Author: Philip J Palin

Energy Fitness

In my mind supply chain resilience can more-or-less be assumed if the grid persists and fuel is available. It may be difficult and treacherous, but where electricity and fuel can flow, demand and supply will conspire to keep other flows going.

I have long argued that Supply Chain Resilience — as strategy and practice — is mostly about how well volumes persist and push fulfills pull when the grid is gone for an extended time over wide areas. In such circumstances, fuel flows and alternative sources of power spike in substantive and financial value.

The world is in the midst of significant, fundamental energy transitions (purposeful plural). A quarter-century from now the grid and other energy sources will be structured and behave very differently than today. The path between now and then is variable, exploratory, and very risky… especially when and where energy demand is surging.

Earlier this week I confessed to needing more time before offering anything meaningful about our current energy fitness. I am trying to discern — and accurately condense — how various fossil fuel dependencies and emerging alternative energy sources can (or won’t) play together in case of major hurricanes, earthquakes, cyberattacks, and other very hard hits on people and places.

As my quarter-century framing suggests, there are several longer-term speculative issues to engage. There are also nearer-term issues of grid reliability, natural gas availability, velocity of technological adoption, and many other factors to actively observe and try to anticipate. This morning, though, I am fixated on the following chart of trades on Brent Crude future contracts over the last two years and last few hours.

Given our recent and continuing geopolitical context and as someone who cut-my-teeth on the 1970s oil market, I am amazed — thankful and hopeful — but still amazed and edgy at how this morning’s news is reflected in market expectations. I certainly acknowledge that today’s energy system (and geopolitics) is vastly different from a half-century ago. But in the face of this morning’s price action I should also acknowledge deeply discounting just how different (and what this means for Supply Chain Resilience).

This is not a time to discount risk or reality. This is very much a time to engage reality and risk at full value. Much more to come…

Amplified demand (and supply)

US retail sales in March were more than double what many economists expected. The Financial Times reported, “Data from the US Census Bureau published on Monday showed that retail sales, which include spending on food and petrol, rose 0.7 per cent last month. Economists surveyed by Reuters had expected an increase of 0.3 per cent.” It is worth remembering that February US retail sales were not as strong as expected, see chart below. China’s March retail sales were 3.1 percent higher, well below expectations for around a 4.8 percent gain (here and here). EU retail sales data for March are not yet available, but momentum is sluggish (more).

China’s manufacturing output strengthened in March. Export volumes achieved new records, but export values decreased. Some perceive an escalating problem with “over-capacity” characterizing many of China’s key manufacturing sectors (more). Others have argued that China is exporting deflation (here and here). (Might the United States be critiqued for an over-capacity to consume and, thereby, export inflation?) German exports continue below January 2023 levels (more and more). “Total Market Production” in the European Union has basically been flat or falling since the second half of 2022. The data is deeply retrospective, but US real — inflation adjusted — Gross Domestic Product has done very well in the post-pandemic period.

According to the latest US Department of Agriculture’s World Agricultural Supply and Demand Estimate global wheat and rice production is — and is expected to continue to be — abundant for the current year. Soybean production is flat or slightly lower on reduced demand. There is profound hunger in the world, but this reflects insufficient ability to signal demand (e.g. Somalia) and/or distribution problems (e.g., Gaza), not lack of potential supply.

Midstream flows are troubled by volatile — and often higher — fuel prices. Accumulating network friction — such as drought at the Panama Canal and Houthi missiles, drones and more at Red Sea approaches to the Suez Canal — are the cause of cost and delay increases (here and here , but Panama’s precipitation forecast is encouraging). US truck shipments were flat in February (here and here and here). Compared with the last two years and last two months consistently fewer US rail cars are moving. As a result, it makes sense that the supply chain component of core PCE has been increasing (see second chart below). Given continued — even surprising — US consumer demand plus all the midstream pinch points this is healthy adaptation.

You can compare this month’s flow fitness update to last month’s here. I need a bit more time to look at what is happening with both near-term and longer-term energy flows before reaching a fitness judgment regarding those factors.

I worry that the recent pace of US consumer spending is unhealthy. But given weak demand elsewhere, US consumers are arguably the best buddies of the global economy. There are all sorts of potential risks that could suddenly spike (more). But US productivity outputs have continued to be healthy. So… for yet another month pull is motivating push, demand is mostly being supplied. While there is profound uncertainty regarding future trajectories, right now supply chain speed, direction, and resilience are generally positive.

April 18 UPDATE: The Federal Reserve has released its Beige Book for April. After reading the Beige Book reporters at Bloomberg highlighted:

The US economy seems to be weathering the recent spate of supply disruptions with few signs that worrisome inflationary threats or major logistics headaches are returning… Attacks on commercial vessels near the Red Sea and the destruction of Baltimore’s Francis Scott Key Bridge “caused some shipping delays but so far did not lead to widespread price increases,” it said… “Third-party logistics contacts noted that both demand and shipping rates appeared to have bottomed out following what was characterized as an 18-month freight recession.”

A bit more for Gaza

The volume of supply trucks entering Gaza has increased since late March (see UN chart below). Volume remains below the 500-per-day pre-October 7 benchmark, but the improved pattern — especially if sustained — is helpful.

Distribution of food and other freight once discharged inside Gaza remains very constrained and entirely insufficient for a significant portion of the population. (Here and here and here and here and here.) [April 16 Update: Bloomberg provides a detailed map-based analysis of constraints in Rafah-proper.] This week the director of US AID confirmed in testimony to Congress that famine is stalking northern Gaza.

This morning NPR conducted a five-minute interview with Jamie McGoldrick, the just-departing UN Humanitarian Coordinator for the Occupied Palestinian Territory, regarding food and related supply chains for hard-pressed residents of Gaza. What I hear Mr. McGoldrick saying is coherent with the most credible reports I have otherwise received.

Big Picture: Demand is desperate, supply is readily available, distribution is tightly constrained by physical impediments and deadly risk to distributors. This risk must be persuasively mitigated before available supply can fulfill the fundamental needs of more than 2 million hungry people.

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April 14 Commentary:

The deaths of seven World Central Kitchen (WCK) staff in Gaza have had myriad consequences. Here is how the Israel Defense Forces (IDF) explained what happened:

The event occurred on April 1, 2024, during an operation to transfer humanitarian aid from the WCK to the Gaza Strip. The investigation found that the forces identified a gunman on one of the aid trucks, following which they identified an additional gunman. After the vehicles left the warehouse where the aid had been unloaded, one of the commanders mistakenly assumed that the gunmen were located inside the accompanying vehicles and that these were Hamas terrorists. The forces did not identify the vehicles in question as being associated with WCK. Following a misidentification by the forces, the forces targeted the three WCK vehicles based on the misclassification of the event and misidentification of the vehicles as having Hamas operatives inside them, with the resulting strike leading to the deaths of seven innocent humanitarian aid workers. The strikes on the three vehicles were carried out in serious violation of the commands and IDF Standard Operating Procedures.

Here is what World Central Kitchen says happened:

The WCK team was traveling in a deconflicted zone in two armored cars branded with the WCK logo and a soft skin vehicle. Despite coordinating movements with the IDF, the convoy was hit as it was leaving the Deir al-Balah warehouse, where the team had unloaded more than 100 tons of humanitarian food aid brought to Gaza on the maritime route. “This is not only an attack against WCK, this is an attack on humanitarian organizations showing up in the most dire of situations where food is being used as a weapon of war. This is unforgivable,” said World Central Kitchen CEO Erin Gore.

The United Nations Office for Coordination of Humanitarian Affairs (OCHA) has regularly reported on the deaths of others involved in delivering aid. Since October 7 at least 244 aid workers have been killed.

Since mid-November I have been peripherally involved — at a safe distance — in efforts to increase food-flows into Gaza. I gave initial priority to increasing throughput rates at Rafah. I was encouraged by the reopening of the Karem Shalom checkpoint. I then worked with others to increase the number of gateways, especially to fulfill the needs of survivors in Northern Gaza. Despite what sometimes seemed to be potential progress, throughput remained constrained and each newly promised gateway evaporated as if a desert mirage. By the end of 2023 we were trying to squeeze through a minimum of 200 trucks per day, but most days saw less than 100.

By late December I was increasingly focused on improving velocity — speed and direction — inside Gaza. Impediments ranged from structural to technical to kinetic to emotional. But in any case, poor velocity — sometimes near paralysis — further reduced the effective distribution of already insufficient volumes. Constraints on both volume and velocity needed to be (still need to be) loosened to feed increasingly desperate tens-of-thousands.

My first play to improve downstream distribution involved decentralization. In addition to the purpose-built relief nodes, I advocated for proliferating push points, including many more organized and spontaneous charitable operations, commercial sales, and even the black market. With more supply than could be responsibly distributed, I was explicitly pressing for “irresponsible” distribution. Some of my argument — more sanitized in writing than on Zooms and phone calls — can be reviewed at this January 21 post.

By late December I had reached a treacherous strategic judgment. Here is how I started to ease it into operational discussions:

In catastrophic contexts supply chains are almost always caught in a narrow place between what is prudent and what is imprudently possible (and failure may be probable). From this distance, I recognize the painful pinch in Gaza. I am not ready to second-guess decisions made by those whose lives are wedged in this tightly constricted time and space. But in any case, each day the deadly consequences sharpen and accumulate.

January saw no substantive improvement. February’s incoming volumes fell precipitously and distribution velocity decreased even further. Hunger accelerated toward famine. As the war entered its fifth month, the dogged determination of aid workers was, it increasingly seemed to me, diminished by despair. Again and again it was asserted that a sustained ceasefire was the minimum precondition for improved mass feeding. This was and is a prudent judgment. I continued to argue for imprudent possibilities.

On Thursday, February 29 as the IDF attempted to distribute food at Nabulsi, fear, chaos, and violence resulted in more than 100 dead and multiples wounded (more). In response to this horror, creativity and courage confronted both hunger and despair. World Central Kitchen was at the forefront of this new thinking and action. By mid-March, WCK was the first to use the Amalthea maritime channel. WCK arranged the construction of a practical jetty and delivered almost 200 tons of food into hardest-hit northern Gaza. A second even larger delivery was completed by sea on March 30. The seven who were killed on April 1 were pushing forward with plans for more. WCK has now paused operations. Development of the Amalthea maritime channel continues, but in the dark shadow of those who have died — some suddenly and too many slowly — despair has reclaimed much of its prior prominence.

Despair is a terrible adversary. Courageous creativity is needed now more than ever. Aristotelian prudence benefits from dialogue with Homer’s heroics and revelation of hubris… and Amalthea’s tender care.

Going forward in Gaza — and other catastrophes — the last four months have taught me to give much more attention to threat frequency, virulence, and intentionality.

Most of my prior experience has been in post-catastrophe contexts: the hurricane has moved on, the flood is draining, seismic aftershocks are diminishing. In responding to major disasters there are significant risks, especially in immediate response. But intentional violence is rare. Rather, in the aftermath of most disasters there is often an outbreak of intentional altruism and unusual collaboration. War time is different. Gaza has been different. I have failed to give sufficient weight to the amplified sense of risk when and where there is a pattern of intentional violence.

The frequency — recurrence — of any threat influences disaster response. Up to a point, more frequent encounters with a recognized threat can reinforce resilience — at least when a threat is perceived as random as with most natural hazards. Florida is more resilient to hurricanes than other places because of recurring experience. Gaza has been more resilient to food shortages due to many years of experience. But at a certain point too-many too-hard hits in too-short a period of time will exceed resilient capacities. Perceived — and actual — intentionality of recurrence accelerates this exceedance.

Virulence — severity and scope — of harm is also a threat amplifier. Three-quarters of Gazans have been displaced from their pre-October 7 homes. It is estimated that more than one million (of roughly 2.3 million) Gazans are experiencing “catastrophic levels of food insecurity.” More than 33,000 have been killed, many more have been wounded. Homes, workplaces, hospitals, water systems, roads, and power networks have been destroyed. That these are the outcomes of intentional action amplifies the expectation and experience of harm.

Given this context, I ought not discount the courage required to survive each day. It is short-sighted and stupid to critique caution in risking innovative scalable answers. World Central Kitchen was taking this sort of risk. Seven of their staff paid the ultimate price for their creative commitment.

The last two weeks I have been engaged in reconnaissance of an active seismic area with catastrophic potential. When these faults explode the virulence of the event will, of course, inform the perceived risk of responding. The magnitude and frequency of aftershocks will, of course, shape the response and recovery strategy. If I am still alive for the aftermath, I will now be much more attentive to any aspects of intentionality that seem to be emerging. We need a response strategy that will lead with explicit, consistent, intentional care and as much courageous creativity as possible. Some of my peers who were in New Orleans post-Katrina have previously discussed these lessons-learned, but until now I did not fully hear them.

Saifeddin Issam Ayad Abutaha, Laizawmi “Zomi” Frankcom, Damian Soból, Jacob Flinkinger, John Chapman, James “Jim” Henderson and James Kirby, I have heard you. Thank you for your courage, creativity, and profound instruction. Thank you for your lives of self-sacrificing service to the most vulnerable.

No flows for Gaza

NBC News reviews persisting impediments for connecting demand (desperate need) to (plenty of) supply. Over the last week there has not been much change in actual flows since my March 24 update here (or for that matter since mid-December). Please see chart below. The Associated Press reports that, “A three-ship convoy left a port in Cyprus on Saturday with 400 tons of food and other supplies for Gaza as concerns about hunger in the territory soar. The World Central Kitchen charity said the vessels and a barge carried enough to prepare more than 1 million meals from items like rice, pasta, flour, legumes, canned vegetables and proteins. Also on board were dates, traditionally eaten to break the daily fast during the holy month of Ramadan. It was not clear when the ships would reach Gaza.” (More and more and more (and one more link from an April 1 WSJ report))

April 2 Update: The Washington Post reports, “World Central Kitchen said Tuesday that seven of its workers in Gaza were killed in an Israeli strike and that it was immediately halting its operations in the region.” Please read an April 3 essay by José Andrés, founder of World Central Kitchen, published by the New York Times.

US consumer demand

Same statistical report, three different headlines:

From CNBC — Key Fed inflation gauge rose 2.8% annually in February, as expected

From The Hill — Inflation ticker higher in February as consumer spending soared

From FXStreet — Price pressures seen broadly unchanged

Bloomberg summarized: “Inflation-adjusted consumer spending advanced 0.4%, above all estimates after a larger drop in the prior month, according to the report from the Bureau of Economic Analysis. Real disposable income, the main supporter of spending, edged lower for the first time since September.”

I like the PCE report because it includes inflation-adjusted estimates of spending. Below is a chart showing how — when adjusted for inflation — US personal consumption continues to climb pretty consistently at a level well-above pre-pandemic patterns. Meanwhile spending on food has fallen significantly since early 2021, yet food-at-home spending remains at least five percent higher than pre-pandemic. Food-Away-From-Home consumption has been even stronger.

Earlier this week the Wall Street Journal reported, “Shoppers are stretched, but discretionary spending isn’t abating as quickly as some finance chiefs and economists expected—a phenomenon economists and finance chiefs have coined “revenge” and even “doom” spending. And it has CFOs across industries—from travel to clothing, restaurants and consumer packaged goods—working to figure out what the impact is on balance sheets. Americans—for now—remain resilient and are holding on to some nice-to-have experiences and habits, and are willing to even spend on small and large extravagances…” 

The FreightWaves March Market Update strikes me as consistent with February’s personal consumption findings: “There are no signs of a strong shift in market conditions at this point. The trucking market is crawling along a floor but still appears to have seen the toughest part of the cycle. Transportation service providers are now in a waiting game, while shippers need to remain vigilant. April is typically a slower month, and the market appears to be only slightly responsive to the typical March seasonality. May will house the next see-where-we-are mile marker for the market as summer shipping kicks off and Memorial Day provides the first major holiday. The outlook until then is for more of the same for dry van, with the flatbed market being the one to watch for the most volatility and refrigeration still being exposed to a potentially disruptive harvest period.”

Spending is not hot and may even be cooling, but it is — so far — certainly persistent. This is preserving and extending current supply chain capacity.

Francis Scott Key Bridge Collapse

The Baltimore Sun reports, “Baltimore’s Francis Scott Key Bridge collapsed early Tuesday morning after a support column was struck by a vessel, sending cars and at least one tractor-trailer into the Patapsco River.” The Sun is updating here. The Washington Post is updating here. The Maryland DOT 511 Traffic Map is available here.

The Annual Average Daily Traffic count for the bridge — on Interstate-695 over the Patapsco River — has been estimated at more than 38,000 vehicles of which almost six percent have been single-unit trucks and bit less than seven percent have been combination units (here and here). Traffic is about 4-to-5 times higher on Interstate-95 and the northside routes of I-695… which will clearly absorb much more volume in the many months ahead (more).

Maersk confirms it had chartered the container ship involved the collision (here and here). The ship was departing Port of Baltimore. Several vessels are now trapped at marine terminals north and west of the bridge. There will be no incoming for an extended period. The Port of Baltimore is a leading US port for imports of cars and light trucks (more and more). Reuters has published an overview of import/export implications of long-term shut-down of port operations (more and more).

March 27 Update: There are many reports and angles on the collapse of the FSK bridge. Here are a few that, in my judgment, provide helpful resources for Supply Chain Resilience.

Bloomberg headlines, “Baltimore Bridge Disaster to Test Shock-Worn Supply Chains.” The report finishes with, “…the bridge collapse will have a limited impact on the broader economy, it “is just another reminder of the vulnerability of the nation’s infrastructure and supply chains,” said Moody’s Analytics Chief Economist Mark Zandi.”

Freightwaves reports, “Baltimore bridge collapse may cost billions, dramatically disrupt supply chains.” Included: “In the next few weeks, 107 vessels will not be able to call that port and will have to divert to other ports,” Manders said. “The question is, are other ports able to absorb that capacity? The reality is that Baltimore is an important port, but for containerized trade, it is relatively small.” (More and more and more and more.)

The Financial Times reported, “It is likely other larger US east coast ports such as neighbouring New York/New Jersey and Virginia can handle additional container imports if Baltimore is inaccessible, which may limit any impact on ocean freight shipping rates,” said Emily Stausbøll, market analyst at Xeneta, a shipping data firm. “However, there is only so much port capacity available and this will leave supply chains vulnerable to any further pressure.” 

Ms. Stausbøll is also quoted at Loadstar, “…there is only so much port capacity available, and this will leave supply chains vulnerable to any further pressure… Far East to US east coast ocean freight services have already been impacted by drought in the Panama Canal and recent conflict in the Red Sea, which saw rates increase by 150%, so this latest incident will add to those concerns.”

The BBC reported, “Marco Forgione, director general at The Institute of Export and International Trade, which represents UK businesses involved in international trade, said the suspension would have a “significant ripple effect on global supply chains… Over 750,000 cars and vehicles transited through Baltimore in the last year…” The Loadstar report adds “the global pure car and truck carrying fleet is currently in a situation of severe undercapacity, and the fact that one Wallenius vessel is now stranded in Baltimore behind the bridge will do the trade no favours.” According to The Hill, Philadelphia has a ‘roll on, roll off’ terminal that receives imports of Hyundai, Kia, and Genesis vehicles.

In its Wednesday morning opening overview on the continuing story, Reuters reports, “…economists and logistics experts said they doubted the port closure would unleash a major U.S. supply chain crisis or major spike in the price of goods, due to ample capacity at rival shipping hubs along the Eastern Seaboard. The loss of the bridge also snarled roadways across Baltimore, forcing motorists onto two other congested harbor crossings and raising the specter of nightmarish daily commutes and regional traffic detours for months or even years to come.”

One more link for today (plenty more in future days, I suspect): The Washington Post has published a piece on supply chain implications that does not break new ground, but does include very helpful — highly crystalized — visualizations of several key flow factors.

March 28 Update: FreightWaves has a good summary of serious local impacts mostly related to continued closure of the Port of Baltimore. FreightWaves quotes from a report by Project44 that includes details on very current ocean-going freight flows (more).

S&P Global Insight provides helpful details on the Port of Baltimore’s significant role in US coal exports and cobalt imports.

Bloomberg is reporting on now-contracted salvage and channel clearing operations plus some informed speculation on the time-frame needed to fully reopen the port — perhaps as soon as six weeks…

The Port of Baltimore has what should be a long-term comparative advantage for many freight flows due to its location (roughly 100 miles farther west than Port of NY/NJ) combined with robust rail connections. But the longer the port is closed, the more likely (and rapidly) these comparative advantages related to cost and speed will diminish.

March 30 Update: In a Saturday morning report, NPR’s Camila Domonoske does a great job detailing the crucial cluster of functions at the “neck of the hourglass” that serves — makes possible — the concentration of specialized flows for automobiles, small trucks, and agricultural vehicles at the Port of Baltimore. She avoids all my favorite network-science jargon, but describes the complex reality just as well — okay, even better. It is a four minute listen here (I don’t see a transcript yet).

April 1 Update: Bloomberg provides an overview of adaptations by Atlantic seaboard ports, carriers, and shippers to the loss of the Port of Baltimore. A Temporary Alternate Channel will open along the northeast axis of the Patapsco River (see map immediately below). Right now the depth of this TAC is anticipated to be about eleven feet, too shallow for large containers and most RoRo vessels. The MV Carmen currently trapped inside the Port of Baltimore has a draft of almost 27 feet. But this opening will facilitate faster and safer movement by tugs, barges, and other vessels involved in clearing the full channel. LATE UPDATE: At 3PM Eastern today the tugboat Crystal Coast was the first vessel to utilize the TAC pushing a barge with jet fuel for Dover Air Force Base (south of Wilmington on Delaware Bay) (here and here). A second, slightly deeper TAC is now also being cleared.

April 6 Update: Bloomberg has tracked where ships bound for Baltimore ended up — and how long it took them to make the change. Great example of volume and velocity adapting (or not). Yesterday the US Army Corps of Engineers announced it, “expects to open a limited access channel 280 feet wide and 35 feet deep, to the Port of Baltimore within the next four weeks – by the end of April. This channel would support one-way traffic in and out of the Port of Baltimore for barge container service and some roll on/roll off vessels that move automobiles and farm equipment to and from the port. USACE engineers are aiming to reopen the permanent, 700-foot-wide by 50-foot-deep federal navigation channel by the end of May, restoring port access to normal capacity.” (More and more.)

Map developed by Bloomberg

March (well, February) Flow Fitness

How goes food, fuel, and freight as the Northern Hemisphere pivots toward Spring?

Gaza, Haiti, Sudan, and much of the Sahel and Horn of Africa face life-threatening food disconnects. There are food-related riots in Nigeria. Mozambique seems trapped in a manic cycle of drought, flood, and civil strife. Profound drought in Brazil threatens this year’s harvest (but final yields are still pending). Many Americans complain about food inflation. (More and more.)

According to the US Energy Information Administration, global liquid fuel production in 2024 is forecast at about 102.17 million barrels with this year’s consumption expected to hit about 102.42 million barrels (more and more and more). Natural gas flows have experienced big shifts since February 2022 and big changes remain ahead (more). Most electrical grids are in the midst of a treacherous transition to non-traditional, renewable sources of power generation. On Sunday the Washington Post headlined: Amid record high energy demand, America is running out of electricity. The grid challenge is amplified in plenty of other places.

With both the Suez and Panama canals seriously squeezed, the Wall Street Journal reports, “Around the world, prices are rising for cargo owners. Daily boxship rates along routes from Asia to the Americas more than doubled in January from a year earlier, data from U.K. brokerage Braemar showed. Rates for Asia-to-Europe trips were up 67%. Trade volumes going through the Suez fell more than 40% in December and January compared with the year-earlier period, according to United Nations data.” (More and more.)

At the same time, the March USDA World Agricultural Supply and Demand Estimates includes, “The global wheat outlook for 2023/24 is for larger supplies, consumption, and trade… Supplies are projected to increase 0.8 million tons to 1,057.8 million… the forecast for rice “is for larger supplies, trade, and ending stocks but fractionally lower consumption. Supplies are raised 2.5 million tons to 692.6 million…” (More) “The FAO Food Price Index (FFPI) stood at 117.3 points in February 2024, down 0.9 points (0.7 percent) from its revised January level, as decreases in the price indices for cereals and vegetable oils slightly more than offset increases in those for sugar, meat and dairy products. The index was down 13.8 points (10.5 percent) from its corresponding value one year ago.”

On the fuel front, OPEC+ recently announced production cuts to adapt to flat demand (and alternative supplies). According to Bloomberg, “Ample supplies have anchored international oil prices near $80 a barrel this year, even as conflict in the Middle East disrupts regional shipping… Forecasts from the International Energy Agency in Paris suggest that, with growth in global oil demand slowing and new supply from the Americas soaring, OPEC+ will need to persevere with its cuts all year.” Western Europe is approaching the Spring equinox with natural gas storage facilities sixty percent full. (More) In 2023 Germany supplied more than half of its domestic electric consumption with renewables. On some days this winter over 70 percent of Texas electric consumption has been supplied by renewables. (More and more.)

On March 12 Maritime Executive reported, “U.S. imports are strong and continuing to grow with the outlook remaining positive into 2024. The disruptions in the Red Sea and at the Panama Canal have not impacted the number of containers arriving at U.S. ports with analysts reporting carriers have successfully adapted to the current challenges (more and more).  US rail volumes have bounced back from depressed January levels (more). Trucking demand is moderate or sluggish or recessionary (depending on the angle of observation). Earlier this week authors of the Cass Freight Index commented, “While seasonality remains soft in the near term… underlying volumes have shown improvement… It’s been over two years since the first y/y decline of this freight recession, and with destocking playing out and goods consumption rising, we see this improvement as an encouraging sign that a recovery is beginning.” (More and more.)

US Demand continues to surprise and pull tighter on supplies, especially for shelter and gasoline. According to the Bureau of Labor Statistics, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, after rising 0.3 percent in January…. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment. The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent of the monthly increase in the index for all items.” (More and more.) Retail sales in Europe are flat. In China Lunar Holiday spending was healthy, but is not expected to persist (more). Japan’s consumers are well into a second year of reduced spending , “the average of monthly consumption expenditures per household for January 2024 was 289,467 yen, down 4.0% in nominal terms and down 6.3% in real terms from the previous year.”

Value pulling motivates pushing value. Demand that exceeds current supply prompts price increases. A little inflation pulls productivity forward. Too much inflation skews, subverts, and confuses authentic value creation. Too little inflation slows economic activity and over time deflation can cut value-creating capacity. A perpetual, challenging (and even fun) game of tug-of-war is where demand and supply are mostly well-matched and supply responds enthusiastically to healthy demand.

There are places where demand or supply has just about given up. It is hard to push an abandoned rope. But in most of the world the current game attracts strength on both sides.

Here’s the February Flow Fitness update

Here’s the January Flow Fitness update

Here is a 2023 year-end overview.

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March 15 Update: A few hours after posting the note above the February US retail sales report was released. Economic analyses of the results were mixed. Bloomberg reported, “US retail sales rose by less than forecast after a steep drop to start the year, underscoring concerns about the durability of consumer spending.” The Wall Street Journal noted, “February spending shows the consumer is still robust but not as strong as economists were hoping.” Reuters pulled some details, “Sales last month were boosted by a 1.6% rebound in receipts at motor vehicles and parts dealers. Sales at gasoline stations increased 0.9%, reflecting higher prices at the pump. Receipts at electronics and appliance outlets surged 1.5%. Building material and garden equipment store sales rebounded 2.2%.But online sales dipped 0.1%. There were also decreases in sales at clothing, health and personal care stores. Furniture store sales decreased 1.1%. Sales at sporting goods, hobby, musical instrument and book stores were unchanged. Sales at food services and drinking places, the only services component in the report, rebounded 0.4% after dropping 1.0% in January. Economists view dining out as a key indicator of household finances.” As Bette Midler has suggested, reality depends on distance and angles. In the chart below, the top green line tracks nominal (NOT inflation adjusted total sales) while the blue line is adjusted to “correct” for CPI. In either case, the sustained shift from pre-pandemic patterns is, I think, meaningful to framing and sizing the dynamics of demand and supply. Also relevant, the retail inventory to sales ratio remains lean compared to long-established pre-pandemic patterns.

Amalthea Maritime Channel

Maritime food flows from Cyprus to Gaza were a good idea when first proposed in early November (more). This idea was even more promising last December when the EU endorsed and Israel signaled a tentative readiness to cooperate. If flows had actually begun in January our current context would be much more constructive.

Maybe the idea is on the edge of becoming more than an idea after last night’s push by President Biden (more and more ). The European Commission president is in Cyprus today to accelerate the diplomatic context and enable practical progress. Innovative private-public options are being floated.

An even better idea is for preexisting overland freight flows to be regularly discharged into Gaza and effectively distributed to hungry people across Gaza. (See current capacity map below.) But it is now well past time to recognize that this better idea is susceptible to insidious delays… and an already urgent situation is becoming more desperate each day. Please see recent measures of sparse inbound Gaza freight flows in the chart below (more). By now we ought not allow the even-better to compete with the bit-better.

Upstream flow capacity currently available on or near the borders of Gaza is sufficient to serve the nutritional needs of residents. There have been two literally fatal strategic problems:

First, volumes discharged through planned bottlenecks — now chokepoints — have been constantly constrained by a wide-array of security-related frictions (please see this January 21 post for more detail and here for even more).

Second, distribution velocity from discharge points into neighborhoods has been repeatedly suppressed by recurring disruptions.

Here is how these disruptions are characterized in LogCluster’s February 26 update of their Gaza Concept of Operations.

Movement restrictions and safe humanitarian access within Gaza conflict-affected areas due to ongoing military operations, complex deconfliction processes and sporadic authorizations to operate convoys, general insecurity, damaged roads, overcrowded areas are impeding the deliveries of humanitarian assistance to affected populations… Electricity blackouts and disruption of mobile networks in Gaza have led to disruptions of communications impacting the ability of humanitarian partners to coordinate and undertake interventions.

It is not yet clear that the proposed maritime channel can avoid or effectively mitigate these two very stubborn sources of friction. Some see this update on Forward from the Sea as one way to “flood the zone” (here and here). If so, the flood gates that have been kept so tight at Rafah must not reappear in Cyprus or at the anticipated Gaza pier (Mulberry Harbor?). From what I hear — but cannot confirm — this maritime play is specifically seen as an end-run around this particular constraint. I hope so.

Suppressed distribution velocity will be much more difficult to avoid (here and here). The current combination of real physics and real fear ought not be discounted. As previously noted, serving profound need justifies profound risk-taking (here and here). But discounting or neglecting such risk is counterproductive. If impossible to avoid, how can these risks be transferred or reduced to facilitate achieving a workable level of acceptable risk?

When first proposing this idea, Cyprus named it after Amalthea (tender goddess). In ancient Greek mythology this was the goat-related foster mother of Zeus, who protected the divine child from his father (who was convinced he had successfully eaten the infant). My favorite aspect of this myth is Amalthea’s recruiting fully armed youthful male dancers (Korybantes) to noisily distract the murderous father from his vulnerable offspring. To not merely move around food, but to actually feed hungry people will require creativity, courage, and a good share of artful cunning as well.

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March 9 Response: Some readers are surprised by my affirmative stance regarding Amalthea. I understand; as late as New Year’s Day I might have critiqued this ambitious effort as a strategic distraction. I hope my affirmation these sixty-some days later does not neglect the ambivalences involved. I am very concerned that the two strategic problems identified above will be inherited by Amalthea.

A crucial principle of Supply Chain Resilience is to recognize our systemic dependence on preexisting capacity and flow capabilities. Here is how I explained this in a December 9 post:

Supply Chain Resilience acknowledges that contemporary high volume, high velocity flows of essential human resources serving large populations cannot be replaced, even by the most robust and best-organized relief operations. The only effective and timely way to serve large numbers of survivors is rapid restoration and adaptation of preexisting flows. The current situation in Gaza may be the exception that proves the rule. For sixteen years a huge, dense population has depended on robust, well-organized “relief” operations. Sixteen years of relief operations should have signaled an unsustainable situation requiring fundamental reform. But in the very present crisis, this humanitarian supply chain is the only “preexisting capacity” that has the irreplaceable ability to serve survivors.

So… in December and well into January I pushed for higher volume flows through channels that preexisted October 7. I pushed for innovative velocity enhancements inside Gaza to overcome profound challenges of last-mile distribution in an active war zone. I was encouraged by the mid-December reopening of the Karem Shalom crossing and related steps by WFP-LogCluster, PRC, OCHA, and many other public and private entities to deliver food to hungry people despite extreme duress.

Since mid-January it has been increasingly clear that inbound volumes continue to be insufficient and velocity — both speed and targeting — is deeply degraded. In too many places flow has simply stopped. Preexisting capacity persists. There is plenty of volume within thirty miles of Rafah. But only small volumes are being discharged into Gaza and the trickle entering at Rafah is not moving much farther north.

The sources of these impediments are, it now seems to me, innate to the reality of war (Der Krieg nicht bloss ein politischer Akt, sondern ein wahres politisches Instrument ist, eine Fortsetzung des politischen Verkhers, ein Durchführen desselben mit andern Mitteln (Clausewitz). “War is not merely an act of policy but a true political instrument, a continuation of political intercourse, carried on with other means.”) Many — including Jordan, Qatar, EU, France, US, and UK — have attempted to reverse these impediments. So far these efforts have failed. Evidence is available for the deeply rooted sources of failure. Here and here are two resonant, even tragic, examples.

There are many who continue to work to reverse the causes of these stubborn impediments. I absolutely wish them well. For the 2 million-plus people of Gaza and the flow of preexisting capacity, an authentic and sustained ceasefire would profoundly help.

But I have concluded that given ongoing probability, chance, and friction (as Clausewitz can be translated), both flow and the hungry people of Gaza are essentially being held hostage to a Waiting-for-Godot-Ceasefire.  Zweck, Ziel, und Mittel  (purpose, objective, and means) have been subordinated to achieving the ceasefire. There has been too little creative, context-specific adaptation to fulfill purposes in our current reality.  Rather than adapting our means to the current context, there has been an over-dependence on crafting a new context friendly to preferred means. 

While welcoming a ceasefire, until then we need to adapt our means to the innate reality of war. I have affirmed Amalthea not only for the prospect of additional means for achieving the purpose of feeding hungry people, but even more as signal and encouragement for further, faster adaptation of any available means.

March 10 Update:

Times of Israel: How US Military Plans to Build Floating Dock for Urgently Needed Aid

New York Times: US Military enters New Phase with Gaza Aid Operations (more)

DeutscheWelle: US Sends Ship for Gaza Aid Pier (more and more)

Financial Times: Starvation Stalks Children of Northern Gaza

International Committee of the Red Cross: Statement by the ICRC President

Canadian Broadcasting Corporation: US Aid Policy on Gaza “Absurd

March 11 Update: The BBC reports on several aspects of the Amalthea Initiative and related efforts to increase flows into Gaza. CENTCOM has released visuals of US Army assets that will be involved in building the “temporary pier” off Gaza. The Financial Times has published a concise round-up of issues and actions being taken, including, “The effects of lower levels of aid delivery have been compounded as each day’s shipments fail to compensate for previous shortfalls and the accumulated damage of the war. Most hard-hit are the estimated 300,000 residents of north Gaza who stayed as the area bore the brunt of the initial Israeli ground offensive… For north Gaza alone, 300 aid trucks per day were needed… UN and US officials said this month that a genuine solution would require “flooding” Gaza with aid, not only to help suffering Gazans but to undercut the black market. That would improve security for aid convoys by removing one incentive for looting.”

Source

March 13 Update:

The BBC reports on How the US military plans to construct a pier and get food into Gaza

Reuters reports on US, allies eye commercial maritime option for Gaza aid

The Associated Press reports on four more US Army boats depart for Eastern Mediterranean

March 15 Update: Relocating more than 1 million residents of Gaza now in and near Rafah to “Humanitarian Islands” is being discussed. The BBC reports, “Moving more than half of Gaza’s population from Rafah to the centre of the strip would take time, potentially weeks… The central part of the strip where Israel proposes to relocate them has been badly damaged by repeated ground and air attacks.” (More and more and more.) Initial reactions to this (long predicted) proposal by those currently delivering humanitarian aid to desperate people crowded in and around Rafah is understandable. “Apocalyptic,” is a common response and, no doubt, accurate description of such a horrific process and its outcomes. A long-term ceasefire remains the preferred solution — and would certainly be preferable for hungry, traumatized residents of Gaza. A thought-exercise: If we were reasonably confident that seismic activity would soon prompt an earthquake and tsunami focused on Rafah, there would be a shared urgency to relocate residents away from the impact. The relocation process and outcome would almost certainly be apocalyptic, but a utilitarian ethic would motivate collaboration and action. Instead of fictional seismic activity, the people of Gaza are threatened by current and escalating military activity. An appropriate ethical response to a natural calamity is widely perceived as immoral complicity with evil (more and more and more and much more could be linked…).

March 16 Response: A reader asks about the potential of Gaza “clan” networks providing a preexisting channel for decentralized distribution of food and other essential flows. I have been asking the same question. I hear ambivalent answers… which given the complex context is not surprising. Below are a few starter links. From a supply chain perspective much depends on flow volume and sustained velocity. If the so-called “flood-the-zone” strategy can be achieved, then the clans — and many other informal connections — should be able to enhance flow velocity to peripheral sources of demand. But the less abundant any high-value flow (the more possible it is to exclude flow in any time/space) the more likely clan leadership will compete, impede flows, and deploy flow-influence to maximize other influence.

Times of Israel (more and more and more)

Jerusalem Post (more)

Carnegie Endowment for International Peace February 2024

International Crisis Group 2007 Study

March 23 Update:

Lots of activity over the last week, but not much substantive change that I can recognize. Below is an update on trucks being discharged into Gaza (more). The Guardian has published a helpful overview of flow impediments (NYT too… nothing new for regular readers). The effort continues to involve preexisting social/family groups (clans) to distribute food (here and here). Work to open a maritime channel has begun. An international conference meeting in Cyprus considered options for increasing volumes and velocity (here and here and here). The Foreign Minister of Cyprus emphasized, ““We have to remember there are limitations in terms of the reception and distribution and the whole point is not to just stockpile aid here but about a quick turnaround so we are as efficient as possible.” The prospects for such efficiency remain elusive. Many continue to insist that the choice is limited to a sustained ceasefire or mass starvation (here and here).

March 24 Update: Quoting the UN Chief, Reuters headlines, “Only effective way to ramp up Gaza aid is by road…” (more and more and more).