It has been fascinating to witness the debate about “supply lines” with the Suez Canal debacle. For the last few decades, we have been told that “just-in-time” is the best economic model for businesses to operate under. Combined with the race to the bottom on the absolute need to get the lowest price for a product which has decimated our manufacturing sector. The lowest price is generally in a country where the workers are paid next to nothing, or at best, considerably less than in New Zealand. Preferably the workers would not belong to a union. Consider the dreadful treatment of workers attempting to unionise at
With the message that the supply line has been beaten about by Covid 19, and now by the boat stuck in the Suez Canal. Maybe it’s time for us to consider paying higher prices in NZ and employing New Zealanders to produce the goods. This debate is taking place in USA and in this article in the Economist the following remarks were made:
Positive structural forces are also at play. One is a likely change in industrial policy. As president, Donald Trump championed “Made in America” but waged trade wars that disrupted supply chains, raised costs for American manufacturers and estranged the foreign partners on whom they depend. The $3trn infrastructure splurge now being drawn up by his successor may be more helpful. Whether the proposal is wise, and how much of it will survive contact with Congress, is unclear. But Mark Zandi of Moody’s Analytics, a research firm, sees a “high probability” of a version passing this year. Whatever its final size, says Erik Lundh of the Conference Board, a research group, it will help industrial companies.
The more surprising factor that could power an industrial revival involves those tight supply chains. Companies facing delays to deliveries caused by bad weather in Texas, strained port capacity in California, stranded container ships in the Middle East or geopolitical tensions with China are thinking more seriously about building networks that can withstand such shocks. In the short term this involves stockpiling whatever components companies can get. In the longer run they are looking to bring production closer to home, which would bolster American suppliers.
This is already beginning to happen, says Mr Rose of BCG. General Motors is hoping to build, with LG Chem of South Korea, a second battery factory in America. Intel’s planned Arizona fabs are a way both to guarantee deliveries of chips to customers in Detroit and beyond, and to “near-shore” the semiconductor giant’s own production. Such efforts, too, could get a boost from Mr Biden, who has ordered a review of supply-chain vulnerabilities in chips, critical minerals used in electronics, large-capacity batteries for electric cars and vital medical equipment.
In short, many industry-watchers agree that the current policy and market environment represents the greatest convergence of pro-industry forces in decades. Some industrial concerns will fail to take advantage of it. GE, a troubled engineering titan, is shedding assets to stay afloat. The fate of Boeing is uncertain as its aeroplanes continue to face safety concerns and the pandemic clouds the future of air travel. Still, as Mr Davis puts it, “Whatever manufacturing companies survive this hell will be set to mint money.” ■
Here’s an interesting analysis of the “big ship” scenario by Matt Stoller in a paper about monopoly and big finance under the heading Financiers thinned out our supply chains. That was a risky bet:
The rise of mega-ships is paralleled by the consolidation of the shipping industry itself. In 2000, the ten 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 bought Italian shipping firm Italia Marittima in 1998 and London-based Hatsu in 2002, and is itself part of the OCEAN alliance, which has more than a third of global shipping.
Making ships massive, and combining such massive ships into massive shipping monopolies, is a bad way to run global commerce. We’ve already seen significant problems 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’s also much harder for small producers and retailers to get shipping space, because large shippers want to deal with large clients. And fewer ports can handle these mega-ships, so such ships induce geographical inequality. Increasingly, we’re not moving ships between cities, we’re moving cities to where the small number of giant shipping lines find it efficient to ship.
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, the idea that “taking fat out of the system at every joint” was leading towards a more prosperous, peaceful and competitive world. Friedman’s was a finance-friendly perspective, a belief that making us all interdependent with a very thin margin of error would force global cooperation.
Just make ships bigger, went the thinking, until a big boat got stuck in a canal, taking down global supply chains with it. It seems so dumb. And it is. But it’s also reality, because for whatever reason, a lot of powerful people at one point thought Thomas Friedman was a genius. And frankly, we should have seen this coming, because a lot of people have been noticing supply chain fragility, even if Thomas Friedman didn’t.
Here’s another view on the “supply chain”:
The Suez accident, which held up an estimated $9.6bn of goods a day according to Lloyd’s List, has drawn attention to the inherent fragility of tightly stretched global supply chains at the very moment when they are already being buffeted by a pandemic and in an era when the philosophical underpinnings of global trade are being challenged.
The strains created by Covid-19, with its initial shortages of personal protective equipment and its continued ugly scramble for limited vaccine supplies, have exposed problems in the global trading system. Those difficulties could plausibly push governments and businesses alike to rethink a just-in-time supply-chain model that has arguably wrung efficiencies from the system at the cost of resilience.
“The industry’s supply chain is several miles long, but only an eighth of an inch deep,” says Ted Mabley, a supply chain consultant at PolarixPartner in Detroit.