Clogging up the ports is a $150 billion business, but a bipartisan bill to re-regulate the sector is moving through Congress. Why is Congress about to do the right thing?
This was a great essay and timely. So good in fact that I decided to become a subscriber. Suggestion: You might want to consider doing a story (it could be a book really) on why the US has virtually no American flag shipping and the very real threat this has on national security as well as competitiveness in the ocean shipping trade, American jobs and that “supply chain” issue. BTW this problem goes back to the 1960s and nobody seems to care or even be aware.
"Many BIG pieces reach well over 100k readers, and each issue is read obsessively by antitrust lawyers, enforcers, Hill staffers, and people in power." I am glad to read this. The fight against corporate power is the most important one. Everything depends on this. Climate change, biodiversity, democracy, health care, education, etc. As long as we allow corporations and billionaires to have an oversized influence on politics, we are doomed.
"And if you have signed up, let me know what you’d like me to cover more of in 2022 by responding to this email." I like to see the anti-monopoly movement broaden its reach and take on the wider question of how to limit the influence of corporations on politics.
Hi Matt, great article as a follow up to your previous article on Supply Chain. You are correct in identifying the drayage trucker as the de-facto supply chain manager for getting the containers from the port to warehouse. I would like to point out a few more things though,
1. Southern CA warehouse space availability issue: since 40% of imports come through the two ports, a lot of corporations for import/distribution centers in Southern CA. Once we have the increased demand starting in 2020, there is simply no warehouse available. Market price for the warehouse has almost doubled in the past 2 years. Corporations don't have space to offload the containers. So the containers are de-factor extra storage space.
2. Port operations. Compared to the rest of the world, we are still extremely inefficient in port operations. I don't want to point fingers here. But until we can increase the efficient, there is no way we can handled the increased demands. So the only way to reduce the jam is for the demand to decrease, which means consumers buy less products.
3. More of a pie-in-the-sky point. If you look at airline industry, they went to the super-jumbo jets of Airbus A380 because they thought there is only so many gates at these hub & spoke system airports. That insight was wrong in the end because airline found out direct point-to-point was better. So they went with smaller aircraft. Right now, shipping lines are operating at hub & spoke system. What if someone offer direct point-to-point service to the secondary ports in this country, like the Texas ports and Southeastern ports? In my experience, virtually all Texas cargos are imported into LA and railroaded into Texas. Why can't someone do direct service to Houston port given the congestion in LA? What about Mobile or FL ports? Given the size of economies there, wouldn't someone do that? Perhaps Jones Act might have something to do with it? Just speculating.
"there is an endless permutation of possible coordinating issues ... there is no incentive to solve these issues, and plenty of incentives not to"
The free market is driven by competition but capitalism is different. Without an incentive (regulations) to do the right thing, capitalism will follow the built in incentive (greed) to do the wrong thing. I acknowledge that corporations are more effective than governments - they can create red tape, inefficiency, catch-22s and bankruptcy faster than an army of government bureaucrats. Monopoly capitalism functions more like the mafia than the free market.
I happened to come across this from Metafilter. I was, before retiring, a logistician for DoD ammunition and explosives. I want to congratulate you on this posting. Unfortunately it will never become common knowledge because the MSM is happy to blame everything on "the supply chain" as some magic entity that exists independent of governments and corporations. Almost always when there is a problem someone is making money off of it. I am sure the carrier cartels are making money, but also the financial industry. About the only thing the USA makes today is more ways to make money off other people's money. The financial industry is apolitical and anational. It only cares about itself and making more money.
This is such an excellent newsletter. I don't know what your plans are for the new year, but please consider a newsletter (or series of newsletters) devoted to specific legislative changes in various industies that would bypass culture wars (and lobbyists where possible) to improve various aspects of our commerce. Perhaps this shipping reform act can create some momentum in Congress to actually fix a few more 50+year-old problems.
I have read your work for a long time, and there is only one reason I am not a paying subscriber.
It's the fact that I live in Europe and obviously your work is US centric.
At the same time I am very happy you are keeping most of the work free, because it gives a lot to think about. I live in a small country and it seems in most every field there is an oligopoly or monopoly, from groceries to lumber to much more obscure domains like professional assessments required by certain standards, and all of these are seriously affecting both the producer and consumer ends, plus working against small business in general.
Great article. I thought I might add that supply chain pressures are likely to ease somewhat for the first three months of the New Year, before the pressure begins to ramp up again as seasonal belt-tightening ends. Unfortunately, there are some areas where this simply isn't the case, and the issues are far more systemic- such as with chip supply. Higher costs and short supply are likely to be with us for some time in areas like new cars, used cars and car rentals.
I've recently been doing a bit of research into the after effects of Brexit. The answer is that it has not been as disastrous as predicted, but is still an economic concern. The predictions of a 4% contraction over the medium term seem pretty on the money to me- which unsurprisingly won't disappoint too many Brexit supporters- of you are a part of the substantial portion of the population who have really only seen their wages stagnant (in some cases halving, such as in construction) or subject to labour displacement and job insecurity, then the wealth created from the free movement of peoples and trade really won't have been benefitting you for the past twenty odd years, since the UK really began to take advantage of its relationship with the EU in the mid to late nineties under Tony Blair.
On the other hand if, like me, you were a Remainer and had the advantage of working in the high skills/knowledge sectors of the economy, then you likely still feel resentful and prone to blaming every new problem as it emerges on the poor decision of the other half of the country to leave the EU. Unless, of course, you've taken the time to dig deeper, understand the underlying class tensions and the prevalence of ingroup in blue collar and underclass demographics and have come to the realisation that economic growth and affluence through trade really isn't that important unless you happen to a part of the lucky top 20% of society who happen to be its key beneficiaries.
Anyway, the reason why I mention all of this is because one of the key metric I looked at to measure the impacts of Brexit was trading intensity, which for those who are unfamiliar is a measure with looks at the sum of imports and exports, compared to total GDP. It has dropped by 10 points since Brexit. The thing is, compared to many other advanced economies and despite its reputation for trade, America's trade intensity really is quite low, by comparison to most of the other advanced economies of the world- which would tend to suggest, at face value, that America produces far more of its own goods domestically, than anyone realises.
Now, I wouldn't imagine this would be the case. It is likely that significant portions of American wealth are generated by non-physical goods in areas ranging from technology to movies, finance to media and the service sector. But there are whole sectors of the American economy which shouldn't really have been disrupted as much as they have been, other than because of the fact that the pandemic, lockdowns and the psychological impact that fear has had in pushing people away from service consumption and towards physical goods at exactly the time when physical production has been compromised by the low outputs and limitations to production which have imposed by our reaction to Covid, much of it justified- especially on the ground of worker safety- some of it less so.
Admittedly, I haven't really done a deep dive on this issue- I've been readying myself for Christmas, have my own Substack to write and have to tend to my real income sources (at least for the moment). But it is certainly worth looking into, especially in areas like food and agriculture, where America is by far the world's largest exporter. I imagine much of it has to do with lucrative export opportunities abroad- in a situation analogous to those Russia found itself in around a decade ago (?), when Putin threatened to halt oil and grain exports unless reasonable prices were restored to Russian citizens.
I also suspect many are taking the opportunity to price gouge, and some of the journalism from Breaking Points and its friends supports this hypothesis. But it certainly bears more scrutiny- is corporate America rebelling against the reality that in the tighter labour markets created by the pandemic and other factors, are they trying to jink a process which can only lead to American labour receiving fairer pricing for their labour? They certainly don't have the increased costs to justify their price hikes through labour alone, although there certainly are other areas, such as through gas prices, where there may be at least some more reasonable pricing concerns.
I would think about contacting the guy who runs Economics Explained on YouTube. He has the habit of explaining economics in a manner far better than I can- which is one area where I still tend to get bogged down in the technical (a sure sign of insufficient knowledge) and veer towards the discursive. Anyway, I greatly enjoy your work. Keep it up! I hope the suggestion is productive.
1) Fingers crossed for the ocean shipping reform act. Great explanation.
2) I'm quite interested in how the pandemic + remote work + supply chain issues are impacting wage growth & worker power. Lower wage in-person workers are suddenly harder to replace with outsourcing. At the white collar level, it's been interesting to follow the rhetoric of firms trying to normalize wage reductions for workers moving out of big cities by claiming that they are paying regional "market" rates. But no one knows what's "market" -- the range of software engineers in Boise in 2019 probably bears little resemblance to the talent pool available there now. And no one knows the size of any given white collar labor market, because of the simultaneous power struggle over what percentage of time employers will be able to require workers to show up in-person. Workforce participation is also probably still impacted by the messed up school situation. Some industry leaders that already have a nationwide draw may still have monopsony power to hold down wages, but there are probably regional employers that are suddenly having to compete nationwide. This could result in a bimodal distribution-- higher wages for niche talents and wage compression for more fungible positions, which could reduce regional inequality. But who knows.
3) Forced arbitration for workers & consumers is out of control. Congress should amend the FAA. At the B2B level where it's somewhat more voluntary, the dynamic is a bit like parents individually choosing private schools over public schools, rather than coming together to improve public schools. Parties choose arbitration in part because it can be faster and less expensive than using the court system (with the caveat that those potential benefits don't always materialize and there are also other factors at play-- e.g. parties like that it is confidential and doesn't result in public court records), but the better solution would be to improve the court system.
I know this is the same as saying the sky is blue, but I learned at lot from this issue. This sounds like a pet peeve but one monopoly I would want to see covered in 2022 is beer. I can go anywhere in the country and find 6-8 different local craft beers, but I the only consistent beers I can find at a store are some variation of Bud/Modelo. I don't understand how something that has so much variety throughout the world is monopolized by a company like Anhesuer Busch.
"The union opposes the project on the grounds it will eliminate some dockworker jobs, but employers say automation is needed to increase capacity and keep the ports of Long Beach and Los Angeles competitive."
"Past experience in Southern California demonstrates that automated cargo-handling equipment can eliminate 40 to 70 percent of existing jobs. However, automation also creates new jobs associated with the installation and maintenance of electrified equipment, programming, and related functions that are not present in a manual environment."
I would be curious to see Mr. Stoller delve into the 2022 contract negotiations and present a fair summary of who is/is not being "greedy" and the impact of resulting inefficiencies.
An oldie but a goodie:
A new foreman visits his construction site and is shocked to see his workers using shovels to dig holes while the brand new Caterpillar Excavator is sitting idle on the lot. He goes up to the assistant and asks him why they aren't using the new machine. "Well", says the assistant, "if we used the excavator, then the job would get done quicker and we wouldn't get paid the extra hourly labor rates. The new foreman responds, "Why not give them spoons?".
Just a plug for you here, Matt. I'm a subscriber and I have found this Substack to be fascinating. I've learned an awful lot in a short time.
This was a great essay and timely. So good in fact that I decided to become a subscriber. Suggestion: You might want to consider doing a story (it could be a book really) on why the US has virtually no American flag shipping and the very real threat this has on national security as well as competitiveness in the ocean shipping trade, American jobs and that “supply chain” issue. BTW this problem goes back to the 1960s and nobody seems to care or even be aware.
"Many BIG pieces reach well over 100k readers, and each issue is read obsessively by antitrust lawyers, enforcers, Hill staffers, and people in power." I am glad to read this. The fight against corporate power is the most important one. Everything depends on this. Climate change, biodiversity, democracy, health care, education, etc. As long as we allow corporations and billionaires to have an oversized influence on politics, we are doomed.
"And if you have signed up, let me know what you’d like me to cover more of in 2022 by responding to this email." I like to see the anti-monopoly movement broaden its reach and take on the wider question of how to limit the influence of corporations on politics.
Thanks for writing about this complex issue in a way that a 'normal' person can understand.
Hi Matt, great article as a follow up to your previous article on Supply Chain. You are correct in identifying the drayage trucker as the de-facto supply chain manager for getting the containers from the port to warehouse. I would like to point out a few more things though,
1. Southern CA warehouse space availability issue: since 40% of imports come through the two ports, a lot of corporations for import/distribution centers in Southern CA. Once we have the increased demand starting in 2020, there is simply no warehouse available. Market price for the warehouse has almost doubled in the past 2 years. Corporations don't have space to offload the containers. So the containers are de-factor extra storage space.
2. Port operations. Compared to the rest of the world, we are still extremely inefficient in port operations. I don't want to point fingers here. But until we can increase the efficient, there is no way we can handled the increased demands. So the only way to reduce the jam is for the demand to decrease, which means consumers buy less products.
3. More of a pie-in-the-sky point. If you look at airline industry, they went to the super-jumbo jets of Airbus A380 because they thought there is only so many gates at these hub & spoke system airports. That insight was wrong in the end because airline found out direct point-to-point was better. So they went with smaller aircraft. Right now, shipping lines are operating at hub & spoke system. What if someone offer direct point-to-point service to the secondary ports in this country, like the Texas ports and Southeastern ports? In my experience, virtually all Texas cargos are imported into LA and railroaded into Texas. Why can't someone do direct service to Houston port given the congestion in LA? What about Mobile or FL ports? Given the size of economies there, wouldn't someone do that? Perhaps Jones Act might have something to do with it? Just speculating.
Keep up the great work Matt!
I'm just a small city civil litigation lawyer who doesn't do any anti-trust work, but Matt's readable explanations of monopoly issues are fascinating.
"there is an endless permutation of possible coordinating issues ... there is no incentive to solve these issues, and plenty of incentives not to"
The free market is driven by competition but capitalism is different. Without an incentive (regulations) to do the right thing, capitalism will follow the built in incentive (greed) to do the wrong thing. I acknowledge that corporations are more effective than governments - they can create red tape, inefficiency, catch-22s and bankruptcy faster than an army of government bureaucrats. Monopoly capitalism functions more like the mafia than the free market.
I happened to come across this from Metafilter. I was, before retiring, a logistician for DoD ammunition and explosives. I want to congratulate you on this posting. Unfortunately it will never become common knowledge because the MSM is happy to blame everything on "the supply chain" as some magic entity that exists independent of governments and corporations. Almost always when there is a problem someone is making money off of it. I am sure the carrier cartels are making money, but also the financial industry. About the only thing the USA makes today is more ways to make money off other people's money. The financial industry is apolitical and anational. It only cares about itself and making more money.
This is such an excellent newsletter. I don't know what your plans are for the new year, but please consider a newsletter (or series of newsletters) devoted to specific legislative changes in various industies that would bypass culture wars (and lobbyists where possible) to improve various aspects of our commerce. Perhaps this shipping reform act can create some momentum in Congress to actually fix a few more 50+year-old problems.
Hi Matt,
I have read your work for a long time, and there is only one reason I am not a paying subscriber.
It's the fact that I live in Europe and obviously your work is US centric.
At the same time I am very happy you are keeping most of the work free, because it gives a lot to think about. I live in a small country and it seems in most every field there is an oligopoly or monopoly, from groceries to lumber to much more obscure domains like professional assessments required by certain standards, and all of these are seriously affecting both the producer and consumer ends, plus working against small business in general.
So, your work is inspiring, thank you.
Great article. I thought I might add that supply chain pressures are likely to ease somewhat for the first three months of the New Year, before the pressure begins to ramp up again as seasonal belt-tightening ends. Unfortunately, there are some areas where this simply isn't the case, and the issues are far more systemic- such as with chip supply. Higher costs and short supply are likely to be with us for some time in areas like new cars, used cars and car rentals.
I've recently been doing a bit of research into the after effects of Brexit. The answer is that it has not been as disastrous as predicted, but is still an economic concern. The predictions of a 4% contraction over the medium term seem pretty on the money to me- which unsurprisingly won't disappoint too many Brexit supporters- of you are a part of the substantial portion of the population who have really only seen their wages stagnant (in some cases halving, such as in construction) or subject to labour displacement and job insecurity, then the wealth created from the free movement of peoples and trade really won't have been benefitting you for the past twenty odd years, since the UK really began to take advantage of its relationship with the EU in the mid to late nineties under Tony Blair.
On the other hand if, like me, you were a Remainer and had the advantage of working in the high skills/knowledge sectors of the economy, then you likely still feel resentful and prone to blaming every new problem as it emerges on the poor decision of the other half of the country to leave the EU. Unless, of course, you've taken the time to dig deeper, understand the underlying class tensions and the prevalence of ingroup in blue collar and underclass demographics and have come to the realisation that economic growth and affluence through trade really isn't that important unless you happen to a part of the lucky top 20% of society who happen to be its key beneficiaries.
Anyway, the reason why I mention all of this is because one of the key metric I looked at to measure the impacts of Brexit was trading intensity, which for those who are unfamiliar is a measure with looks at the sum of imports and exports, compared to total GDP. It has dropped by 10 points since Brexit. The thing is, compared to many other advanced economies and despite its reputation for trade, America's trade intensity really is quite low, by comparison to most of the other advanced economies of the world- which would tend to suggest, at face value, that America produces far more of its own goods domestically, than anyone realises.
Now, I wouldn't imagine this would be the case. It is likely that significant portions of American wealth are generated by non-physical goods in areas ranging from technology to movies, finance to media and the service sector. But there are whole sectors of the American economy which shouldn't really have been disrupted as much as they have been, other than because of the fact that the pandemic, lockdowns and the psychological impact that fear has had in pushing people away from service consumption and towards physical goods at exactly the time when physical production has been compromised by the low outputs and limitations to production which have imposed by our reaction to Covid, much of it justified- especially on the ground of worker safety- some of it less so.
Admittedly, I haven't really done a deep dive on this issue- I've been readying myself for Christmas, have my own Substack to write and have to tend to my real income sources (at least for the moment). But it is certainly worth looking into, especially in areas like food and agriculture, where America is by far the world's largest exporter. I imagine much of it has to do with lucrative export opportunities abroad- in a situation analogous to those Russia found itself in around a decade ago (?), when Putin threatened to halt oil and grain exports unless reasonable prices were restored to Russian citizens.
I also suspect many are taking the opportunity to price gouge, and some of the journalism from Breaking Points and its friends supports this hypothesis. But it certainly bears more scrutiny- is corporate America rebelling against the reality that in the tighter labour markets created by the pandemic and other factors, are they trying to jink a process which can only lead to American labour receiving fairer pricing for their labour? They certainly don't have the increased costs to justify their price hikes through labour alone, although there certainly are other areas, such as through gas prices, where there may be at least some more reasonable pricing concerns.
I would think about contacting the guy who runs Economics Explained on YouTube. He has the habit of explaining economics in a manner far better than I can- which is one area where I still tend to get bogged down in the technical (a sure sign of insufficient knowledge) and veer towards the discursive. Anyway, I greatly enjoy your work. Keep it up! I hope the suggestion is productive.
1) Fingers crossed for the ocean shipping reform act. Great explanation.
2) I'm quite interested in how the pandemic + remote work + supply chain issues are impacting wage growth & worker power. Lower wage in-person workers are suddenly harder to replace with outsourcing. At the white collar level, it's been interesting to follow the rhetoric of firms trying to normalize wage reductions for workers moving out of big cities by claiming that they are paying regional "market" rates. But no one knows what's "market" -- the range of software engineers in Boise in 2019 probably bears little resemblance to the talent pool available there now. And no one knows the size of any given white collar labor market, because of the simultaneous power struggle over what percentage of time employers will be able to require workers to show up in-person. Workforce participation is also probably still impacted by the messed up school situation. Some industry leaders that already have a nationwide draw may still have monopsony power to hold down wages, but there are probably regional employers that are suddenly having to compete nationwide. This could result in a bimodal distribution-- higher wages for niche talents and wage compression for more fungible positions, which could reduce regional inequality. But who knows.
3) Forced arbitration for workers & consumers is out of control. Congress should amend the FAA. At the B2B level where it's somewhat more voluntary, the dynamic is a bit like parents individually choosing private schools over public schools, rather than coming together to improve public schools. Parties choose arbitration in part because it can be faster and less expensive than using the court system (with the caveat that those potential benefits don't always materialize and there are also other factors at play-- e.g. parties like that it is confidential and doesn't result in public court records), but the better solution would be to improve the court system.
4) Hashtag governing yay.
I know this is the same as saying the sky is blue, but I learned at lot from this issue. This sounds like a pet peeve but one monopoly I would want to see covered in 2022 is beer. I can go anywhere in the country and find 6-8 different local craft beers, but I the only consistent beers I can find at a store are some variation of Bud/Modelo. I don't understand how something that has so much variety throughout the world is monopolized by a company like Anhesuer Busch.
Another fascinating piece. Thanks for your work.
"let’s start with the ‘trucker shortage,’ which is a commonly used *semi*-myth"
I see what you did there
I find it interesting that none of Mr. Stoller's articles address one of (though not the only) elephants in the room - Unions:
https://ilaunion.org/2021/05/latest-long-beach-terminal-automation-draws-ilwu-backlash/
"The union opposes the project on the grounds it will eliminate some dockworker jobs, but employers say automation is needed to increase capacity and keep the ports of Long Beach and Los Angeles competitive."
"Past experience in Southern California demonstrates that automated cargo-handling equipment can eliminate 40 to 70 percent of existing jobs. However, automation also creates new jobs associated with the installation and maintenance of electrified equipment, programming, and related functions that are not present in a manual environment."
I would be curious to see Mr. Stoller delve into the 2022 contract negotiations and present a fair summary of who is/is not being "greedy" and the impact of resulting inefficiencies.
An oldie but a goodie:
A new foreman visits his construction site and is shocked to see his workers using shovels to dig holes while the brand new Caterpillar Excavator is sitting idle on the lot. He goes up to the assistant and asks him why they aren't using the new machine. "Well", says the assistant, "if we used the excavator, then the job would get done quicker and we wouldn't get paid the extra hourly labor rates. The new foreman responds, "Why not give them spoons?".