Opinion <https://www.nytimes.com/section/opinion>
The Stuck Container Ship on the Suez Canal Was a Metaphor
Long-distance supply chains hide costly risks — and those risks may help
usher in a new stage of global commerce.
ByMarc Levinson
Mr. Levinson, an economist and a historian, has written extensively
about international trade, globalization and container shipping.
NYT, March 31, 2021
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Credit...Chris Gash
The March 23 grounding of the giant vessel Ever Given (which wasfreed
<https://www.nytimes.com/live/2021/03/29/world/suez-canal-stuck-ship>on
Monday) in the Suez Canal may have been bad news for the world economy.
Still, corks have been popping in the headquarters of the world’s
container shipping lines. Carriers are having their best year since at
least 2008: Ships are full, rates are sky-high, and profits, slim in
recent years, are rolling in.
The Ever Given fiasco will work out well for the container-shipping
industry, by driving freight rates even higher as delays and detours
reduce the number of voyages the vessels can complete between Asia and
Europe.
But the good news for ship lines may be fleeting: After the
pandemic-driven boom in Chinese exports subsides, trade in the sorts of
goods that fill container ships is likely to be anemic in the years
ahead. Many of the companies that traffic in those goods increasingly
recognize that they’ve done their sums wrong: The long-distance supply
chains that have defined globalization since the 1980s hide risks, of
which the transport delays caused by the blockage of the Suez Canal are
just the latest example.
It used to be that manufacturing was a rich-country activity; poorer
countries supplied raw materials to rich-country factories and then
purchased their exports. Rich-country politicians were prone to preach
the virtues of open markets; their poor-country counterparts were
suspicious of trade and foreign investment.
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But starting in the late 1980s, the combination of cheaper container
shipping, vanishing communications costs and improved computing flipped
the script. Manufacturers and retailers adopted new strategies —
arranging, for example, to buy chemicals in Country A, transform them
into plastics in Country B, mold the plastics into components in Country
C and deliver them to an assembly plant in Country D.
Container ships made it possible to move parts and components from one
country to another at low cost, while technology, soon accelerated by
the internet, allowed managers to oversee their supply chains from a
headquarters far away.
Two factors drove this redistribution of industry. One was wages: The
gap between the pay of factory workers in China or Mexico and those in
Western Europe, Japan or North America yawned so wide that even if the
low-wage workers accomplished far less in an hour of work, producing in
Shanghai rather than in St. Louis made financial sense. The other was
economies of scale. Factories serving the entire world could specialize,
making a small array of products in enormous volume and lowering the
cost of each unit.
Foreign investment was once intimately related to exporting and
importing. But with outsourcing, there was no need for the company at
the top of the chain — often, the brand name on the final product — to
undertake large investments in the countries where it wanted its
components or its finished goods produced. Firms could build supply
chains on the cheap, contracting with other companies to do the
manufacturing work rather than tying up their shareholders’ capital in
plants and equipment.
Globalization, which arguably dates to the rise of industrial capitalism
around 1830, never looked like this before. Executives of multinational
corporations were transfixed by the promised savings from shifting
production abroad. Factories in Europe, Japan, Canada and the United
States closed their doors as companies chased lower costs. Starting in
the second half of the 1980s and for two decades after, trade in
manufactured goods grew twice as fast as the global economy.
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Hardly any attention was paid to the risks arising from the number of
firms that might be involved in making and delivering any given product.
The potential loss of revenue if the supply chain failed to deliver
goods on time was simply ignored.
The company at the top of a supply chain often has little insight into
its suppliers’ suppliers or into the transportation system that connects
them. Incident after incident — from the shutdown of the U.S.-Canada
border after 9/11 to the earthquake that crippled hundreds of Japanese
auto parts plants in 2011 to pandemic-related factory closures in 2020 —
has shown long supply chains to be more fragile than imagined. For many
firms, the consequences can be painful, even fatal.
And the business risks are not limited to disruption. Famous firms have
seen their names tarnished by scandals involving working conditions or
environmental practices at obscure companies far down their supply
chains. When consumers in Europe and North America, concerned about
repression of the Uyghur minority in China, demanded that apparel
companies disclose whether their clothing contained cotton grown in
Xinjiang province, many companies, well removed from the production
process, did not know.
Meanwhile, the ultralarge container ships like Ever Given that have
entered the world’s fleet over the past few years have made long value
chains even more problematic. These vessels, some carrying as much cargo
as 12,000 trucks, steam more slowly than their predecessors. The
complexity of loading and unloading often puts them behind schedule, and
the sheer number of boxes moved on and off a single ship tangles ports
and delays deliveries.
So long-distance trade is slower and less reliable than it was two
decades ago. That helps explain why exports of manufactured goods
account for a smaller share of the world’s economic output than they did
in 2008. Once the risks are accounted for properly, manufacturing in
distant places with low wages isn’t always a bargain.
Yet pronouncements about the death of globalization are not well
founded. Rather, the stage of globalization we have known since the
1980s, in which highly trained employees in the advanced economies
create physical products to be manufactured where wages are lower, is
past its peak. In its place, a new stage of globalization, in which
factory production and foreign investment matter less than the flow of
services and ideas, is advancing quickly.
The Bollywood movies and Japanese television shows available on your
favorite streaming service are part of that flow, but so are the
research, engineering and design tasks that companies increasingly
distribute across multiple countries in order to take advantage of local
talent and shape products to local tastes.
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Cross-border trade in other commercial services — a category that
excludes transportation, travel and goods-related services — increased
roughly 8 percent a year in the first two decades of the 21st century, a
third again as fast as trade in manufactured goods. That figure doesn’t
include growth in the largely uncountable cross-border flow of data
within corporate networks.
In globalization’s next stage, ships carrying metal boxes full of stuff
will no longer be at the center of the story.
Marc Levinson, an economist and a historian, is the author of “The Box:
How the Shipping Container Made the World Smaller and the World Economy
Bigger” and, most recently, “Outside the Box: How Globalization Changed
From Moving Stuff to Spreading Ideas.”
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