{"id":200480,"date":"2021-03-29T18:30:00","date_gmt":"2021-03-29T23:30:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2021\/03\/29\/the-front-fell-off\/"},"modified":"2021-03-29T18:30:00","modified_gmt":"2021-03-29T23:30:00","slug":"the-front-fell-off","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2021\/03\/29\/the-front-fell-off\/","title":{"rendered":"The Front Fell Off"},"content":{"rendered":"<div style=\"border: 1px solid black; float: right; margin: 0px 10px; padding: 5px; text-align: center; width: 330px;\"><iframe loading=\"lazy\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen=\"\" frameborder=\"0\" height=\"180\" src=\"https:\/\/www.youtube.com\/embed\/3m5qxZm_JqM\" title=\"YouTube video player\" width=\"320\"><\/iframe><br \/><i>The Front Fell Off?<br \/><\/i><\/div>\n<p>It now appears that the Ever Given, the massive container ship which had completely blocked the Suez Canal, <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2021-03-28\/progress-made-in-moving-ship-more-vessels-diverted-suez-update\">has been freed and traffic has resumed through the waterway<\/a>.<\/p>\n<p>There is still a major backlog of ships in both directions, but after a week, we should expect a return to normal shipping conditions.<\/p>\n<p>The bigger issue is how this event <a href=\"https:\/\/mattstoller.substack.com\/p\/what-we-can-learn-from-a-big-boat\">has demonstrated the fragility of  international shipping<\/a>.<\/p>\n<p>What&#8217;s more, it has increasingly been juxtaposed with economic fragility driven by the increasingly oligopolistic nature of shipping, which means that if one shipper fails, the entire system can seize up.<\/p>\n<p>The classic Clarke and Dawe sketch, &#8220;The Front Fell Off,&#8221; (shown) is a perfect metaphor for this:<\/p>\n<blockquote><p><span style=\"color: #2b00fe;\">In this newsletter, I do a lot of explaining about complicated problems caused by big dumb corporate institutions. I don\u2019t have to do that this time, because the story of the mess in the Suez is so simple. \u201cAfter years of bitcoin and reddit short selling and credit default swaps and a million other things I don\u2019t understand,\u201d one random person put in a <a href=\"https:\/\/twitter.com\/BrandyLJensen\/status\/1375115719231336461\">tweet<\/a> that went viral, \u201cit\u2019s so refreshing to hear that global commerce is in peril because a big boat got stuck in a canal.\u201d <\/p>\n<p>That\u2019s basically the story right there, it\u2019s a big boat and it got stuck in a canal. The ship blocking the Suez, called <a href=\"https:\/\/www.ft.com\/content\/3dc797d0-7268-49a4-b0b5-3d11479cbe7f\">the Ever Given<\/a>, weights 220,000 tons, and is as long as the Empire State Building is high. Despite the hilarious nature of the problem, the disruption to world trade is large and serious, costing tens of billions of dollars. And if the ship can\u2019t be dislodged soon, some consumers will once again <a href=\"https:\/\/finance.yahoo.com\/news\/stuck-suez-canal-cargo-ship-171309327.html\">experience<\/a> shortages of basic staples like toilet paper. <\/p>\n<p>That said, the reason this disruption to global commerce seems so dumb is because it is. It starts with the ship size itself. Over the last few decades, ships have gotten really really big, four times the size of what they were 25 years ago, what the FT calls <a href=\"https:\/\/www.ft.com\/content\/3dc797d0-7268-49a4-b0b5-3d11479cbe7f\">\u201ctoo big to sail.\u2019<\/a> The argument behind making such massive boats was efficiency, since you can carry more at a lower cost. The downside of such mega-ships should have been obvious. Ships like this, which are in effect floating islands, are really hard to steer in tight spaces like ports and canals, and if they get stuck, they are difficult to unstick. In other words, the super smart wizard financiers who run global trade made ships that don\u2019t fit in the canals they need to fit into. <\/p>\n<p>The rise of mega-ships is paralleled by the consolidation of the shipping industry itself. In 2000, <a href=\"https:\/\/www.joc.com\/maritime-news\/container-lines\/new-oligopoly-container-shipping_20190704.html\">the ten<\/a> biggest shipping companies had a 12% market share, by 2019 that share had increased to 82%. This understates the consolidation, because there are alliances among these shippers. The stuck ship is being run by the Taiwanese shipping conglomerate Evergreen, which <a href=\"https:\/\/www.freightwaves.com\/news\/evergreen-group-to-drop-hatsu-its-brands\">bought<\/a> Italian shipping firm Italia Marittima in 1998 and London-based Hatsu in 2002, and is itself part of the OCEAN alliance, which <a href=\"https:\/\/atlas-network.com\/newly-formed-ocean-alliance-has-huge-impact-on-container-shipping\/\">has more<\/a> than a third of global shipping. <\/p>\n<p>Making ships massive, and combining such massive ships into massive shipping monopolies, is a bad way to run global commerce. We\u2019ve already seen <a href=\"https:\/\/www.wsj.com\/articles\/billions-in-cargo-remains-stranded-at-sea-1473285117\">significant problems<\/a> from big shipping lines helping to transmit financial shocks into trade shocks, such as when Korean shipper Hanjin went under and stranded $14 billion of cargo on the ocean while in bankruptcy. It\u2019s also much harder for small producers and retailers to get shipping space, because large shippers want to deal with large clients. And fewer ports <a href=\"https:\/\/www.ship-technology.com\/features\/featuremega-container-ships-and-how-they-are-changing-ports-4974826\/\">can handle<\/a> these mega-ships, so such ships induce geographical inequality. Increasingly, we\u2019re not moving ships between cities, we\u2019re moving cities to where the small number of giant shipping lines find it efficient to ship.<\/p>\n<p>Dumb big ships owned by monopolies are the result of dumb big ideas, the physical manifestation of what Thomas Friedman was pushing in the 1990s and 2000s with books such as The Lexus and the Olive Tree and The World is Flat, <a href=\"https:\/\/www.wired.com\/2005\/05\/friedman-2\/\">the idea<\/a> that \u201ctaking fat out of the system at every joint\u201d was leading towards a more prosperous, peaceful and competitive world. Friedman\u2019s was a finance-friendly perspective, a belief that making us all interdependent with a very thin margin of error would force global cooperation. <\/p>\n<p>\u2026\u2026\u2026<\/p>\n<p><\/span><\/p>\n<p><span style=\"color: #2b00fe;\">What is new isn\u2019t the vulnerability of the Suez Canal as a  chokepoint, it\u2019s that we\u2019ve intentionally created lots of other  artificial chokepoints. And since our production systems have little  fat, these systems are tightly coupled, meaning a shortage in one area  cascades throughout the global economy, costing us time, money, and  lives.<\/span><\/p>\n<p><span style=\"color: #2b00fe;\">It\u2019s a dumb way to organize a global supply chain system,  just as it was dumb to build ships that are too big to fit into canals.  And that\u2019s why the &#8220;big boat stuck in canal&#8221; is such a great  illustration of the problem, it shows our policymakers and corporate  leaders couldn\u2019t even think through what would happen if Really Big    Thing Got Stuck In Important Canal.<\/span><\/p>\n<p><span style=\"color: #2b00fe;\">\u2026\u2026\u2026<\/span><\/p>\n<p><span style=\"color: #2b00fe;\">The answer to addressing the problem of thinned out supply chains is to recognize that hyper-efficient globalization inherently carries the downside of unpredictable shortages, geopolitical tension, and supply disruptions. And then redesign our global trading order to make it less efficient and more resilient. There are three basic changes we\u2019ll need. <\/span><\/p>\n<\/blockquote>\n<p>Matt Stoller calls for a rigorous enforcement of anti-monopoly measures, a reimpositition of border friction like tariffs, and a restructuring of business so that they are less indebted and less vulnerable.<\/p>\n<p>Unfortunately, this will not happen, because this system was created to benefit financial institutions and to drive wages down through labor arbitrage, so his reforms are actually a repudiation of the entire system.<\/p>\n<p>I support his ideas, but I don&#8217;t think that they are politically realistic at this time.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Front Fell Off? It now appears that the Ever Given, the massive container ship which had completely blocked the Suez Canal, has been freed and traffic has resumed through the waterway. There is still a major backlog of ships in both directions, but after a week, we should expect a return to normal shipping &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1078,987,1016,1017,1111,1035],"tags":[],"class_list":["post-200480","post","type-post","status-publish","format-standard","hentry","category-disaster","category-fail","category-international-commerce","category-international-finance","category-monopoly","category-transportation"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/200480"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=200480"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/200480\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=200480"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=200480"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=200480"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}