so true of cartridge brass manufacturers.  It would be healthy for every state in the U.S. to have at least one viable business manufacturing powder, primers, brass and bullets, and one or more businesses assembling these components into finished ammunition.

As the reader has seen, the current ammunition shortage has arisen from a confluence of events, probably beginning some years ago.  It is a complex issue without a simple explanation, simple solution, or certain outcome.

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© 2009, Gary Marbut

Gary Marbut is the president of the Montana Shooting Sports Association, the primary political action organization asserting the rights of gun owners in Montana.  Gary is author of the book Gun Laws of Montana, is a competitive shooter in two disciplines, is accepted as an expert in state and federal courts concerning firearm safety and use, self-defense and use of force.  Gary also manufactures shooting range equipment.