Sociopathic & Possibly Unintended Consequences

Ran across this YouTube video about the destruction of the world’s container ship fleet. Summary: due to the drastic drop in world trade caused by the lockdowns, the world’s container ship fleets are being decommissioned and sold for scrap. The decades-long trend to larger and larger ships, which reduce the unit cost of shipping compared to smaller ships, has been dramatically reversed: the larger, more modern ships are the first to go, because, while they are more efficient when fully loaded, they are money-hemorrhaging disasters when sailed at less than capacity. Thus, ships worth tens or hundreds of millions of dollars, with decades of useful life left in them, are being run ashore in Bangladesh and scrapped.

(China is spending heavily on infrastructure, raising demand for scrap iron, raising the scrap value of those container ships. All this means is that the math leans even more toward ‘sell it for scrap’ and away from ‘ride it out’.)

I’m a little sheepish that it took me this long to become aware of this issue, because, after all, my credentials (Bow to me, bow!) are a Masters’ in International Business and Finance, so this – the financing & mechanisms of international trade – is exactly the sort of thing I’m supposedly an expert (expert I tells ya! Bow some more!) in and am supposed to know about.

But I’ve been pretty much avoiding the ‘news’ for many, many months now. Sanity has some value.

Container ships run aground in Bangladesh, awaiting their turn to be reduced to steel scrap and sold to China

Anyway, the gist of the video: shipping is a highly competitive, low-margin business. What this means: in order to stay in business, a shipping company has to run at close to capacity at all times. The cost of running a 75% full ship versus a 100% full ship are essentially the same, but the money coming in is vastly different. 100% capacity: you make some money. 75% capacity: you quickly go broke. There’s a point where it’s better, financially, to simply scrap a ship you expect to run at 75% capacity than to lose the ocean of money you’ll bleed if you continue to run them. Take the loss up front, rather than die the death of a thousand cuts.

The lockdown has brought us to this point.

The bigger the ship, the lower the cost per container, but the higher the loss if run at less than capacity. Therefore, the world’s container shipping industry is scrapping their bigger, more efficient ships in favor of smaller ships. Smaller = easier to run at capacity. BUT: smaller = higher costs per container. As trade dries up, the size of ship that can be run without going broke keeps shrinking. At some point, the industry dies.

For those of you wearing two masks while driving alone in your car and cowering at home while wagging an angry finger at those who aren’t, deal with this:

International trade is the engine that has, over the last 40-50 years, reduced the percentage of the world’s people living in poverty from ‘most’ to ‘under 10%’. All those factory jobs, and the jobs in the infrastructure that supports those factory jobs, have lifted a couple billion people out of a precarious hand-to-mouth existence to something like a decent life. The Green Revolution has made it possible for fewer and fewer people to feed more and more people with less and less work.

This is a good thing, if you think more and more people living, and living healthier, less soul-crushing lives, is a good thing. We seem to love the stories of evil factory owners working poor peasants to death, but the reality is that, for the most part, those peasant farmers eagerly left the farm behind and took up factory work, because -follow closely – they were thus much more likely to live decent lives. While picturesque, those rice paddies and garden patches where subsistence farmers toiled away their lives are in practice dreary, exhausting, and tenuous. Nobody had to go round up the peasants – they came of their own will, after making their own decisions – for the most part. (Economics is complicated, but, in general, the idea that mean old capitalists had to make people abandon their farms in order to staff their factories simply doesn’t work, not in practice nor in theory.)

But for all this depends on cheap international shipping. If you are competing on price – and that’s about the only thing third world countries can compete on – then, since shipping costs are, you know, costs, then rising shipping costs make you less competitive.

The last 50 years or so have seen pretty much every non-totalitarian country with a coast join in the world of international commerce. If your country didn’t have a coast or a big navigable river that could get your stuff to a coast super cheap, the shipping costs would exclude you from this boom. Mongolia or Tibet, for example, could only compete on items where the market value of the product dwarfs the shipping costs, because they would need to go overland to get to a coast to take advantage of cheap shipping. The example in the video was Switzerland and watches – the Swiss produce super-high-value products where the shipping costs are trivial compared to the cost of the product. (Also, the Swiss sit atop possibly the world’s finest overland shipping network of roads and rail, with a huge market just across their borders. Not so Mongolia.)

So, on the the sociopathy, defined here as a complete lack of empathy for the suffering of others. We’ve institutionalized sociopathy, where we are effectively forbidden to even raise the issue of what is happening in the rest of the world due to our rabbit-like and rabidly anti-science reaction to the ‘Vid. What is happening, beyond the horror described in the video:

  1. As the cost of shipping rises and demand drops, factories producing low-cost goods in low cost (read: third world) countries are going out of business
  2. The people who worked in them are being laid off.
  3. The people in the supporting economy – everything from restaurants to business services to clothing – are also getting laid off or losing their little businesses
  4. Those farms the newly unemployed used to work on? They’re unlikely to still be there. Even if they were, how fast can they ramp up production to feed the extra mouths returning from the cities?
  5. Bonus: we’re destroying not just the ships, but the shipping and ship building industries and all the industries that support them. More layoffs, further drop in demand, further reductions in shipping, etc. Let’s hope we get them back before the needed skills pass from living memory!

Bottom line: it is likely, bordering on inevitable, that millions of people are going to starve to death over the next year or two as a direct result of our idiotic overreaction to COVID. People who don’t have a safety net, who can’t just go to the local soup kitchen or food pantry, who’s countries are unlikely to have the pull needed to get in shipments of food from elsewhere in a timely manner. (Shipped in on what ships? At what cost?)

In William Gibson’s excellent short story Burning Chrome, the protagonist is a hacker who exploits a weakness in the older software and hardware being used in Africa to rob their banks blind. He watches the news with detached indifference as the financial infrastructure collapses and the continent descends into chaos. He does not react to pictures of bodies floating down the rivers. He is simply detached from the disaster he has caused, and feels no remorse.

As he so often was, Gibson was a prophet. If we even allow the thought that our insane overreaction to COVID is causing mayhem and death around the world, we feel nothing, certainly not any responsibility. They’re brown, black, and yellow people who we don’t have to look at, so I guess it’s OK? Not racist or anything.

Author: Joseph Moore

Enough with the smarty-pants Dante quote. Just some opinionated blogger dude.

6 thoughts on “Sociopathic & Possibly Unintended Consequences”

  1. It’s all of a piece.

    Electric cars are cleaner than internal combustion engines, because hey, you just plug it into the wall. There’s no pollution. And the environmental degradation that comes with making lithium-ion batteries is in China, not here, so we can pretend it’s cost-free.

    Oh, so you’ve figured out that most of your electricity comes from burning coal or natural gas? We’ll replace those with windmills and solar cells, and again ignore the environmental degradation because that’s in China, too.

  2. Interesting problem. While strong interconnections make everybody richer, a highly optimized system is much more vulnerable to Black or even Gray Swans. This was a Gray Swan and the highly optimized system fell over and many people are suffering. Is it better to have less interconnection in the first place? I never forget Nassim Taleb’s observation that there was less starvation when the Soviet Union fell because their economy was less efficient.

  3. Interesting unintended consequences, probably because eeeevil capitalism works that way, but what is true in shipping is also true in the farming you mentioned. The margins are thin and if your ground doesn’t produce 125% of what it did 10 years ago you could easily go under (death by a thousand cuts/expenses). So a farmer needs invest in high tech equipment in every aspect of his business. This costs not only him, but wildlife, as when every kernel of grain is harvested (no waste) and geese, pheasants, deer, etc. can not find food. When the small scale guy can’t keep up with the GPS guided harvesters or the underground irrigation infrastructure, he sells to developers and finally gets less than a 12 hour day of toil. Small towns die. People move to the city and begin to vote “progressive” because, there are no blue states, only blue cities in red states. Look at Minnesota. St. Paul/Minneapolis wags that whole dog.

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