The supply chain crunch, modern logistics, and that famous trip around the Port of Long Beach
Brilliant. So many Conservative pundits with only Ivory Tower business experience keep looking at just ports and blaming Unions. This myopia is just punditry gone wrong.
Glad to see real discussion of the Core Supply Chain Issues:
A. It's a National, Strategic Federal concern to have some hand and oversight coupled with Strategic investments.
B. It's more a failure of independent ROE maximizing market actors..ie Adam Smith fails here in a literal sense.
C. Just In Time, leaving no flex capacity to absorb shock is too brittle. But..this is what independent profit maximizing self interested actors do. Usually fine. But. Fails when interdependence is so frail.
This is a wonderful article. And a great area for future study, in case you ever want to go to a long form treatment.
Logjams, occurring at multiple places in an extended complex system are the result, not only of just "removing the shock absorbers," but of inherent frustration that optimizing each piece in isolation causes to the pieces of the system that were supposed to interface with it. This showed up years ago (KGV, Science 220, 671-680 (1983)) in the automation of various stages of computer design. The solution is not to fix the issues individually (that makes things worse somewhere else), but to allocate appropriate relief all across the system so that some overall measure of production, throughput, or whatever gets maximized. To do this, you have to own the whole problem, which was possible when the problem was making denser computer chips or more efficient computer networks. And the physics of "simulated annealing," the most generalizable approach to this ubiquitous problem, focuses not on optimization at each interface but on understanding tradeoffs that become possible when everything is moving along well. Amsterdam shows the difference that results from managing a country's infrastructure as a whole. Since I don't think that anyone is going to take control of the world's or even the US's transport issues very soon, this looks like a great case for states to step in. CA or NJ? Or perhaps this is a chance for the US, AUS and the Asian "all-but-China" ports to reassemble the TPP coalition?
Why can't the solution be to figure out how to subsidize sending back the empties? If rentals cost more than fabrication for the exporters, and the problem is a buildup of empties here, and the ships are presumably continuing to travel, why not find a way to make it worth the carriers' time to ship them back?
If I recall correctly, a lot of that westbound capacity was being used to send "recycling" to China where it would be landfilled, but they stopped taking our trash sometime in 2020.
I vote absentee in Palm Beach County, Florida and every so often I get to elect members of the port commission. When other local elections involve candidates I don't know anything about, I look them up in the Palm Beach Post to see who the paper has endorsed and why. But nobody ever asks the port commission candidates to sit for an interview with the editors.
Elections seem like a dumb way to choose the management of a state-owned enterprise, but as long as we're doing it this way there's a role for journalists to give these races a higher profile. (The Port of Seattle also has elected commissioners but in that case they run the airport too, so maybe King County voters are getting more useful information from their papers... but I googled and didn't see much there either.)
I don't know if the Return on Equity (ROE) explanation makes that much sense nowadays. Twenty years ago it would have been a great explanation but it has never been cheaper to keep inventory and run "fat" because financing rates have been through the floor in the past decade. Real interest rates being sometimes even negative means really low cost inventory. Just in time doesn't get you tons of savings.
> Drilling tunnels or even hyperloops to allow containers to skip the LA traffic and be transported inland at rapid speeds. It doesn’t make sense that we bring all containers into Los Angeles, the city with the country’s most notorious traffic jams.
Wouldn't trains make more sense for moving freight than waiting for some hypothetical hyper-loop?
Fascinating. I have a follow-up question(s) for Ryan if he is reading.
1. You write: "The first thing that I would do if I were in charge would be to actually put a team in charge. Right now, there isn’t a dedicated team within the federal government to coordinate all public and private sector activities to help resolve the supply chain crisis."
But I also see this in the press: "White House officials said the administration had created a task force that would tackle near-term bottlenecks in construction, transportation, semiconductor production and agriculture. The group will be led by Mr. Biden’s cabinet secretaries." (source: https://www.nytimes.com/2021/06/08/us/politics/biden-supply-chain.html"
What should we make of these efforts by the Biden administration?
2. You write: "At one point this October, there were over 500,000 shipping containers on ships waiting out at sea, with an estimated $30 - $50 billion worth of merchandise in them. Much of it did not get into warehouses and shops in time for the holiday shopping season. If businesses who have imported all this merchandise don't get it in time, much of it goes unsold during their busiest season. That means huge write offs and losses."
But this doesn't appear to have happened. Despite a lot of scary stories about empty shelves and delayed Christmas presents, it appears that the Holiday season was extremely strong for retail and I did not see an broad evidence of supply chain bottlenecks delaying holiday purchases and gifts. If "much" of "$30 - $50 billion worth of merchandise" didn't get into warehouses in time, how come we are not hearing about it? Instead we are seeing headlines like this: "S&P 500 Hits Record as Strong Holiday Sales Offset Covid Fears" (https://www.bloomberg.com/news/articles/2021-12-27/s-p-500-hits-record-as-strong-holiday-sales-offset-covid-fears). So what really happened?
Appreciate thoughts/answers/insight and loved the interview!
He does a great job of defining various facets of the problem, and dreams big about what might be nice. However he misses the point entirely. If there is an extreme and sudden surge in demand, as occurred as the direct result of politicians shutting down major sectors, it is unreasonable to design a system to meet such demand. Designing systems to address all the problems governments might create is impractical. Turning to government to solve the problem it creates means increasing the power in the hands of those who fail to avoid problems and often work diligently, if unintentionally, at creating them.
Great to add some nuance to the debate over whether current inflation is supply or demand led. Demand is clearly playing a role, but the change in demand seems to be as much about the quality (goods v services) as the quantity ($ spent). That shifts some of the blame away from govt checks and adds to the story that inflation is (at least partially) transitory, since the focus on goods over services is situational (though not necessarily ending soon).
Excellent overview of supply chain perils.
This interview was incredibly enlightening. I am a teacher and want to explain to my students the supply chain issues we have and you have laid it out so it is understandable. I hope to see some of my students in the future assisting with this global crisis in supply chain and pray that some of your ideas get used to solve the problems.
I would be interested in seeing more blogging about port privatization/corporatization. Could you do a follow up on this 2016 Brookings report? (https://www.brookings.edu/blog/future-development/2016/06/17/why-ports-should-be-managed-like-airports/amp/) Should US ports move in this direction? I would be interested in getting your takes on this. Thanks!
I cannot stop thinking about this post. I suspect there are analogies across our economic systems, which have become considerably more complex, and likely more so in the future. I've been working on energy system modeling which has similar complexity. But it's everywhere.
This is the sort of thing that price systems are supposed to handle nicely. But various things get in the way, including regulation. But, clearly, full regulation is not the answer; it's figuring out the right regulations.
Computers and sophisticated software, it would seem, can optimize these systems far better than hacking away with simple price responses and one-off policy hacks that see only part of the picture.
A hunch: a lot of the problems are simply asymmetric information on a grand scale. If everyone across the network knew where all the containers were, empty and full, where all the chassis were, their status and their routes, it might aid coordination of both logistics and investment. Ryan Petersen needs to sell his software to regulatory agencies and/or coordinating institutions (like electricity ISOs).
Great interview -- I wasn't expecting a CEO to say something I'd find naive in a college freshman essay "I think many of us imagined that we live in a world where there's a wizard behind the box. That there's actually somebody in charge of all of this, and that that somebody must have made a mistake. And of course, it must be the president of the United States. But that's not actually the world that we live in. It's a market-based system."
I also find it odd that a software CEO visits a major port *after* he founds a supply chain company. There's something a little wrong here, in which software is so divorced from real life.
Maybe this is a dumb question, but why do the containers go on trucks at all? Why don’t they just go straight from ship to rail? Is it that some shipping containers are unloaded near the port and therefore go on trucks and some are unloaded far from the port and therefore go on trains? It just seems crazy to use trucks to move the containers from the port to the rail yard when the tracks could go right up to the port.