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0 pointshef198983y ago0 comments

The wikipage for the Bullwhip effect is a good place to start. The ASCM has some blog posts about this topic as well (https://www.ascm.org/ascm-insights/).

At the core of the current problems are the demand and aupply shocks caused by Covid and lockdowns early on in the pandemic. You can think of it as the same thing that impacted toilet paper, just on a global scale across all industries. Tgen we had the mess of containers not being where they should be (again, due to covid lockdowns and shipping disruptions) which made a recovery from the lockdown induced disruptions difficult. On top of that we have the war in Ukraine, which cut of Ukraine and Russia from flobal trade. While it seems that everything is coming from Ukraine at the moment, it is true that some things do, especially food stuffs and automotive parts. That happened while global supply chains still coped with the effects of Covid disruptions.

What JIT did, again not as a root cause, was to make these disruptions being felt much faster due to lower inventory levels. Not that any JIT was in place between suppliers in China and customers in, e.g. Europe so. With that long trabsportation lead times JIT is just impossible.

Tge alternative so, having huge buffer stocks, would have helped neither. Simply because one component shortage can bring supply chains down. Holding ebough stock of everything to buffer those global issues would require so much inventory that nobody can afford it, or the resulting products. High inventory has its own challenges so, and not per se resilient.

In the puplic mind JIT is associated with zero inventory (JIT aims for the minimum inventory which is never zero in reality). The current issues are, in the publics view, easily explained by insufficient inventory (which they are not). So it is easy to combine those two and blame JIT for everything.

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crabmusket3y ago

Thanks for that, I appreciate it. I'll take a look into the ASCM's posts.

I've been a fan of Matt Stoller's work on monopolies for some time. He's a bit aggressive, but I find his analysis interesting. What do you think of the argument that monopolistic concentration makes issues like this worse? E.g. as put forward in this article https://mattstoller.substack.com/p/too-big-to-sail-how-a-leg...

> In other words, mega-ships like the Ever Given are a new phenomenon that are tied not to economic logic but to the consolidation of ocean carrier lines and their ability to offload risk onto counter parties. As Jensen observed, without the consolidation, “ships would likely not have grown above 12,000-14,000 TEUs [twenty-foot equivalent units].” So we’ve moved from a grid with lots of different size ships owned by different lines that could dock in lots of ports, to one dominated by hundreds of mega-ships that can only go to certain ports, all controlled by a de facto small cartel. The game in the business is to acquire market power and then use mega-ships to offload costs onto others and block new entrants.

hef19898OP3y ago

That article is actually a little shallow. The Ever Given had close to nothing to do with any issues at US ports (the majority of the Asian traffic to the US goes to west coast ports). Larger ships are good in terms of economics of scale. That card was over played a bit in the past it seems, so. There are still huge fleet of smaller ships out there, feeder vessels, connecting smaller ports to those served by the huge vessels. We are currently working, in container shipping, in hub and spoke system. Whether or not that is better then direct lines is a good question, there benefits to both models.

And calling container lines a cartel is strong claim. In fact, for years prior to Covid container rates were so low that companies were barely profitable. There can be the argument made that those low rates contributed to the bankruptcy of Hanjin. Cartels usually don't result in low prices.

That being said, the container issues, and there were a ton of those prior to Covid, during Covid and now that need to be solved, are a logistics issue. Serious enough to have impacts on supply chains, but not enough by themselves to screw things up to the degree we see right now.

>> The game in the business is to acquire market power and then use mega-ships to offload costs onto others and block new entrants.

That sentence could use detailed explanation, because as it is it doesn't make any sense to me.

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