The biggest logistics problem is the disruption of the global shipping industry
There’s a lot more to the disruption of supply chains than a shortage of lorry drivers. Road transport is just the last link in the global economy whose real backbone is sea freight.
The media might be focused on other issues, but by far the biggest logistics problem right now is the disruption of the global shipping industry.
ZeroHedge has published a must-read briefing on the issue by Michael Every and Matteo Iagatti of Rabobank. It’s long, but digestible.
Here’s the key chart — the soaring cost of transporting goods by sea:
In case you were wondering, “TEU” stands for Twenty-foot Equivalent Unit — the units in which cargo capacity is measured. It refers to the length of a standard shipping container.
The Ever Given — the ship that got stuck in the Suez Canal back in March — had a capacity of 20,000 TEUs. It delayed the passage of hundreds other ships. The knock-on effects are still working their way through the system. However, the problems of the shipping industry can’t be blamed on that incident alone.
Ultra-large Container Vessels (ULCVs) like the Ever Given are now so big that they’re causing problems everywhere, not just in the close confines of the Suez Canal. It’s an issue that the authors call “Too Big to Sail”. In most circumstances, that’s not literally true — but the mega-ships do require high specialised port facilities and as a result they have forced a “hub-and-spokes” shape to supply chains.
Therefore if anything happens to the hubs — for instance the port disruption in China caused by Covid and now by power shortages — then that disrupts the entire system. As Every and Iagatti point out, this is “the antithesis of a nimble, distributed, flexible, resilient system, and actually help[s] create and exacerbate the cascading supply-chain failures we are currently experiencing.”
Why did container ships get so big? Economies-of-scale is the answer. It’s another example of over-optimisation that works well in ideal conditions, but not in times of disruption.
How can private shipping companies be persuaded to sacrifice short-term profitability in favour of long-term objectives like resilience? This is the most globalised of industries — and therefore hard to regulate.
Furthermore, is it really wise for the state to step in and manage global supply chains from the top-down? Perhaps not, but the fact is that the Chinese are doing it anyway through the maritime side of their Belt and Road Initiative. The authors therefore argue that the US government will be forced to counter the influence of China’s state-backed shipping industry.
In the end it’s not a question of whether government redesigns the global trade system, but which government does it best.