WEBVTT - Why the Cost of Shipping Goods From China Is Suddenly Soaring 0:00:11.160 --> 0:00:14.640 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.720 --> 0:00:19.400 I'm Tracy Alloway and I'm Joe Wisen't thal So, Joe, 0:00:19.840 --> 0:00:23.160 I have something to admit to you. Oh boy, here 0:00:23.200 --> 0:00:26.880 we go. Okay, I'm worried you're going to think less 0:00:26.920 --> 0:00:30.160 of me. There's no chance of that. Just just tell So. 0:00:30.400 --> 0:00:34.320 One of my long held ambitions in life is to 0:00:34.840 --> 0:00:39.400 travel via container ship perfectly, you know, a long journey 0:00:39.400 --> 0:00:43.239 across the Pacific. I think I know someone who did that. 0:00:43.360 --> 0:00:47.360 I think I know someone who went from Japan to 0:00:47.479 --> 0:00:53.440 the US as a traveler on a industrial contender ship. Yeah, 0:00:53.600 --> 0:00:56.279 it's something you can do, or I should say you 0:00:56.360 --> 0:01:00.480 were able to do it before the global pandemic. I'm 0:01:00.520 --> 0:01:04.080 sure it's not allowed right now for many reasons. Obviously, 0:01:04.120 --> 0:01:07.280 you have restrictions on travel, you have border restrictions. But 0:01:07.360 --> 0:01:11.480 the other big reason is that global shipping is kind 0:01:11.520 --> 0:01:15.319 of just a mess at the moment, right and that's 0:01:15.319 --> 0:01:19.520 related to the pandemic and the supply chain disruptions, and 0:01:19.600 --> 0:01:22.000 of course they've been happening for about a year now, 0:01:22.560 --> 0:01:25.720 but they don't seem to be abating like the general 0:01:25.760 --> 0:01:28.640 disruptions that we've seen. I mean, the world seems to 0:01:28.680 --> 0:01:32.040 be getting by, and maybe we haven't had as severe 0:01:32.160 --> 0:01:36.000 shortages of things that we might have feared last spring, 0:01:36.520 --> 0:01:40.160 but there are still all kinds of reports about how 0:01:40.560 --> 0:01:43.520 sort of messed up everything. Yeah, and I think people 0:01:43.600 --> 0:01:46.479 were expecting it to get better. So, as you mentioned, 0:01:46.520 --> 0:01:49.840 when the pandemic first started, we saw a bunch of 0:01:49.840 --> 0:01:53.600 countries suddenly close their borders, and this meant that ships 0:01:53.640 --> 0:01:56.920 that were supposed to head somewhere and then head somewhere else, 0:01:57.280 --> 0:01:59.360 we're all sort of knocked out of place. So it 0:01:59.400 --> 0:02:01.520 takes a lot long time to get them back into 0:02:01.560 --> 0:02:04.559 position and to get them on the routes that they're 0:02:04.600 --> 0:02:08.480 supposed to be going. But now what we're seeing is 0:02:08.560 --> 0:02:11.440 that even you know, almost a year on from the 0:02:11.480 --> 0:02:14.800 start of the pandemic, at least in China, this problem 0:02:14.840 --> 0:02:17.320 seems to be getting worse. And I'm looking at a 0:02:17.360 --> 0:02:21.720 headline on Bloomberg right now saying that surging shipping rates 0:02:22.160 --> 0:02:25.919 are a new headwind for the global economy. So it's 0:02:25.960 --> 0:02:29.920 gotten so bad that we could actually feel an outsized 0:02:29.960 --> 0:02:34.919 economic impact from all of this. Yeah, you know, it's 0:02:34.960 --> 0:02:38.760 funny like when when the crisis first hit, there was 0:02:38.800 --> 0:02:41.400 a lot of talk here in the US about, oh, 0:02:41.440 --> 0:02:44.560 are we gonna start reshoring more of our manufacturing? Are 0:02:44.600 --> 0:02:47.520 we gonna buy less from China over time? And maybe 0:02:47.960 --> 0:02:50.280 that will happen at some point, who knows. But in 0:02:50.360 --> 0:02:53.880 the meantime, people are spending a lot on e commerce. 0:02:54.120 --> 0:02:57.799 They're buying things. They're buying things from Walmart dot com 0:02:57.800 --> 0:03:00.560 and Amazon dot com, and a lot of those things 0:03:00.560 --> 0:03:04.160 come from China. So there is an extraordinary amount of 0:03:04.240 --> 0:03:08.919 demand for imports ship from China. I don't think there's 0:03:08.960 --> 0:03:10.960 as much going in the other direction, and I think 0:03:11.000 --> 0:03:13.200 that's sort of like part of the story is that 0:03:13.639 --> 0:03:16.959 although there has been this revival of economic activity, it's 0:03:17.040 --> 0:03:20.160 not the same patterns as it was before, and so 0:03:20.240 --> 0:03:24.680 this sort of like equilibrium stability of global global supply 0:03:24.760 --> 0:03:29.520 lines has not been established yet. No, that's exactly right. 0:03:29.560 --> 0:03:32.840 I think I saw some anecdote about how it's cheaper 0:03:32.960 --> 0:03:37.800 to send a container from the US to China empty. 0:03:37.880 --> 0:03:41.000 So you ship something over to the US a full container, 0:03:41.240 --> 0:03:42.800 but then when it gets there, you just send it 0:03:42.800 --> 0:03:46.040 back empty because you can make more money by making 0:03:46.160 --> 0:03:49.040 more trips versus actually spending the time to load it 0:03:49.160 --> 0:03:54.360 up in the US. So it's stuff like that. Well, anyway, 0:03:54.400 --> 0:03:56.760 that's a good one. That's a good one. On this podcast, 0:03:56.800 --> 0:03:59.200 we're going to hit all of these big themes. So 0:03:59.360 --> 0:04:03.040 we're going to hit it um, how shipping actually works, 0:04:03.320 --> 0:04:05.880 what's going on now? And you know when we say 0:04:05.880 --> 0:04:10.520 stuff like the rate on a standard container has quadrupled 0:04:10.640 --> 0:04:13.880 versus a year ago, what do we actually mean by 0:04:13.960 --> 0:04:17.039 a standard container? And how did we get into a 0:04:17.080 --> 0:04:21.440 place where shipping and global trade was standardized in this way? 0:04:21.480 --> 0:04:23.919 So we're going to talk to someone who has actually 0:04:24.160 --> 0:04:28.320 fulfilled my ambition in life, someone who has traveled on 0:04:28.400 --> 0:04:32.039 container ship. We're gonna talk to Mark Levinson. He's an 0:04:32.040 --> 0:04:35.559 economist and a historian and the author of a really 0:04:35.560 --> 0:04:38.200 good book that I read quite a few years ago, 0:04:38.240 --> 0:04:41.000 but it's called The Box, How the shipping Container made 0:04:41.040 --> 0:04:44.240 the World smaller and the World economy bigger. He also 0:04:44.279 --> 0:04:48.000 has a new book called Outside the Box, How globalization 0:04:48.120 --> 0:04:52.160 changed from moving stuff to spreading ideas. So the perfect 0:04:52.160 --> 0:04:57.080 person to talk about this, all right, Marca, Welcome to 0:04:57.080 --> 0:05:01.360 odd Bots. Good to be with you, Tracy. So it's 0:05:01.440 --> 0:05:05.479 nice to meet someone who shares my affinity for container shipping. 0:05:05.560 --> 0:05:09.200 Could you maybe explain how you got into this as 0:05:09.279 --> 0:05:12.640 an area of interest because I think, I mean, I'm 0:05:12.640 --> 0:05:16.000 pretty sure that your book is well one of the 0:05:16.040 --> 0:05:18.039 only ones that I know of certainly that deals in 0:05:18.080 --> 0:05:22.520 the history of container shipping. Sure, I'm I'm not a 0:05:22.560 --> 0:05:26.520 shipping person. I'm a trade person. I'm very interested in 0:05:26.680 --> 0:05:32.400 international economics and international trade. And my observation was that 0:05:32.800 --> 0:05:37.800 economists paid a whole lot of attention to things that 0:05:37.960 --> 0:05:41.320 governments did as being responsible for the growth in trade, 0:05:41.360 --> 0:05:45.040 for example, cutting tariffs, and that they really hadn't paid 0:05:45.120 --> 0:05:48.920 much attention to these changes in transport costs and the 0:05:49.240 --> 0:05:53.120 greater reliability that came with container shipping. So I decided 0:05:53.160 --> 0:05:55.159 to take a look at that, and that's really where 0:05:56.360 --> 0:05:59.640 my book The Box came from, was really trying to 0:05:59.720 --> 0:06:04.200 under stand how this technology developed and how it then 0:06:04.240 --> 0:06:10.120 affected the international economy. My argument that globalization as we 0:06:10.160 --> 0:06:12.880 know it today wouldn't have been possible without the container 0:06:13.600 --> 0:06:16.080 originally struck a lot of people as strange, but I 0:06:16.120 --> 0:06:19.000 think many people have come around to understand that that's true. 0:06:20.920 --> 0:06:24.680 What is the core thesis of the book, that this 0:06:24.960 --> 0:06:29.480 standardized container that can guard ships and rail is so 0:06:29.600 --> 0:06:33.160 crucial to globalization as we know it? The core thesis 0:06:33.320 --> 0:06:38.880 is that the shipping container made such a huge difference 0:06:39.200 --> 0:06:42.720 in not only the cost of shipping but in the 0:06:42.800 --> 0:06:48.320 reliability of shipping, that it led businesses to adopt new strategies. 0:06:49.240 --> 0:06:53.680 The containerization made what we think of today as long 0:06:53.720 --> 0:06:58.400 distance value chains possible. The idea that you would ship 0:06:59.600 --> 0:07:03.080 inter idiot goods from here to their products that have 0:07:03.200 --> 0:07:06.040 been partially processed and they're being sent to some place 0:07:06.080 --> 0:07:09.080 else to be incorporated into a component, which will be 0:07:09.160 --> 0:07:12.320 sent someplace else to be incorporated into a finished product. 0:07:12.920 --> 0:07:17.120 That wasn't common before containerization came along, because the transport 0:07:17.280 --> 0:07:21.840 was too expensive and too unreliable. And so this type 0:07:21.840 --> 0:07:27.320 of globalization is really a consequence of containerization. So you 0:07:27.440 --> 0:07:29.680 made the point in the book, or I mean a 0:07:29.680 --> 0:07:32.200 big chunk of the book is actually about this. The 0:07:32.280 --> 0:07:37.160 standardized container didn't just happen. Someone had the idea for it, 0:07:37.400 --> 0:07:42.360 and then actually getting it adopted in the wider roles 0:07:42.360 --> 0:07:45.640 of trade took a lot of investment and and quite 0:07:45.680 --> 0:07:48.720 a bit of time. Could you describe that process? Where 0:07:48.720 --> 0:07:52.280 does the container actually come from? And how was it 0:07:52.600 --> 0:07:58.200 uh spread around the world. The container was actually not 0:07:58.400 --> 0:08:02.720 a new invention by any stretch. There's evidence of the 0:08:02.840 --> 0:08:07.040 use of containers to ship goods more efficiently since the 0:08:07.160 --> 0:08:11.880 eighteenth century, and it makes sense, right. It's more efficient 0:08:11.920 --> 0:08:15.240 to handle things once like a box with a lot 0:08:15.240 --> 0:08:18.320 of little boxes inside, than to handle each of these 0:08:18.400 --> 0:08:21.880 different boxes. So there's been a lot of use of 0:08:21.960 --> 0:08:25.920 containers in different ways, including in the United States, but 0:08:26.160 --> 0:08:28.760 none of these made any money. It proved to be 0:08:28.880 --> 0:08:32.840 not a very efficient way to move goods. And then 0:08:32.880 --> 0:08:39.280 what happened Starting in ninety six, US entrepreneurs, notably a 0:08:39.320 --> 0:08:45.720 trucking industry magnet named Malcolm McClain, began to use containers 0:08:45.760 --> 0:08:54.280 aboard purpose built ships and tied the container into a system, 0:08:54.360 --> 0:08:57.960 so it wasn't simply uh, something that went on a 0:08:58.040 --> 0:09:00.880 ship but could also be put on top of a 0:09:01.040 --> 0:09:04.320 rail car, could be attached to a truck, and you 0:09:04.679 --> 0:09:09.160 then had the development of intermodal freight. Containers were a 0:09:09.240 --> 0:09:13.600 domestic US phenomenon for a dozen years, and then starting 0:09:13.600 --> 0:09:18.560 in n there was international container shipping, first across the 0:09:18.600 --> 0:09:23.560 Atlantic and then across the Pacific, and this led to 0:09:23.920 --> 0:09:28.480 a steep drop. I think readers may not recall, but 0:09:28.920 --> 0:09:34.320 before containers came along, doc work was very, very labor intensive. 0:09:34.920 --> 0:09:37.720 To load a ship, the ship had to spend a 0:09:37.760 --> 0:09:41.120 couple of weeks at the dock, and you had workers 0:09:41.200 --> 0:09:46.280 literally handling two hundred thousand separate items, getting them out 0:09:46.280 --> 0:09:48.280 of the warehouse and into the ship, and then at 0:09:48.320 --> 0:09:51.240 the other end of the trip doing the reverse. So 0:09:51.400 --> 0:09:55.760 shipping things took a long time. Many things got lost, stolen, broken, 0:09:56.480 --> 0:09:59.840 and the cost was extremely high. And what that meant 0:09:59.880 --> 0:10:03.360 was a lot of things just weren't worth shipping. Once 0:10:03.679 --> 0:10:08.160 container shipping developed internationally, then all of a sudden it 0:10:08.240 --> 0:10:12.800 made sense to send things like socks and cheap wine 0:10:13.000 --> 0:10:17.720 and electric fans and other relatively inexpensive goods around the world, 0:10:17.760 --> 0:10:22.600 and so the container really made that possible. Was Season 0:10:22.679 --> 0:10:26.880 two of The Wire a pretty accurate depiction of them, 0:10:27.400 --> 0:10:31.439 sort of the intersection of new shipping technology against or 0:10:31.600 --> 0:10:35.920 sort of with sort of traditional union power and workers strongholds. 0:10:37.600 --> 0:10:42.880 It was different in every country. Typically, the pattern prior 0:10:42.960 --> 0:10:49.040 to containerization was that doc work paid well when there 0:10:49.120 --> 0:10:52.560 was work, but because of the nature of shipping that 0:10:52.679 --> 0:10:57.000 was fairly labor intensive, there was this it was necessary 0:10:57.000 --> 0:11:00.480 to have a surplus of workers. So you have all 0:11:00.520 --> 0:11:04.760 of these guys showing up at the dock every day 0:11:04.760 --> 0:11:07.960 trying to find work. Some days there was work for 0:11:08.000 --> 0:11:10.920 everybody because the ship had just come in. Some days 0:11:10.960 --> 0:11:13.800 there was work for only a handful of guys. And 0:11:13.920 --> 0:11:17.000 so then how do I get a job while you 0:11:17.040 --> 0:11:20.360 get your job for your friend? And and it became 0:11:20.520 --> 0:11:24.720 rather a racket infested in some countries. Uh, that was, 0:11:24.960 --> 0:11:29.480 you know, definitely an issue. Um. In other countries, this 0:11:29.559 --> 0:11:31.760 was simply an important source of work, and there was 0:11:31.800 --> 0:11:35.199 a lot of resistance to these jobs disappearing. So every 0:11:35.240 --> 0:11:39.320 country had to resolve this in its own way. So 0:11:40.240 --> 0:11:44.680 I think you've laid out the importance of standardized shipping 0:11:45.040 --> 0:11:50.080 to global trade beautifully. If we fast forward to today 0:11:50.840 --> 0:11:53.559 and the disruptions that Joe and I were talking about 0:11:53.720 --> 0:11:58.280 in the intro, what's your understanding of what's going on 0:11:58.480 --> 0:12:04.280 right now and how much of a problem is it. Well, 0:12:04.400 --> 0:12:07.600 let me give you just a little very recent history 0:12:07.760 --> 0:12:11.720 of containerization, and this is some of what I deal 0:12:11.760 --> 0:12:15.200 with in my my new book, Outside the Box. Starting 0:12:16.000 --> 0:12:21.000 in the early two thousand's, the container ship lines built 0:12:21.360 --> 0:12:25.520 bigger and bigger and bigger ships. Okay, the first ship 0:12:25.880 --> 0:12:33.000 that carried only containers back in carrying sixty eight containers. Okay, 0:12:34.240 --> 0:12:39.920 now the biggest carry more than twelve thousand containers what 0:12:39.960 --> 0:12:43.640 they call twenty ft units, and it was really in 0:12:43.679 --> 0:12:47.080 the early two thousands, around two thousand, five thousand six 0:12:47.120 --> 0:12:50.800 of these big ships started to come online, and then 0:12:50.800 --> 0:12:54.480 they got bigger and bigger over time. These were built 0:12:54.559 --> 0:12:57.640 on the assumption that international trade would continue to grow 0:12:57.800 --> 0:13:03.680 very quickly, as it had for decades up until that time. 0:13:04.400 --> 0:13:09.479 What happened then was in the financial crisis, trade crashed, 0:13:09.840 --> 0:13:14.200 and after that the growth of trade never recovered. Okay, 0:13:14.240 --> 0:13:17.840 international trade as a share of the world's GDP actually 0:13:17.880 --> 0:13:21.520 peaked back in two thousand eight, and so there was 0:13:21.640 --> 0:13:26.120 all his excess capacity in shipping, and every time a 0:13:26.200 --> 0:13:29.040 new ship came online that had the capacity to carry 0:13:29.080 --> 0:13:33.640 thousands of containers, the excess capacity got worse, to the 0:13:33.720 --> 0:13:37.120 point that you can send a container across the Pacific 0:13:37.360 --> 0:13:40.640 for for under a thousand dollars. At one point when 0:13:40.640 --> 0:13:45.000 this happened, many ship lines went bust or else found 0:13:45.120 --> 0:13:49.679 merger partners, and so what had been a very competitive 0:13:49.720 --> 0:13:54.120 industry was transformed into what's basically an oligopola. To day, 0:13:54.960 --> 0:13:58.880 there are three groups of ship lines, and between them 0:13:58.920 --> 0:14:03.000 they probably can troll five or so percent of the 0:14:03.080 --> 0:14:08.720 trade on the major trade routes, and that means that 0:14:08.800 --> 0:14:13.240 they are able to control over capacity. You don't have 0:14:13.640 --> 0:14:16.000 as many ships being built as you had a few 0:14:16.080 --> 0:14:19.440 years ago because of these three big groups kind of 0:14:19.520 --> 0:14:23.840 keep a handle on things, and so that means that 0:14:24.880 --> 0:14:27.160 when all of a sudden there's a spike in demand, 0:14:27.280 --> 0:14:31.520 as there was towards the middle of that, rates are 0:14:31.520 --> 0:14:36.200 going to go up. That's really what's happened. After years 0:14:36.200 --> 0:14:40.680 and years of extremely low rates, rates really popped starting 0:14:41.320 --> 0:14:45.480 in August or September of last year. Why did this 0:14:45.560 --> 0:14:49.080 happen aside from the demand, Well, in the early days 0:14:49.120 --> 0:14:52.880 of COVID, there were a lot of foul ups. Trade 0:14:53.600 --> 0:14:57.680 dropped off precipitously for a brief period, uh, and then 0:14:58.320 --> 0:15:01.640 that it picked up again. And at the same time, 0:15:01.680 --> 0:15:05.440 you had consumers in the wealthy countries who couldn't spend 0:15:05.560 --> 0:15:09.080 on services. So you actually had in the midst of 0:15:09.120 --> 0:15:12.520 this crisis, people with a lot of money to spend. 0:15:12.680 --> 0:15:16.080 They couldn't go out to dinner, they couldn't go on vacation, 0:15:16.720 --> 0:15:20.160 they couldn't go to the theater, they could buy things, 0:15:20.640 --> 0:15:25.560 and so that actually increased the demand for physical products, 0:15:25.840 --> 0:15:27.760 and that's a lot of what we're seeing now in 0:15:27.840 --> 0:15:48.480 this um sudden surge of exports from China. Let me 0:15:48.480 --> 0:15:51.320 ask you a sort of technical question, because I'm sort 0:15:51.360 --> 0:15:55.680 of fascinated about where prices come from. So you know, 0:15:55.720 --> 0:15:58.360 I have a Bloomberg terminal and I can look up 0:15:58.440 --> 0:16:04.120 the Shanghai Shipping Exchange Containerized Freight Index, and I see 0:16:04.200 --> 0:16:07.720 that now that long ago as a thousand. Anyway, now 0:16:07.880 --> 0:16:13.080 it's significantly higher than that. It's exploded. Where do these 0:16:13.160 --> 0:16:16.360 numbers come from? If I'm trying to think how I 0:16:16.360 --> 0:16:18.920 want to phrase the question, if a manufacturer of a 0:16:18.920 --> 0:16:21.400 good or a buyer of a good, is there a 0:16:21.400 --> 0:16:25.840 transparent price? Did they negotiate directly with the shippers? And 0:16:25.880 --> 0:16:30.080 then how did those get fed into a unified index. 0:16:31.480 --> 0:16:35.800 That's a terrific question, Uh, Joe. If you show up 0:16:35.840 --> 0:16:39.360 at the dock with a container and you say, hey, 0:16:39.480 --> 0:16:43.200 I want to send this off to Hamburg or Long Beach, 0:16:44.360 --> 0:16:48.320 well the ship line will do business with you reluctantly. 0:16:48.400 --> 0:16:51.880 But that's not really how the shipping business works. Okay, 0:16:52.160 --> 0:16:57.800 the shipping business works almost entirely under contract, which is 0:16:57.840 --> 0:17:06.240 to say, a big shipper Walmart for um Caterpillar will 0:17:06.240 --> 0:17:11.040 reach an agreement with either a ship line or with 0:17:11.119 --> 0:17:13.640 a freight forward or which will negotiate with the ship 0:17:13.680 --> 0:17:18.879 line on its behalf. These agreements typically last six months, 0:17:18.920 --> 0:17:23.840 sometimes longer, and they're typically filled with contingencies, which means 0:17:24.240 --> 0:17:27.119 you can't actually know what the cost of the shipment is. 0:17:28.440 --> 0:17:33.919 A typical contract might say something like the shipper, that is, 0:17:33.920 --> 0:17:38.600 the company with the goods export, agrees to have at 0:17:38.720 --> 0:17:44.639 least fifty containers on the dock going from Shanghai to 0:17:45.760 --> 0:17:50.600 Los Angeles every Tuesday, and any week in which it 0:17:50.640 --> 0:17:55.680 has less than fifty containers, the agreed price will be higher. 0:17:56.320 --> 0:17:59.920 And if over the entire six months of the pure 0:18:00.080 --> 0:18:04.240 it uh it has fewer than so and so many containers, 0:18:04.400 --> 0:18:07.639 the price will be this much higher. And if the 0:18:07.680 --> 0:18:10.560 ship line misses a sailing, then it will have to 0:18:10.600 --> 0:18:14.240 pay a penalty of so much per container. And those 0:18:14.359 --> 0:18:17.400 kinds of contingencies, and there are many of them, then 0:18:17.520 --> 0:18:22.399 determine what the total prices. So actually a company can't 0:18:22.440 --> 0:18:25.000 tell you what it would cost to send a container 0:18:25.520 --> 0:18:30.040 from Shanghai to Los Angeles today. It will only know 0:18:30.359 --> 0:18:32.960 at the end of the six months when it adds 0:18:33.040 --> 0:18:35.879 up all of the payments that's made, all of the 0:18:35.920 --> 0:18:39.480 penalty payments that's received from the other party, and and 0:18:39.520 --> 0:18:43.880 then it becomes obvious in retrospect what the actual cost 0:18:43.920 --> 0:18:47.879 per container was. So this is not public information. Just sorry. 0:18:48.000 --> 0:18:50.359 So then like I'm looking at this chart again, so 0:18:50.480 --> 0:18:54.760 is it a thousand and now it's it's not public information. 0:18:55.440 --> 0:18:59.560 How does it then get fed into an observable index? 0:19:01.440 --> 0:19:04.639 What you're looking at is the market forecast of a 0:19:04.640 --> 0:19:09.200 spot rate. Okay, as some of the contracts are pegged 0:19:09.200 --> 0:19:13.040 to that index, some are not. Uh, And and there's 0:19:13.040 --> 0:19:16.720 a question here about what kind of information and index 0:19:16.800 --> 0:19:20.199 like this has. Okay, you may have some players in 0:19:20.240 --> 0:19:23.800 the industry who want this information to get out about 0:19:23.840 --> 0:19:26.360 what they actually are paying for freight. You have some 0:19:26.480 --> 0:19:28.680 players in the index in the industry who don't want 0:19:28.680 --> 0:19:32.080 it to get out. And so this is, as is 0:19:32.119 --> 0:19:36.159 the case with many other traded commodities, many of the 0:19:36.200 --> 0:19:41.040 transactions occur in private and what is known in the 0:19:41.119 --> 0:19:44.560 public sphere is not the full story. You don't really 0:19:44.600 --> 0:19:49.560 know what what the actual prices are or were. So 0:19:49.760 --> 0:19:53.120 we described it the outset this idea that the pandemic 0:19:53.359 --> 0:19:57.399 had caused chaos in shipping in part by putting a 0:19:57.440 --> 0:19:59.840 bunch of the big container ships out of place. So 0:20:00.160 --> 0:20:02.080 you know, they expected to go somewhere, they were turned 0:20:02.080 --> 0:20:04.920 away at the border, or they got stuck somewhere, and 0:20:05.000 --> 0:20:09.000 so you have like all these ships out of position. 0:20:09.920 --> 0:20:15.439 How difficult is it to get them back online and 0:20:15.480 --> 0:20:19.280 sort of going where they need to be going? I guess, 0:20:19.400 --> 0:20:23.000 I guess. My question is how flexible are these giant 0:20:23.080 --> 0:20:27.440 container ships. There are a couple of things that make 0:20:27.560 --> 0:20:32.880 them not very flexible. One is that these big ships 0:20:33.800 --> 0:20:39.200 don't necessarily fit at all ports on some routes, they're 0:20:39.240 --> 0:20:42.680 simply not enough demand to handle a ship that can 0:20:42.760 --> 0:20:46.399 carry ten thousand containers, or perhaps the harbor in some 0:20:46.440 --> 0:20:50.320 places isn't deep enough to handle that ship, and so 0:20:50.400 --> 0:20:53.040 a ship that can serve one route may not be 0:20:53.080 --> 0:20:57.439 able to serve another route profitably. The other factor to 0:20:57.520 --> 0:21:01.919 understand here is that no one in the container shipping 0:21:01.920 --> 0:21:07.119 business sends out a ship. When a ship line is 0:21:07.240 --> 0:21:12.240 offering a route, it's offering a regular service. Okay, So 0:21:12.720 --> 0:21:17.000 every Tuesday, to take an example, there will be a 0:21:17.160 --> 0:21:22.080 ship that leaves ching Dao in China and it will 0:21:22.160 --> 0:21:26.200 stop in this place, and it will stop in that place, 0:21:26.320 --> 0:21:29.920 and it will stop in Singapore so many days later, 0:21:30.000 --> 0:21:34.159 and it will stop in Umhis Sirius in Spain so 0:21:34.240 --> 0:21:37.639 many days later, and eventually, so many days later, it 0:21:37.640 --> 0:21:40.040 will end up in Rotterdam. And it will do that 0:21:40.119 --> 0:21:42.800 on the same day every week, and it will be 0:21:43.200 --> 0:21:46.600 a ship of the same design every week in most cases. 0:21:47.320 --> 0:21:51.080 So this is called a string in the shipping industry. 0:21:51.520 --> 0:21:56.400 And so if you have a ship that sales between 0:21:57.080 --> 0:22:00.679 China and Rotterdam and my example, every Tuesday, you're probably 0:22:00.720 --> 0:22:04.600 going to have seven or eight versions of the same 0:22:04.640 --> 0:22:08.880 ship about the same size ready to go on that date, 0:22:08.960 --> 0:22:11.680 and you're trying to keep on the schedule, which means 0:22:12.440 --> 0:22:14.880 if one or two or three of them are out 0:22:14.880 --> 0:22:17.240 of position, it takes a while to get back on 0:22:17.320 --> 0:22:20.960 that regular rotation. You can't just put any old ship 0:22:21.040 --> 0:22:24.720 on that run, because that's not what the traffic requires. 0:22:24.960 --> 0:22:30.439 Coordinating these is quite a task. Typically these days, ships 0:22:30.480 --> 0:22:32.760 are built with the idea that they will be used 0:22:32.760 --> 0:22:36.800 on a specific route, uh and and so you don't 0:22:36.840 --> 0:22:41.439 want to just plug them in any place. So you know, 0:22:41.480 --> 0:22:43.200 there's sort of I guess a couple of things going 0:22:43.240 --> 0:22:47.360 on here at once. There's the acute disruption that we're 0:22:47.359 --> 0:22:50.480 still working through. I mean, the coronavirus crisis isn't over. 0:22:51.119 --> 0:22:54.880 Basically nobody's economy has really returned to normal, so we're 0:22:54.920 --> 0:22:59.040 dealing with the aftermath of that, and that's obviously snarled 0:22:59.480 --> 0:23:04.440 shipping and uh scrambled the situation. What about I mean, 0:23:04.560 --> 0:23:08.040 is there any prospect long term for there to actually 0:23:08.160 --> 0:23:13.960 be a sustained capacity shortage if the economies around the world, 0:23:14.080 --> 0:23:16.520 you know, you have like lots of governments doing fiscal 0:23:16.520 --> 0:23:19.920 stimulus and they're going to need supplies and so forth, 0:23:19.920 --> 0:23:21.640 that if we have this sort of boom, I mean, 0:23:22.320 --> 0:23:26.960 perhaps could we have a sustained capacity constraint the likes 0:23:27.040 --> 0:23:30.040 we haven't seen since prior to the Great Financial Crisis. 0:23:32.320 --> 0:23:36.159 The capacity shortage such as it is, comes from the 0:23:36.200 --> 0:23:39.320 fact that you've really only got these three alliances, and 0:23:39.400 --> 0:23:42.520 so people are not building so many ships now because 0:23:42.520 --> 0:23:45.440 they don't have to worry about their competitors so much. 0:23:46.640 --> 0:23:50.199 I think though in the longer term the concerns are 0:23:50.200 --> 0:23:54.480 actually in the other direction. We had for many, many 0:23:54.560 --> 0:23:59.159 years international trade growing probably twice as fast as the 0:23:59.160 --> 0:24:04.919 world economy since two thousand eight, international trade has grown 0:24:04.960 --> 0:24:07.879 more slowly than the world economy. And I think that's 0:24:07.880 --> 0:24:10.960 going to continue, and the growth of international trade is 0:24:11.000 --> 0:24:14.920 going to slow down even more. And and that means 0:24:15.040 --> 0:24:21.280 that we have the prospect of overcapacity returning as the 0:24:21.400 --> 0:24:24.000 pandemic receipts. You know, I think that there are a 0:24:24.040 --> 0:24:27.520 couple of reasons for this in the long run. One 0:24:27.640 --> 0:24:32.359 is that you've got demographics right in a world in 0:24:32.400 --> 0:24:36.080 which most countries except in Africa, are filling up with 0:24:36.200 --> 0:24:40.719 older people. There's less demand for physical products. People are 0:24:40.760 --> 0:24:44.160 spending more and more of their money on services, and 0:24:44.880 --> 0:24:47.119 I think that that's really just going to affect the 0:24:47.160 --> 0:24:51.400 amount of trade in physical goods over the long run. 0:24:52.400 --> 0:24:57.840 You're seeing a lot of manufacturers and retailers change their 0:24:57.880 --> 0:25:01.520 sourcing decisions in way that will affect the demand for 0:25:01.640 --> 0:25:06.000 container shipping. One of the things I write about is 0:25:06.320 --> 0:25:10.320 that there was a lot of misjudgment of risk in globalization. 0:25:10.680 --> 0:25:14.280 A lot of companies looked at production costs and transport 0:25:14.359 --> 0:25:18.040 costs and said, we've got to make these things in China. 0:25:18.920 --> 0:25:21.440 People have now taken risk on board, you know, they 0:25:21.520 --> 0:25:24.720 understand that risk has to be factored into their calculations, 0:25:24.760 --> 0:25:27.880 because if the good zone arrive on time, it can 0:25:27.960 --> 0:25:30.480 really be very bad for the bottom line, and it 0:25:30.520 --> 0:25:33.840 can harm their reputation in the long term. You've had 0:25:33.880 --> 0:25:38.520 many companies now starting to diversifying. There's a lot of 0:25:38.520 --> 0:25:42.960 talk in the States about reshoring. It's not exactly re shoring, though. 0:25:43.359 --> 0:25:48.760 What's going on is rather redundancy. Firms are concerned about 0:25:49.160 --> 0:25:53.280 making a product only in one place, being reliant only 0:25:53.280 --> 0:25:55.840 on one supplier, or on one ship line, or on 0:25:55.840 --> 0:26:00.399 one board, and so people are looking for options in 0:26:00.480 --> 0:26:04.480 case something goes wrong somewhere. This raises production costs a 0:26:04.480 --> 0:26:09.840 little bit, but provides better insurance effectively in case there's 0:26:09.840 --> 0:26:13.760 a fire, a hurricane, a strike, ship sinks, whatever the 0:26:14.440 --> 0:26:17.240 issue is. And then the other big thing you've got 0:26:17.280 --> 0:26:22.240 obviously coming along is a concern about climate change, and 0:26:22.359 --> 0:26:27.760 as the costs of making production and transportation more sustainable 0:26:28.080 --> 0:26:30.560 but begin to be felt, that's going to raise the 0:26:30.600 --> 0:26:35.040 cost of international shipping and domestic freight transportation and is 0:26:35.040 --> 0:26:37.760 going to make these long distance value chains more costly 0:26:37.800 --> 0:26:40.960 to operate. I have a dumb question, but what's the 0:26:41.119 --> 0:26:45.399 downside of over capacity of mega ships? So you know, 0:26:45.440 --> 0:26:49.160 I could see it maybe hitting profits of the big 0:26:49.160 --> 0:26:52.320 three shipping companies. But why is that bad for the 0:26:52.400 --> 0:26:58.240 overall global economy? Well, I wouldn't say necessarily that it's 0:26:58.320 --> 0:27:02.240 bad for the overall global economy, but it's really bad 0:27:02.440 --> 0:27:08.160 for a ship lines for sure. But be these mega 0:27:08.240 --> 0:27:13.919 ships have generally fouled up the transportation system. Okay, you 0:27:14.040 --> 0:27:18.680 actually have fewer ships calling at most ports today than 0:27:18.760 --> 0:27:22.240 you used to have. They're much bigger, and so think 0:27:22.280 --> 0:27:25.359