We seem to be entering a global version of The Beer Game (https://en.m.wikipedia.org/wiki/Beer_distribution_game). The game is a training session on supply chain co-ordination designed to show effects of trying to order beer and bottles months ahead of time then demand changes etc. It's mostly chaos
(I was speaking to someone who has seen their shipping from China to Europe quintuple - apparently all the containers stayed in Europe as no one wanted to send them back empty.)
The game is designed to show that "local" signals aren't always indicative of full system - the example being that retailers etc are stockpiling right now on-shore. But this creates more demand than usual, slowing delivery. So the naive retailer will say "OMG it now takes 3 months and 2x price to get widgets, I had better order 4 months supply ... and so it goes - an infinite bug methodology.
Heh. I was just about to ask if this was another term for the bullwhip effect, and the page actually links right to it.
I think the overall effect is that we all have to get used to things being scarce or spotty for a while, that's all. The era of perfect infinite next-day availability of everything has come to a pause. Be patient, adjust expectations, make do, and give the system time to recover.
One problem is that many economists will look at the resulting price inflation and treat as money supply inflation, and call on less government spending and tighter lending when really we need time and serious covid treatments for the logistics to settle down.
It's worth pointing out the very important part about how it's being calculated.
From the link (below the chart):
> "Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately."
I agree the money supply inflation is scary but that's only because it doesn't end up in the real economy - most of it ends up in the stock markets propping up share prices.
Actually using the freshly minted money to do stuff like infrastructure investments - no matter what, across the Western countries all kinds of infra are derelict - would cause an instant trickle-down effect since almost all of that is manual hard labor.
Doesn't end up in the real economy yet. Give it time, money doesn't stay where you spend it.
Buying bonds gives money to the bond holders. In today's market, they probably buy stocks with that money, but then that goes to the stock holders. Which are a range of characters, some of whom will take that money and put it into the real economy.
> Doesn't end up in the real economy yet. Give it time, money doesn't stay where you spend it.
The bailout money from 2008ff still hasn't "trickled down" to the people, over a decade later.
Trickle down only works when the amount of layers between the initial receivers of money and the intended recipients is as close to 1 as possible. Hiring a construction firm to build a road and mandating a decent wage for employees in the tender is the most efficient way for that.
Wealth inequality is disproportionately skewed to the top. And one thing the wealthy are known to do is save and invest rather than spend. The owners of securities traded today are individuals or institutional investors with a strong lack of propensity to consume. In comparison the middle class owns hardly any tradable assets or securities and the poor none whatsoever. [1][2]
Whats the mechanism you think will somehow transfer enough, and we're talking a substantial quantity of funds here, to have an impact that's felt?
I've seen arguments on govt spending and QE. Those who point to multi-trillion dollar spending bills seem to not realize that the spending plan over a decade and thus are tepid. QE has limited impact on the real economy but not asset prices, the past decade is evidence of that.
If anything we are on the precipice of yet another deflationary cycle, where wages and consumable prices stagnate, while asset prices keep growing.
Half-Croat here. Unfortunately the only thing war and widespread poverty creates is a massive brain drain, as the most capable people flee for greener grass and, especially if the causal crisis goes on for longer than two or three years or widespread destruction takes place, emigrate permanently.
What is left over is indeed a resilient population, but that's nowhere near enough to (re)build a country.
Yeah the Yugoslavian civil war and violent breakup was disastrous. War can destroy something in a year that takes decades to rebuild.
And you touch on something very important: in our globalised econom the best and the brightest can just pick up their bags and move for greener pastures.
Why stay behind to rebuild when you can move to Holland or Austria?
> Why stay behind to rebuild when you can move to Holland or Austria?
That's why waging a war always needs some decent rebuild plan, similar to WW2's Marshall Plan. Never thinking further than "throw a shitload of money towards military contractors, NGOs and whoever we can find willing to serve as a government" is what led to the failed states of Afghanistan, Iraq and Libya.
If the West had offered the people in these countries the clear offer "we give you X billion dollars, in exchange for actual democracy and stability", the results would have been way different...
I don't see Mullah Omar, Saddam Hussein, or Moammar Gaddhafi willingly walking away from their jobs for a bribe, even a 10-figure one. Nor do I see their populations successfully revolting against them for 50 times that.
I would love it if we could bribe our way to a more peaceful world, but I don't think it's that easy.
And an onshore manufacturing capability that the world gave up on and delegated to your country of living. Protectionism's best advert has been the logistics disruption of Covid and the recent breakdown in diplomatic relations between the West and China
This is pretty true. I think this whole thing has been an argument for a low across-the-board tariff, to internalize the risk of supply chain disruptions.
Maybe a tariff inversely related to domestic production of the good and directly related to its necessity. If your country produces zero units of a necessity (e.g. 7nm silicon), the tariff should be high. Zero units of beanie babies, low tariff.
Buy on-shore - COVID kind of fucked it up. I used to ignore Amazon until there was no other choice. Now it is Amazon mostly and I do not think my habit will return unless Amazon itself morphs into something different.
Buy local - I afraid other than some food there isn't much stuff that either does not come from off-shore or is made from off-shored components.
This viewpoint seems a bit defeatist. It's true that even buying local rarely avoids 100% of interaction with overseas companies, but there's a lot of room between 100% and 0%. If you just don't want to think about it, that's one thing, but if you do care, I don't think letting perfect be the enemy of good is productive.
I am not defeatist. I am realist / pragmatic and I am looking after myself an my family. It is not in my job description to wage political crusade about China. I buy whatever makes financial sense for me. I am way more concerned about the way FAANG and the likes manage to affect my life.
The only reason we have non-local is because of the international trade and your own big corporations moving production and sometimes even research facilities overseas. If you not happy about the non-local situation go to fat cats who sold your country for an extra buck in profits and bought politicians to let them do it and convince them that they're wrong.
Good thing everything I really want to buy is several hundred thousand dollars (houses and shit). I suppose I’ll make do without the latest doldrum, as usual.
> So the naive retailer will say "OMG it now takes 3 months and 2x price to get widgets, I had better order 4 months supply ... and so it goes - an infinite bug methodology.
Sounds like how around here our naive consumers bought a few hundred rolls of toilet paper.
The stupidest thing about that whole phenomenon was that after the first person panic-bought a heaped trolley full, what everyone else was worried about wasn't a genuine shortage but was just other peoples' panic buying.
But was that stupid, though? In the end there was a very real shortage, so if you were reasonable enough to avoid panic buying, you were risking not having enough toilet paper for yourself.
Strange, that's not what I've read. Obviously some people were doing that, but all the articles I saw suggested that there just wasn't a lot of excess capacity in the toilet paper industry, so even just a lot of people buying 1.5x the normal amount was enough to DOS the toilet paper supply. Have you seen evidence to suggest that people buying years' worth of supply was the dominant factor?
which is interesting as there is currently a beer can supply problem. breweries are now ordering more cans than ever, from as many places as possible in order to get their product in the hands of covid-plagued consumers.
it's interesting to see cans from a brewery change depending on the week they were canned.
What’ll it take to make can deposits national? I remember a few years back Surly Brewing in Minneapolis, MN, USA was against increasing the deposit because they’d have to pay 8.5 cents for a five-cent deposit.
Might we also try what Pacifico did (maybe still does?) with their ballenas—-paying for bottles returned intact, which they then wash and use again? I liked seeing the wear ring around the glass and wondering who else held this bottle.
Norway used to do this, and had a return rate well over 90% (largely due to people being able to return bottles pretty much anywhere that sold bottled drinks). The bottles have mostly switched to plastic. Return rates are still as high.
The distributors argued the recycling of the plastic was better because a not insubstantial proportion of glass bottles ended up damaged enough to have to be melted down and recycled anyway and the energy input to recycle glass bottles is apparently substantially higher, combined with the labour cost to inspect each bottle.
I am willing to pay for the cost of glass bottles if they are recycled. Having to melt down a bottle to form it again is an ideal recycling situation. The customer returned glass that is already sorted and likely the same type of glass.
Aluminum is another great recycleable material. Both glass and aluminum are eroded rather quickly in marine environments. Back to whence they came. Plastic just floats around a very long time.
I'd agree with that, and it was a very heated debate but the change happened before plastic contamination was as heated a topic as it is now (~30 years or so ago) and what won out was the energy argument.
The way recycling of bottles happens in Norway is actually quite interesting and would be very easily adjustable. Basically there's a tax on all drinks containers, but you can "buy yourself free" from the tax by demonstrating collection rates, and the tax is higher than the cost of recovering bottles for recycling so in practice most distributors and retailers are part of a collective recycling scheme that requires all of them to accept bottles for recycling. It stands out to me as a great model for relatively non-invasive government regulation, in that it's setting a cost to account for an externality, provides a relatively cheap option to mitigate it, but if another option works better for you, you can choose it. If you don't want to participate, you pay and other people get the tax deduction when people return your bottles elsewhere anyway.
All that'd really be needed would be to adjust the initial tax rate to properly depend on the relative environmental cost of failing to collect different types of products.
That sounds great; I’ll add it to my list of actions to lobby my elected officials for. I regularly pick up trash while walking around the neighborhood, in part under the impression that trash invites more trash. Much of the volume is cans and bottles, and more people might change their habits for the economics regardless of concern over land, water, air, and life.
I don't think it's lack of aluminum that is causing the can shortage. it's mostly that bars have been closed through much of the world, and beer distribution (which has increased during covid, along with other alcohol consumption) has needed to increase.
in order for breweries to stay healthy, they've been turning to cans (and mobile canneries) to get their products in front of people and sold. that in turn increases the number of cans purchased by breweries, which is now much higher than the normal number of cans being produced.
while I'm in favor of higher deposits (Oregon has 10 cents), I'm pretty sure it wouldn't change this current calculus.
No, and it is dumb to provide real info unless really needed for some reason.
Maybe it could be argued that providing real info is unethical if you know about entire situation, and by providing fake info you protect a bit people who naively shared real info.
> seen their shipping from China to Europe quintuple
It's actually gone up about ten fold since the beginning of 2020.
For a long time a 40ft container from China to the UK was in the region of $1,500-$2,000. By about November 2020 that had increased to around $7,000 and then in January quotes were coming through of up to $16,000. I think it's been fairly stable in the $15,000 region for a few months now.
The last I heard this is expected to continue for several months.
Interesting. Here in the US, those were regarded as stable, well-paying jobs for people without a college degree. They were seen as a middle-class income that could support a family and a house, accessible to just about anybody (at a time when college was relatively rare). They weren't fun jobs, but seen as good solid labor for sound pay.
There are a whole lot of problems with those rose-colored glasses (including that it owed a lot to unions, which are often despised in the US), but I'm curious why Europeans don't even want the rose-colored-glasses version. Are they seen as unpleasant jobs? Or unstable?
This article feels extremely confusing... maybe someone here can clarify?
Nothing appears to be "deteriorating" whatsoever.
According to the article, in March we imported 1.5x as many goods as in March 2019, as retailers restock inventory. Which is amazing that such increased shipping capacity exists. And because there's so much demand for shipping, shipping prices are rising.
This seems... great? We're successfully restocking tons of stuff, but higher shipping prices mean that retailers will continue to give priority to what people are buying, and so a full post-pandemic restocking will be smoothed out over the rest of the year, rather than all at once?
I mean, scheduling restocking seems pretty flexible and can therefore respond intelligently to prices.
This article seems like everything is going great. What's deteriorating? What's the "tsunami"...??
We're a small export shop based in Japan. It's becoming increasingly difficult to find containers to ship even to APAC region. 'Difficult' = not just expensive, I'm talking we're not able to get on the ship period, no matter how much we'll pay.
So, for us service is deteriorating because we're not able to fulfill obligations and lose money. For our customers service is deteriorating, because they are not able to buy goods that will be delivered in a timely fashion.
This goes on for 3-4 months now, and this is definitely a problem, even if it doesn't look so from outside.
It seems like time insensitive freight is absorbing 100% of capacity, so the spot price is going vertical. Big customers are getting most of their freight booked, but no slack is hurting ad hoc shipments. Like a short squeeze.
It beats me why companies are not reselling their future freight contracts. If I was, e.g., shipping 500 TEUs of carpet that was a restock, I'd consider selling some on the spot market. But the mechanisms to do this at scale are not in place.
It highlights that liner companies (e.g. Maersk) are leaving cash on the table by selling capacity at rates which don't reflect demand, although perhaps they prefer long term stability.
I also wonder if significant demurrage costs were incurred by the logjam at ports, and that disincentivized charter shipping for a period.
They absolutely _also_ prefer long-term stability and target a healthy mix of Spot and long-term contracts. It is clear that this extreme high will be followed by a low and then they will be happy to have signed stable volume commitments
>It highlights that liner companies (e.g. Maersk) are leaving cash on the table by selling capacity at rates which don't reflect demand, although perhaps they prefer long term stability.
It seems like there's an opportunity here for a bidding based shipping company.
I can't even begin to fathom the time or capital required to start a new container shipping company from scratch though these days.
Pretty much the entire ocean transportation industry, with the exception of container shipping, works this way. Prices are largely based on predictions of market conditions in your load port at the time of loading, and the the same wherever you’re sending the cargo.
If you’re trying to load cargo in an area with an undersupply of vessels, you’ll pay a lot for the opportunity. If you’re sending a ship to an area with an oversupply of vessels, you pay more for that because the company renting it to you doesn’t have good confidence in its ability to get a contract once your cargo is offloaded.
Despite the significant increase in commercial intelligence products from satellite imagery, ripoffs etc, the information available is still quite limited. And the MILP problems that result are extremely challenging to solve. A lot of the shipping companies still seem to use heuristics instead of models.
But shipping lines seem able to control capacity because of consolidation, and hence maintain high utilisation:
I helped start an organisation which builds data science models for the shipping and commodity markets, and has had great success trading on the results of those models.
Within most shipping companies, there continues to be a significant hubris amongst charterers of "I know what I know" - a lot of people who have worked for decades in the industry and still trust their gut instinct over anything else.
As a result, since so few decisions are significantly data-driven, it's actually not that complex to build predictive models that take advantage of arbitrage opportunities in the market.
The capital requirements are certainly no joke, but the ships themselves are cheaper than I expected. The Ever Given, for example, supposedly cost around 130 mio. dollars to build. For comparison, a new Boeing 747 costs around 230 to 260 mio.
This article is written for "FreightWaves" which is "The Fastest Way to Navigate the Freight Market". The target audience is people who need to ship stuff.
For them, service levels are deteriorating. What is normally easy has become a struggle.
It's sort of analogous to "thrashing" in computer software.
Once a resource is overtaxed past a certain point, the inefficiency of being in an overtaxed state causes the system to handle the load even worse than in normal conditions, which exacerbates the overload, causing it to get worse ad infinitum.
Tried to buy a printer lately? Perhaps a computer? Part of the crap availability is likely due to the chip/component shortages that have gotten a lot of press, but some is also due to shipping.
I was looking at low- to mid-range workgroup printers and business-class desktop PCs for some clients recently. From at least some manufacturers the ones that were available were selling for at least $50-100 above MSRP depending on models, or you could order at normal prices (don't bother looking for discounts!) with estimated delivery end of May or in June. This article makes me think there's a chance those might be optimistic.
I did! I noticed B&H had the model I wanted in stock, but the store was closed over the weekend for a holiday. So I checked back right before the store opened and placed the order JUST as it JUST as ordering opened up again.
Not 5 minutes after I ordered the printer, the page went from "in stock" to "more on the way" lol. I received the printer a week later. Most places had it a month+ out.
Ugh, and that was easy compared to getting some computer parts right now.
We were looking for a washer/dryer in March and a dishwasher in January. In both cases, about 75% of the models were sold out. One place basically told us "We have no dishwashers in stock and no idea when we're going to get any." When a dealer did have stock, they were like "Anything that's out of stock, you can forget about getting in any reasonable timeframe."
A few weeks ago I got a new ThinkPad X1 Extreme from work to replace my awful System76 Thelio Major. I was interested in checking out the X1E because I was due for a personal ThinkPad upgrade too.
Last week I decided I liked it and went to see what Lenovo had available. All of the nice X1E's with the UHD display were showing "more than 12 weeks" delivery time!
The next day I remembered that the ThinkPad P1 is exactly the same machine as the X1E with a different GPU. Lenovo is wacky like this with their model names.
Some of those were showing 8-12 or over 12 week delivery too, but they had one P1 configuration in stock the way I wanted with UHD, 64GB, 1TB and an empty SSD slot.
It shipped the same day I ordered it, arrived Friday and is great! And was just $1625 plus another $149 for three-year premier support since I ordered it through Corporate Perks (who I highly recommend). Would have been $900 more if I bought it directly on lenovo.com, even at their "sale" price. The machines ship direct from Lenovo either way.
So I thought I'd tell my friends and colleagues and checked again yesterday. Nope, all gone now, this model went up $200, and it along with all the other nice ones are "more than 12 week" delivery too.
I ordered a printer from Staples with an estimated delivery date about a week and a half out. When I checked on that order a few days later the delivery date had been changed to over a month out. It changed every time I checked, sometimes sooner, other times later. Eventually it shipped about three weeks after the order was placed. Not an ideal experience but I wasn’t really expecting one. If having to wait on or go without some non-essential goods is the worst thing I have to deal with from the pandemic then I’ll consider myself fortunate.
Printers have a relatively low dollars per unit volume ratio compared to a laptop or smartphone. Bulk and speed tend to be the primary components of shipping costs. Hence the “forty foot container equivalents” in the article.
CPUs/GPUs/RAM, not printers or consumer gear. And international air freight is impossible now, very low volumes compared to normal. Should recover in Asia Pac and US routes soon enough, but not India or EMEA.
It’s a tsunami of freight - 1.5x March this year over 2 years sounds decently typical considering normal growth. The issue is that April/May/June it wouldn’t be odd considering the circumstances if it was 5x or 10x - if there was enough containers, or enough ships, and there isn’t. As TFA was pointing out, it isn’t even about rising prices to get a spot. Sometimes you can’t get a slot period.
Remember all those supply chain shocks and people talking about needing to restock to get things working in chips, manufacturing, etc? Right now there is 100 containers of socks stuck on a ship and in the way.
> Right now there is 100 containers of socks stuck on a ship and in the way.
This seems like a real easy problem to fix. Some simple import tariffs could get a lot of the cruft out of the way in no time, and they could be eased back too.
Sadly I don't think it works like that. Ignoring the usual long lead time on tariffs, and the difficulty in applying such rules (Socks now have 10x import duty. Ah but not medical support stockings. And socks on baby clothes are exempt, but if the socks are sold as a bundle ...)
The real problem is that the cruft is already in the system. If we did something clever and said all non-urgent shipments get delayed and the urgent ones come through we would have
1. Some containers have both important and cruft in them.
2. The cruft containers are on the upper port side of the ship. If we don't unload those the ship will topple. If we unload but don't onward ship we have a ton of containers literally sitting on the dock.
3. If we sort that out, the cruft orders are part of the game now - the container of socks is going to come back loaded with medical computers. But now they don't have a container to come back in.
No the solution to this is transparency. A global blockchain / ledger (not The blochchain), would let people see some of the worst problems ahead. But that tech exists, but not the usage of the tools or the trust.
A shared ledger allows anyone to read it and update it - how one accepts those updatres is up for debate but whatever - its waaay more scalable than an Oracle instance somewhere.
The real problem is that because of the dollar’s (still) hegemonic status as the world reserve currency, dollars will never be cheap enough for manufacturing jobs in the US to come back. Trump’s tariffs really can’t do anything about it.
These aren't perma-tariffs meant to punish consumers. These tariffs would just take enough goods off of the ships so that essential goods can pass through. In 4-6 months, they could start phasing out. Maybe even sooner.
If I understand correctly, if you want to get something shipped, you can't pay a fixed price anymore. You have to pay spot, which is exhorbitant. So not only is there a massive delay in getting your goods shipped, there is a massive extra cost.
I got the opposite understanding from the article. People are willing to pay extra for immediate needs but the slots are sold ahead of time:
> For the month of May, everything on the trans-Pacific is basically sold out. We had one client who needed something loaded in May that was extremely urgent and who was ready to pay $15,000 per container. I couldn’t get it loaded
This situation is a mess for anyone waiting on something that's sitting in a container in Shanghai, or on a ship in the queue in Long Beach. A friend's business has a critical LCL shipment that was supposed to arrive to their supplier (likely receiving a whole container, but not many containers) last week, but is stuck on a ship somewhere. That's stressing out my friend the logistics manager ahead of an upcoming product launch.
And no telling what the next product in queue is going to take in terms of component sourcing. Yikes.
Is it just me or does it seems like a lot of things are headed for disaster?
The positive thing is that a lot of capital is floating around ready to be invested in a coming post-covid boom, but at the same time hundreds of thousands of companies worldwide are either already bankrupt or close to - then there's these shipping issues that seem non resolvable in the near term - and worst of all a lot of industries already seem way overvalued, especially the housing markets i many cities.
If the economic bubble bursts, then shipping slows down while thousands and thousands of companies close, and is bought up by megacorps laying off millions to automation and centralisation, while QE and other tools are slowly becoming unfeasible because of the gravity of climate change and a disappearing petrodollar hegemony.
So many confounding factors ending in an inflationary nightmare!
Haha nope, a small specialist business that's not yet at container-scale in their supply chain orders. Warehousing for a high number of unique SKUs relative to scale is frustrating enough, but this year's supply chain ripples have made him miserable.
A fear I had about winding down industry, shipping, and services for COVID-19 was that getting it all up and running harmoniously would be unmanageable. The incredible interconnectedness of all industry would cause problems. Say one node wants to start again, but it depends on 5 other input nodes that also want to start again. Those 5 cannot begin without their own connected nodes. And so like an apocalyptic version of trying to restart a global power grid you would have cascades of failures, rubber-banding demand and supply, and so on.
And here I am worrying about how to bootstrap programming language implementations. "What would happen if maven central suddenly disappeared from the face of the earth?" seems positively quaint.
Just getting a petroleum cracking plant restarted takes days and careful orchestration by an experienced Engineer. How much more complicated is our global shipping network! It seems that everybody randomly turning the dials they can reach is not a good system.
Inefficiency brings up business opportunity. Some industry can’t realign quickly? Make a bet that a new business will be nimble enough to deliver faster and take their market share.
Yay, that's exactly the thinking that got us into this mess - trying to squeeze every bit of efficiency out of the supply chain has spread every step of production far and wide (I already mentioned the global journey a pair of jeans is going on before being sold for next-to-nothing in a mall near you: http://competendo.net/en/A_Pair_of_Jeans) - which was possible until now because of cheap logistics, but the current situation reveals how fragile this really is. Maybe what we need is not more efficiency, but more common sense...
I watched the dismantling of the textile industry during the 00’s. The companies were bought with leverage. The mill equipment packed up and shipped to China. The mill buildings torn apart for recycled heavy timber and brick and the land offered for redevelopment.
It had nothing to do with the costs of running a textile mill. Nothing to do with economic competition. There was simply an opportunity to make money by selling off the assets. It was about the financial industry not manufacturing.
i have a theory that this is a result of the civil war. the north was run by bankers and lawyers, the south was farmers.
The domination of the north led to domination of services/finance over labor.
Had the south broken off, they would have preserved a labor centric economy.
Even back to the founding fathers, you have Adams (Mass., Lawyer) and Hamilton (NY, Banker) from the north and in the south you had Washington (Virginia, Career Military Leader), Jefferson (Virginia, Farmer), etc...
I think the commenter is more referring to just-in-time supply chain management where companies run on much thinner buffers of time and physical stock.
You're looking at the wrong resources if you don't think lowest cost is analogous to most efficient. Time, labor, etc. all take a back seat to the bottom line when retail goods are in play.
So we need some people to either be unemployed or paid dirt for the system to work? And you question why the world is moving towards communism and not against it?
Imagine for a moment we’re talking about combustion engines rather than people. A turbocharged V8 is more powerful than a 2-stroke chainsaw engine.
Which one do you use if you’re building a go-cart which will never exceed 15 mph — the small light cheap one, or the massive heavy expensive gas-guzzler?
Even this analogy doesn’t necessitate the poor stay poor: which engine do you start with when you want to learn how engines work?
We bunch people into convinient terms like labour because it's easier to work with.
Till this day we have no idea how to model "labour" since people are niether cattle nor logs of wood. Nothing about their actions suggests linearity or regularity.
Lets take offshore employees. Early days it was fun. The employees offshore were cheap and not prone to complain. Yippeee. Now we find out that no, these people are earning nothing, they have to send money home and live in apartments barely bigger than a US family bathroom. Their idea of boss isn't a senior with loads of experience - boss is someone who cracks the whip and lays threats to their livelihood daily. The quality of work plummets and big corps have to hire onshore at exhorbitant consultant fees to fix the mess, which may never really get fixed because why would a consulting firm want to lose a client for being too good?
No. Rather “better” isn’t a useful word in cases like this — that’s why the go-cart analogy. You should not even want to use a V8 in a go-cart even with an unlimited budget.
Many consumers will buy from a more efficient supply chain because the price to them (for goods in stock) is a few percent lower. They don’t have nearly as powerful incentive to overpay for years in hopes of having more stable supply after a pandemic-induced global disruption event (especially since there’s no guarantee that those excess costs would actually deliver the stability; they might just be paid as wages, profits, additional advertising, and/or business expansion).
But there’s always some potential mess and fragility regardless of your model... robustness comes from the ability to react to failure i.e. to take advantage of an opportunity like this shipping crunch.
An industry like shipping doesn’t seem a likely target for disruption. It would take a massive investment to make even the smallest dent in the problem, and it’s mostly an analog system.
I guess but that upstart better be willing to bet a massive amount of capital on creating that infrastructure only to potentially see its advantage evaporate as the supply lines normalize.
One of my favorite comments on HN, by user techbio:
"Realizing mitochondria were the "powerhouse" due to a voltage gradient created by chemically transforming ATP to ADP across a membrane gave me a eureka moment about how small such a mechanism can be, and how powerful in great numbers." [1]
The international shipping container is a similar example of a small mechanism that powers our global economy at scale.
An interesting side effect here is that people are opting for domestic alternatives. We are in the process of remodeling our house and were going to get our windows from Italy and our heat pump system from Japan, but given the long lead times for container unloading (sometimes as much as 6 weeks on the west coast in addition to the 4 week voyage) we opted for American windows and a Carrier heat pump system (at higher cost).
That's pretty interesting. I wonder how an increase in domestic spending balances against all the printing we did during COVID. It decreases demand for foreign currencies (for foreign purchases) which would strengthen the dollar relatively. I guess it really depends on the magnitude of the trend on how much it will offset the increase in supply.
> "We had one client who needed something loaded in May that was extremely urgent and who was ready to pay $15,000 per container."
Irrelevant observation that will impress none of you.
I first studied business (informally, I was just a kid reading books at the library) 50 years ago when the container business was relatively new. When I first started businesses around 35 years ago shipping was still pretty expensive.
So for me, the thought of spending $15K to ship 2,400 cubic feet of pretty much anything is kind of awesome. From lumber to textiles to appliances to iPhones (okay, the last one is a layup) a motivated businessperson could probably still figure out how to make that work in a lot of contexts.
There are tons of possibilities in this world and they're always expanding.
No doubt there are businesses that can make it work. But any constraints affect supply, pricing some business models out. When your whole business is set up to optimally create and ship plastic garden chairs, you’re probably in trouble.
Ships can sail faster easily (but they use more fuel). They do that when prices are high like now. That increases throughput.
Shipping contracts can usually be resold - so someone importing low priority goods can make a healthy profit by selling their shipment slot on to someone else.
These two things mean shipping should never run out. Claims of this article that there is no space left 'regardless of price' I am dubious of...
Another perspective - the ETF tracking shipping indices (BDRY) is outperforming every other US ETF for 2021 YTD at 177%, including leveraged index ETFs.
Shipping prices are extremely elastic is my understanding, so no. If you own a ship you always want to be running it near full capacity, so once the demand surge subsides prices will also fall.
Inflation requires their not to be a way for prices to reduce.
We are not seeing unhealthy amounts of core inflation. Relative price increases are not inflation because they’re relative. Real interest rates are still negative.
The intent is to get inflation to the average target of 2%, so it’s of course good if we see some.
Hopefully the temporary inflation spike will cause consumer and business confidence to rise and this leads to a long term 2% inflation rate which eventually rises beyond 2% once we hit full employment.
If it were possible to instantly hit inflation targets we wouldn't need trillions of QE, debt via low interest rates or a doubling of the money supply, none of that is a goal unto itself. This why I prefer sending stimulus to those who would spend it immediately, the more effective the stimulus the less stimulus you need and the smaller the unintended side effects.
Once interest rates and inflation rates have normalized, the economy will fix itself without further input.
true that, they don't want to admit they overcooked it. And they don't want to take money off the table for fear of drawing the ire of the investor class.
The Fed's balance sheet is double what it was a year ago, and quadruple was it was after the first round of liquidity during the GFC.
Interesting to note that the US only really has one container shipping line: Matson. It is an insignificant carrier in terms of capacity (less than 0.5 % world market share) which primarily services Hawaii.
To add -- due to The Jones Act (within the Merchant Marine Act of 1920), Matson has a near-permanent lock on the cargo business between the lower-48 and Hawaii.
...thus explaining why food is consistently 20+% more expensive in Hawaii than in California, despite year-round growing conditions.
The only goat dairy on the Big Island imports all their feed from continental US. Apparently local forage would make the milk taste "off". Nobody grows hay in Hawaii, probably because there is no dry (enough) season to dry it in, and (maybe?) nobody has thought of trucking it to the dry side. Or something. Agriculture is always harder that it seems like it ought to be. Cheap shipping forgives a lot.
It's not just COVID either, the Suez Canal/Ever Given logjam of some ~70k containers is still being unspooled. Some 20k of those are still physically on Ever Given, which escaped the canal only to get even more firmly wedged in the quicksand of Egyptian bureaucracy for almost a month and still counting now.
Is this article suggesting that imports will see lots of inflation because of costs to ship goods to the US? And then a backlog growing in Asia, which will eventually flood the US just in time for the end of the Pandemic?
It sounds like the beginnings of an old-fashion over-inventory-driven recession. But the mechanics these days are different than what we would have seen in the US during the 1980s, since the factories are in Asia. I'm curious what the result of this will be.
If American businesses have over bought and overpaid for inventory then expect bankruptcies and fire sales. Computers and cars are unlikely, but bread machines, lounge wear, exercise equipment, and similar items are likely to eventually, and randomly, saturate their markets. IOW people probably won't want a peloton in six months. If peloton overestimated demand it'll shock their books and if severe enough threaten their viability as a company.
As I was reading these comments I was reminded of some articles I read quite some time ago about the impact of global warming produced sea level rise on container ports. Many existing ports weren't built with sea level rise in mind, and building new container ports is expensive and takes quite a while. A quick search on "sea level rise container ports" produced articles that said a lot of the impact depends on the amount of sea level rise. Five feet or less will probably not affect current ports very much; as the sea level rise gets higher the impact on existing ports becomes greater.
Would anyone who knows more about this topic care to comment?
I am not a person who knows much, but google says that current sea level rises are between 3 and 4 millimeters a year. At that rate it will take 300 years to reach 5 feet.
It seems like increasingly severe storms will (would) have an impact a century before sea level itself becomes a problem, even in places where the sea level is already basically a problem.
Due to the geography of the earth as well as other factors, the effects and experience of sea level rise is not the same everywhere. At this moment the sea level at the port of Miami is 8 inches about the 1950 level, significantly more than 3-4mm a year and the rate is accelerating.
Also keep in mind the sea does not need to permanently cover land to make it unlivable. It's well within the realm of possibility that due to expanded floodplains, increased intensity and frequency of storms, that portions of Miami could be unlivable in as little as 30 years, and the entire city unlivable by the end of the century. There's virtually no chance that all the populated areas on the costs will remain livable in the same timeframe.
Not neccessarily for pollution. Efficency increases with larger sizes and that leads to it fulfilling broader areas. Larger manufacturing can afford more sophisticated forms of pollution control even if it is more concentrated.
It can be more efficient and less polluting to sail a ship with 1000 tons of tomatoes from Mexico than have a local farm drive a few crates of tomatoes to the local farmer's market in his 1970 Ford pickup.
This self-balancing effect is a big part of how trade should work according to monetarist economics[0]
But for reasons I don't fully understand (possibly Triffin's Dilemma[1]), this hasn't worked for the US. Triffin's explanation basically says it can't work for the global reserve currency issuer because we have to keep exporting our currency to other places (and exporting currency means importing goods and services)
China pegs (floating within a range) its currency against the dollar, so that the dollar will always be a stronger currency than the yuan. This makes Chinese products cheaper in USD, which attracts consumers in the US, since China is guaranteeing the exchange rate for dollars to yuan, China ends up with USD. If things were normal China would simply use the USD to buy American goods (to be more precise, goods traded in USD including oil, which may not necessarily come from the USA). However, the trade surplus is a political goal, therefore the USD are put into the foreign exchange reserve where they are being used to buy treasury bonds. Because the money is not reaching the US economy, the US government has to either create a debt equal to the foreign exchange reserve or it can increase the money supply. If it does neither the direct result is unemployment because one person's spending is another person's income and China isn't spending.
It gets worse, because the USD is so widely adopted, transactions aren't limited to just USA <-> everyone, everyone <-> everyone is equally possible and it effectively has the same effect as the US importing products from China in regards to the deficit if the exporting side decides to purchase treasury bonds. E.g. foreign country puts the money into American companies, the investment pays off and then they use the profits to import something from China who then puts it into treasury bonds. Even though the US did nothing, the deficit must grow anyway.
I've seen an argument that we have reached the end of benefit from being the global reserve currency and that the US dollar should weaken to balance out trade. We have been a net importer (of goods) for so long, the upper class has reaped the benefits of cheaper goods while the manufacturing class has lost their jobs. China moved away from feeding the system by ceasing US bond purchases and starting the Belt and Road initiative. It seems like we're there and I'm pretty excited about a domestic manufacturing capability.
Combining this with low interest rates, a ton of money is exiting the bond market looking for yield. A lot of it is flowing to stocks, decreasing earnings. Overall, I believe it means greater investment availability. It's really the perfect storm for a very prosperous time in the US (expansion!).
It depends on what kind of economy you are in. If you are Turkey and you are struggling with a lack of domestic savings because everyone tries to keep their capital safe then you must do more investments than you can afford to keep growing. The lack of savings drive up the interest rate and ultimately put a stop to growth or slow it down significantly.
The US isn't in this position, it's a mature economy that keeps outsourcing the easy work to other countries, relative to investments there is too much in savings and those savings are in the bank accounts of corporations who would invest, if they saw a reason to do so. Assuming another fall in inflation, there won't be any reason to put the money to good use. If inflation rises over time and stays at slightly above 2% then those savings will be eroded because they can't lend the money to anyone to obtain interest, they'd have to lend the savings to themselves, or to consumers (bad idea unless they start a company). If companies fail to invest in anticipation of inflation, then the people who receive the fresh money will get to spend it, which will drive demand for products and therefore demand for companies to invest their savings into more production.
Depends on how long it continues. If demand is back to normal in 2 months and it takes 3 months to ramp up your manufacturing, then you'll be too late to get any benefit from this.
It’s not just your manufacturing steps, but you need all your upstream suppliers to also be local. There are reasons well beyond just price for a lot of electronics development to be done in and around Shenzhen.
That's what automation is going to accomplish long term. First, wages in e.g. China are no longer as low as they used to be and second you need far less laborers if you automate things. Also you need higher skilled labor, which favors more developed economies.
Producing locally, also minimizes time to market and means you can distribute production. E.g. Arrival is doing that in the UK for assembling buses and vans. They don't build giga factories but instead have small, low cost factories that they can setup close to where the demand is.
Basically producing close to where the demand is, or close to where the resources you need are (or ideally both), minimizes cost.
There are still going to be components that you need that are affected by the worldwide supply chain issues. It might actually be worse if you are bringing in individual components from various places and have to get them all on ships.
Very much so. Seems like a good time for the federal government to make low cost loans available to those seeking to bring manufacturing back to the US.
At industrial quantities, 3D printing is slow, low-quantity, and imprecise. You can fix one of those axes at the expense of making the others even worse.
As an example, I designed a part with micron-scale tolerances. Some 3D printing firms were able to provide it within a week. Others said they could but messed up the tolerances. Milling it out of metal turned out to be faster and more accurate.
As another example, I have a dream of making a part with 100 nm tolerances. It turns out there is only one supplier of 3D printers which can do this, and they are in Germany. One company in my country have their device, but a production run for them costs tens of thousands of dollars per part due to the slow printing required by the high precision and their high fixed capital costs. As a result, they mostly get hired to make molds for more traditional manufacturing methods.
Guessing the big issue is delay in shipping of components/goods.
And for critical items bidding up the price of transport will pass those to consumer or force reorganization of the supply chain to other avenues (local or other shipping).
Medium term it's a big hiccup on the global JIT economy.
Why are imports (seems to be many/most routes, worldwide) so high, in general? I get the speculation on restocking/stockpiling vs consumer demand, and how there may be a feedback loop here.^
Before that though...? What are we transporting more of? Why? I'm confused.
Retailers stopped stocking when things shut down. An example is rental car companies selling off parts of their fleets. Now that things are opening back, they are anticipating demand and attempting to meet it.
So... that's the "restocking" part. If I understood the article, the restocking part of the story is a little more speculative, and short lived. Underlying that is a >10% increase in consumer demand... possibly more in some (non-US) markets.
seriously though, i legitimately believe this. prices for stuff has gotten way out of hand and i am seriously scaling back expectations of speed and searching for a lot of used/second hand stuff.
My guess would be that there must be something to do from an investing angle -- but also that industry insiders and specialists who look at such things dedicatedly and professionally would have already priced in or arbitraged anything far ahead of a layman's understanding and participation.
I recall reading a few years ago that the port of Oakland was in a precarious spot due to being outcompeted by excess capacity in Southern California ports as well as gulf coast ports via the Panama Canal. I would guess that is not currently an issue given the shipping backlog?
Edit: yeah I’m seeing articles about a historic backup at the port of Oakland.
The bigger problem is probably they don't have the capacity anymore, so now people will take Oakland because they have to, have a bad experience, and be like fuck Oakland.
This is precisely why the US and the world has farm subsidies. Because these kinds of supply / logistical shocks to the food supply can result in some real issues and political changes.
If we port / shipping subsidies we would keep capacity and subsidize return trips. A big part of the problem is a lack of empty containers in Asia.
Ports may have to do something like what aviation did a few decades ago. At major airports, you have to book a landing slot before you can take off. This eliminated circling the airport waiting to land. Los Angeles and Long Beach may have to have a scheduling system like that.
It would take years for large amounts of manufacturing to be built up in the US, and I don’t know of anyone who thinks these issues will last that long. Add on to that how many more years it would take to recoup the investment, and I can’t see this making any change in investor’s thoughts towards US manufacturing.
Lot's of discussion here about how congestion might help US industry. I think that's backwards, high shipping rates seem to be a sign that more things are being imported from oversees instead of created locally than normal. This seems like a bad thing
> He noted that January trans-Pacific imports were up 10% versus 2019 (comparisons to 2020 numbers are skewed by COVID) and 13.5% in February, then jumped 51% in March. “So, we’re now at 1.5 times pre-pandemic levels.”
Between this, collectible prices skyrocketing and the crypto ponzi I'd say most of the Fed's/Central Banks inflation is being soaked up according to plan.
The article reads like those that real estate agents push - how there is such acute housing scarcity in a given market, with advice to home buyers to be prepared to act fast with aggressive offers & inflated prices to secure their home purchase.
i.e. it serves to stoke demand and set a higher water mark on pricing. When the tight spot eases up you don’t hear about prices relaxing, terms easing up, etc.
I'm curious, how does the restocking work out here? Is this restocking recovering from the initial drop in Asian exports from like a year ago? Have companies been working with that dent in their inventories for the last year-ish?
Ports for big ships have historically been constrained by geography- ideally you need a very deep, well sheltered bay.
A shore with shallow waters for hundreds of feet simply make for very costly places to unload, and get treacherous in rough weather.
On top of that, coastlines tend to be the most densely populated regions. Building up infrastructure for a new harbor sounds like a nightmare to get through zoning, let alone an environmental impact review.
Yes and no. There are, for example, a few ports on the Pacific coast of Mexico. They don't have the transportation infrastructure to carry large amounts of cargo to the rest of the continent, and they (probably) don't have the cranes to efficiently unload container ships.
The US ports don't have the space to expand. I don't think the Canadian ones can, either. Prince Rupert might be able to, but it would take time.
The problem is the sheer scale of what you are asking for. We'd need either more ports, or more berths at existing ports, with more cranes, and more transport connections from the ports to the country.
If there's one thing where you could get more throughput by throwing money at it, it would be in more efficient container cranes. And even that requires someone figuring out a more efficient crane, and then probably a few years of building it out at the ports, and upgrading the dockside infrastructure to handle the increased throughput.
The Port of Coos Bay in Southern Oregon has been trying to expand their port for 15 years now. https://www.portofcoosbay.com/projects But the projects take quite a bit of time (dredging the bay deeper and wider to service 1000' ships, taking over and repairing a basically abandoned railway with 100 year old tunnels and bridges, etc). Couple that with some initial resistance from state legislators that serve Portland (which lost its largest container ship terminal contracts a few years ago), and these things take years to get into place. Could be real fast, if they got a guarantee of business from somebody, but shipping companies don't want to pay to develop in only a few years, and then have their backlog clear up before then.
Portland OR already has I5 running right through town and very near the port. Presumably it also has a number of rail lines.
Coos Bay is, relatively speaking, in the middle of nowhere along the Oregon coast, in a very mountainous region.
Refurbishing the rail line is a great idea, but surely they'd also want some of these to be offloaded to trucks, which is going to require an expansion in the highway infrastructure, at least with the respect of carrying heavier loads more frequently if not adding a lane in each direction so that they can accommodate the traffic increase.
Interesting idea. But Coos Bay like Astoria has a significant bar problem. Even big ships have to pay attention to the the tides.
One more hindrance to being competitive with natural harbours like San Francisco and Vancouver.
Building a container port to handle large vessels is a big capital expenditure. And you also need a labor pool, and trucking / rail facilities. It's not something you can come up with quickly to take advantage of an event that everyone hopes is short term.
Labor shortages related to covid on the US west coast leading to delays wouldn't be significantly helped by adding another port on the US west coast.
From the bottom of this article, it does look like there's some room in alternate non-US ports, although that seems expensive and time consuming.
(I was speaking to someone who has seen their shipping from China to Europe quintuple - apparently all the containers stayed in Europe as no one wanted to send them back empty.)
The game is designed to show that "local" signals aren't always indicative of full system - the example being that retailers etc are stockpiling right now on-shore. But this creates more demand than usual, slowing delivery. So the naive retailer will say "OMG it now takes 3 months and 2x price to get widgets, I had better order 4 months supply ... and so it goes - an infinite bug methodology.