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.
Shipping AND manufacturing. Seems pretty short sighted, sigh. It has all been sacrificed for the last penny of profit. It really is the snake eating it's tail.
My uncle, god rest his soul, was a chief engineer on one of the few US flags in the late 1980's (Lykes brothers). On a average size for the time container ship (approx 1100 TEU) for the time on the Galveston to northern Europe run.
On one of his last trips before retiring we took a north sea cruise with him, getting on at Rotterdam and off a few days later at Felixstowe, calling a Bremerhaven in between (Lykes line ships often had a few passenger staterooms, including on container ships).
"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.
Key sentences for me were "The only opponents is the cartel of ocean carriers, who are all foreign-owned." and "The Cato Institute opposed the bill". It seems to me we were just lucky that the main interest group was foreign owned. Otherwise we might well have been in the usual situation where corporate power (and the Cato Institute) opposes all sensible politics.
One more remark about corporate power: Milton Friedman is often quoted to have said "The only corporate social responsibility a company has is to maximize its profits" ... but one rarely hears that this only makes sense if corporations have no influence on those who are responsible for making the rules.
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.
In relation to your third point, supply chains need to have their sea hubs based through all weather ports, because of the reliability factors. Sometimes this can be a feature of the geography but other times this requires the construction of an outer harbour and many of the smaller outer harbours aren't really suitable for moving good en masse. But you are right- given the advanced information technology which has been available for at least a decade, distribution systems should be far more distributed and localised than they currently are.
A part of the centralisation lies in the overhead reduction and lower labour cost which can be achieved with the larger warehouses, but I suspect another part of it is that they really don't have the incentives to change. Changes like this only happen when there is the incentive of competition to increase product quality and lower prices, and as this Substack quite aptly points out there are many areas of the American economy which have seen a gradually increasing dearth of competition because of the mergers and acquisition process which has been running in America for several decades.
One of the unforeseen consequences of this over-centralisation is longer shelf-life which makes food products taste like shite- because obviously fresher tastes better. If you've ever tried artisanal bread that's how all bread is supposed to taste! Although the Chorleywood method and an insufficient proving process is also a key factor. It's also terrible for climate change, because centralised warehousing and distribution hubs mean longer and unnecessary journeys for food to get to the consumer. The final impact is the selection of strains of fruit and veg which transport well, but aren't particularly palatable.
In the UK, we have the Santos strawberry which is aptly named the bouncing strawberry. One notices it a lot with tomatoes- cardboard and water with nutrient fed tomatoes are also an issue- but as you will know, if you've ever grown your own tomatoes, the tomatoes you buy in shops really should taste better.
Some issues with that: extra sea mileage through panama (and some big ships are too big for that route, not compliant to PANAMAX), round the bottom of south American is too long and significantly more dangerous (weather).
Some china to Europe cargo has shifted to trains but until recently that was more expensive (a bit cheaper than air) and not a whole lot quicker, pretty limited in capacity, so has stayed niche for now. (Amazingly I had a trackable eBay parcel take the train last year, could see the transit through rail interchanges in Belarus and Poland on the way to the UK, came off the train in Poland and was trucked from there although some trains go to Belgium and UK).
Matt mentioned in an earlier article that these larger ships aren't that much more fuel efficient and actually causes more clogging at the ports. I am merely speculating if shipping industry can go the way of airlines, going to point-to-point vs dropping everything at a major port (hub) and railroad over. To me, it just seem to make more sense if the routings are diversified and not so dependent on a major hub. Furthermore, adding rail to the journey means another component that is vulnerable to hiccups. Keep the process as simple as possible.
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.
With regard to point 3), the option to launch and have your case heard in a Small Claims Court, without the defendant having recourse to a higher court, is the obvious solution to most consumer issues- because it dilutes the power of corporations to outspend the plaintiff in playing legal hardball.
The employee issue is a harder one. Here in the UK we have industrial tribunals, but there would be too much opposition in the US because they are largely a function of government and really do lean left. Perhaps judicial oversight as an audit function is the answer- with a view to ensuring that the third party arbitration really is a neutral arbiter.
Your last sentence is so true; but the purpose of arbitration is to strip consumers of their constitutional rights. With that said, JP's and judges are often bought and paid for, too, as would also be any arbitrator overseer.
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.
I should have also mentioned that it happens a lot more often in America than anybody realises, especially in areas like packaged meals- because although the differentiated brands on the shelves often look like the are provided by different companies, they often have the same controlling interest. It's even more opaque than that- because many corporations can easily have two or three hundred companies under their umbrella, and dominate in certain markets. Unilever is a prime example- they own over 400 brands- although it is perhaps unfair to lump them in with some of the worse food corporations.
'but I the only consistent beers I can find at a store are some variation of Bud/Modelo'- this is a competition issue. Basically, it is a supplier which is offering strong price incentives to only stock their brand. This used to happen fairly regularly in the UK with things like ice cream or butter, until the practice was scrutinised by the predecessor of the CMA, the Competition Commission and Office of Fair Trading.
UK dairy used to be part government owned, then farmer owned. Now 2 major combines: Arla (part farmer owned but not UK farmers) and Müller. And doorstep delivery is practically a customer unfriendly monopoly of Müller (milk and more).
It's not Anheuser Busch any more. AB merged with InBev (from Belgium) to become AB InBev in 2008.
"Anheuser-Busch InBev SA/NV, commonly known as AB InBev, is a multinational drink and brewing company based in Leuven, Belgium. AB InBev has a global functional management office in New York City, and regional headquarters in São Paulo, London, St. Louis, Mexico City, Bremen, Johannesburg and others. It has approximately 630 beer brands in 150 countries."
"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?".
A solution to this problem could be to give workers a seat on the board. After all, workers should have an interest in keeping their company competitive.
That is ostensibly what the union is there to represent and they appear to be properly using their fiduciary duty for the sake of their members. I just want Mr. Stoller to recognize that blaming his preferred baddie for their incentives while not acknowledging the myriad other competing incentives/interests makes me less interested in his analysis. He clearly doesn't like the greedy capitalists and will always side with government bureaucrats who have "other ways of knowing" how to run an entire industry despite the majority of them having never worked a real job in their lives. Ignoring the Union problem is just another blind spot.
Concerning workers representation on the board explicitly, if a company freely chooses to do so, I have no problem with that; however, if/when that is forced from the government, I'm entirely against it. Further (and this comment is not directed at you per se), I'm more than happy to allow workers an equity stake in their company as long as they are willing to bear the losses if it doesn't work out.
But to dig deeper, there is no law I'm aware of (certainly open to being wrong) that prevents any company from doing just that. The fact that it has not been historically done, and especially at scale, may tell you something about its efficacy. However, that doesn't prevent people thinking that government can coerce an academic hypothesis on the entire nation to prove what's already been proven by the marketplace itself.
Another way I like to phrase this is that any socialist can operate by their supposed values in a capitalist society because they have the freedom to do so; however, a capitalist can never operate in a socialist society. So the question becomes, why don't we see a plethora of worker-owned & operated businesses thriving? There are certainly co-ops that exist at local levels, companies that allow all workers to vote on pay raises (Expensify), and we even had Ben & Jerry's create their CEO pay-scale rule. Whoops, they had to rescind that because they couldn't attract the talent with that rule, and many of the co-ops fail due to internal strife. Expensify is currently trucking along; however, it does not appear to be thriving.
So it's on you to explain (with supported evidence) a) that having employee (and I assume you mean lower-wage employee) representation creates a better economic model for both employees and shareholders, b) why unions are not doing this properly, and c) why it should be forced on an entire nation despite having zero proof of its efficacy at scale.
There has been enough growth in shipping that automation should not reduce jobs overall. Some will be different, but should be similarly paid. Unions not entirely the problem, although they can be short sighted and needing alignment to create joint benefit.
Matt, thanks for the thoughtful article and interesting angle. While I agree that the liner companies are the biggest beneficiaries of the congestion and also that their incentive structure is aligned accordingly, implying that the liner companies are the main reason for the congestion and that they are at fault for not providing the solution is just silly. This is like saying the oil companies are the cause of traffic in LA because people burn a lot more gas sitting in traffic and they enable and benefit from it by providing the gas. Infrastructure at every level is completely overwhelmed by the surge of imports. As suggested in Sal's video that you posted, a radical solution is needed to increase storage capacity for containers off port. The suggestion in the video is the Dodgers stadium parking lot. This is something that the government needs to step in and facilitate because this is completely outside the domain of any single or group of liner companies. It's a nice thought that the liner companies have the moral imperative and power to make this happen, but this is not how the world works. This is why we need government to play its part. Although good vs evil, right vs wrong, hero vs villain makes for much more polarizing narrative, the truth is a bit more complex, "fault" is a bit more distributed, and the solution will need to be a bit more nuanced to succeed. My fear is that the prevailing narrative about the "evil liner companies" will lead to a punitive reaction that doesn't actually solve the problem but in fact makes it much worse.
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.
Agreed!! This is exactly what journalism is supposed to be. Thanks, Matt!
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.
Shipping AND manufacturing. Seems pretty short sighted, sigh. It has all been sacrificed for the last penny of profit. It really is the snake eating it's tail.
My uncle, god rest his soul, was a chief engineer on one of the few US flags in the late 1980's (Lykes brothers). On a average size for the time container ship (approx 1100 TEU) for the time on the Galveston to northern Europe run.
On one of his last trips before retiring we took a north sea cruise with him, getting on at Rotterdam and off a few days later at Felixstowe, calling a Bremerhaven in between (Lykes line ships often had a few passenger staterooms, including on container ships).
"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.
Key sentences for me were "The only opponents is the cartel of ocean carriers, who are all foreign-owned." and "The Cato Institute opposed the bill". It seems to me we were just lucky that the main interest group was foreign owned. Otherwise we might well have been in the usual situation where corporate power (and the Cato Institute) opposes all sensible politics.
One more remark about corporate power: Milton Friedman is often quoted to have said "The only corporate social responsibility a company has is to maximize its profits" ... but one rarely hears that this only makes sense if corporations have no influence on those who are responsible for making the rules.
Thanks for writing about this complex issue in a way that a 'normal' person can understand.
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.
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!
In relation to your third point, supply chains need to have their sea hubs based through all weather ports, because of the reliability factors. Sometimes this can be a feature of the geography but other times this requires the construction of an outer harbour and many of the smaller outer harbours aren't really suitable for moving good en masse. But you are right- given the advanced information technology which has been available for at least a decade, distribution systems should be far more distributed and localised than they currently are.
A part of the centralisation lies in the overhead reduction and lower labour cost which can be achieved with the larger warehouses, but I suspect another part of it is that they really don't have the incentives to change. Changes like this only happen when there is the incentive of competition to increase product quality and lower prices, and as this Substack quite aptly points out there are many areas of the American economy which have seen a gradually increasing dearth of competition because of the mergers and acquisition process which has been running in America for several decades.
One of the unforeseen consequences of this over-centralisation is longer shelf-life which makes food products taste like shite- because obviously fresher tastes better. If you've ever tried artisanal bread that's how all bread is supposed to taste! Although the Chorleywood method and an insufficient proving process is also a key factor. It's also terrible for climate change, because centralised warehousing and distribution hubs mean longer and unnecessary journeys for food to get to the consumer. The final impact is the selection of strains of fruit and veg which transport well, but aren't particularly palatable.
In the UK, we have the Santos strawberry which is aptly named the bouncing strawberry. One notices it a lot with tomatoes- cardboard and water with nutrient fed tomatoes are also an issue- but as you will know, if you've ever grown your own tomatoes, the tomatoes you buy in shops really should taste better.
I think he addressed this in a previous article. Mega container ships have taken over shipping and can only use a couple specific ports.
Some issues with that: extra sea mileage through panama (and some big ships are too big for that route, not compliant to PANAMAX), round the bottom of south American is too long and significantly more dangerous (weather).
Some china to Europe cargo has shifted to trains but until recently that was more expensive (a bit cheaper than air) and not a whole lot quicker, pretty limited in capacity, so has stayed niche for now. (Amazingly I had a trackable eBay parcel take the train last year, could see the transit through rail interchanges in Belarus and Poland on the way to the UK, came off the train in Poland and was trucked from there although some trains go to Belgium and UK).
Matt mentioned in an earlier article that these larger ships aren't that much more fuel efficient and actually causes more clogging at the ports. I am merely speculating if shipping industry can go the way of airlines, going to point-to-point vs dropping everything at a major port (hub) and railroad over. To me, it just seem to make more sense if the routings are diversified and not so dependent on a major hub. Furthermore, adding rail to the journey means another component that is vulnerable to hiccups. Keep the process as simple as possible.
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.
With regard to point 3), the option to launch and have your case heard in a Small Claims Court, without the defendant having recourse to a higher court, is the obvious solution to most consumer issues- because it dilutes the power of corporations to outspend the plaintiff in playing legal hardball.
The employee issue is a harder one. Here in the UK we have industrial tribunals, but there would be too much opposition in the US because they are largely a function of government and really do lean left. Perhaps judicial oversight as an audit function is the answer- with a view to ensuring that the third party arbitration really is a neutral arbiter.
Your last sentence is so true; but the purpose of arbitration is to strip consumers of their constitutional rights. With that said, JP's and judges are often bought and paid for, too, as would also be any arbitrator overseer.
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.
I should have also mentioned that it happens a lot more often in America than anybody realises, especially in areas like packaged meals- because although the differentiated brands on the shelves often look like the are provided by different companies, they often have the same controlling interest. It's even more opaque than that- because many corporations can easily have two or three hundred companies under their umbrella, and dominate in certain markets. Unilever is a prime example- they own over 400 brands- although it is perhaps unfair to lump them in with some of the worse food corporations.
'but I the only consistent beers I can find at a store are some variation of Bud/Modelo'- this is a competition issue. Basically, it is a supplier which is offering strong price incentives to only stock their brand. This used to happen fairly regularly in the UK with things like ice cream or butter, until the practice was scrutinised by the predecessor of the CMA, the Competition Commission and Office of Fair Trading.
UK dairy used to be part government owned, then farmer owned. Now 2 major combines: Arla (part farmer owned but not UK farmers) and Müller. And doorstep delivery is practically a customer unfriendly monopoly of Müller (milk and more).
It's not Anheuser Busch any more. AB merged with InBev (from Belgium) to become AB InBev in 2008.
"Anheuser-Busch InBev SA/NV, commonly known as AB InBev, is a multinational drink and brewing company based in Leuven, Belgium. AB InBev has a global functional management office in New York City, and regional headquarters in São Paulo, London, St. Louis, Mexico City, Bremen, Johannesburg and others. It has approximately 630 beer brands in 150 countries."
https://en.wikipedia.org/wiki/AB_InBev
Then they bought SABMiller...
They already made some of the best beers in the world. Pavel Kwak, Geuze, Trappiste and in chocolate they are right up there too.
Is it wrong that I remember when the only way to get a Trappiste was to live in the same district as the monastary?
Nah, just old like me. Ex-wife and I lived in Brussels 84/85 and enjoyed it greatly.
I'm retired USAF, stationed in Germany three times. I much prefer pilseners, but enjoyed Trappistes on those occasions they were available
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?".
A solution to this problem could be to give workers a seat on the board. After all, workers should have an interest in keeping their company competitive.
As happens routinely in Germany. Great automated ports there, although there are some supply chain problems despite this.
That is ostensibly what the union is there to represent and they appear to be properly using their fiduciary duty for the sake of their members. I just want Mr. Stoller to recognize that blaming his preferred baddie for their incentives while not acknowledging the myriad other competing incentives/interests makes me less interested in his analysis. He clearly doesn't like the greedy capitalists and will always side with government bureaucrats who have "other ways of knowing" how to run an entire industry despite the majority of them having never worked a real job in their lives. Ignoring the Union problem is just another blind spot.
Concerning workers representation on the board explicitly, if a company freely chooses to do so, I have no problem with that; however, if/when that is forced from the government, I'm entirely against it. Further (and this comment is not directed at you per se), I'm more than happy to allow workers an equity stake in their company as long as they are willing to bear the losses if it doesn't work out.
What specifically is your argument against laws forcing companies to have representatives of employees on their board?
Primarily the word "force".
But to dig deeper, there is no law I'm aware of (certainly open to being wrong) that prevents any company from doing just that. The fact that it has not been historically done, and especially at scale, may tell you something about its efficacy. However, that doesn't prevent people thinking that government can coerce an academic hypothesis on the entire nation to prove what's already been proven by the marketplace itself.
Another way I like to phrase this is that any socialist can operate by their supposed values in a capitalist society because they have the freedom to do so; however, a capitalist can never operate in a socialist society. So the question becomes, why don't we see a plethora of worker-owned & operated businesses thriving? There are certainly co-ops that exist at local levels, companies that allow all workers to vote on pay raises (Expensify), and we even had Ben & Jerry's create their CEO pay-scale rule. Whoops, they had to rescind that because they couldn't attract the talent with that rule, and many of the co-ops fail due to internal strife. Expensify is currently trucking along; however, it does not appear to be thriving.
So it's on you to explain (with supported evidence) a) that having employee (and I assume you mean lower-wage employee) representation creates a better economic model for both employees and shareholders, b) why unions are not doing this properly, and c) why it should be forced on an entire nation despite having zero proof of its efficacy at scale.
There has been enough growth in shipping that automation should not reduce jobs overall. Some will be different, but should be similarly paid. Unions not entirely the problem, although they can be short sighted and needing alignment to create joint benefit.
Matt, thanks for the thoughtful article and interesting angle. While I agree that the liner companies are the biggest beneficiaries of the congestion and also that their incentive structure is aligned accordingly, implying that the liner companies are the main reason for the congestion and that they are at fault for not providing the solution is just silly. This is like saying the oil companies are the cause of traffic in LA because people burn a lot more gas sitting in traffic and they enable and benefit from it by providing the gas. Infrastructure at every level is completely overwhelmed by the surge of imports. As suggested in Sal's video that you posted, a radical solution is needed to increase storage capacity for containers off port. The suggestion in the video is the Dodgers stadium parking lot. This is something that the government needs to step in and facilitate because this is completely outside the domain of any single or group of liner companies. It's a nice thought that the liner companies have the moral imperative and power to make this happen, but this is not how the world works. This is why we need government to play its part. Although good vs evil, right vs wrong, hero vs villain makes for much more polarizing narrative, the truth is a bit more complex, "fault" is a bit more distributed, and the solution will need to be a bit more nuanced to succeed. My fear is that the prevailing narrative about the "evil liner companies" will lead to a punitive reaction that doesn't actually solve the problem but in fact makes it much worse.