In tonight's State of the Union, Joe Biden will talk about inflation. One solution he'll propose is going after the ocean shipping cartel. We are, slowly, reorienting how we make and move things.
War causes inflation, that's one of the reasons not to like it. Overall, however, war must be good for the economy and corporate balance sheets because we keep doing it. Senseless destruction is an integral component of capitalism. What could be better than selling expensive products to wealthy consumers (governments) who destroy the products immediately and come back for more until they're bankrupt. No need to wait years for a lightbulb or engine to wear out before selling a new one. Great business model on paper but there is something intangible missing from the spreadsheet. Often people are destroyed along with the expensive equipment and their families complain about it. It's a PR problem, a waste of human life and leads to premature endings to successful wars. Instead of blowing people to pieces, I suggest buying the jets, tanks and missiles and dumping them and the things they would normally have destroyed (buildings, cars, trees, bridges, trains and railroads) into a deep part of the ocean. Perhaps, for symbolic reasons, the things would be given to the enemy who would dump them into the ocean and vice-versa. Whoever can dump the most expensive things into the ocean fastest would be declared the winner. That would be more logical, more efficient and presumably generate higher profits, which is what rationale investors are striving for.
I'm loving your segments on Breaking Points right now! However, I'd be remiss to not mention that I am confused about the fact that you don't have a published date on the top of your articles. While I'm sure all of this is terribly relevant, regardless of whether it's 2019 or 2022, at this point, it would be nice to know if I'm deciding to subscribe whether these articles are a couple years old or not.
Hi Matt, as someone involved in US container shipping since the 80's I suggest the story is more complex and nuanced than this weeks' column or the White Paper the White House published to support President Biden's comments at the SoU last night.
The 3 operating alliances are closer to code sharing arrangements that the airline industry uses than the statement '85% of capacity' is controlled by 3 cartels. The 10 independent shipping companies based in Denmark, France, Switzerland, Taiwan, China, Germany, Israel, S.Korea and Japan share the very large and very capital intensive Ultra Large Container Carrying vessels for efficiency reasons. They are slow, large enough to be limited by draft and crane capacity to a few large ports and so to have a regular service for the customers - weekly sailings are preferred - there is minimum number of vessels needed to provide the service. Its like the sushi boats going round in circles, you need enough boats to carry the food so you do not have to wait too long but not too many. Individual companies would struggle to have enough of their own vessels to maintain a service so they work in consortia, sharing the provision of ships in return for a guaranteed number of slots per sailing per port. Company X provides 3 vessels to a route that needs 16 vessels to offer weekly service from China to US and Canada but gets in return say, 1200 TEU of slots per port each week to offer its customers. What each company charges each shipper ( the owner of the goods) is up to each, based on volumes they get for that route and other volumes on other routes, through a process of arms' length negotiations. The shipper has the option to contract at a fixed rate for a fixed period of time or take what the spot market offers when they try and book. All the headline rates of $10,000 rising to $30,000 per 40' are for spot rates, not what Walmart or Target is paying.
The container shipping industry lost collectively $19 billion for the years 2009-2019, yet had to invest in the very large vessels to drive operating costs down. Shippers played one line against another, spot rates were below cost and just marginal contribution and as you point out, it was mainly bust, last year was the only boom. I do find it ironic that the US, with so many monopoly or concentration of market power issues across key parts of our day to day lives created through unbridled capitalism, that you highlight in your excellent newsletters, is now unhappy that the market has rewarded the shipping lines for their prior investment and unique market opportunity. I wonder if this sense of disquiet is partly because the USA sold its shipping interests years ago, (they offshored the problem) and so all major container carriers are foreign owned and that do not really lobby Washington.
The biggest beef seems to come from US Agricultural goods exporters that they can no longer rely on market subsidized export containers for goods that everywhere else in the world are rightfully shipped in bulk. They want shipping lines to move empty, containers, from Chicago or Dallas where they were unloaded, to northern Idaho or Wyoming so they can load them with wheat or soy beans for export to China and pay marginal contribution freight rates. Unsurprisingly after years of that nonsense the shipping lines have decided that thanks but no thanks, we will just ship them empty, efficiently, on our trains back to the port and then empty to China for another container load of consumer goods at a real market freight rate. What they should have is an infrastructure that facilitates moving by rail to the port to be loaded on a bulk ship but that's not there because the private US railroads who generally operate as near monopolies do not see the payback in that investment.
The biggest problem the shipping lines face is the lack of velocity in the global system. There is no single cause and therefore no single solution, the keen guys at the DOJ or the FMC will not help that either. Too much traffic from post-pandemic crazed buying of consumer goods/house purchasing/refurbishment driving imports imbalanced with zero US exports; US ports not being able to unload and move as fast as China - 5 days x 10 hrs plus 1 day x 4 hours compared to 24/7; warehouses full so containers stuck loaded on chassis, long distance trucking not being anyone's favorite job; port space constrained by all the loaded boxes stuck on quay so no space to take back empties. This is prior to the Ukraine war's impact which will take out more capacity and slow down velocity again. Velocity being slow means shipping lines are not getting the same turn on their assets so do not expect them to reduce price any time soon, after all its a free market and the demand will determine price, not the government.
So many articles here contain the four letter word again and again. RISK. Still nobody talks about how the big businesses became loaded with risk.
When did it become unpopular to make resilient systems? What was the tipping point where managers and organizations decided that dealing with risk is not worth it, just go and take the profits which are available now? Did lean philosophy drive this? Becoming too big to fail?
There seems to be a curious side effect of the race to the bottom. As can be seen from the shipping example, if the result is systemic risk, there can even be business gain when the risk is realized. This discovery could be worth a Nobel prize: Realizing risk is actually good for business, effectively nullifying the very definition of risk itself. Only opportunity remains.
Somehow the present state seems to have spawned from the dreams, or nightmares, of game theory hardliners applying their craft into global business. Perhaps this is normal in monopolized systems. The rest of us wonder why there isn't a free market saviour with a new, better shipping service running the others out of business.
Making the analogy of business risk to risk in safety systems design, they are all about managing risk to an acceptable level. The difference is that in engineering there are principles and models which are enforced to gain assurance of a level of acceptable risk. The battle to reduce cost is mostly on the next metalevel of choosing the inputs, models, and acceptable levels. It is much harder to totally disregard risk and resilience when reference models and levels are assured by the regulators, with the notable exception of some passenger jet manufacturers, apparently. Businesses by and large don't have such enforcement in business risk models to my knowledge (I'm an engineer, not a lawyer), but certainly there has necessarily been a tendency in the past for businesses thriving in the long term to look further than their noses.
Reverting back to the original question. What was the tipping point for creating the lack of resilience and risk loading businesses instead? Certainly The Toyota Way didn't say to maximise risks for a short term gain, actually principle 1 states the exact opposite. Perhaps this foundational principle was forgotten once the latter principles of eliminating waste were read by willing would-be lean managers - or they skipped to the later lean books focusing more on the waste, which brings measurable savings (read bonuses) to the table.
A good general keeps a reserve but it seems these days a successful businessman doesn't.
@MattStoller, Suggestion/question for you. We see a lot of bad news regarding supply chain breakdowns, and a few opportunist monopolies making a killing off of our inability to get what we need, at all. Are there any little guy, good guy winners? For example...
Claussen is my favorite pickle brand. About a month after toilet paper disappeared from our shelves, so did Claussen's. I waited a week or three to see if they'd come back, but then I was dying without pickles on my grilled burgers, and I don't like Vlasic or Mt. Olive, I like the crisp, cold, deli crunch! Plus they have a more unique flavor... Welp, I bit the bullet and tried out this lesser known (to me) brand, that Publix always had in stock: Grillo's. Turns out, they're pretty good! And I'd have never tried this had I not been forced to make due without my preferred, bigger name brand pickle. Even since Claussen's have come back, I still frequently alternate between the two now.
Costco stopped carrying big boxes of individual Goldfish AND Cheez-Its bags, which my kids love for school snacks. After months of getting by on just Ritz, they demanded I get anything more interesting. So I tried out this white cheddar puffed popcorn snack called Pirate's Booty, and it turns out they love that now too! Goldfish have finally come back, months later, and I offered it for the kids, but they asked for another box of Pirate's Booty!
I also couldn't find Cholula hot sauce for a while, so I gave Tapatio a shot. New fave!
I assume there are more people out there in my position, and that Grillo's and Pirate's Booty stocks have probably risen during the pandemic. Is this true? (Less so for Tapatio, I know they've been around, I saw them in Mexican restaurants all the time but never tried until I had to.) Are there more examples out there that you know of? Overlooked brands that actually got a bump when their larger competitors got crunched in the supply chain?
If anyone, knows the oil companies have been making short supplies when they dont like the prices. I state, here in the USA as to supplies is just open wells-lines they and betting on they have capped.
Short, USA was an exporter in 2019. now we`re importing. What,,, the fracking wells went try?
I call B.S. without looking into it closer. NOTE: when Oil hit $147 Barrow in around 2007 then went to $35. Oil CEO`s was called into congress and also was NOT sworn in,lol. But to why prices on Gasoline wasnt coming down. Reasoning Was, for there was shortages of refineries to make gasoline. WHY, for they closed them down for PROFIT. Rex Tillerson CEO of Exxon-mobile step up to answer that question. they was Closed down for PROFIT!
An Bush THEN coming out to say, "well USA is addicted to Gasoline, thats all?. Were was the uproar then?
And it is coming, here in California we`re thinking we will see 7-$8 gallon on Gasoline come this summer. Europe is there or already close to those prices now.
We are super lucky that Putin didn't start the invasion during the time of Frump. Even a year ago things would have been dicey. Or did Putin expect Biden to be even weaker than the Frump?
The arab controlled ocean shipping cartel landed in Florida and Delaware a decade ago.
Russian Club-K missile containers likely off loaded in the Delaware port, on trucks and rail.
‘Former’ Biden Aide Shawn Garvin Green Lights New Gulftainer Container Terminal At Delaware’s Port Of Wilmington; GT Linked To Iran, Saddam Hussein’s Iraqi Nuclear WMDs, Russia’s Club-K Container Missile System
By Mary Fanning and Alan Jones | The American Report | October 8, 2021
At an April 30 news conference at Israel’s Ministry of Defense headquarters in Tel Aviv, Prime Minister Benjamin “Bibi” Netanyahu unveiled Iran’s spherical, miniaturized nuclear weapon design, an implosion device strikingly similar to “Beach Ball,” the weapon of mass destruction (WMD) masterpiece of rogue Iraqi nuclear physicist Dr. Jafar Dhia Jafar.
Spherical nuclear implosion devices such as Dr. Jafar’s “Beach Ball” are powerful nuclear bombs compact enough to be mounted on missiles.
War causes inflation, that's one of the reasons not to like it. Overall, however, war must be good for the economy and corporate balance sheets because we keep doing it. Senseless destruction is an integral component of capitalism. What could be better than selling expensive products to wealthy consumers (governments) who destroy the products immediately and come back for more until they're bankrupt. No need to wait years for a lightbulb or engine to wear out before selling a new one. Great business model on paper but there is something intangible missing from the spreadsheet. Often people are destroyed along with the expensive equipment and their families complain about it. It's a PR problem, a waste of human life and leads to premature endings to successful wars. Instead of blowing people to pieces, I suggest buying the jets, tanks and missiles and dumping them and the things they would normally have destroyed (buildings, cars, trees, bridges, trains and railroads) into a deep part of the ocean. Perhaps, for symbolic reasons, the things would be given to the enemy who would dump them into the ocean and vice-versa. Whoever can dump the most expensive things into the ocean fastest would be declared the winner. That would be more logical, more efficient and presumably generate higher profits, which is what rationale investors are striving for.
I'm loving your segments on Breaking Points right now! However, I'd be remiss to not mention that I am confused about the fact that you don't have a published date on the top of your articles. While I'm sure all of this is terribly relevant, regardless of whether it's 2019 or 2022, at this point, it would be nice to know if I'm deciding to subscribe whether these articles are a couple years old or not.
Hi Matt, as someone involved in US container shipping since the 80's I suggest the story is more complex and nuanced than this weeks' column or the White Paper the White House published to support President Biden's comments at the SoU last night.
The 3 operating alliances are closer to code sharing arrangements that the airline industry uses than the statement '85% of capacity' is controlled by 3 cartels. The 10 independent shipping companies based in Denmark, France, Switzerland, Taiwan, China, Germany, Israel, S.Korea and Japan share the very large and very capital intensive Ultra Large Container Carrying vessels for efficiency reasons. They are slow, large enough to be limited by draft and crane capacity to a few large ports and so to have a regular service for the customers - weekly sailings are preferred - there is minimum number of vessels needed to provide the service. Its like the sushi boats going round in circles, you need enough boats to carry the food so you do not have to wait too long but not too many. Individual companies would struggle to have enough of their own vessels to maintain a service so they work in consortia, sharing the provision of ships in return for a guaranteed number of slots per sailing per port. Company X provides 3 vessels to a route that needs 16 vessels to offer weekly service from China to US and Canada but gets in return say, 1200 TEU of slots per port each week to offer its customers. What each company charges each shipper ( the owner of the goods) is up to each, based on volumes they get for that route and other volumes on other routes, through a process of arms' length negotiations. The shipper has the option to contract at a fixed rate for a fixed period of time or take what the spot market offers when they try and book. All the headline rates of $10,000 rising to $30,000 per 40' are for spot rates, not what Walmart or Target is paying.
The container shipping industry lost collectively $19 billion for the years 2009-2019, yet had to invest in the very large vessels to drive operating costs down. Shippers played one line against another, spot rates were below cost and just marginal contribution and as you point out, it was mainly bust, last year was the only boom. I do find it ironic that the US, with so many monopoly or concentration of market power issues across key parts of our day to day lives created through unbridled capitalism, that you highlight in your excellent newsletters, is now unhappy that the market has rewarded the shipping lines for their prior investment and unique market opportunity. I wonder if this sense of disquiet is partly because the USA sold its shipping interests years ago, (they offshored the problem) and so all major container carriers are foreign owned and that do not really lobby Washington.
The biggest beef seems to come from US Agricultural goods exporters that they can no longer rely on market subsidized export containers for goods that everywhere else in the world are rightfully shipped in bulk. They want shipping lines to move empty, containers, from Chicago or Dallas where they were unloaded, to northern Idaho or Wyoming so they can load them with wheat or soy beans for export to China and pay marginal contribution freight rates. Unsurprisingly after years of that nonsense the shipping lines have decided that thanks but no thanks, we will just ship them empty, efficiently, on our trains back to the port and then empty to China for another container load of consumer goods at a real market freight rate. What they should have is an infrastructure that facilitates moving by rail to the port to be loaded on a bulk ship but that's not there because the private US railroads who generally operate as near monopolies do not see the payback in that investment.
The biggest problem the shipping lines face is the lack of velocity in the global system. There is no single cause and therefore no single solution, the keen guys at the DOJ or the FMC will not help that either. Too much traffic from post-pandemic crazed buying of consumer goods/house purchasing/refurbishment driving imports imbalanced with zero US exports; US ports not being able to unload and move as fast as China - 5 days x 10 hrs plus 1 day x 4 hours compared to 24/7; warehouses full so containers stuck loaded on chassis, long distance trucking not being anyone's favorite job; port space constrained by all the loaded boxes stuck on quay so no space to take back empties. This is prior to the Ukraine war's impact which will take out more capacity and slow down velocity again. Velocity being slow means shipping lines are not getting the same turn on their assets so do not expect them to reduce price any time soon, after all its a free market and the demand will determine price, not the government.
So many articles here contain the four letter word again and again. RISK. Still nobody talks about how the big businesses became loaded with risk.
When did it become unpopular to make resilient systems? What was the tipping point where managers and organizations decided that dealing with risk is not worth it, just go and take the profits which are available now? Did lean philosophy drive this? Becoming too big to fail?
There seems to be a curious side effect of the race to the bottom. As can be seen from the shipping example, if the result is systemic risk, there can even be business gain when the risk is realized. This discovery could be worth a Nobel prize: Realizing risk is actually good for business, effectively nullifying the very definition of risk itself. Only opportunity remains.
Somehow the present state seems to have spawned from the dreams, or nightmares, of game theory hardliners applying their craft into global business. Perhaps this is normal in monopolized systems. The rest of us wonder why there isn't a free market saviour with a new, better shipping service running the others out of business.
Making the analogy of business risk to risk in safety systems design, they are all about managing risk to an acceptable level. The difference is that in engineering there are principles and models which are enforced to gain assurance of a level of acceptable risk. The battle to reduce cost is mostly on the next metalevel of choosing the inputs, models, and acceptable levels. It is much harder to totally disregard risk and resilience when reference models and levels are assured by the regulators, with the notable exception of some passenger jet manufacturers, apparently. Businesses by and large don't have such enforcement in business risk models to my knowledge (I'm an engineer, not a lawyer), but certainly there has necessarily been a tendency in the past for businesses thriving in the long term to look further than their noses.
Reverting back to the original question. What was the tipping point for creating the lack of resilience and risk loading businesses instead? Certainly The Toyota Way didn't say to maximise risks for a short term gain, actually principle 1 states the exact opposite. Perhaps this foundational principle was forgotten once the latter principles of eliminating waste were read by willing would-be lean managers - or they skipped to the later lean books focusing more on the waste, which brings measurable savings (read bonuses) to the table.
A good general keeps a reserve but it seems these days a successful businessman doesn't.
Thank you and -- a very refreshing and longer-term view:
Has Putin Miscalculated? | With Pepe Escobar | Part 1 of 2 – March 1, 2022
https://www.youtube.com/watch?v=T8syVHWRv_k
@MattStoller, Suggestion/question for you. We see a lot of bad news regarding supply chain breakdowns, and a few opportunist monopolies making a killing off of our inability to get what we need, at all. Are there any little guy, good guy winners? For example...
Claussen is my favorite pickle brand. About a month after toilet paper disappeared from our shelves, so did Claussen's. I waited a week or three to see if they'd come back, but then I was dying without pickles on my grilled burgers, and I don't like Vlasic or Mt. Olive, I like the crisp, cold, deli crunch! Plus they have a more unique flavor... Welp, I bit the bullet and tried out this lesser known (to me) brand, that Publix always had in stock: Grillo's. Turns out, they're pretty good! And I'd have never tried this had I not been forced to make due without my preferred, bigger name brand pickle. Even since Claussen's have come back, I still frequently alternate between the two now.
Costco stopped carrying big boxes of individual Goldfish AND Cheez-Its bags, which my kids love for school snacks. After months of getting by on just Ritz, they demanded I get anything more interesting. So I tried out this white cheddar puffed popcorn snack called Pirate's Booty, and it turns out they love that now too! Goldfish have finally come back, months later, and I offered it for the kids, but they asked for another box of Pirate's Booty!
I also couldn't find Cholula hot sauce for a while, so I gave Tapatio a shot. New fave!
I assume there are more people out there in my position, and that Grillo's and Pirate's Booty stocks have probably risen during the pandemic. Is this true? (Less so for Tapatio, I know they've been around, I saw them in Mexican restaurants all the time but never tried until I had to.) Are there more examples out there that you know of? Overlooked brands that actually got a bump when their larger competitors got crunched in the supply chain?
Well, interesting Matt, little off topic. OIL.
If anyone, knows the oil companies have been making short supplies when they dont like the prices. I state, here in the USA as to supplies is just open wells-lines they and betting on they have capped.
Short, USA was an exporter in 2019. now we`re importing. What,,, the fracking wells went try?
I call B.S. without looking into it closer. NOTE: when Oil hit $147 Barrow in around 2007 then went to $35. Oil CEO`s was called into congress and also was NOT sworn in,lol. But to why prices on Gasoline wasnt coming down. Reasoning Was, for there was shortages of refineries to make gasoline. WHY, for they closed them down for PROFIT. Rex Tillerson CEO of Exxon-mobile step up to answer that question. they was Closed down for PROFIT!
An Bush THEN coming out to say, "well USA is addicted to Gasoline, thats all?. Were was the uproar then?
And it is coming, here in California we`re thinking we will see 7-$8 gallon on Gasoline come this summer. Europe is there or already close to those prices now.
What did you think about talking about going after the ocean shipping cartel while at the same time hyping Intel?
We are super lucky that Putin didn't start the invasion during the time of Frump. Even a year ago things would have been dicey. Or did Putin expect Biden to be even weaker than the Frump?
How we make and move avacados in the Mexican state of Michoacán--monopoly story for you? www.LaikaStyle.com
Matt, you’ve got a monopoly on smart, incisive close reads like this. Thank you.
Thank you for the excellent context and update, Matt.
The arab controlled ocean shipping cartel landed in Florida and Delaware a decade ago.
Russian Club-K missile containers likely off loaded in the Delaware port, on trucks and rail.
‘Former’ Biden Aide Shawn Garvin Green Lights New Gulftainer Container Terminal At Delaware’s Port Of Wilmington; GT Linked To Iran, Saddam Hussein’s Iraqi Nuclear WMDs, Russia’s Club-K Container Missile System
By Mary Fanning and Alan Jones | The American Report | October 8, 2021
https://theamericanreport.org/category/home/gulftainer/
DOOMSDAY SOCCER BALLS: IRANIAN AND NORTH KOREAN NUCLEAR WEAPONS MIRROR DR. JAFAR’S IRAQI “BEACH BALL”; IRAN TELEGRAPHS INTENT
By Mary Fanning and Alan Jones | July 8, 2018
https://theamericanreport.org/category/home/gulftainer-papers/
At an April 30 news conference at Israel’s Ministry of Defense headquarters in Tel Aviv, Prime Minister Benjamin “Bibi” Netanyahu unveiled Iran’s spherical, miniaturized nuclear weapon design, an implosion device strikingly similar to “Beach Ball,” the weapon of mass destruction (WMD) masterpiece of rogue Iraqi nuclear physicist Dr. Jafar Dhia Jafar.
Spherical nuclear implosion devices such as Dr. Jafar’s “Beach Ball” are powerful nuclear bombs compact enough to be mounted on missiles.