WEBVTT - How Gigantic Ships Are Creating Global Supply Chain Havoc 0:00:10.840 --> 0:00:15.240 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.320 --> 0:00:20.280 I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, I know 0:00:20.400 --> 0:00:23.400 it's early morning time in Hong Kong where you are 0:00:23.560 --> 0:00:25.720 right now. But did you hear the big news while 0:00:25.760 --> 0:00:30.800 you were sleeping? Um? Well, I'm trying to think. I 0:00:30.840 --> 0:00:32.800 guess I didn't. What was the big news while I 0:00:32.840 --> 0:00:35.120 was sleeping? Maybe maybe you saw it before you went 0:00:35.120 --> 0:00:37.520 to bed, just that they freed the ship. Oh yeah, 0:00:37.800 --> 0:00:40.360 so maybe that happened before you fell asleep. It did 0:00:40.440 --> 0:00:42.920 that happen during the working day in Asia? They got 0:00:42.960 --> 0:00:45.880 it floating? Um, and then they got it I guess 0:00:46.080 --> 0:00:50.239 more floating or more free. Yeah, it's good news for 0:00:50.360 --> 0:00:57.760 global supply chains, global factories, retail outlets. Everyone breathing a 0:00:57.760 --> 0:01:01.400 big sigh of relief as the were given ship that 0:01:01.520 --> 0:01:05.039 was stuck in the Suez for six days. As of 0:01:05.160 --> 0:01:09.040 right now we're recording this March New York time, seven 0:01:09.040 --> 0:01:11.640 pm New York time has been Uh, it's been freed. 0:01:11.680 --> 0:01:15.800 It's floating again. The thing that I really loved about, 0:01:15.840 --> 0:01:18.600 you know, this very special week where we were all 0:01:18.680 --> 0:01:21.679 focused on this one container ship that was stuck in 0:01:21.760 --> 0:01:25.800 a Canal was that, first of all, everyone suddenly took 0:01:25.800 --> 0:01:30.000 an interest in global shipping and transport and global trade, 0:01:30.040 --> 0:01:34.120 which is something that usually people don't necessarily think of 0:01:34.200 --> 0:01:36.319 that much, or at least they don't think about how 0:01:36.360 --> 0:01:39.360 stuff actually gets to them. People think about global trade, 0:01:39.600 --> 0:01:43.000 but not necessarily the infrastructure and the industry that kind 0:01:43.000 --> 0:01:45.840 of underpins it. So last week was a really good 0:01:45.840 --> 0:01:48.559 one for everyone to sort of sit back and consider 0:01:49.240 --> 0:01:52.560 how globalization actually works and how the flow of all 0:01:52.640 --> 0:01:58.280 these goods is actually affected. Absolutely. Also, like everyone becomes 0:01:58.320 --> 0:02:02.120 like a container ship expert like overnight. But the good 0:02:02.120 --> 0:02:04.240 news is, like you and I are like kind of 0:02:04.360 --> 0:02:07.920 experts because we've actually talked to one before. Hey, I 0:02:07.960 --> 0:02:10.840 have read two books on shipping, so you know, I 0:02:10.840 --> 0:02:13.920 feel like I'm I'm firmly up there as an expert. 0:02:14.440 --> 0:02:18.040 I'm joking obviously, but fair enough, but I am, you know, 0:02:18.200 --> 0:02:21.000 the next best thing, because we did an episode back 0:02:21.000 --> 0:02:24.400 in January where we talked about container ships, and so 0:02:24.440 --> 0:02:28.760 that turned out to be very, um, very auspicious because 0:02:28.760 --> 0:02:30.800 then I knew like two or three facts that I 0:02:30.840 --> 0:02:33.359 was able to like put in tweets and stuff like that, 0:02:33.680 --> 0:02:35.640 which is, you know, more than I would have otherwise 0:02:35.680 --> 0:02:37.800 been able to. Well, look, it was a great episode, 0:02:37.840 --> 0:02:40.799 and there are multiple issues affecting shipping at the moment. 0:02:40.880 --> 0:02:44.960 So we have the gridlock in traffic because of the 0:02:45.000 --> 0:02:48.680 coronavirus crisis, and also the sort of changes in the 0:02:48.720 --> 0:02:52.440 direction of global trade, so you know, stuff getting really 0:02:52.440 --> 0:02:55.080 snarled between China and the US because lots of people 0:02:55.080 --> 0:02:58.280 in America are just buying more and more things during 0:02:58.600 --> 0:03:02.200 the pandemic. But then we also have a separate issue, 0:03:02.560 --> 0:03:07.720 which is that ships are so freaking big a they 0:03:07.760 --> 0:03:11.480 get stuck in canals and be they also contribute to 0:03:11.840 --> 0:03:15.240 um that global snarling of of shipping traffic instead of 0:03:15.240 --> 0:03:19.320 actually alleviating it. Exactly right. So Beck in January we 0:03:19.440 --> 0:03:22.840 talked about the high cost of shipping these days. We 0:03:22.880 --> 0:03:26.040 spoke with Mark Levinson, who is the author of The Box, 0:03:26.320 --> 0:03:28.760 famous book The Box How the shipping container made the 0:03:28.760 --> 0:03:32.080 world smaller and the world economy bigger, And he said 0:03:32.120 --> 0:03:36.800 something on that episode which was very uspicious or very 0:03:36.880 --> 0:03:39.520 very timely, which was that a big part of the 0:03:39.600 --> 0:03:43.480 problem was that ships are just massive these days and 0:03:43.520 --> 0:03:47.440 that creates its own problems for the logistical system of 0:03:47.440 --> 0:03:49.840 the globe. And then of course, one of the biggest 0:03:49.840 --> 0:03:52.880 ships in the world ended up jamming the Suez and 0:03:52.920 --> 0:03:56.200 that was sort of a freak accident. There was a sandstorm, 0:03:56.280 --> 0:03:59.680 some really great reporting on exactly how it went down. Nonetheless, 0:04:00.040 --> 0:04:02.160 it was sort of an example of what he was 0:04:02.200 --> 0:04:06.640 talking about, which is that these gigantic ships are bigger 0:04:06.920 --> 0:04:09.320 and not you know, the infrastructure for shipping is not 0:04:09.760 --> 0:04:13.680 necessarily optimized for ships these large Yeah, I think that's 0:04:13.680 --> 0:04:17.360 exactly right. So I'm very excited we have Mark back 0:04:17.600 --> 0:04:20.720 on the podcast. Everyone loved the last one, and this 0:04:20.800 --> 0:04:24.480 time we're going to focus just on this question, the 0:04:24.600 --> 0:04:27.960 problem with really big ships. So Mark, thank you for 0:04:28.040 --> 0:04:30.960 coming back on Odd Lots. Hey, Joe, glad to be 0:04:31.040 --> 0:04:33.480 with you. Tracy, good to be with you tonight. So 0:04:33.760 --> 0:04:37.480 the sue is is uh is free again? Um, the 0:04:37.560 --> 0:04:41.560 ever given has been floated. It went down the canal. Nonetheless, 0:04:41.600 --> 0:04:45.160 as you pointed out back in January, large ships are problems. 0:04:45.160 --> 0:04:47.800 So let's just start with the question of when we 0:04:47.880 --> 0:04:50.520 talk about a large ship. I mean, all shipping containers 0:04:50.680 --> 0:04:53.000 ships are large, But when we talk about a large ship, 0:04:53.400 --> 0:04:57.480 what are we really talking about here? Well, shipping guys 0:04:57.839 --> 0:05:03.080 use the term t e u t EU means twenty 0:05:03.120 --> 0:05:07.839 foot equivalent units. UH. The size container you see on 0:05:07.880 --> 0:05:09.640 the back of the truck when you're driving down a 0:05:09.720 --> 0:05:14.240 highway is typically about forty ft. So if you take 0:05:14.279 --> 0:05:16.960 the number of t e u s and divide by two, 0:05:17.279 --> 0:05:20.080 that tells you how many truckloads are on the ship. 0:05:20.880 --> 0:05:25.960 So we're talking here about a vessel that was roughly 0:05:26.000 --> 0:05:28.440 twenty thousand t e u s. In other words, it 0:05:28.480 --> 0:05:32.880 was capable of holding as much cargo as roughly ten 0:05:32.920 --> 0:05:36.799 thousand over the road trucks. This is not the biggest 0:05:36.880 --> 0:05:40.159 vessel out there on the seat. The biggest that are 0:05:40.240 --> 0:05:44.479 afloat now in the container ship line can hold two 0:05:44.640 --> 0:05:48.480 thousand eu s, or as much cargo as twelve thousand trucks. 0:05:48.960 --> 0:05:51.240 So that's a lot of freight on a single vessel. 0:05:52.320 --> 0:05:55.960 So talk to us exactly about the economics driving the 0:05:56.000 --> 0:05:59.000 shift towards bigger ships. So you know, it's not like 0:05:59.040 --> 0:06:01.000 people woke up one day and said they're going to 0:06:01.080 --> 0:06:03.400 build big ships for the sake of it um or 0:06:03.440 --> 0:06:06.640 at least maybe some people did, but not everyone. There 0:06:06.680 --> 0:06:11.159 were supposed to be efficiencies that were targeted. Right the 0:06:11.279 --> 0:06:15.599 first modern container ship voyage was back in nineteen fifty six, 0:06:16.600 --> 0:06:19.479 and the ship that made that trip was called the 0:06:19.520 --> 0:06:25.000 Ideal X and it carried fifty eight containers. Go from 0:06:25.040 --> 0:06:28.400 fifty eight to twelve thousand, and you can see the 0:06:28.480 --> 0:06:31.880 sort of growth that's gone on in this industry. Most 0:06:31.920 --> 0:06:36.880 of that time, ships got bigger, small step by small step, 0:06:37.680 --> 0:06:41.880 okay they they the next generation added a few hundred 0:06:41.880 --> 0:06:46.359 more containers at best, and so ships were getting steadily larger, 0:06:46.520 --> 0:06:54.800 but moderately so. And then in two thousand three, the 0:06:54.839 --> 0:06:57.680 Shipline Merisk, which is based in Denmark, as I think 0:06:57.720 --> 0:07:01.719 everyone knows by now, a decide did a that it 0:07:01.760 --> 0:07:04.120 was in danger of running out of capacity, so it 0:07:04.240 --> 0:07:09.039 needed some big ships and be that it really wanted 0:07:09.080 --> 0:07:12.640 to get a jump on everybody else by having much 0:07:12.640 --> 0:07:17.280 bigger ships, and so it commissioned a series of seven vessels. 0:07:19.240 --> 0:07:24.800 These ships, it turned out, we're six larger than any 0:07:24.800 --> 0:07:27.160 other ships that were on the ocean at that point. 0:07:27.840 --> 0:07:30.480 That's not what had been advertised, but that's what turned 0:07:30.520 --> 0:07:33.720 out to be the case. So they were just hugely 0:07:34.040 --> 0:07:37.040 a large compared to anything else that was at sea 0:07:37.320 --> 0:07:39.720 or in the order books at this point in time. 0:07:40.320 --> 0:07:42.760 Those mask ships, the first was called the MA Marisk 0:07:43.560 --> 0:07:48.239 came online starting in two thousand six. These very large ships. 0:07:49.480 --> 0:07:53.000 M Marsk was capable of carrying about fifteen thousand Eu 0:07:53.120 --> 0:07:58.440 s in other words, truck size containers, and assuming that 0:07:58.520 --> 0:08:02.720 she was full, could do that much much more cheaply 0:08:03.040 --> 0:08:07.240 than any of the other ships being used in the industry. 0:08:07.920 --> 0:08:12.080 And so the competitors looked at this and said, we 0:08:12.160 --> 0:08:16.680 got to do something too. We've got to build ships 0:08:16.720 --> 0:08:18.800 at least as big as the MM Marisk, or we're 0:08:18.800 --> 0:08:23.360 going to have higher costs. And yet they were faced 0:08:23.360 --> 0:08:28.040 with a dilemma, which was if they built higher, bigger ships, 0:08:28.320 --> 0:08:31.040 and everybody else built bigger ships, then there was going 0:08:31.080 --> 0:08:33.920 to be a whole lot of capacity coming onto the market, 0:08:34.080 --> 0:08:36.760 and that was going to cause a problem too. Most 0:08:36.800 --> 0:08:39.719 of the ship lines ended up building bigger ships, and 0:08:40.040 --> 0:08:44.840 you started to see around. You started to see ships 0:08:44.840 --> 0:08:49.720 of seventeen eighteen thousand Eu s going on. And now 0:08:50.400 --> 0:08:53.040 they've been up into the high teams and then into 0:08:53.080 --> 0:08:55.760 the twenties, such as the one that was just stranded 0:08:55.760 --> 0:09:01.679 in the Suez Canal. And now we're talking do they 0:09:01.720 --> 0:09:08.640 save money, Well, they save money on the ocean leg 0:09:09.400 --> 0:09:14.040 of the transport. If the ship is full or close 0:09:14.080 --> 0:09:17.960 to full. For most of the past decade, the ship 0:09:18.000 --> 0:09:20.520 lines had this problem that there wasn't all that much cargo. 0:09:20.600 --> 0:09:24.280 They had really overestimated the growth in international trade, and 0:09:24.360 --> 0:09:28.720 so they were running these enormous ships around the oceans 0:09:28.720 --> 0:09:31.560 half empty, and that was a recipe for losing a 0:09:31.559 --> 0:09:35.040 lot of money. Many ship lines went bust, others were 0:09:35.080 --> 0:09:39.959 forced to merge, and the pandemic kind of bailed out 0:09:40.000 --> 0:09:43.920 the shipping industry. When Americans couldn't take vacations and Europeans 0:09:43.920 --> 0:09:46.319 couldn't take vacations, they couldn't go out to the restaurant, 0:09:46.440 --> 0:09:48.480 they couldn't go to a concert, couldn't go to the theater, 0:09:49.200 --> 0:09:53.240 they started spending their money on stuff, and all of 0:09:53.320 --> 0:09:55.880 a sudden, the ships got full of factories in Asia 0:09:55.960 --> 0:09:59.040 revved up and all this cargo was was filling these 0:09:59.120 --> 0:10:19.400 vessels really for the first time. So going back to 0:10:19.880 --> 0:10:23.640 um the dawn of the really big ships here, I mean, 0:10:23.720 --> 0:10:26.120 it's interesting this sort of I don't know, maybe it's 0:10:26.440 --> 0:10:29.160 it's a game theory because everyone wants to have the 0:10:29.240 --> 0:10:31.760 cheapest shipping and so okay, everyone feels they need to 0:10:31.800 --> 0:10:34.400 compete in larger and larger more efficient ships. On the 0:10:34.400 --> 0:10:37.199 other hand, that creates all this inventory and a problem. 0:10:37.200 --> 0:10:41.000 But I guess, like was it a problem? Is that 0:10:41.160 --> 0:10:43.440 was the thinking back and like saying, like two thousand, 0:10:43.800 --> 0:10:48.200 two thousand six that like, well, globalization just keeps getting bigger, 0:10:48.240 --> 0:10:52.000 world trade keeps growing, There's this big commodities boom going on. 0:10:52.280 --> 0:10:56.720 China is buying stuff voraciously. So essentially, yeah, it creates 0:10:56.720 --> 0:10:59.880 some risks, but ultimately, at least back then, it looked 0:10:59.880 --> 0:11:02.520 like volume would just sort of keep growing forever and 0:11:02.559 --> 0:11:05.160 that would take care of any of the capacity the 0:11:05.160 --> 0:11:09.320 capacity build up. Yes, absolutely, Joe. The expectation was that 0:11:09.920 --> 0:11:15.160 international trade would continue to boom. From the late nighties 0:11:15.360 --> 0:11:22.559 until the two thousand seven eight international trade grew more 0:11:22.600 --> 0:11:25.880 than twice as fast as the world economy, and the 0:11:25.960 --> 0:11:28.200 expectation was that that was going to continue, and that 0:11:28.840 --> 0:11:31.160 there was going to be a need for shipping capacity 0:11:31.200 --> 0:11:35.800 to handle all of these exports from Asia that were 0:11:35.840 --> 0:11:41.240 expected to come. And of course after the financial crisis, 0:11:42.280 --> 0:11:45.600 trade did not pick up as it always had after recession, 0:11:46.040 --> 0:11:48.439 so there were a lot of half empty ships sailing around. 0:11:50.240 --> 0:11:53.840 So one thing I've wondered is if we assumed the 0:11:53.880 --> 0:11:57.000 counter factual, Like, let's say that global trade had boomed, 0:11:57.640 --> 0:12:01.640 would the mega ships be more efficient or would there 0:12:01.760 --> 0:12:06.560 still be issues with, for instance, their flexibility and their 0:12:06.600 --> 0:12:11.160 ability to adapt to changing trade routes, changing demand, and 0:12:11.240 --> 0:12:16.199 things like that. If world trade had continued to boom, 0:12:16.240 --> 0:12:18.120 there would be a couple of things that would be 0:12:18.160 --> 0:12:22.120 different now. One would be that there would not have 0:12:22.160 --> 0:12:24.920 been a ton of container shipping companies going out of business, 0:12:25.800 --> 0:12:29.000 so there would be a lot more competition in the industry. 0:12:29.440 --> 0:12:31.360 Given the number of firms that have gone out of 0:12:31.400 --> 0:12:36.240 business and alliances between the surviving shiplines, there are really 0:12:36.320 --> 0:12:40.199 only three groups that dominate this industry now, so it's 0:12:40.240 --> 0:12:43.400 somewhat of an olegopoly, and that would have been less 0:12:43.440 --> 0:12:48.640 likely to happen had a world trade remained a robust 0:12:49.559 --> 0:12:52.920 The other thing would be that shiplines would have made 0:12:53.679 --> 0:12:56.360 some money, and they might have behaved quite differently from 0:12:56.360 --> 0:13:00.360 from the way that they ended up behaving, but the 0:13:00.480 --> 0:13:04.400 landside problems would not have gone away. What you're pointing 0:13:04.480 --> 0:13:09.640 to is the fact that the ship lines really ordered 0:13:09.640 --> 0:13:13.559 these huge vessels because they thought they were good for themselves. 0:13:14.520 --> 0:13:17.280 They didn't really pay much attention at all to the 0:13:17.320 --> 0:13:21.600 whole goods transport system. They were not asking the question, well, 0:13:21.679 --> 0:13:25.480 what happens when these show up at the container terminal? 0:13:26.080 --> 0:13:29.760 Is the terminal able to handle them? Will the railroads 0:13:29.800 --> 0:13:31.679 be able to get enough trains in and out? Will 0:13:31.800 --> 0:13:34.640 truckers be able to handle all these boxes? Will the 0:13:34.679 --> 0:13:37.400 harbors be deep enough that we can sail these ships in? 0:13:37.400 --> 0:13:40.920 In the first place, those sorts of questions really didn't 0:13:40.960 --> 0:13:45.120 get enough consideration. And I think that even had trade 0:13:45.600 --> 0:13:50.120 remained more robust than it proved to be, these problems 0:13:50.120 --> 0:13:54.920 with the freight transport system would have developed because the 0:13:55.320 --> 0:13:57.880 container ship lines said, here, we've got this thing, which 0:13:57.920 --> 0:14:01.120 is good for us. You guys, you worts, you railroads, 0:14:01.720 --> 0:14:05.080 you truckers, you guys deal with this. So this was 0:14:05.160 --> 0:14:07.920 what you brought up in our last conversation, the sort 0:14:07.960 --> 0:14:12.280 of bottlenecks that have emerged because of the size of 0:14:12.280 --> 0:14:15.000 the ships. So let's go into that a little bit further, 0:14:15.760 --> 0:14:20.480 um a walk through specifically how the size of the 0:14:20.520 --> 0:14:23.120 ships are I don't know if incompatible is the right word, 0:14:23.120 --> 0:14:26.120 but problematic for the ports and the sort of land 0:14:26.160 --> 0:14:32.240 based shipping movement. And why didn't the shipping companies foresee 0:14:32.320 --> 0:14:34.680 this sort of like seemingly obvious thing like if you 0:14:34.720 --> 0:14:36.200 have a plug, you want to make sure it fits 0:14:36.200 --> 0:14:38.680 on the outlet. Why was this sort of not on 0:14:38.720 --> 0:14:41.360 their radar? Well, I went into the second half of 0:14:41.360 --> 0:14:44.720 that first Okay, sure, the shipping lines pretty much took 0:14:44.720 --> 0:14:49.440 the attitude that ports, it's your problem to deal with this. Railroads, 0:14:49.480 --> 0:14:51.400 we're bringing you the cargo. You figure out how to 0:14:51.440 --> 0:14:53.920 get it out of the port. Okay. It was their 0:14:53.960 --> 0:14:57.040 attitude that there in the shipping business and everybody else 0:14:57.040 --> 0:15:00.520 who is part of the logistics system ought to just 0:15:00.680 --> 0:15:04.280 deal with what's best for them. So that's where where 0:15:04.280 --> 0:15:10.880 that went. I think in terms of the challenges posed 0:15:10.920 --> 0:15:12.720 by these very large ships. Let me just give you 0:15:12.760 --> 0:15:16.800 a couple of examples. These mega ships, these ones that 0:15:16.880 --> 0:15:23.240 hold twenty thousand those they are not longer than the 0:15:23.280 --> 0:15:29.840 ships that preceded them to handle all this cargo, they're wider. 0:15:30.840 --> 0:15:34.840 Ships have grown wider. Well, think about how the cargo 0:15:34.960 --> 0:15:37.960 is typically moved on and off a container ship. The 0:15:38.040 --> 0:15:42.240 container ship pulls up to a wharf. There are cranes 0:15:42.440 --> 0:15:47.920 alongside the vessel, and each of these cranes lifts containers 0:15:48.040 --> 0:15:51.640 off the vessel, puts them onto a little carrier that's 0:15:52.240 --> 0:15:56.040 on the ground. The carrier takes the container away, and 0:15:56.160 --> 0:16:01.480 another carrier brings an outbound container that goes onto the ship. Well, 0:16:01.680 --> 0:16:05.040 since the ships are not longer than their predecessors, there's 0:16:05.040 --> 0:16:08.560 no room for additional cranes alongside the ship. But since 0:16:08.640 --> 0:16:12.320 the ships are wider, it takes longer each time a 0:16:12.440 --> 0:16:16.560 crane reaches out with a container and takes the container 0:16:16.640 --> 0:16:18.960 over to the far side of the ship. So it 0:16:19.080 --> 0:16:22.840 takes an additional few seconds to lift the average container 0:16:23.240 --> 0:16:26.280 off the ship, and it takes an additional few seconds 0:16:26.400 --> 0:16:30.160 to put the average container onto the ship. That may 0:16:30.240 --> 0:16:34.320 not sound like much, but you're multiplying these few seconds 0:16:34.600 --> 0:16:38.080 times thousands upon thousands of containers, and all of a sudden, 0:16:38.120 --> 0:16:41.200 you're delaying the vessel. Okay, it's it's stuck in port 0:16:41.280 --> 0:16:44.080 for longer than it wants to be stuck in port 0:16:44.640 --> 0:16:49.480 because they can't get the ship discharged and reloaded in time, 0:16:49.920 --> 0:16:55.360 so the cargo is delayed. There have been a numerous 0:16:56.080 --> 0:17:01.520 examples where ships left China late, late late. At some 0:17:01.760 --> 0:17:05.919 points a thirty or thirty of the vessels leaving China 0:17:05.960 --> 0:17:10.800 have been behind schedule. There have been sailings canceled because 0:17:10.960 --> 0:17:13.560 a ship couldn't complete its sailing in time to do 0:17:13.680 --> 0:17:18.520 the next sailing. And these are a result of the 0:17:18.640 --> 0:17:23.480 difficulty aloading the ships and also of the fact that 0:17:23.640 --> 0:17:29.120 these vessels were built to steam slowly. In previous iterations, 0:17:29.320 --> 0:17:33.280 container ships were able to travel somewhat faster. It was 0:17:33.440 --> 0:17:37.359 decided by the folks who designed these megaships that they 0:17:37.400 --> 0:17:42.240 should steam slowly, in part because that saves money. They 0:17:42.359 --> 0:17:46.600 burn less fuel, certainly less fuel per container, and second, 0:17:46.720 --> 0:17:50.760 they produce less greenhouse gassing missions because the greenhouse gassing 0:17:50.800 --> 0:17:54.040 missions come from burning fuel. So these slow vessels are 0:17:54.160 --> 0:17:58.840 environmentally better and and they don't waste energy. That's all 0:17:58.920 --> 0:18:00.560 well and good, but what it means is that once 0:18:00.640 --> 0:18:03.320 they fall behind schedule, they can't catch up again. They 0:18:03.359 --> 0:18:05.879 can't go faster to make up the time that perhaps 0:18:06.000 --> 0:18:08.399 was lost in port. So there are a couple of 0:18:08.480 --> 0:18:14.440 examples of how these very large ships really have exacerbated 0:18:14.480 --> 0:18:17.080 the problems in supply chains. They have a lot of 0:18:17.119 --> 0:18:20.960 trouble just delivering the goods on time. So you mentioned 0:18:21.040 --> 0:18:23.520 this idea of the ships getting wider, and I suppose 0:18:23.600 --> 0:18:26.480 that's our our queue to talk about the canal. But 0:18:27.880 --> 0:18:30.040 I mean talk to us about how going down the 0:18:30.080 --> 0:18:35.439 Suez Canal usually works, and whether or not that process 0:18:35.640 --> 0:18:40.120 has become more difficult as ships got larger. I don't 0:18:40.119 --> 0:18:43.399 want to pretend that I'm an expert on the hydrology 0:18:43.440 --> 0:18:46.400 of the Suez Canal, because I'm most definitely not here. 0:18:47.400 --> 0:18:51.800 Um the Suez Canal was dredged to make it deeper 0:18:51.880 --> 0:18:54.680 for these very large ships and for other very large ships, 0:18:55.320 --> 0:18:59.760 just as many harbors have been dredged to enable these 0:19:00.200 --> 0:19:04.160 large ships to go through. The vessel that was grounded 0:19:04.280 --> 0:19:09.159 in the Suez Canal, they ever given, required seventeen and 0:19:09.240 --> 0:19:12.440 a half meters of water just about fifty two ft 0:19:13.200 --> 0:19:16.280 between the water line and the bottom of the vessel. Okay, 0:19:16.359 --> 0:19:18.520 so that's a lot of water. They need a very 0:19:18.600 --> 0:19:21.840 deep the ship needs a very deep channel to steam in, 0:19:23.359 --> 0:19:26.480 and if the ship gets forced out of that channel 0:19:26.560 --> 0:19:29.800 for whatever reason, there's a lot of potential for bad 0:19:29.880 --> 0:19:32.880 things to happen. That's true in a harbor. That's also 0:19:32.960 --> 0:19:36.959 true in a canal. The channel is not that wide, 0:19:37.080 --> 0:19:41.640 and sometimes events occur. You do have winds that can 0:19:42.119 --> 0:19:46.920 blow up against the vessel. Remember, a ship like this 0:19:47.880 --> 0:19:51.160 is a quarter mile long. It has nine or ten 0:19:51.560 --> 0:19:55.280 layers of containers stacked on its deck in addition to 0:19:55.359 --> 0:20:00.920 the containers below deck, so ten layers of contained. Each 0:20:00.960 --> 0:20:05.080 container says eight ft high, that's eighty feet above the 0:20:05.200 --> 0:20:08.640 deck and a quarter mile long, and it's like a wall. 0:20:10.240 --> 0:20:13.480 So if there's a really strong gust of wind, it's 0:20:13.520 --> 0:20:15.760 one more source of pressure on the ship. It can 0:20:15.960 --> 0:20:19.320 can push the ship, and container ships have had problems 0:20:19.400 --> 0:20:21.960 with this in the past. I think the size makes 0:20:22.640 --> 0:20:26.280 the situation a little bit worse. This particular container ship 0:20:26.760 --> 0:20:30.879 was actually involved in an accident in Hamburg, Germany, a 0:20:30.960 --> 0:20:33.680 few years ago. The ship's only three years old, so 0:20:33.720 --> 0:20:37.880 a few years ago means too, I believe, when again 0:20:37.960 --> 0:20:41.560 the ship was blown a little bit and it ran 0:20:41.680 --> 0:20:46.359 up against a ferry boat. And accidents happen sometimes. But 0:20:47.720 --> 0:20:52.159 the large size of the vessel of this sum this magnitude, 0:20:52.200 --> 0:20:56.440 and the large amount of containers stacked on the deck, 0:20:56.600 --> 0:20:59.880 I think makes perhaps for a smaller margin of error. 0:21:15.400 --> 0:21:18.760 Zooming back out to this sort of global situation that 0:21:18.960 --> 0:21:21.199 we have right now, and it's ongoing and there's all 0:21:21.240 --> 0:21:25.119 these delays in every retailer. Last quarter, H talked about that, 0:21:25.920 --> 0:21:29.320 how does uh, you know this this phenomenon of super 0:21:29.400 --> 0:21:32.199 large ships creating tension at the ports. Obviously it's been 0:21:32.240 --> 0:21:34.919 going on for a while. But how in this current 0:21:35.720 --> 0:21:39.840 environment are they uh you know, the sort of mismatch 0:21:39.920 --> 0:21:43.000 between the capabilities of the ports, the transportation system, and 0:21:43.040 --> 0:21:46.200 the size of the ships. How is that exacerbating the 0:21:46.320 --> 0:21:49.840 current issues that we're seeing with trade all over the place. Well, 0:21:50.280 --> 0:21:54.200 the problems in the ports, I think tend to slow down. 0:21:55.600 --> 0:21:58.239 Once the ship gets there, it has to unload, right, 0:21:58.880 --> 0:22:02.879 has to discharge its cargo. We've certainly had some complaints 0:22:02.920 --> 0:22:07.040 in the United States that the ships were not waiting 0:22:07.200 --> 0:22:11.240 to be fully loaded. They wanted to get back to China, 0:22:11.359 --> 0:22:13.760 and they wanted to take empty containers with them back 0:22:13.800 --> 0:22:17.600 to China just so there could be more Chinese exports. Um. 0:22:17.920 --> 0:22:21.040 There have been complaints from the US farm sector that 0:22:21.560 --> 0:22:27.680 farm goods that normally moving containers haven't been accommodated. Typically, 0:22:28.000 --> 0:22:31.680 the westbound freight on the Pacific moves at a much 0:22:31.840 --> 0:22:35.000 lower rate because most of the cargo is coming east 0:22:35.080 --> 0:22:37.879 from Asia to the United States, and so these guys 0:22:37.920 --> 0:22:43.280 are looking to send containers of soybeans or of meat 0:22:43.359 --> 0:22:47.439 products or other things to Asia, and they're complaining they 0:22:47.480 --> 0:22:52.480 can't get enough containers because as a result of the 0:22:52.600 --> 0:22:54.520 mess in the ports, the ships just want to get 0:22:54.560 --> 0:22:57.400 out of there and won't wait for the outbound containers. 0:22:57.920 --> 0:23:01.720 So that is one example of the sorts of problems 0:23:01.800 --> 0:23:06.119 that people are seeing when you have an event like 0:23:07.080 --> 0:23:12.040 happened in the Suez Canal. Well, some vessels decided to 0:23:12.160 --> 0:23:18.240 go around Africa to to get between Asia and Europe. 0:23:19.000 --> 0:23:21.560 Well that's a longer trip, Okay, that adds two to 0:23:21.640 --> 0:23:25.320 three weeks to the chip trip between Asian and northern Europe. 0:23:26.600 --> 0:23:28.840 If each trip is going to take a longer period 0:23:28.880 --> 0:23:31.000 of time, that means the vessel can't make as many 0:23:31.080 --> 0:23:33.000 trips over the course of a year, which means it 0:23:33.040 --> 0:23:35.280 can't carry as much cargo over the course of a year. 0:23:35.600 --> 0:23:37.159 And so you can see that there's going to be 0:23:37.280 --> 0:23:41.520 even more pressure for a while, at least on the 0:23:41.600 --> 0:23:45.920 supply chain. So we talked a little bit about this 0:23:46.080 --> 0:23:49.359 in the intro. But one of the great things about 0:23:49.760 --> 0:23:53.679 this whole um chipping drama has been that people are 0:23:53.760 --> 0:23:57.280 talking about these transport issues in a way that they 0:23:57.440 --> 0:24:00.920 don't usually talk about. And you may the point in 0:24:01.040 --> 0:24:04.560 your book that the whole field of economics kind of 0:24:05.400 --> 0:24:11.879 persistently underestimates or ignores the costs embedded in transport, like 0:24:11.960 --> 0:24:14.680 the idea that there might actually be frictions. When people 0:24:14.720 --> 0:24:19.879 talk about competitive advantage, they usually talk about friction lists transactions. Um. 0:24:19.960 --> 0:24:22.680 And I think you even cite the the old example 0:24:22.840 --> 0:24:26.560 of you know, England versus Portugal. The economists who came 0:24:26.640 --> 0:24:29.639 up with that never actually took into account transport costs 0:24:29.680 --> 0:24:31.600 when they said that, you know, it might be cheaper 0:24:31.680 --> 0:24:33.680 for England to do this and for Portugal to do 0:24:33.800 --> 0:24:36.000 this than they can just trade with each other. Do 0:24:36.160 --> 0:24:39.359 you think the situation in global shipping, the fact that 0:24:39.520 --> 0:24:43.000 we were all absolutely fascinated by the ever given for 0:24:43.119 --> 0:24:45.520 the past week, do you think that's going to change 0:24:45.600 --> 0:24:48.560 that at all? Our people going to be more focused 0:24:49.280 --> 0:24:53.040 on the frictions caused by global transport or involved in 0:24:53.080 --> 0:24:58.440 global transport because of these issues. Absolutely. And that's a 0:24:58.520 --> 0:25:01.960 wonderful opportunity to give a shout out to my latest 0:25:02.040 --> 0:25:06.159 book which is called Outside the Box. It talks about 0:25:06.480 --> 0:25:12.000 these problems with supply chains and it explains why businesses 0:25:12.040 --> 0:25:16.800 that built these long supply chains systematically underestimated the risk. Okay, 0:25:17.200 --> 0:25:20.960 they made decisions about where to produce things, typically in Asia, 0:25:21.480 --> 0:25:25.199 by looking at production costs and transport costs, and they 0:25:25.240 --> 0:25:28.200 didn't pencil in the cost if, say the goods don't 0:25:28.240 --> 0:25:32.600 arrive on time, well, that can be a very significant cost. 0:25:32.880 --> 0:25:37.440 And when that happens, then all of the money that 0:25:37.520 --> 0:25:40.280 you saved on production may not turn out to be 0:25:40.359 --> 0:25:42.879 such a great deal. So I think we've seen a 0:25:42.960 --> 0:25:48.240 lot of companies now begin to reassess whether these supply 0:25:48.480 --> 0:25:51.800 chains makes sense constructed as the way they have been. 0:25:52.320 --> 0:25:55.360 We've seen in the United States, which is the place 0:25:55.440 --> 0:25:58.000 where we've got the best data on this, you've seen 0:25:58.080 --> 0:26:01.800 a lot of companies keep more infantor than they used to. Right, 0:26:01.920 --> 0:26:04.879