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I don't understand why this problem would be self-perpetuating. It seems to me that if the cost to ship items rises, that would incentivize investment in build

I don't understand why this problem would be self-perpetuating. It seems to me that if the cost to ship items rises, that would incentivize investment in building more containers, deploying more ships (perhaps converting abandoned cruise ships into container ships), paying dockworkers extra overtime, etc. Why doesn't the price system end up correcting all these issues?

Ericson2314 5y ago
Because we get scared and hit demand with a hammer (cutting off unemployment insurance, etc.), And thus deny ourselves growth to the new equilibrium.
gajjanag 5y ago
Yes, it will self-correct eventually. However, one thing that is easily missed is how shipping lines have been operating at a loss/narrow margins for years, e.g., Hanjin bankruptcy: https://www.wsj.com/articles/south-koreas-hanjin-shipping-files-for-u-s-bankruptcy-protection-1473002745 https://www.wsj.com/articles/south-koreas-hanjin-shipping-fi.... Many of the major shippers are not interested in building out capacity right now (e.g., Maersk CEO has consistently messaged this: https://splash247.com/if-msc-ends-up-having-more-capacity-than-we-do-thats-not-the-end-of-the-world-skou-talks-up-profitability-over-market-share/ https://splash247.com/if-msc-ends-up-having-more-capacity-th... ). It makes sense: why would they when they know that inevitably shipping rates will fall and they will have excess capacity on their hands. Instead, they are essentially adopting a wait and see approach. In the meantime, shipping customers pay more, the shipping companies strengthen their balance sheets and reward shareholders with fat dividends, and finally demand will settle down naturally. What some fail to realize is that this will take a decent amount of time. In particular, no one expects easing of the shipping situation until 2022: https://www.joc.com/maritime-news/container-lines/hapag-lloyd/hapag-lloyd-warns-shipping-tightness-through-2022_20210625.html https://www.joc.com/maritime-news/container-lines/hapag-lloy...
- FooHentai 5y ago
  Reminds me of the US-based mask manufacturer who refused to scale up in the early stages of the pandemic, citing previous times he'd done so only to be left in the lurch when demand dried up. His main point (IIRC) was the strong conflict between the moral imperative and economic incentive. https://news.ycombinator.com/item?id=22339349 https://news.ycombinator.com/item?id=22339349
  - lotsofpulp 5y ago
    There is no moral imperative for an individual company to risk their survival because society does not want to pay. If society wants something, society should pay for it. Surely there was a number the US government could have offered the manufacturer to make it worth their while.
  - sct202 5y ago
    And it looks like that's 100% what has happened to US based suppliers of surgical masks and N95s. A lot of them are having trouble marketing their higher cost masks now that the main suppliers (3M etc) have been able to catch up for the healthcare market, and there is a flood of consumer grade surgical and KN95s from overseas.
__MatrixMan__ 5y ago
I think we've crossed a complexity threshold beyond which there are systemic problems whose solutions cannot be expressed in terms of price alone. It's like we're trying to implement factorial in morse code--it's just not the tool for the job. For instance, maybe Alice wants $5 worth of some resource, and if she gets it she'll be happy. Bob wants $5 of the same resource, and when he gets it he'll put some plan into action that makes $100 worth of some different resource available to Charlie. But there's a shortage, so Alice and Bob are in competition, and neither is willing to pay $6 for it. The price system doesn't give a reason to favor selling the resource to Bob. It's up to Charlie to notice the hazard before the transaction occurs and give Bob $1 to tip the scales in his favor--which is a challenging trick to pull off in a world that thinks that price alone should do the trick.
- zo1 5y ago
  No it's not up to Charlie to help Bob. It's up to Paul to come in and fill the gap that Alice and Bob are both missing. Price is enough I would argue, what's missing is that there are unknown constraints that are inflexible. I'd posit its something put down by government but anything is possible.
  - __MatrixMan__ 5y ago
    Coming up with enough resources to satisfy both sides of my dilemma resolves it for now, but it doesn't really address the fact that our expectations about markets' fault tolerance were wrong and probably will be again. That said, my solution is equally unsatisfying. Saying that we should reconsider our assumptions about markets isn't the same as providing an improved set of assumptions.
lmm 5y ago
Price-gouging laws artificially suppress the profitability of being the only supplier in a crisis. So it's not worth building your systems with the capacity to do any of that stuff.
- imtringued 5y ago
  I agree. People simply do not accept that it costs more money to get off the beaten path. For example, it is very cheap to build a mold that produces 10000 plastic parts. It's very expensive (per part) to use a high end 3D printer that costs hundreds of thousands to make a one off part 5 times for an emergency. If there is only demand for 10 machines but you need 11 machines in case of an emergency then the 11th machine will have to recoup all of its costs during the emergency. That's extremely expensive but consider this: the machine is paid off and ready to deal with a second emergency.
Igelau 5y ago
The stuff we use to build the stuff you're talking about is some of the stuff that is scarce.
6d6b73 5y ago
Because real life stuff is not made of Docker containers that can be deployed in a matter of minutes. My company does test hardware for manufacturers. We have multiple project we're working on currently but we can't finish some of them simply because we can't get all of the components we need. Because of that these manufactures, can't produce their widget, because they can't test them before shipping. They are some of the biggest corporations in the world and even they can't help us get some of the stuff we need. If they can't get their widgets produced, companies that depend on them can't produce their widgets. If you go deep enough you will find out how everything depends on everything else. Widget 1 is not being produced because it's missing Widget 2. Widget 2 is not being produced because it's missing Widget 3. Widget 3 is not being produced because it's missing Widget 1. Catch-22
a_imho 5y ago
What if the invisible hand decided it is more profitable to sell less items at inflated prices?
nonameiguess 5y ago
I'm sure dockworkers are earning plenty of overtime. But building more containers and converting cruise ships into container ships is time-consuming and extremely expensive, and the costs don't go away when you're done. You may or may not be able to offload them when the shock goes away and you don't want to permanently incur an operational cost increase in maintenance and storage to take advantage of a temporary price bump. And for all we know, shipping companies are taking measures like this, but making more container ships doesn't just happen. I don't know nearly enough about ships to know if it's even possible to convert a cruise ship to a container ship, but at bare minimum, you'd need to remove all of the above-deck amenities and cabin space, and maybe that requires less time than building a ship from scratch, but it still requires time. It requires hiring people who live near your dock to do it. It requires getting trucks to haul off all the waste you're generating. It requires metal recycling or waste facilities to have the capacity. It requires space at the dock to park a ship while you disassemble it. How much time does it take to get all that in place? How much expense? At least in the short run (but short possibly meaning a few years here), this would cause more shortages, as existing capital, space, and labor was repurposed to building new capacity rather than keeping the existing pipes moving.

Ericson2314 5y ago

Because we get scared and hit demand with a hammer (cutting off unemployment insurance, etc.), And thus deny ourselves growth to the new equilibrium.

gajjanag 5y ago

Yes, it will self-correct eventually. However, one thing that is easily missed is how shipping lines have been operating at a loss/narrow margins for years, e.g., Hanjin bankruptcy: https://www.wsj.com/articles/south-koreas-hanjin-shipping-files-for-u-s-bankruptcy-protection-1473002745 https://www.wsj.com/articles/south-koreas-hanjin-shipping-fi.... Many of the major shippers are not interested in building out capacity right now (e.g., Maersk CEO has consistently messaged this: https://splash247.com/if-msc-ends-up-having-more-capacity-than-we-do-thats-not-the-end-of-the-world-skou-talks-up-profitability-over-market-share/ https://splash247.com/if-msc-ends-up-having-more-capacity-th... ). It makes sense: why would they when they know that inevitably shipping rates will fall and they will have excess capacity on their hands. Instead, they are essentially adopting a wait and see approach. In the meantime, shipping customers pay more, the shipping companies strengthen their balance sheets and reward shareholders with fat dividends, and finally demand will settle down naturally. What some fail to realize is that this will take a decent amount of time. In particular, no one expects easing of the shipping situation until 2022: https://www.joc.com/maritime-news/container-lines/hapag-lloyd/hapag-lloyd-warns-shipping-tightness-through-2022_20210625.html https://www.joc.com/maritime-news/container-lines/hapag-lloy...

FooHentai 5y ago
Reminds me of the US-based mask manufacturer who refused to scale up in the early stages of the pandemic, citing previous times he'd done so only to be left in the lurch when demand dried up. His main point (IIRC) was the strong conflict between the moral imperative and economic incentive. https://news.ycombinator.com/item?id=22339349 https://news.ycombinator.com/item?id=22339349
- lotsofpulp 5y ago
  There is no moral imperative for an individual company to risk their survival because society does not want to pay. If society wants something, society should pay for it. Surely there was a number the US government could have offered the manufacturer to make it worth their while.
- sct202 5y ago
  And it looks like that's 100% what has happened to US based suppliers of surgical masks and N95s. A lot of them are having trouble marketing their higher cost masks now that the main suppliers (3M etc) have been able to catch up for the healthcare market, and there is a flood of consumer grade surgical and KN95s from overseas.

__MatrixMan__ 5y ago

I think we've crossed a complexity threshold beyond which there are systemic problems whose solutions cannot be expressed in terms of price alone. It's like we're trying to implement factorial in morse code--it's just not the tool for the job. For instance, maybe Alice wants $5 worth of some resource, and if she gets it she'll be happy. Bob wants $5 of the same resource, and when he gets it he'll put some plan into action that makes $100 worth of some different resource available to Charlie. But there's a shortage, so Alice and Bob are in competition, and neither is willing to pay $6 for it. The price system doesn't give a reason to favor selling the resource to Bob. It's up to Charlie to notice the hazard before the transaction occurs and give Bob $1 to tip the scales in his favor--which is a challenging trick to pull off in a world that thinks that price alone should do the trick.

zo1 5y ago
No it's not up to Charlie to help Bob. It's up to Paul to come in and fill the gap that Alice and Bob are both missing. Price is enough I would argue, what's missing is that there are unknown constraints that are inflexible. I'd posit its something put down by government but anything is possible.
- __MatrixMan__ 5y ago
  Coming up with enough resources to satisfy both sides of my dilemma resolves it for now, but it doesn't really address the fact that our expectations about markets' fault tolerance were wrong and probably will be again. That said, my solution is equally unsatisfying. Saying that we should reconsider our assumptions about markets isn't the same as providing an improved set of assumptions.

lmm 5y ago

Price-gouging laws artificially suppress the profitability of being the only supplier in a crisis. So it's not worth building your systems with the capacity to do any of that stuff.

imtringued 5y ago
I agree. People simply do not accept that it costs more money to get off the beaten path. For example, it is very cheap to build a mold that produces 10000 plastic parts. It's very expensive (per part) to use a high end 3D printer that costs hundreds of thousands to make a one off part 5 times for an emergency. If there is only demand for 10 machines but you need 11 machines in case of an emergency then the 11th machine will have to recoup all of its costs during the emergency. That's extremely expensive but consider this: the machine is paid off and ready to deal with a second emergency.

Igelau 5y ago

The stuff we use to build the stuff you're talking about is some of the stuff that is scarce.

6d6b73 5y ago

Because real life stuff is not made of Docker containers that can be deployed in a matter of minutes. My company does test hardware for manufacturers. We have multiple project we're working on currently but we can't finish some of them simply because we can't get all of the components we need. Because of that these manufactures, can't produce their widget, because they can't test them before shipping. They are some of the biggest corporations in the world and even they can't help us get some of the stuff we need. If they can't get their widgets produced, companies that depend on them can't produce their widgets. If you go deep enough you will find out how everything depends on everything else. Widget 1 is not being produced because it's missing Widget 2. Widget 2 is not being produced because it's missing Widget 3. Widget 3 is not being produced because it's missing Widget 1. Catch-22

a_imho 5y ago

What if the invisible hand decided it is more profitable to sell less items at inflated prices?

nonameiguess 5y ago

I'm sure dockworkers are earning plenty of overtime. But building more containers and converting cruise ships into container ships is time-consuming and extremely expensive, and the costs don't go away when you're done. You may or may not be able to offload them when the shock goes away and you don't want to permanently incur an operational cost increase in maintenance and storage to take advantage of a temporary price bump. And for all we know, shipping companies are taking measures like this, but making more container ships doesn't just happen. I don't know nearly enough about ships to know if it's even possible to convert a cruise ship to a container ship, but at bare minimum, you'd need to remove all of the above-deck amenities and cabin space, and maybe that requires less time than building a ship from scratch, but it still requires time. It requires hiring people who live near your dock to do it. It requires getting trucks to haul off all the waste you're generating. It requires metal recycling or waste facilities to have the capacity. It requires space at the dock to park a ship while you disassemble it. How much time does it take to get all that in place? How much expense? At least in the short run (but short possibly meaning a few years here), this would cause more shortages, as existing capital, space, and labor was repurposed to building new capacity rather than keeping the existing pipes moving.