Readings and Insights on Supply Chain Issues, Inflation, and Profiteering
How all this effects us, our environment, and our economy
My aim with this article is to point out as many of the reasons that these problems exist, expose, where possible, the “spin” being used to mislead people about this, and to show who is profiting. I will then provide links to some of the articles used so you can gain further insights if so desired.
Answers range from political decisions abroad, safety issues in coal mines in China, heavy rains caused by climate change, and decisions made here in the USA on deregulating industries and anti-trust issues. Buckle up, it’s quite a ride!
Sometimes the fault will be an actual shortage of given goods. Other times it will be transportation driven (no pun intended). In some cases it will be an unforeseen backlash of real world events and politics over-running governments trying to fix real problems. And then there is our old friend, deregulation. Let’s start with where most of our goods come from as well as many raw materials, China.
Back in 2021, China was experiencing a number of mining accidents. Mostly in smaller mines owned by . China regulates production through quotas, and generally hold politburo officials in charge of the area the mining occurs in responsible for accidents, missed quotas, etc. The state stepped in around (date) and shut down a large number of these smaller mines (27 in one province alone). Some were for safety violations, others do to flooding caused by unusually heavy rains attributed to climate change.
Around 22 percent of coal mines in China’s coal hub of Shanxi Province were recently ordered to stop operating due to major safety issues. One China observer said that problems persist due to a lack of oversight and corruption among authorities, and safety rules are regarded as a mere formality.
From January to July, Shanxi produced about 675 million tons of raw coal, the highest among all provinces, accounting for about 30 percent of China’s total output in the same period. Suspending the coal mine operations in the province is a big deal as other industries would be affected. Kathleen Li-Epoch Times October 12, 2021 Updated: October 13, 2021
Officials in North China’s Shanxi Province, a major coal production base in the country, on Wednesday raised a level-3 emergency response to geological disasters after days of heavy downpours caused floods and landslides that have resulted in four deaths and several injuries and forced the shutdown of several scenic spots and coal mines. By Global Times Published: Oct 06, 2021 03:29 PM
Another issue was that many small to intermediate sized power plants were losing money due to rising coal costs, so they were not running at full capacity to stem losses.
As electricity demand has risen, it has also pushed up the price of coal to generate that electricity. But Chinese regulators have not let utilities raise rates enough to cover the rising cost of coal. So the utilities have been slow to operate their power plants for more hours. By Keith Bradsher NY Times Published Sept. 27, 2021 Updated Oct. 13, 2021
Soon thereafter Covid-19 emerged, causing numerous problems throughout their industries. Now a political problem occurred. China produces around 64% of their coal, but imports a large amount of both types of coal; coking, or metallurgical, and thermal, for power generation and heating. Australia is their largest and cheapest supplier. After a 14 nation report on the origins of Covid stated it was highly unlikely it leaked from a lab in Wuhan, a Canberra spokesman publicly stated he wanted a new international inquiry into the origins on Covid. Let us say that China was “not pleased”. This quickly lead to an embargo of Australian coal as well as many other Australian products. Before that, Australia was a major coal supplier to China — in 2019, some 38% of Chinese thermal coal imports came from Australia.
Now, here comes the “backlash”.
When combined, all these factors lead to widespread power outages. This affected factories, swinging the output needle down. China responded by increasing coal production, by altering buying habits, re-opening many mines, and upping local production quotas. All this takes time, so we saw this a “where’s the stuff I want” moment. Less goods leaving idled factories.
Chinese regulators plan to be more prudent in their response to mining accidents as authorities ask coal producers to ramp up output to help stave off the country’s deepening power crisis.
The National Development and Reform Commission told miners at a meeting on Thursday that accidents will no longer result in the shutdown of nearby mines for safety inspections, local industry publication Fengkuang Coal Logistics said in a. The move comes as Beijing calls for them to produce coal at full capacity for the rest of the year even if they exceed quota limits.
Now on to another problem area: shipping.
Here there are many causes, but as usual, deregulation along with cartelization and the introduction of shipping containers changed everything. Laws that protected small shippers and consumers (the Shipping Act of 1916) were replaced with the Shipping Act of 1984, and later the Ocean Shipping Reform Act of 1998.
The bill was sponsored by Representative Joshua Alexander of Missouri, who was the Chairman of the House Committee on Merchant Marine and Fisheries. His measure had two key goals: to regulate the foreign and domestic shipping trades; and to reinvigorate the U.S. Merchant Marine. The United States Shipping Board was created via the law to accomplish these missions.
Representative Alexander’s original priority was to address commercial and competition issues related to shipping, but in 1916, World War One raged and the United States began making preparations for potentially becoming a combatant. The work of the Shipping Board very quickly became consumed with building the vessels and training the crews that would man these ships as they transported troops and supplies to Europe when America entered the war in 1917.
The U.S. Shipping Board existed from 1916 until 1933 when it was replaced by the U.S Shipping Board Bureau within the Department of Commerce. In 1936, the U.S. Maritime Commission was established and it lasted until 1950 when it was superseded by the Federal Maritime Board. In 1961, the Federal Maritime Commission was established as an independent regulatory and enforcement agency. from the Federal Maritime Commission
It allowed shipping companies to consolidate, and eliminated price transparency, facilitating secret deals with importers and exporters. The FMC was defanged as a regulator. Almost immediately, containerization took off. The number of goods carried by containers skyrocketed from 102 million metric tons in 1980 to about 1.83 billion metric tons as of 2017. Ocean carriers quickly fell into three “alliances”: 2M, Ocean Alliance, and “THE Alliance.” These alliances carry about 80 percent of seaborne cargo, up from 40 percent in 1998, giving customers few options. BY AMIR KHAFAGY-prospect.org FEBRUARY 2, 2022
The repercussions of this are staggering! Huge infrastructure investments were required to raise bridge heights, dredge deeper ports, install new equipment, training, and more. Since factories no longer needed to be near suppliers and markets, manufacturing fled the country. In New York City, containerization was a major factor in the collapse of its industrial base between 1967 and 1975, pushing the city into a fiscal crisis. Rust Belt cities such as Detroit, Flint, Cleveland, and Buffalo were crushed. Organized labor took a huge hit.
And then there is pollution. One (1) super-sized cargo ship emits the equivalent of fifty million cars (50,000,000)! Note that to “ease” the crowding problem of to many ships waiting to unload, and the exhaust they generate, they now have over 100 of them parked and idling out at sea between 150 to 500 miles out. A study by the National Oceanic and Atmospheric Administration found that pollution from cargo ships has led to 60,000 deaths per year and costs up to $330 billion in annual health costs from lung and heart diseases.
Vancouver’s famed Southern Resident killer whales are facing the possibility of extinction. The noise that container ships produce is loud enough to drown out up to 97 percent of the whale’s communication range, which impedes their ability to communicate and hunt cooperatively.
Now, on to costs:
With no transparency requirements, and the entrance of private equity/capital, costs exploded. And with changing political attitudes, deregulation, and a distinct lack of anti-trust enforcement, allowed the consolidation of the shipping/container market to evolve.
LIKE SO MANY OF THE COUNTRY’S late-breaking societal failures, the story of America’s modern ports began in the 1980s. First under the Reagan administration and later until Bill Clinton, the U.S. radically deregulated the ocean shipping industry. Out went the public-utility model, with prices overseen by a robust Federal Maritime Commission that helped offset that natural monopoly status that ruled the industry; in came the cartelized free-market system that has ruled ever since. (Incidentally, one of the early heads of the enervated FMC under Reagan was none other than Elaine Chao, the scion of a family shipping business, eventual wife of Mitch McConnell, and transportation secretary under Trump.)
The price of shipping a 40-foot container from China to the United States was once around $2,000. By August, it had soared to a record $20,000, a tenfold increase. By January, rates receded, but only to around $14,000, still enough to produce incredible profits for a concentrated industry. Shippers earned $25 billion in 2020; research consultant Drewry predicted $300 billion for 2021 and 2022.
Beyond the cost of goods and materials increasing due to demand, imagine being a business owner facing these levels of shipping cost increases! And, as usual, with the help of their “friends in high places”, the rich get richer.
Well, much to absorb here. I could go on about how this has effected consumer pricing but I’ll save that for another article.
Links to articles I referenced-some may be behind paywalls or require a “free membership”.
Power Outages Hit China, Threatening the Economy and Christmas
High demand and soaring energy prices have forced some factories to shut down, adding further problems for already…
China needs more coal to avert a power crisis - but it's not likely to turn to Australia for supply
China is facing its worst power crisis in years due to a coal shortage. While Australia has the coal Beijing needs, the…
Nearly a Quarter of Coal Mines in China's Shanxi Province Suspend Operations Due to Safety Concerns
Around 22 percent of coal mines in China's coal hub of Shanxi Province were recently ordered to stop operating due to…
Heavy downpour kills four, shuts down 27 coal mines in N China's Shanxi
Officials in North China's Shanxi Province, a major coal production base in the country, on Wednesday raised a level-3…
Shipping Act of 1916 Centennial-Legislation Established Forerunner of FMC - Federal Maritime…
September 7, 2016 Today marks the 100th anniversary of President Woodrow Wilson signing the Shipping Act of 1916 into…
The Hidden Costs of Containerization
This article appears in The American Prospect magazine's February 2022 special issue, "How We Broke the Supply Chain."…