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.
Letting unions off easy in this is also myopic. There’s a reason we don’t have automation in the ports. The comeback of “but the Netherlands!” is silly - labor relations in the US are light years from what they are in Germany or the Netherlands or Switzerland.
Keeping assets light for ROE is interesting. I wonder how many extra containers we’d need if we fixed the throughput issues.
You could have said the same thing about masks or rubbing alcohol. Definitely a role for a federal stockpile but the private sector picked up the slack there very quickly.
I’ll ask the question that Noah doesn’t ask. Why do we want ports to be owned by any level of government? Would not a private owner be more likely to prioritize investment—and invest more cost-effectively—than a government owner?
I would say that apart from Peterson’s proposals for deregulation, I am wary of his ideas. He seems to believe in a top-down, centrally planned approach.
Instead, I think that the price system should be allowed to work. When prices move freely, excess demand and supply bottlenecks go away. In the short run, consumers feel pain from the higher prices. In the long run, suppliers figure out better ways to deal with congestion.
Socialism isn't the answer to every real and imagined problem. We should restore capitalism, after all, the United States invented it after reading Adam Smith's Wealth of Nations.
I do not consider Airports for example socialism. Not everything that the Federal government manages is the negative approbation of the nominally good word "Socialism".
Abraham Lincoln was a liberal, progressive with socialism programs:
Gave away free land.
Believed college should be for everyone not just Elites at Harvard and Yale..started State colleges
Established then office of Revenue commission..ie IRS
Established a National currency
Established a new and important Federal agency, the Dept. Of Agriculture
And the other well known things.
Lincoln said: The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
--July 1, 1854
The free market is fabulous in many areas where individual and specific products and services can be made. However, Ports, the access to Trucking, the Warehousing capacities, the Container logistics all have to work together.
Today, each actor optimally "Adam Smithed" their own business and consequently SubOptimized the the Supply chain. It was pushed to be brittle. Private business's short term perspective is intrinsically opposed to long term high Capex return Infrastructure.
Thus, the single greatest long term actor is the Federal government for Infrastructure investment and port to door capacity investment.
Excess capacity used to be important for flexes in demand.spikes. No longer and again, the Federal Government can support long.term capacity excess investment to dampen stocks
A fascinating article. The current supply chain situation did not exist in the very profitable and exciting decade of innovations of the 80’s and 90’s. Working in Silicon Valley, JIT was a successful endeavor. A contrast in the changes would be interesting.
If our government were responsible for one more committee or board to oversea this complex issue, it would prove to never have resolution. We would gain high powered
Government employees, many studies, and confetti confusion that results in the increasing of tax dollars of the citizens. A better approach is to get a consented board of business leaders. The Elon Musk, Larry Ellison, etc. for the proper think tank.
Fabulous summation of our costly and vulnerable situation since we have shifted too much valuable inventory off shore, from chips, to fertilizer, machines and window treatments. The list could go on.
There's no such thing as a high powered government employee. Capitalism is superior to socialism because government employees are paid by stealing money from taxpayers whereas employees of private companies are paid by selling goods and services by voluntary transactions.
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.)
The government shouldn't own enterprises, they should be owned by private shareholders and their votes should be proportional to the number of shares owned.
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!
It looks like total holiday sales was about $840 billion. So I guess it's totally possible that growth from 2020-21 was set to be even larger than it actually was, and was held back by $30-50 billion sitting on ships? But this year did have the largest increase on record in the time series I found. I can't tell how plausible any particular story about this is, given the amount of unique features this past year had.
He does a great job of defining various facets of the problem, and dreams big about what might be nice. However he misses the point entirely. If there is an extreme and sudden surge in demand, as occurred as the direct result of politicians shutting down major sectors, it is unreasonable to design a system to meet such demand. Designing systems to address all the problems governments might create is impractical. Turning to government to solve the problem it creates means increasing the power in the hands of those who fail to avoid problems and often work diligently, if unintentionally, at creating them.
Great to add some nuance to the debate over whether current inflation is supply or demand led. Demand is clearly playing a role, but the change in demand seems to be as much about the quality (goods v services) as the quantity ($ 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).
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 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.
I don't think it's his first time visiting a major port... I think it's his first time visiting a major port in the midst of a massive supply chain crisis.
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.
This is a total guess on my part... I imagine there is a lot of "shuffling" of cargo containers that needs to happen between unloading the ships and loading the trains. If a train could pull up next to a ship and take the containers straight over, that might work, but I suspect a train headed to St. Louis needs one container off of each of 20 different ships? Would be a real backlog on the train tracks. Just a guess on my part though.
Yeah. TBH tho, especially for ports in cities with sky high land costs like LA, you'd think it'd make more sense to have one extremely high capacity rail line out of the port to say the inland empire, or the high desert up near lancaster, and build a rail sorting facility there, where land is way cheaper, and there's more room to spread out.
That could work, but I think it would require some serious work in Long Beach and LA (if it hasn't been done already). If they could put in two outbound lines and one inbound, that would also help deal with the elevation changes, which are going to slow outbound trains significantly (just over 1,000 feet to San Bernardino, 2,300 feet to Lancaster). It would also require a national transportation planning authority, which is where those "socialist" countries often have it all over us.
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.
Letting unions off easy in this is also myopic. There’s a reason we don’t have automation in the ports. The comeback of “but the Netherlands!” is silly - labor relations in the US are light years from what they are in Germany or the Netherlands or Switzerland.
Keeping assets light for ROE is interesting. I wonder how many extra containers we’d need if we fixed the throughput issues.
You could have said the same thing about masks or rubbing alcohol. Definitely a role for a federal stockpile but the private sector picked up the slack there very quickly.
I’ll ask the question that Noah doesn’t ask. Why do we want ports to be owned by any level of government? Would not a private owner be more likely to prioritize investment—and invest more cost-effectively—than a government owner?
I would say that apart from Peterson’s proposals for deregulation, I am wary of his ideas. He seems to believe in a top-down, centrally planned approach.
Instead, I think that the price system should be allowed to work. When prices move freely, excess demand and supply bottlenecks go away. In the short run, consumers feel pain from the higher prices. In the long run, suppliers figure out better ways to deal with congestion.
Socialism isn't the answer to every real and imagined problem. We should restore capitalism, after all, the United States invented it after reading Adam Smith's Wealth of Nations.
I do not consider Airports for example socialism. Not everything that the Federal government manages is the negative approbation of the nominally good word "Socialism".
Abraham Lincoln was a liberal, progressive with socialism programs:
Gave away free land.
Believed college should be for everyone not just Elites at Harvard and Yale..started State colleges
Established then office of Revenue commission..ie IRS
Established a National currency
Established a new and important Federal agency, the Dept. Of Agriculture
And the other well known things.
Lincoln said: The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
--July 1, 1854
The free market is fabulous in many areas where individual and specific products and services can be made. However, Ports, the access to Trucking, the Warehousing capacities, the Container logistics all have to work together.
Today, each actor optimally "Adam Smithed" their own business and consequently SubOptimized the the Supply chain. It was pushed to be brittle. Private business's short term perspective is intrinsically opposed to long term high Capex return Infrastructure.
Thus, the single greatest long term actor is the Federal government for Infrastructure investment and port to door capacity investment.
Excess capacity used to be important for flexes in demand.spikes. No longer and again, the Federal Government can support long.term capacity excess investment to dampen stocks
A fascinating article. The current supply chain situation did not exist in the very profitable and exciting decade of innovations of the 80’s and 90’s. Working in Silicon Valley, JIT was a successful endeavor. A contrast in the changes would be interesting.
If our government were responsible for one more committee or board to oversea this complex issue, it would prove to never have resolution. We would gain high powered
Government employees, many studies, and confetti confusion that results in the increasing of tax dollars of the citizens. A better approach is to get a consented board of business leaders. The Elon Musk, Larry Ellison, etc. for the proper think tank.
Fabulous summation of our costly and vulnerable situation since we have shifted too much valuable inventory off shore, from chips, to fertilizer, machines and window treatments. The list could go on.
There's no such thing as a high powered government employee. Capitalism is superior to socialism because government employees are paid by stealing money from taxpayers whereas employees of private companies are paid by selling goods and services by voluntary transactions.
Absolutely!
See also: https://mattstoller.substack.com/p/the-worlds-most-profitable-traffic
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?
Gotta ask.
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.)
The government shouldn't own enterprises, they should be owned by private shareholders and their votes should be proportional to the number of shares owned.
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!
It looks like total holiday sales was about $840 billion. So I guess it's totally possible that growth from 2020-21 was set to be even larger than it actually was, and was held back by $30-50 billion sitting on ships? But this year did have the largest increase on record in the time series I found. I can't tell how plausible any particular story about this is, given the amount of unique features this past year had.
https://www.statista.com/statistics/243439/holiday-retail-sales-in-the-united-states/
He does a great job of defining various facets of the problem, and dreams big about what might be nice. However he misses the point entirely. If there is an extreme and sudden surge in demand, as occurred as the direct result of politicians shutting down major sectors, it is unreasonable to design a system to meet such demand. Designing systems to address all the problems governments might create is impractical. Turning to government to solve the problem it creates means increasing the power in the hands of those who fail to avoid problems and often work diligently, if unintentionally, at creating them.
Great to add some nuance to the debate over whether current inflation is supply or demand led. Demand is clearly playing a role, but the change in demand seems to be as much about the quality (goods v services) as the quantity ($ 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).
meant "full deregulation" in the 2nd P.
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.
I don't think it's his first time visiting a major port... I think it's his first time visiting a major port in the midst of a massive supply chain crisis.
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.
This is a total guess on my part... I imagine there is a lot of "shuffling" of cargo containers that needs to happen between unloading the ships and loading the trains. If a train could pull up next to a ship and take the containers straight over, that might work, but I suspect a train headed to St. Louis needs one container off of each of 20 different ships? Would be a real backlog on the train tracks. Just a guess on my part though.
Yeah. TBH tho, especially for ports in cities with sky high land costs like LA, you'd think it'd make more sense to have one extremely high capacity rail line out of the port to say the inland empire, or the high desert up near lancaster, and build a rail sorting facility there, where land is way cheaper, and there's more room to spread out.
That could work, but I think it would require some serious work in Long Beach and LA (if it hasn't been done already). If they could put in two outbound lines and one inbound, that would also help deal with the elevation changes, which are going to slow outbound trains significantly (just over 1,000 feet to San Bernardino, 2,300 feet to Lancaster). It would also require a national transportation planning authority, which is where those "socialist" countries often have it all over us.