Month: May 2021

Post-Colonial Challenges

Posted on by Philip J Palin

How long Friday’s shutdown of the Colonial Pipeline persists is the critical issue. Most news reports indicate this infrastructure carries “roughly 45% of gasoline and diesel fuel consumed on the East Coast.” This is accurate, but significantly understates market dependence between Atlanta and Washington DC. In many local markets dependence for some fuel categories is closer to (even more than) seventy percent.

Alternative sources and routes are not readily available. The smaller Plantation Pipeline parallels Colonial, but has recently been running at capacity. Northeast refinery capacity cannot replace lost connections to Gulf Coast refining. Importing refined product into the ports of Baltimore, Philadelphia, and New York could help fill-the-gap, especially on the northern edges of Colonial’s distribution area. But this will not happen overnight. As the map below indicates, local refinery capacity (black boxes) is non-existent between Philadelphia and Birmingham.

Even if North Atlantic and Midwest refinery capacity is ginned-up, transportation and delivery capacity from fuel racks to retail was already estimated as being at least one-quarter below pre-pandemic levels. The US currently has a nationwide shortage of drivers appropriately trained and licensed to handle hazardous materials (e.g., gasoline and diesel).

At most Colonial discharge locations and at wholesale racks that depend on Colonial there is stored inventory. In most years, this inventory would be approaching maximum in preparation for Memorial Day and the summer driving season. I don’t know (yet) if this is true today, but until I see it disproved, it is a reasonable bet. So, the driver shortage is actually a more immediate constraint on flow than a short-term cut-off of supply. [UPDATE: As of the end of April Central Atlantic gasoline stocks were slightly above the same level for the same week in April 2019. Lower Atlantic stocks were slightly lower than in 2019. A quick conversation with one distribution insider suggests that delivery delays caused by the driver shortage have modestly increased the buffer supply available.]

But if mid-May consumer demand is not fulfilled in a timely way (for whatever reason) and this prompts widespread anxiety buying , the interplay between Colonial’s shutdown and the lack of drivers for fuel tankers could create a treacherous and time-extended demand-supply disequilibrium between, say, the Potomac and Chattahoochee watersheds.

Below, petroleum pipelines and refineries (US Energy Information Administration)

Disequilibrium

Posted on by Philip J Palin

The headlines tend to bounce between semiconductor chips and vaccines. But mismatched supply and demand extends into many more channels, nodes, and products.

Each mismatch has its own tale to tell. Yet similar protagonists and antagonists are shared: disrupted production, congested transport, and shifting demand are each and all implicated, even when differentiated as cause or effect.

A recurring storyline: During the first half of 2020, Non-Pharmaceutical Interventions (or less often, disease penetration) interrupts flows of raw materials needed to produce X. Demand for X either plummets or sky-rockets, sometimes each in a matter of weeks. There is a sudden reduction in the number of container ships, air cargo “bellies”, and truckloads available to carry X.

When prior demand resurfaces and unexpected demand surges, re-jiggered production is complicated — especially if product adaptation is required. New inputs are ordered. Some prior orders are canceled. Carriers from macro-maritime to micro-trucking practice prudent self-protection. What once was slick is now sticky. Friction accumulates. Each delayed or rejected load creates more congestion at some critical node and many edges in-between.

Variable (not-predicted) demand plus volatile supply (not Just-In-Time) equals lower velocity flows. Lower velocity reduces overall volumes. More stock-outs emerge. Upstream stock-outs generate wider — sometimes deeper — experiences of volatility. Velocity further declines. Volumes are reduced. Downstream stock-outs proliferate.

Some — enough? — are willing to pay higher freight rates. But many veteran operators have retired (more), their problem-solving skills departing with them. The pandemic has reduced the number of new operators being trained and licensed. Trucks are parked. Many bellies are still grounded. Maritime flows have been snarled for lack of dock space and/or drayage, not to speak of Ever Given’s sudden slant.

Disequilibrium delivers uncertainty, injecting further variability where many already are feeling vertigo. Network theory suggests that in non-linear systems equilibrium ultimately resurfaces through spontaneous and widely shared self-organization around a “strange attractor“. This is often a factor reflecting the system’s abiding preferential attachments. In this case: Profit? Market Share? Survival? Further functional concentration?

India: Biology or Behavior?

Posted on by Philip J Palin

Of course it is each, both, and the push and pull in between. It will be months or years before we can accurately deconstruct the interplay and proportions behind the exponential surge in disease and death across the subcontinent.

More contagious variants are implicated. Some of these variants may be innately more lethal. It is also possible that as demand for healthcare overwhelms supply, more people die because quality of care declines.

The explosion of confirmed daily cases — about 80,000 per day on April 1 to over 400,000 today (both undercounts) — provides the virus a very fertile evolutionary seed-bed. This is a threat to all of us, even those already vaccinated on the other side of the planet.

The virus seeks to thrive. Many people make choices that are expeditious for the virus. The virus has a biology adept at exploiting behavior that facilitates viral density and circulation. This is why crowds are a problem and interior crowding is an especially bad choice.

Many more us need to make choices that contain and slow the virus.