'It's All Happening Again.' The Supply Chain Is Under Strain | Hacker News Reader

'It's All Happening Again.' The Supply Chain Is Under Strain

nytimes.com

44 pointsmikhael105 comments

These microcrises are all to be expected.

Globalization is coming to an end. As China and Russia become more militant, and the US becomes more insular, pax americana's guarantees of freedom of the seas will wane. Perhaps not to the degree that people like zeihan think it will, but this is an example.

Will know if the US decides to bomb the houthi rebels into Oblivion which is what would have happened about two decades ago.

The main reason behind this is because petrol shipping was the prime reason underlying globalization and free seas.

But with the bakken shale the US is oil independent, and it can defend whatever exports shipments it wants. Also, solar wind and EVs are the harbinger the end of the oil age. Yes, we'll still use petroleum but the demand will greatly diminish, to the point that it is no longer a primary concern of US foreign policy and military strategic policy.

I'm surprised Egypt hasn't taken military action: they own the Suez Canal, so the Houthi actions are greatly harming their revenues from that.

Egypt is facing a ton of pressure from the Muslim population to act against Israel, not fighting the Houthi's on this, while expensive, is still cheaper than doing anything directly.

This is sadly an inevitable consequence of a market after growth-through-innovation as ended. Competitive pressure and the need to extract profit means every millimeter of slack in the system is used or eliminated. As this happens, the system becomes more and more fragile.

And when the system has crises, they do not spur some kind of extra capacity or sane response to the crisis. Instead you get consolidation, gouging and further crisis.

This is especially true, and especially hard to remediate, in a highly international market where regulation cannot effectively be imposed.

> And when the system has crises, they do not spur some kind of extra capacity or sane response to the crisis.

Do you have evidence for this? Or does it just take time for extra capacity come online?

Otherwise, is this a new phenomenon? Then what changed? It's certainly not the case that capacity for desired goods never increases. That would be absurd.

It takes time for extra capacity to come online. We saw it quite clearly when the Ukraine war started: western allies want to help Ukraine, and Ukraine desperately needs artillery shells, but the facilities to build those were scaled back to produce at peacetime rates (i.e., not much) in the name of efficiency and cost-cutting. Rebuilding and restaffing new factories isn't something that happens overnight, because those rely on a broader supply chain for component parts and personnel.

https://apnews.com/article/us-army-ukraine-russia-ammunition...

Efficiency reduces resiliency.

Redundancy: engineers love it, managers hates it

There's an enormous amount of additional capacity coming online. What makes you think there isn't?

Just a taste of what's to come as the US exits the global commitments to ensuring freedom of navigation it has policed since WWII.

Before the US, it was the UK. The UK ended the widespread piracy and slave trade during their tenure.

One wonders what the CCP will do. So far, it doesn't look promising, if the South China Sea is an example.

> Then, a severe drought in Central America dropped water levels in the Panama Canal, forcing authorities to limit the number of ships passing through that crucial conduit for international trade.

This was surprising to me, as I'd always kind of assumed that the Panama canal would use ocean water for the locks. It turns out that the locks don't pump water at all, they just use gravity, necessitating reservoirs of fresh water.

See a longer discussion here: https://news.ycombinator.com/item?id=37055679

Why would gravity require a water supply other than what's already in the canal?

o To go up you sail in, close the gate behind you, and let water into the lock from the higher level until you can open that gate and sail out

o To go down you sail in, close the gate behind you, and let water out until it has dropped to the lower level and you can open that gate and sail out

At, least, this is how normal canals/locks work.

What's special about the Panana canal ?

Both situations involve a huge amount of water flowing downstream. That needs to be replenished either through rainfall or through pumping.

I think you're missing that, when you go down, the water flows out into the lower level waterway, not into a holding tank. It therefore cannot be re-used to raise the level in the same lock again. Water goes from the upper level to the lower level only. So you need a supply of water at the upper level.

also, the lakes in the middle are freshwater, so pumping water back in from the sea would destroy the lake's ecosystem and any sort of supply hooked up to it expecting fresh water, which is not in the interest of the Panamanians.

What I was missing is that in the Panama canal the high point is in the middle, not at one end, so the water flow is from middle to both ends.

In a normal lock system (e.g. typical British canal) the water flow is from the high end of the entire set of locks to the low end, so gravity does the job, and the water supply at the high end is replenished by whatever it is connected to (river or lake).

It's multiple locks, first up, then down. The middle section is at a higher altitude than the ocean on both sides

A big lake in the middle

I believe that the high point is in the middle. So in either direction, you have to climb, then descend, and when you open the last gate all that water goes into the ocean.

There has to be water coming in from higher up than the highest point in the lock system. Otherwise, how do you fill up the lock when you're traveling to the top? In a "normal" canal, this is handled by the upstream river or stream. In the Panama canal, this is accomplished from two lakes above the canal system.

> let water into the lock from the higher level

ok, what about the highest level of the lock?

If you don't use pumps you need your whole supply of water to be sourced from the hight of the high point in the locks. How would you propose to operate a pure gravity lock system without an outside supply of water?

With the Panama canal, the crucial difference is that a large part of the canal is Lake Gatún, a freshwater lake, so they can't pump water up to avoid overdrawing the water supply

https://www.youtube.com/watch?v=9ro-dr6t36g

This one is better as it shows the pumps: https://www.youtube.com/watch?v=jh79YSCC8mM

That second video doesn't show pumps, that shows valves. They let water flow down and only down. The video even explicitly calls out that the canal's locks drain the lake, which has been nearly catastrophic at least once before.

If they used ocean water, the canal would use a lot more power (and possibly would not have been economically feasible to operate). Plus, the population depends on Gatun Lake as its major source of drinking water.

Of course, during Project Plowshare, one proposal was to dig a new sea-level canal through Nicaragua with nuclear weapons instead of TNT.

The Atrato-Truandó canal in Colombia would be a much better option. No nukes required.

I don't know about this, but looking at the terrain on Google Maps, the western end seems constrained by the hills. Can you fit Panamax-sized ships through that proposed waterway?

I can't cope with it anymore. I work in grocery and we're seeing weeks long waits for containers and shipping dates, coupled with items arriving with the minimum allowed life, leaves us with very short turnaround frames. It's no wonder people can't keep the shelves stocked. Getting out of SC as soon as I possibly can.

SC?

Supreme Court, South Carolina, or Supply Chain…

Suez Canal surely.

Soviet Catalonia

maybe ... buy locally?

Wow thanks never thought of that, you've solved all my problems. Looked down the road and saw that all the veg produced in Spain has moved to the City of London.

The geopolitical calculus here seems a bit hard to follow.

Surely China suffers disproportionately from more difficult export traffic to the point that it should be incentivized to tell Iran to tell the Houthis to cut it out

What makes you think that China has much sway over Iran?

The world isn't divided into the countries that are under American hegemony and the countries that are under Chinese hegemony. It's more that there are the countries under American hegemony, the countries on mostly-friendly terms with the Americans but able to say no to them, and the small number of countries that are entirely cut off by the USA.

This last group tends to not want to just trade one hegemon for another, they try their best to become self-sufficient and able to say no to everyone. Iran is very much in that category: just because they're on friendlier terms with China than with the USA doesn't make them beholden to them.

You are correct, but a country like Iran doesn't have any trade partner other than China, so if China wants it can put enough pressure on them to stop. I.e., Iran will be forced to listen to China, not that it likes.

Something like 70-80% of Iran's budget comes from oil sales, and around 90% of Iran's oil sales are to China.

I'd guess that would make Iran take requests from China very seriously.

Or the other way around. It might make China take requests from Iran very seriously. Depends on whether China needs the oil worse than Iran needs the money.

[Edit: I'm rate limited for my own good, so I'm replying to jimbokun here: Which do I think is more likely? I have no data. Particularly, I have no data about the elasticity of China's oil demand.]

Which do you think is more likely?

Ok but just logically. What’s more important? 80% of your economy? Or more expensive energy? Whatever we believe about the latter, the former is existential.

> 80% of your economy? Or more expensive energy?

Logically they are the same thing. Economy makes things with energy.

Let’s use common sense though please. What’s more important?

~90% of government revenue that has no substitute?

Or ~10% of oil imports for which there are a plethora of alternatives?

Well, see, that was my question. Are there a plethora of alternatives for China? If they cut off Iran, where would they get the replacement oil from? Who has the capacity. Are they willing to sell to China? If so, at what price? If it's freely available, and at the same price, that answers my question. If it's only available at a higher price, then the question is, what does that higher price do to China's economy? And if it's not available at all, what does the absence do to China's economy?

You said "a plethora of alternatives". Are there, really? Can you (or someone) show that others are ready and willing to supply that much oil?

No matter what kind of interesting questions you want to pose, shutting down ~90% of tax revenue is worse than shutting down 10% of one source of energy. It’s frankly very silly to hypothesize otherwise.

Oil prices go higher and more countries open up rules to allow some Iranian oil. That 90% gets replaced but that 10% loss causes the 90% to increase.

Losing Iran's oil probably causes a world war.

I don’t know why everyone in this thread is thinking so small picture. We’re in a Cold War.

China has a significant interest in disrupting western control and does so without provoking direct open war by funding Iran’s funding of destabilizing forces (Houthi, hezbollah, taliban, Isis, hamas).

Perhaps, but isn't the Suez Canal the only reasonable way to ship bulk goods between Europe and Asia? Doesn't China depend heavily on access to the European markets that these attacks disrupt? I would think that that would outweigh their other interests here.

ignoring what you learned from us political thoric... what do you think would happen to China if all sea trade halted today?

Famine?

china is mostly self sufficient on food. or can do with local Thai or Philippines just fine.

for context, they buy all the soy from USA and Brazil just to feed pigs because their middle class exploded and now want premium food.

see, you're still thinking under the political taking points of USA and not looking at actual data.

China purchases about 90% of Iranian oil which is the only meaningful source of revenue for this fiscally starved country

I read a book a bit ago about deglobalization: https://en.wikipedia.org/wiki/The_End_of_the_World_Is_Just_t...

It makes a good case for, among other things, that once the US stops enforcing order on the seas, globally, that there’s going to be at best regional powers looking out for their own interests, only, and widespread piracy where even that is lacking.

Draught is one thing, but if pirates attacking commercial ships aren’t being smacked down that’s pretty alarming and doesn’t bode well.

The problem with Zeihan's predictions is that they are predicated on the assumption that America is retreating from entanglements around the globe. I'm not sure how anybody watching what's happening in Gaza and Ukraine could credibly make that statement.

I would describe America's support for Israel and Ukraine as rather restrained or half-hearted at best. So in that sense its a retreat.

I read that book and it get so much wrong. Its views on Russia for example have been completely flattened by the Ukraine invasion and response.

Russia has successfully switched to a war economy, US companies that pulled out are co-opted by Russian ones and doing business in a more or less normal manner. Sanctions have failed, and pushed Russia closer to China (not to mention North Korea).

When you view purely through the lens of demography, you can't extrapolate to global politics.

Russia’s economy is in the toilet. It’s also very clearly not on a wartime economy still as evidenced by the tiny output of new material.

https://www.cnbc.com/2024/04/17/russia-forecast-to-grow-fast....

Really?

I remember I expected Europe to try the appeasement nonsense that only emboldened the precious century’s fascist expansion effort.

I was surprised and delighted to see any level of resistance, even if it’s only to enable Ukraine to hold the line.

I dunno, friend. No offense, but I’m going to go with the professional geopolitical strategist’s take over yours -especially where I perceive subsequent reality validating his ideas- unless you’ve got comparable creds of your own or more substance to your refution of his ideas.

The article is paywalled, so I don’t know if they elaborate more on this; I’m just responding to your comment.

I’m pretty sure these countries aren’t beloved allies of each other, right? China presumably could politely ask Iran, who’d have to weigh their priorities, and the Houthis might just keep launching rockets anyway, they aren’t exactly a branch of Iran’s military or anything.

None of the groups projecting Iran's interests in the region are a branch of Iran's military or anything. Not the Houthis. Not Hezbollah. Not Hamas.

It works better for Iran that way.

Yes, Houthis might just ignore them and keep shooting <checks notes> Iranian made rockets delivered to them by Iran.

At targets requested by iran

I’m sure Iran has sort of “priced in” the cost of doing this sort of stuff via proxy instead of directly, and part of that cost is that the proxies don’t always target exactly what you want.

You’re looking at it through the “money-only” (for lack of a better word) perspective when it comes to China’s geopolitical decisions, which in my view is entirely wrong. Don’t get me wrong, I see your view as understandable, because I assume you’re writing this from a Western country and it is known that the West has long put money above everything else, but that way of looking at things completely misses China. The same discussion can be applied almost identically to how Russia views its geopolitical interests.

China has been reluctant to directly condemn the Houthis or publicly link them to Iran, but it has repeatedly voiced its disapproval, calling on all parties to respect the freedom of navigation and “stop attacking and disturbing civilian ships”.

In January, the Chinese media outlet Global Times reported that Chinese Foreign Minister Wang Yi had said, “China has been making active efforts to ease the tension in the Red Sea.”

Then a Reuters article claimed that China had communicated a vague but threatening statement to the Iranians: If Chinese vessels or economic interests were to be impacted by the Houthi attacks, it could harm Sino-Iranian business relations.

The Iranian Ministry of Foreign Affairs denied the report, but Islamic Republican, an official Iranian newspaper, published an article criticising the “selfish demand” of the Chinese, claiming that China showed a willingness to “help the Zionist regime” and advised it not to “extend your legs beyond your own carpet”. (In other words, stay out of it.)

The US keeps demanding China throw its weight behind getting the US and its allies out of the geopolitical quagmires we eagerly jumped into (and claimed we'd solve no problem, e.g. "Houthis FAFO"). It's getting pretty sad. Maybe the United States could use its leverage with Israel to enforce the UN Security Council resolution all members including the US and China voted for? Stop flooding our weapons into the illegal war destabilizing the region? But no.

https://www.aljazeera.com/opinions/2024/3/6/china-does-not-h...

Exactly - ceasefire and Ansarallah will stop. But Israel has to do its war.

PRC shipping are mostly unaffected by Houthis, they get to go through cheaper red sea route on lower insurance rates (at least in Feb) which they get to charge more because they have dibs on faster routes. They're triple dipping. So far global exports doing fine, costs largely gets passed onto consumers. Bonus watching global police USN fail to contain Houthis while gathering intel on US interception and sipping on cheap RU/IR energy for producer competitive advantage. It makes sense for PRC not to do anything, not that they could. Best they can do is mind their own business and arbitrage situation to their advantage, which appears to be net positive currently. E: Extra bonus: there seems to be assumption of prolonged disruption = global shipping needs to make up for distance with more hulls = record more orders of new ships from ship yards, of which PRC has ~50% marketshare.

Right now the goal is to divide the US into multiple regions to overstretch them. Europe (Ukraine, Russia) where Crimea just got struck using US weapons and harming civilians, Middle East (Yemen, Israel, Palestine, very likely Lebanon soon and if that happens...) And Asia (Taiwan, South China Sea) where we have had an increase in hostilities recently.

Also if it wasn't obvious all the dominoes started to fall with Russia and for a country that didn't even have a shot at joining the EU. It is incredible how much US foreign policy has failed.

Your position is based on the assumption that Ukraine is an isolated affair.

The Crimean civilian injuries were due to Russia shooting down the missiles and knocking them off course, not using air sirens to warn civilians, not building shelters, and encouraging tourism in an active war zone.

Not sure if it's stupidity on Russia's part or deliberately using civilians as cover in temporality occupied Crimea but it's not the first time Russia has placed military hardware near public beaches:

https://www.newsweek.com/russia-crimea-air-defense-yevpatori...

https://x.com/auto_glam/status/1804869425092313124

And as you highlighted this is Russia's own doing, as the damage was from its own air defense missiles

Whose goal? Is there some overarching cabal deciding that Russia is going to start a war, manipulating middle eastern politics, and making Chinese military plans?

BRICS?

This, people are talking oil sales as if this is just economics. This is Cold War.

At what point does the risk added by using just-in-time inventory methods override the savings?

When MBA schools revise their curriculum.

Just in time works until it doesn't. For the last decade plus companies made outsized profit by squeezing their supply chains to the bare minimum.

Then covid hit and it all fell apart. Companies that had resilient supply chains made outsized profit during this time.

Companies are all about making bets on where they make more money. If you were in the hot seat to maximize quarterly profits would you make the first or second bet?

> When MBA schools revise their curriculum.

I chuckle because there is some truth to it. A real business survives by understanding the ground reality. MBA/spreadsheet business survives by trying to maximize shareholder value (often by mindlessly cutting costs) until it implodes on itself.

The market optimizes for efficiency, not robustness, right? Every engineer knows redundancy is the easiest way to add robustness (there may be better ways, but redundancy doesn’t require much cleverness). Every economist knows redundancy means you are about to be fired.

There's a very fine line between Just In Time and Just Too Late. We advocate for Just In Case inventory, which is much more resilient.

Can you please share a little more about what Just In Case inventory looks like?

If they keep it up, the Houthis will discover that the US Navy has a just-in-time delivery all of its own.

When Russia invaded Ukraine in 2022, we found out their Army was mostly a paper tiger.

It seems the Houthi are showing that our Navy is about the same... lots of money and technology invested into systems that aren't up to the challenges of the 21st Century.

I just hope we can replace enough of the machine tools industry here at home in time to avoid catastrophe when globalism collapses. It's really going to suck when the dollar stops being our primary export. We're going to suffer the same fate as Britain after the loss the Pound Sterling as the international reserve currency.

Factors that I see from the article that are driving up shopping costs/delays:

1. Unexpected problems in key canals. (Houthi attacks on the Suez route and drought on the Panama route.)

2. Possibly some market manipulation by carriers. (The article gestures in this direction but doesn't actually claim collusion to fix prices.)

3. Demand is really high. This drives the congestion in key ports that the article mentioned.

The article text doesn't emphasize factor 3 much, but the subtext of that is everywhere. And that's actually a good thing. Lots of things being shipped means lots of economic activity means lots of jobs etc etc.

tl;dr The world is complicated and sometimes multiple factors combine to make things like this flare up.

My bet: We are going to be fine. The actors in this system will adapt, especially from price signals. Supply of shipping will go up a bit, demand will go down a bit, people will find alternate routes/ports/methods for getting their goods where they want them.

Free flow of container shipping traffic is what globalism is. Salmon caught in US processed in China and shipped back to US. Is only possible because of how cheap shipping costs are.

Isn't this exactly what Peter Zeihan said was going to happen? I think it is.

Guess I should wait to sell my investments.

Inflation is only bad if you don't have debt.

If it becomes that lucrative to ship containers new entrants will join the market at better rates

It's not that simple.

For one thing, lead times are long and costs are high so there is a huge risk that your capital will be wasted if costs come down before projects are complete.

Secondly not all the bottlenecks can simply have a new entrant. For example, the article cites panama canal constraints as a factor. Launching a competitor to the panama canal requires more than just time and money, it requires political and geographic opportunities.

> Launching a competitor to the panama canal requires more than just time and money, it requires political and geographic opportunities.

Mexico is well on the way with their competitor: https://en.wikipedia.org/wiki/Interoceanic_Corridor_of_the_I...

The new entrants just need to order a few 150,000 tonne container ships from Korea, these should be ready in a few years then they'll be good to go, as long as the incumbents don't sneakily cut prices just as their new ships are ready, they should be golden...

You are being downvoted but you're right. New entrants are joining the market. Problem is, these are usually smaller local players who don't have enough capacity to have any influence on rates.

https://theloadstar.com/ellerman-city-liner-relaunches-china...

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