Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, I know
Speaker 1: it's early morning time in Hong Kong where you are
Speaker 1: right now. But did you hear the big news while
Speaker 1: you were sleeping? Um? Well, I'm trying to think. I
Speaker 1: guess I didn't. What was the big news while I
Speaker 1: was sleeping? Maybe maybe you saw it before you went
Speaker 1: to bed, just that they freed the ship. Oh yeah,
Speaker 1: so maybe that happened before you fell asleep. It did
Speaker 1: that happen during the working day in Asia? They got
Speaker 1: it floating? Um, and then they got it I guess
Speaker 1: more floating or more free. Yeah, it's good news for
Speaker 1: global supply chains, global factories, retail outlets. Everyone breathing a
Speaker 1: big sigh of relief as the were given ship that
Speaker 1: was stuck in the Suez for six days. As of
Speaker 1: right now we're recording this March New York time, seven
Speaker 1: pm New York time has been Uh, it's been freed.
Speaker 1: It's floating again. The thing that I really loved about,
Speaker 1: you know, this very special week where we were all
Speaker 1: focused on this one container ship that was stuck in
Speaker 1: a Canal was that, first of all, everyone suddenly took
Speaker 1: an interest in global shipping and transport and global trade,
Speaker 1: which is something that usually people don't necessarily think of
Speaker 1: that much, or at least they don't think about how
Speaker 1: stuff actually gets to them. People think about global trade,
Speaker 1: but not necessarily the infrastructure and the industry that kind
Speaker 1: of underpins it. So last week was a really good
Speaker 1: one for everyone to sort of sit back and consider
Speaker 1: how globalization actually works and how the flow of all
Speaker 1: these goods is actually affected. Absolutely. Also, like everyone becomes
Speaker 1: like a container ship expert like overnight. But the good
Speaker 1: news is, like you and I are like kind of
Speaker 1: experts because we've actually talked to one before. Hey, I
Speaker 1: have read two books on shipping, so you know, I
Speaker 1: feel like I'm I'm firmly up there as an expert.
Speaker 1: I'm joking obviously, but fair enough, but I am, you know,
Speaker 1: the next best thing, because we did an episode back
Speaker 1: in January where we talked about container ships, and so
Speaker 1: that turned out to be very, um, very auspicious because
Speaker 1: then I knew like two or three facts that I
Speaker 1: was able to like put in tweets and stuff like that,
Speaker 1: which is, you know, more than I would have otherwise
Speaker 1: been able to. Well, look, it was a great episode,
Speaker 1: and there are multiple issues affecting shipping at the moment.
Speaker 1: So we have the gridlock in traffic because of the
Speaker 1: coronavirus crisis, and also the sort of changes in the
Speaker 1: direction of global trade, so you know, stuff getting really
Speaker 1: snarled between China and the US because lots of people
Speaker 1: in America are just buying more and more things during
Speaker 1: the pandemic. But then we also have a separate issue,
Speaker 1: which is that ships are so freaking big a they
Speaker 1: get stuck in canals and be they also contribute to
Speaker 1: um that global snarling of of shipping traffic instead of
Speaker 1: actually alleviating it. Exactly right. So Beck in January we
Speaker 1: talked about the high cost of shipping these days. We
Speaker 1: spoke with Mark Levinson, who is the author of The Box,
Speaker 1: famous book The Box How the shipping container made the
Speaker 1: world smaller and the world economy bigger, And he said
Speaker 1: something on that episode which was very uspicious or very
Speaker 1: very timely, which was that a big part of the
Speaker 1: problem was that ships are just massive these days and
Speaker 1: that creates its own problems for the logistical system of
Speaker 1: the globe. And then of course, one of the biggest
Speaker 1: ships in the world ended up jamming the Suez and
Speaker 1: that was sort of a freak accident. There was a sandstorm,
Speaker 1: some really great reporting on exactly how it went down. Nonetheless,
Speaker 1: it was sort of an example of what he was
Speaker 1: talking about, which is that these gigantic ships are bigger
Speaker 1: and not you know, the infrastructure for shipping is not
Speaker 1: necessarily optimized for ships these large Yeah, I think that's
Speaker 1: exactly right. So I'm very excited we have Mark back
Speaker 1: on the podcast. Everyone loved the last one, and this
Speaker 1: time we're going to focus just on this question, the
Speaker 1: problem with really big ships. So Mark, thank you for
Speaker 1: coming back on Odd Lots. Hey, Joe, glad to be
Speaker 1: with you. Tracy, good to be with you tonight. So
Speaker 1: the sue is is uh is free again? Um, the
Speaker 1: ever given has been floated. It went down the canal. Nonetheless,
Speaker 1: as you pointed out back in January, large ships are problems.
Speaker 1: So let's just start with the question of when we
Speaker 1: talk about a large ship. I mean, all shipping containers
Speaker 1: ships are large, But when we talk about a large ship,
Speaker 1: what are we really talking about here? Well, shipping guys
Speaker 1: use the term t e u t EU means twenty
Speaker 1: foot equivalent units. UH. The size container you see on
Speaker 1: the back of the truck when you're driving down a
Speaker 1: highway is typically about forty ft. So if you take
Speaker 1: the number of t e u s and divide by two,
Speaker 1: that tells you how many truckloads are on the ship.
Speaker 1: So we're talking here about a vessel that was roughly
Speaker 1: twenty thousand t e u s. In other words, it
Speaker 1: was capable of holding as much cargo as roughly ten
Speaker 1: thousand over the road trucks. This is not the biggest
Speaker 1: vessel out there on the seat. The biggest that are
Speaker 1: afloat now in the container ship line can hold two
Speaker 1: thousand eu s, or as much cargo as twelve thousand trucks.
Speaker 1: So that's a lot of freight on a single vessel.
Speaker 1: So talk to us exactly about the economics driving the
Speaker 1: shift towards bigger ships. So you know, it's not like
Speaker 1: people woke up one day and said they're going to
Speaker 1: build big ships for the sake of it um or
Speaker 1: at least maybe some people did, but not everyone. There
Speaker 1: were supposed to be efficiencies that were targeted. Right the
Speaker 1: first modern container ship voyage was back in nineteen fifty six,
Speaker 1: and the ship that made that trip was called the
Speaker 1: Ideal X and it carried fifty eight containers. Go from
Speaker 1: fifty eight to twelve thousand, and you can see the
Speaker 1: sort of growth that's gone on in this industry. Most
Speaker 1: of that time, ships got bigger, small step by small step,
Speaker 1: okay they they the next generation added a few hundred
Speaker 1: more containers at best, and so ships were getting steadily larger,
Speaker 1: but moderately so. And then in two thousand three, the
Speaker 1: Shipline Merisk, which is based in Denmark, as I think
Speaker 1: everyone knows by now, a decide did a that it
Speaker 1: was in danger of running out of capacity, so it
Speaker 1: needed some big ships and be that it really wanted
Speaker 1: to get a jump on everybody else by having much
Speaker 1: bigger ships, and so it commissioned a series of seven vessels.
Speaker 1: These ships, it turned out, we're six larger than any
Speaker 1: other ships that were on the ocean at that point.
Speaker 1: That's not what had been advertised, but that's what turned
Speaker 1: out to be the case. So they were just hugely
Speaker 1: a large compared to anything else that was at sea
Speaker 1: or in the order books at this point in time.
Speaker 1: Those mask ships, the first was called the MA Marisk
Speaker 1: came online starting in two thousand six. These very large ships.
Speaker 1: M Marsk was capable of carrying about fifteen thousand Eu
Speaker 1: s in other words, truck size containers, and assuming that
Speaker 1: she was full, could do that much much more cheaply
Speaker 1: than any of the other ships being used in the industry.
Speaker 1: And so the competitors looked at this and said, we
Speaker 1: got to do something too. We've got to build ships
Speaker 1: at least as big as the MM Marisk, or we're
Speaker 1: going to have higher costs. And yet they were faced
Speaker 1: with a dilemma, which was if they built higher, bigger ships,
Speaker 1: and everybody else built bigger ships, then there was going
Speaker 1: to be a whole lot of capacity coming onto the market,
Speaker 1: and that was going to cause a problem too. Most
Speaker 1: of the ship lines ended up building bigger ships, and
Speaker 1: you started to see around. You started to see ships
Speaker 1: of seventeen eighteen thousand Eu s going on. And now
Speaker 1: they've been up into the high teams and then into
Speaker 1: the twenties, such as the one that was just stranded
Speaker 1: in the Suez Canal. And now we're talking do they
Speaker 1: save money, Well, they save money on the ocean leg
Speaker 1: of the transport. If the ship is full or close
Speaker 1: to full. For most of the past decade, the ship
Speaker 1: lines had this problem that there wasn't all that much cargo.
Speaker 1: They had really overestimated the growth in international trade, and
Speaker 1: so they were running these enormous ships around the oceans
Speaker 1: half empty, and that was a recipe for losing a
Speaker 1: lot of money. Many ship lines went bust, others were
Speaker 1: forced to merge, and the pandemic kind of bailed out
Speaker 1: the shipping industry. When Americans couldn't take vacations and Europeans
Speaker 1: couldn't take vacations, they couldn't go out to the restaurant,
Speaker 1: they couldn't go to a concert, couldn't go to the theater,
Speaker 1: they started spending their money on stuff, and all of
Speaker 1: a sudden, the ships got full of factories in Asia
Speaker 1: revved up and all this cargo was was filling these
Speaker 1: vessels really for the first time. So going back to
Speaker 1: um the dawn of the really big ships here, I mean,
Speaker 1: it's interesting this sort of I don't know, maybe it's
Speaker 1: it's a game theory because everyone wants to have the
Speaker 1: cheapest shipping and so okay, everyone feels they need to
Speaker 1: compete in larger and larger more efficient ships. On the
Speaker 1: other hand, that creates all this inventory and a problem.
Speaker 1: But I guess, like was it a problem? Is that
Speaker 1: was the thinking back and like saying, like two thousand,
Speaker 1: two thousand six that like, well, globalization just keeps getting bigger,
Speaker 1: world trade keeps growing, There's this big commodities boom going on.
Speaker 1: China is buying stuff voraciously. So essentially, yeah, it creates
Speaker 1: some risks, but ultimately, at least back then, it looked
Speaker 1: like volume would just sort of keep growing forever and
Speaker 1: that would take care of any of the capacity the
Speaker 1: capacity build up. Yes, absolutely, Joe. The expectation was that
Speaker 1: international trade would continue to boom. From the late nighties
Speaker 1: until the two thousand seven eight international trade grew more
Speaker 1: than twice as fast as the world economy, and the
Speaker 1: expectation was that that was going to continue, and that
Speaker 1: there was going to be a need for shipping capacity
Speaker 1: to handle all of these exports from Asia that were
Speaker 1: expected to come. And of course after the financial crisis,
Speaker 1: trade did not pick up as it always had after recession,
Speaker 1: so there were a lot of half empty ships sailing around.
Speaker 1: So one thing I've wondered is if we assumed the
Speaker 1: counter factual, Like, let's say that global trade had boomed,
Speaker 1: would the mega ships be more efficient or would there
Speaker 1: still be issues with, for instance, their flexibility and their
Speaker 1: ability to adapt to changing trade routes, changing demand, and
Speaker 1: things like that. If world trade had continued to boom,
Speaker 1: there would be a couple of things that would be
Speaker 1: different now. One would be that there would not have
Speaker 1: been a ton of container shipping companies going out of business,
Speaker 1: so there would be a lot more competition in the industry.
Speaker 1: Given the number of firms that have gone out of
Speaker 1: business and alliances between the surviving shiplines, there are really
Speaker 1: only three groups that dominate this industry now, so it's
Speaker 1: somewhat of an olegopoly, and that would have been less
Speaker 1: likely to happen had a world trade remained a robust
Speaker 1: The other thing would be that shiplines would have made
Speaker 1: some money, and they might have behaved quite differently from
Speaker 1: from the way that they ended up behaving, but the
Speaker 1: landside problems would not have gone away. What you're pointing
Speaker 1: to is the fact that the ship lines really ordered
Speaker 1: these huge vessels because they thought they were good for themselves.
Speaker 1: They didn't really pay much attention at all to the
Speaker 1: whole goods transport system. They were not asking the question, well,
Speaker 1: what happens when these show up at the container terminal?
Speaker 1: Is the terminal able to handle them? Will the railroads
Speaker 1: be able to get enough trains in and out? Will
Speaker 1: truckers be able to handle all these boxes? Will the
Speaker 1: harbors be deep enough that we can sail these ships in?
Speaker 1: In the first place, those sorts of questions really didn't
Speaker 1: get enough consideration. And I think that even had trade
Speaker 1: remained more robust than it proved to be, these problems
Speaker 1: with the freight transport system would have developed because the
Speaker 1: container ship lines said, here, we've got this thing, which
Speaker 1: is good for us. You guys, you worts, you railroads,
Speaker 1: you truckers, you guys deal with this. So this was
Speaker 1: what you brought up in our last conversation, the sort
Speaker 1: of bottlenecks that have emerged because of the size of
Speaker 1: the ships. So let's go into that a little bit further,
Speaker 1: um a walk through specifically how the size of the
Speaker 1: ships are I don't know if incompatible is the right word,
Speaker 1: but problematic for the ports and the sort of land
Speaker 1: based shipping movement. And why didn't the shipping companies foresee
Speaker 1: this sort of like seemingly obvious thing like if you
Speaker 1: have a plug, you want to make sure it fits
Speaker 1: on the outlet. Why was this sort of not on
Speaker 1: their radar? Well, I went into the second half of
Speaker 1: that first Okay, sure, the shipping lines pretty much took
Speaker 1: the attitude that ports, it's your problem to deal with this. Railroads,
Speaker 1: we're bringing you the cargo. You figure out how to
Speaker 1: get it out of the port. Okay. It was their
Speaker 1: attitude that there in the shipping business and everybody else
Speaker 1: who is part of the logistics system ought to just
Speaker 1: deal with what's best for them. So that's where where
Speaker 1: that went. I think in terms of the challenges posed
Speaker 1: by these very large ships. Let me just give you
Speaker 1: a couple of examples. These mega ships, these ones that
Speaker 1: hold twenty thousand those they are not longer than the
Speaker 1: ships that preceded them to handle all this cargo, they're wider.
Speaker 1: Ships have grown wider. Well, think about how the cargo
Speaker 1: is typically moved on and off a container ship. The
Speaker 1: container ship pulls up to a wharf. There are cranes
Speaker 1: alongside the vessel, and each of these cranes lifts containers
Speaker 1: off the vessel, puts them onto a little carrier that's
Speaker 1: on the ground. The carrier takes the container away, and
Speaker 1: another carrier brings an outbound container that goes onto the ship. Well,
Speaker 1: since the ships are not longer than their predecessors, there's
Speaker 1: no room for additional cranes alongside the ship. But since
Speaker 1: the ships are wider, it takes longer each time a
Speaker 1: crane reaches out with a container and takes the container
Speaker 1: over to the far side of the ship. So it
Speaker 1: takes an additional few seconds to lift the average container
Speaker 1: off the ship, and it takes an additional few seconds
Speaker 1: to put the average container onto the ship. That may
Speaker 1: not sound like much, but you're multiplying these few seconds
Speaker 1: times thousands upon thousands of containers, and all of a sudden,
Speaker 1: you're delaying the vessel. Okay, it's it's stuck in port
Speaker 1: for longer than it wants to be stuck in port
Speaker 1: because they can't get the ship discharged and reloaded in time,
Speaker 1: so the cargo is delayed. There have been a numerous
Speaker 1: examples where ships left China late, late late. At some
Speaker 1: points a thirty or thirty of the vessels leaving China
Speaker 1: have been behind schedule. There have been sailings canceled because
Speaker 1: a ship couldn't complete its sailing in time to do
Speaker 1: the next sailing. And these are a result of the
Speaker 1: difficulty aloading the ships and also of the fact that
Speaker 1: these vessels were built to steam slowly. In previous iterations,
Speaker 1: container ships were able to travel somewhat faster. It was
Speaker 1: decided by the folks who designed these megaships that they
Speaker 1: should steam slowly, in part because that saves money. They
Speaker 1: burn less fuel, certainly less fuel per container, and second,
Speaker 1: they produce less greenhouse gassing missions because the greenhouse gassing
Speaker 1: missions come from burning fuel. So these slow vessels are
Speaker 1: environmentally better and and they don't waste energy. That's all
Speaker 1: well and good, but what it means is that once
Speaker 1: they fall behind schedule, they can't catch up again. They
Speaker 1: can't go faster to make up the time that perhaps
Speaker 1: was lost in port. So there are a couple of
Speaker 1: examples of how these very large ships really have exacerbated
Speaker 1: the problems in supply chains. They have a lot of
Speaker 1: trouble just delivering the goods on time. So you mentioned
Speaker 1: this idea of the ships getting wider, and I suppose
Speaker 1: that's our our queue to talk about the canal. But
Speaker 1: I mean talk to us about how going down the
Speaker 1: Suez Canal usually works, and whether or not that process
Speaker 1: has become more difficult as ships got larger. I don't
Speaker 1: want to pretend that I'm an expert on the hydrology
Speaker 1: of the Suez Canal, because I'm most definitely not here.
Speaker 1: Um the Suez Canal was dredged to make it deeper
Speaker 1: for these very large ships and for other very large ships,
Speaker 1: just as many harbors have been dredged to enable these
Speaker 1: large ships to go through. The vessel that was grounded
Speaker 1: in the Suez Canal, they ever given, required seventeen and
Speaker 1: a half meters of water just about fifty two ft
Speaker 1: between the water line and the bottom of the vessel. Okay,
Speaker 1: so that's a lot of water. They need a very
Speaker 1: deep the ship needs a very deep channel to steam in,
Speaker 1: and if the ship gets forced out of that channel
Speaker 1: for whatever reason, there's a lot of potential for bad
Speaker 1: things to happen. That's true in a harbor. That's also
Speaker 1: true in a canal. The channel is not that wide,
Speaker 1: and sometimes events occur. You do have winds that can
Speaker 1: blow up against the vessel. Remember, a ship like this
Speaker 1: is a quarter mile long. It has nine or ten
Speaker 1: layers of containers stacked on its deck in addition to
Speaker 1: the containers below deck, so ten layers of contained. Each
Speaker 1: container says eight ft high, that's eighty feet above the
Speaker 1: deck and a quarter mile long, and it's like a wall.
Speaker 1: So if there's a really strong gust of wind, it's
Speaker 1: one more source of pressure on the ship. It can
Speaker 1: can push the ship, and container ships have had problems
Speaker 1: with this in the past. I think the size makes
Speaker 1: the situation a little bit worse. This particular container ship
Speaker 1: was actually involved in an accident in Hamburg, Germany, a
Speaker 1: few years ago. The ship's only three years old, so
Speaker 1: a few years ago means too, I believe, when again
Speaker 1: the ship was blown a little bit and it ran
Speaker 1: up against a ferry boat. And accidents happen sometimes. But
Speaker 1: the large size of the vessel of this sum this magnitude,
Speaker 1: and the large amount of containers stacked on the deck,
Speaker 1: I think makes perhaps for a smaller margin of error.
Speaker 1: Zooming back out to this sort of global situation that
Speaker 1: we have right now, and it's ongoing and there's all
Speaker 1: these delays in every retailer. Last quarter, H talked about that,
Speaker 1: how does uh, you know this this phenomenon of super
Speaker 1: large ships creating tension at the ports. Obviously it's been
Speaker 1: going on for a while. But how in this current
Speaker 1: environment are they uh you know, the sort of mismatch
Speaker 1: between the capabilities of the ports, the transportation system, and
Speaker 1: the size of the ships. How is that exacerbating the
Speaker 1: current issues that we're seeing with trade all over the place. Well,
Speaker 1: the problems in the ports, I think tend to slow down.
Speaker 1: Once the ship gets there, it has to unload, right,
Speaker 1: has to discharge its cargo. We've certainly had some complaints
Speaker 1: in the United States that the ships were not waiting
Speaker 1: to be fully loaded. They wanted to get back to China,
Speaker 1: and they wanted to take empty containers with them back
Speaker 1: to China just so there could be more Chinese exports. Um.
Speaker 1: There have been complaints from the US farm sector that
Speaker 1: farm goods that normally moving containers haven't been accommodated. Typically,
Speaker 1: the westbound freight on the Pacific moves at a much
Speaker 1: lower rate because most of the cargo is coming east
Speaker 1: from Asia to the United States, and so these guys
Speaker 1: are looking to send containers of soybeans or of meat
Speaker 1: products or other things to Asia, and they're complaining they
Speaker 1: can't get enough containers because as a result of the
Speaker 1: mess in the ports, the ships just want to get
Speaker 1: out of there and won't wait for the outbound containers.
Speaker 1: So that is one example of the sorts of problems
Speaker 1: that people are seeing when you have an event like
Speaker 1: happened in the Suez Canal. Well, some vessels decided to
Speaker 1: go around Africa to to get between Asia and Europe.
Speaker 1: Well that's a longer trip, Okay, that adds two to
Speaker 1: three weeks to the chip trip between Asian and northern Europe.
Speaker 1: If each trip is going to take a longer period
Speaker 1: of time, that means the vessel can't make as many
Speaker 1: trips over the course of a year, which means it
Speaker 1: can't carry as much cargo over the course of a year.
Speaker 1: And so you can see that there's going to be
Speaker 1: even more pressure for a while, at least on the
Speaker 1: supply chain. So we talked a little bit about this
Speaker 1: in the intro. But one of the great things about
Speaker 1: this whole um chipping drama has been that people are
Speaker 1: talking about these transport issues in a way that they
Speaker 1: don't usually talk about. And you may the point in
Speaker 1: your book that the whole field of economics kind of
Speaker 1: persistently underestimates or ignores the costs embedded in transport, like
Speaker 1: the idea that there might actually be frictions. When people
Speaker 1: talk about competitive advantage, they usually talk about friction lists transactions. Um.
Speaker 1: And I think you even cite the the old example
Speaker 1: of you know, England versus Portugal. The economists who came
Speaker 1: up with that never actually took into account transport costs
Speaker 1: when they said that, you know, it might be cheaper
Speaker 1: for England to do this and for Portugal to do
Speaker 1: this than they can just trade with each other. Do
Speaker 1: you think the situation in global shipping, the fact that
Speaker 1: we were all absolutely fascinated by the ever given for
Speaker 1: the past week, do you think that's going to change
Speaker 1: that at all? Our people going to be more focused
Speaker 1: on the frictions caused by global transport or involved in
Speaker 1: global transport because of these issues. Absolutely. And that's a
Speaker 1: wonderful opportunity to give a shout out to my latest
Speaker 1: book which is called Outside the Box. It talks about
Speaker 1: these problems with supply chains and it explains why businesses
Speaker 1: that built these long supply chains systematically underestimated the risk. Okay,
Speaker 1: they made decisions about where to produce things, typically in Asia,
Speaker 1: by looking at production costs and transport costs, and they
Speaker 1: didn't pencil in the cost if, say the goods don't
Speaker 1: arrive on time, well, that can be a very significant cost.
Speaker 1: And when that happens, then all of the money that
Speaker 1: you saved on production may not turn out to be
Speaker 1: such a great deal. So I think we've seen a
Speaker 1: lot of companies now begin to reassess whether these supply
Speaker 1: chains makes sense constructed as the way they have been.
Speaker 1: We've seen in the United States, which is the place
Speaker 1: where we've got the best data on this, you've seen
Speaker 1: a lot of companies keep more infantor than they used to. Right,
Speaker 1: it used to be that companies didn't want inventory. Everything
Speaker 1: was going to be just in time. Inventory is wasteful. Well,
Speaker 1: inventory is insurance, right. Inventory gives you something to sell
Speaker 1: in case your next delivery doesn't make it on time. So,
Speaker 1: even though there's a cost, firms have been keeping more inventory.
Speaker 1: Firms have been looking at multiple production locations rather than
Speaker 1: having everything made in some big factory. Yes, the big
Speaker 1: factory might give you great economies of scale, but if
Speaker 1: there happens to be a fire at the factory, or
Speaker 1: an earthquake or if there's a transport disruption and route,
Speaker 1: all those economies of scale aren't going to have help
Speaker 1: and and so you really need an alternative source of production.
Speaker 1: And firms have been looking at these things. They've been
Speaker 1: going for redundancy. There's a lot of interest now and resilience.
Speaker 1: It's actually a hard thing for a manufacturer to do,
Speaker 1: but we've been seeing a lot of attention to it.
Speaker 1: And that was even for the forgiven was rounded in
Speaker 1: the suite. Uh. Mark, that was great. That's exactly you've
Speaker 1: filled in a bunch of gaps for us and sort
Speaker 1: of our understanding of this. And really appreciate you coming
Speaker 1: back on oddline. Well, it's been delightful to be with you.
Speaker 1: Thank you very much for having me. Thanks so much, Mark.
Speaker 1: Thanks Mark, that was great. I found that very helpful, Tracy.
Speaker 1: I mean I sort of had some sense that the
Speaker 1: the size of the ships was creating specific problems at
Speaker 1: the ports. But his example about like the crane, you
Speaker 1: can't put more cranes because um not any longer, but
Speaker 1: that they have to reach further into the ship, but
Speaker 1: that takes a few more seconds and that ends up
Speaker 1: like that really started to help like crystallize the issue
Speaker 1: for me. Yeah, the great thing about talking to Marcus
Speaker 1: he brings this fantastic economics perspective to global shipping, which
Speaker 1: I think, um, you know, not everyone does. But also
Speaker 1: the point about how building these massive ships maybe could
Speaker 1: have resulted in more efficiencies at sea had global trade
Speaker 1: actually picked up, but the bottleneck was always going to
Speaker 1: be on the port side when you're loaning and unlaning stuff.
Speaker 1: And the irony there, of course, is that the whole
Speaker 1: reason container shipping was invented was to try to minimize
Speaker 1: costs on the port side. So you used to have,
Speaker 1: you know, hundreds of laborers who would be unloading and
Speaker 1: loading these boxes by hand, and they'd all be sort
Speaker 1: of individually wrapped or everything would be kind of packaged differently,
Speaker 1: and it was really labor intensive, very very expensive. So
Speaker 1: they moved to the standardized container shipping and that was
Speaker 1: supposed to lead to more efficiencies, which it did did,
Speaker 1: but then of course the shipping companies kind of got
Speaker 1: ahead of themselves stacked as many containers as possible, and
Speaker 1: eventually the economy of scale just kind of goes away
Speaker 1: because the ports aren't set up to handle it. Absolutely
Speaker 1: super interesting to think about like this sort of the
Speaker 1: different legs of the system and how economies of scale
Speaker 1: and one part create dis economies of skill elsewhere in
Speaker 1: the systems. And it also again this really helped we
Speaker 1: understand the situations. So like there's so much inbound demand
Speaker 1: for US uh for Chinese goods coming to the US,
Speaker 1: Like we know this, it's voracious. There is some export
Speaker 1: activity obviously, as he mentioned, there's soybeans and a few
Speaker 1: other agricultural goods, so it's not entirely one directional. But
Speaker 1: in this situation in which there is a pretty big
Speaker 1: opportunity cost of not racing back to China and getting
Speaker 1: more goods, and you have the delays already at the
Speaker 1: ports because there's a bunch of ships because of the
Speaker 1: logistical issues, this idea like nobody wants to sit around
Speaker 1: and wait for all the soybeans to like fill up
Speaker 1: maybe a quarter or a third full vessel, so everyone
Speaker 1: just races back. Very clear example of how messed up
Speaker 1: the whole situation is right now. Yeah, absolutely, And I
Speaker 1: guess it gets back to this idea that no one
Speaker 1: expected a global pandemic in this way and people hadn't
Speaker 1: really been building supply chains that would be robust enough
Speaker 1: to take it into account, which is kind of understandable,
Speaker 1: but again, you wonder how much that's going to change. Absolutely,
Speaker 1: we'll see. We'll get him back on in a couple
Speaker 1: of years. Yes, Okay, let's leave it there, let's save
Speaker 1: it there. This has been another episode of the All
Speaker 1: Thoughts podcast. I'm Tracy Alloway. You can follow me on
Speaker 1: Twitter at Tracy Alloway, and I'm Joe Wisntal. You can
Speaker 1: follow me on Twitter at the Stalwart and check out
Speaker 1: our guest Mark Levinson's book The Box and the sequel
Speaker 1: Outside the Box, and be sure to follow a producer,
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg
Speaker 1: head of podcast, Francesco Levi at Francesca Today, and check
Speaker 1: out all of our podcasts at Bloomberg Onto the handle
Speaker 1: ad Podcasts. Thanks for listening.