Category: Uncategorized

Uncertainty versus Perfidy

Posted on by Philip J Palin

Many have complained of uncertain tariff policies (here and here and here). Houthi attacks on Red Sea shipping are uncertain. This October’s water levels on the Mississippi, Rhine, and Yangtze rivers are uncertain. June energy prices are uncertain. Commerce persists and constantly adapts to such uncertainty. Uncertain derived of Latin certus: not fixed, not resolved, not decided…

Commerce finds perfidy much more disruptive. The Romans especially disdained per fidem dēcipere — deception through manipulation or betrayal of trust… faith… fidelity.

Commerce expects — fundamentally depends upon — the readiness of most people, most of the time (i.e., the market) to sufficiently value their own wants and needs that they recognize the benefit of securing supplies and services through exchange of mutually accepted value.

Effective, recurring, profitable commerce requires suppliers and service-providers valuing their own long-term self-interest enough to fulfill their customers expressed needs and respect their customers limitations. Many years ago I considered my own egg-producing operation. After calculating costs, I have always appreciated the ability to buy eggs from others (even at recent price-levels).

Civilization has emerged from non-violent cultivation of such mutual benefit. In 1776 Adam Smith wrote:

He will be more likely to prevail if he can interest their self-love in his favor and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind proposes to do this: give me that which I want, and you shall have this which you want, is the meaning of every such offer…

The more uncertain the context, the more commercial good faith and mutual benefit matter. Unpredictable and/or predatory parties increase costs, delay progress, and can ultimately sabotage even otherwise obvious mutual benefits.

Commerce has found longer, more time-consuming, more expensive ways to avoid the Houthis. Commerce has spent most of two centuries and huge sums working to minimize the impacts of floods and droughts on major inland waterways and otherwise transport goods with confidence. The potential for successful perfidy in fossil fuel flows has been reduced by diversifying sources and increasing competition. Energy market mechanisms have evolved to facilitate price fluctuations and mutual benefit. Persistence and patience have generated shared progress.

The United States is the world’s largest economy. US consumption expenditures are more than double any other integrated market. The Congress has delegated to the President of the United States substantial personal authority to set tariffs. President Trump recognizes tariffs as a powerful tool to get what he wants from other nations and generate funds for the US treasury too.

In 2024 the effective US tariff rate was about 2.4 percent. Given what was announced on April 2, we are now looking at about ten-times that level. Tonight reciprocal tariffs will be implemented. According to the Office of the United States Trade Representative these tariffs “will range from 0 percent to 99 percent, with unweighted and import-weighted averages of 20 percent and 41 percent.” Today, Peter Navarro, the President’s senior advisor for trade and manufacturing warned, “This is not a negotiation. For the US, it is a national emergency triggered by trade deficits caused by a rigged system. President Trump is always willing to listen. But to those world leaders who, after decades of cheating, are suddenly offering to lower tariffs — know this: that’s just the beginning.”

What President Trump wants is gradually becoming clear. It remains unclear how — even if — trading partners (buyers or sellers) can deliver what the President wants. Mr. Navarro argues the world has been perfidious in trading with the United States. Suddenly and unilaterally prompting a one-fifth (or more) cost increase may well seem an act of bad faith to both buyers in the United States and sellers to those in the United States. Possibilities for mutual benefit are being replaced by mutual suspicion or worse.

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Aeneas and Dido were each tragic exiles. Together they found love. Together they were busy building a great city. But gods conspired to subvert their mutual happiness. Vergil anointed him Aeneas the True, yet Dido accused him of faithless betrayal, treachery, and treason. He left her. She cursed him, throwing herself onto the death pyre’s flames. “Dissimulare etiam sperasti, perfide, tantum posse nefas, tacitusque mea decedere terra?” (Did you hope to conceal, perfidious one, such a crime and quietly my world depart?) These seeds unfurled into generations of vicious enmity.

Trying to pierce the fog of war

Posted on by Philip J Palin

This morning the new ten percent universal — or baseline — tariff will be levied on imports into the United States. Other tariffs are already in place (here and here and here), more tariffs are promised. As headlined in the Financial Times, “US stocks shed $5.4tn in two days as Trump’s tariffs stoke recession fears.”

Recession is not the worst case feared by many (here and here and here). The President of the United States is seeking a radical realignment of the world economic system. Complex Adaptive Systems — such as global supply chains — tend to react badly to sudden, significant shocks to well-established network relationships (here and here and here).

Until Wednesday afternoon’s White House announcement, President Trump’s tariff policy lacked sufficient detail or principles or clear objectives to do more than spin wildly divergent scenarios. Policy coherence is still anemic, but it could now be worthwhile to articulate some specific hypotheses regarding the measures that have been signaled, how these measures are likely to evolve, and where that might leave us this time next year.

If the full range of Wednesday’s measures are aggressively implemented, during 2025 we will — the world will — experience the most profound and sudden economic shift ever. Because the scope/scale of the shift is so unprecedented, the consequences are difficult (probably impossible) to confidently predict.  There will be many unintended consequences. President Trump is also well-known to use shock-tactics to open negotiations where he is willing to quickly alter his opening position in exchange for a wide range of putative advantages.

I perceive that President Trump is deploying tariffs to advance three goals (two tactical goals and one strategic goal).

First, Mr. Trump wants to use tariffs to generate new revenues for the US Treasury.  He needs — we need — to reduce our dependence on excessive deficit speeding.

Second, Mr. Trump wants to use tariffs as clear-and-present bargaining chips to motivate other nations to do-deals with him (us and USA) on a wide-array of issues from terms of trade, international migration, drug interdictions, war/peace, and much more (apparently including the disposition of TikTok).

Third — and more strategically — Mr. Trump is attempting to restore a robust US goods manufacturing sector. He wants to support/ increase traditional manufacturing jobs (e.g., automobiles) and reduce US dependence on other nations for key manufactured goods (e.g., steel, aluminum, semiconductors…)

President Trump and some others believe progress can be made on all of these goals because selling to US consumers is important to every major economy in the world… and they seem confident US consumers will continue recent — amazingly stubborn — consumption patterns.  I don’t share this confidence, but readily acknowledge that outcomes depend on a whole host of factors that fall far outside my supposed expertise in Supply Chain Resilience. Until we know much more about the top rates for long-duration tariffs and what products/places end up being the most punitive tariff targets, making meaningful judgements is too much like five year old’s playing ping-pong.

Focusing mostly on these three tariff purposes, right now I hypothesize that:

  1. The ten percent universal tariff is likely to remain mostly in place for the long-term (the next four years or longer). This could plausibly generate $300 billion per year to the US Treasury.
  2. Sector-specific tariffs are also likely to remain in place for the long-term. Carve-outs, special arrangements, percentage adjustments, and more may be negotiated, but this tariff category is conceived as a means of restoring critical domestic manufacturing — to support national security, economic growth, and even some cultural goals. Once in place many sector-specific tariffs are likely to persist beyond the current administration.
  3. All the rest of the tariffs are open for (intended for) vigorous, creative, politically-expedient, self-interested, and goal-achieving negotiation.  Stand-by for wild, weird, jaw-dropping proposals, counter-proposals, and audacious victory announcements… potentially including substantive progress too.

I calculate the ten percent universal tariff — by itself — would generate desired revenue and not cause major economic disruptions.  It would have some inflationary effects but would probably not seriously hurt near-term US economic growth — and might support longer-term US economic growth. In combination with the other tariffs, however, I expect revenue generation will be suppressed by reduced US demand for imported goods with the obvious supply chain ramifications.

The sector-specific tariffs will prompt all sorts of macroeconomic, micro-economic, logistical, and other gyrations. Once again there will be inflationary effects and I perceive that in each of these specific sectors the tariffs will be more demand-depressing than the universal tariff. Positive macroeconomic effects are possible in five to seven years (and beyond). Increased domestic investment in manufacturing facilities is likely, with localized positive economic benefits. But lots of sourcing/shipping problems and uncertainty will be experienced in between. Within each sector the supply chain implications will be treacherous. Extended disequilibria of demand and supply will often emerge. Outside each of the targeted sectors secondary and tertiary effects are likely, but beyond the scope of evidence currently available to me.

Other tariff consequences depend on details of timing and targets that are — purposefully — unclear.  Ambiguity is a feature, not a bug of the tariffs-as-bargaining-chip approach. But the longer tariffs stay high and the more targets hit by high tariffs, the more economic — and supply chain — disruption both in the US and around the world. There will be higher inflation and demand destruction in the United States and, almost certainly, suppressed economic growth world-wide.  Less pull plus much more friction (both physical and financial) will seriously complicate push.

Late this week most economists are predicting a fast reduction in interest rates — as economic activity contracts because of tariffs. My supply chain angle is contrary to this, given the inflationary effects anticipated.  The more inflation spurred by the tariffs, the more inclined the Fed may be to keep rates higher.  In either case, anticipating future interest rate decreases can delay purchases about as much as high interest rates discourage purchases.  Equity markets tend to do better with low interest rates and strong sustained demand.  This is President Trump’s goal.  I am concerned he could be surprised by demand destruction, high inflation, and the need for higher interest rates.  Market reaction since Wednesday indicates I am not alone in this concern.

Given the scope/scale and rate of change unleashed by this tariff turmoil, anyone who claims certain clarity on specific outcomes is delusional (or trying to delude), but these new systemic risks are probably as disruptive as those unleashed by OPEC energy price manipulation in the mid-1970s. OPEC purposefully deployed supply controls.  The Trump administration is purposefully deploying what they conceive as demand controls.

Sufficient evidence is not yet available to treat the judgments outlined above as projections. These are deniable hypotheses that may help test our observations over the next several months.

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April 8 Update: Some readers find this assessment of current tariff turmoil to be “excessively careful”. Another writes, “You are minimizing the potential harm.” Yet another critiques, “Your balanced tone obscures that Trump’s approach is entirely unbalanced.”

Current harm is profound and entirely obvious. The risk of much greater harm is significant — even probable. Especially in this context, it is not helpful to claim — or even seek — certainty. In any case, I cannot honestly claim any certainty.

Many continue to sound certain that the April 2 tariffs are either ephemeral negotiating tools or the economic equivalent of August 3, 1914. One or the other may yet be demonstrated, but as my three categories are meant to indicate, there is — despite maximalist rhetoric — a reasonable possibility for something less extreme.

This morning I have finally read one other credible commentator with a similar angle. Early this morning the Financial Times published a piece by Jason Furman arguing:

While anything is possible, the most likely landing place is that he will retain the across-the-board tariff which he campaigned on and considers central to shifting the US revenue base, while maintaining a higher tariff on certain countries like China and certain products such as steel. The result would be that the US would have a 12 to 15 per cent average tariff rate. That is much lower than now — but still very high…

Following the ellipsis Dr. Furman adds, “… with inevitably bad consequences.” But perhaps “bad” as in the consequences of the Seven Years War rather than the war to end all wars and all that has cascaded from that collision.

“April is the cruelest month”

Posted on by Philip J Palin

During February American consumers expended about the same as they did in January (which was slightly less than a high-spending December, see first inflation-adjusted chart below). Last month Americans made a little more, saved a little more, and may have stayed home more (bad weather? ).

On Friday Bloomberg’s PCE report (and others) emphasized:

Notably in February, Americans reduced spending on services for the first time in three years in the face of higher prices — including on dining out. “Consumers are resistant to price increases,” Neil Dutta, head of US economics at Renaissance Macro, said in a note. “Ultimately, inflation boils down to a household’s budget constraint and conditions are deteriorating here.”

According to the Bureau of Economic Analysis’ March 28 update, during February US consumers spent more on non-durable goods, food-at-home, and recreation (NOT inflation-adjusted, see second chart below). Rather than treacherously treading water far from shore, I read this more as languorously floating after a brisk swim along the beach.

Shipping indicators could be skewed by tariff-anticipation, but whatever the cause — a traditional seasonal pause in volumes was less apparent this February. The Cass Index for the month was up. DAT Trendlines — February 2025 versus February 2024 — show (mostly) significant gains. Fast forwarding to late March flash data, FreightWaves tender rejections show stable reefer and dry van capacity calls with surging flatbed demand.

Given all the tariff turmoil (here and here and here), I am poised to perceive demand-destruction too. But I don’t see it yet.

Changes in Monthly Consumer Spending, February 2025

“April is the cruelest month” is the opening line of The Waste Land by T.S. Eliot

Tariffs and TARA

Posted on by Philip J Palin

Below is a conversation from this morning’s Bloomberg Surveillance. Ryan Petersen with Flexport discusses tariffs. He offers most of the same predispositions, assessments, arguments, and preferences as most of my supply chain-focused clients and contacts. Most support “bringing back” manufacturing to the United States. Many are open to carefully crafted reciprocal tariffs (here and here and here). But they don’t like tariffs. They especially don’t like the so-far messy and sometimes contradictory roll-out of US tariff policy.

Given the current level of uncertainty, Petersen — and other guests on this morning’s Bloomberg Surveillance — suggest that corporate decisionmakers are waiting-to-see, delaying decisions, and holding their bets — which incrementally decelerates economic activity.

The “right” response for the emerging tariff regime will be particular to each enterprise. But the decision-making options are roughly the same. As each tariff is announced, then sometimes implemented, potentially continued (or rescinded), and prompts retaliation (or not) the tactical options are to Transfer the risk or Avoid the risk or Reduce the risk or Accept the risk (TARA). How to conceive and execute the right tactical response will depend on the specific product category, interdependent components, and each firm’s exposure to tariff consequences.

Strategic options can be identified on a continuum between embracing or rejecting American autarky. How self-sufficient can the United States become? Is more self-sufficiency good or bad for your particular enterprise? The United States is almost entirely self-sufficient in almond production. (But retaliatory tariffs could constrain almost $5 billion in US almond exports.) Hawaii and Puerto Rico produce less than one percent of the coffee consumed in the United States. Decision-makers at almond and coffee enterprises face very different challenges. Such extremes are unusual. Most enterprises operating in the United States depend on a mix of domestic and foreign inputs and compete with a variety of domestic and foreign sources.

What is your mix? What is the best case for greater self-sufficiency? What is the worst-case? What is the most likely case? Why? What plausible factors might change your answers? Given your answers, where do you place your bet? How much do you bet? (For more on betting, listen to Mohamed El-Erian after 2:06:39 on the video below.) Not betting is not really an option. You are being forced to play.

Characteristics of pre-tariff demand

Posted on by Philip J Palin

January consumption expenditures ticked-down just a tad (see first chart below). Given unusually cold weather and perhaps some post-holiday restraint, this is not unprecedented nor necessarily the start of a pattern. January 2024 expenditures ($15,812.6 billion 2017 dollars) were lower than December 2023, but by last month US personal consumption expenditures had grown to $16,283.6 billion 2017 dollars).

The December 2024 to January 2025 decline in consumption expenditures was led by a 40-plus-percent drop in auto sales. December is almost always strong for auto sales and January is almost always weak. Looking under the auto industry’s hood suggests mixed results for January 2025. According to the Bureau of Economic Analysis in January US consumers spent a little less on goods and a little more on services. This included 4.6 percent less on food and beverages, 11.6 percent more on gasoline (here and here) and other energy goods, and 13 percent more on eating out and travel accommodations.

I like to track Food At Home (FAH) consumption expenditures. Pre-pandemic I perceived shifts in real — inflation adjusted — PCE for food to be meaningful indicators of consumer distress or delight. Post-pandemic I have mostly been amazed at the step-wise increase in how much more food Americans consume (see second chart below). These sort of grocery store sales suggest to me a substantial slice of US consumers are not looking for deep cuts on discretionary expenses.

Delighted, distressed, or desperate these consumption patterns should be helpful to watch if and when more rigorous tariffs are imposed. A ten percent increase on imports from China was put in place in early February, a second ten percent has been promised. Late January tariffs of 25 percent on many (not all) goods from Mexico and Canada were suspended for negotiations. The negotiation period is scheduled to conclude on March 4. Steel and aluminum tariffs are scheduled to be implemented on March 4. Studies are underway to set reciprocal tariffs. Other tariffs have been discussed.

Tariffs add costs and sometimes delays. Increased costs usually increase consumer prices. Depending on the size and timing of tariffs — and the accessibility and price of replacement products — tariffs will often influence consumer behavior. High volume, high velocity supply chains tend to depend on persistent demand and supply capacity specifically organized around persistent demand. Sudden shifts in demand can be disruptive. The scope and scale of disruption depends on the depth and duration of the demand shift, as demonstrated by both of the charts below for several months following February 2020.

Tariffs (again)

Posted on by Philip J Palin

From Sunday night to Monday noon (US Eastern Time) my inbox overflowed with questions and venting — probably more venting than questions. By Monday dinner-time the drama had significantly abated (here and here and here).

Back on December 2, I wrote in regard to Mr. Trump’s tariff strategies, “What is promised — threatened — often morphs to close a deal. So, any speculation by me regarding future tariff impacts on Supply Chain Resilience would be mostly noise. Anticipating the strategic threat certainly reinforces principles of capacity diversification and avoiding excess capacity concentration. This is true whether the threat is tariffs, typhoons, or terrorism…” That’s still my story and I’m sticking to it.

But to hold myself accountable for what is certainly further drama ahead. Here are excerpts from a Monday exchange with a financial journalist. I responded to his request for comments and connections just before 10AM Eastern Time.

The supply chain is also all-hands-on-deck.  Everyone is trying to figure it out.  Right now I perceive that most of my contacts are moving into the five stages of grief: denial, anger, bargaining, depression, and acceptance.  Some continue to deny (“just a bargaining chip…”).  I am hearing lots of anger (“dumb, absurd, counter-productive, self-destructive…”).  Lots of emails and phone calls starting to try to probe, clarify, and bargain.  Sometimes depression and anger are tough for me to distinguish.  No one I know has reached acceptance yet.  Just starting a meeting that will take much of this morning.  Back at you later.  Happy to respond to specific questions.

I then disappeared into a two hour-plus session with principals and lawyers involved in spinning-off a small, new company from a long-time player. Tariffs were not mentioned at all during this process.

Emerging from the successful spin-off, I reviewed emails received over that time, returned a couple of phone calls, then sent this follow-up to the same financial journalist:

None of my clients or contacts are ready to talk to you — yet.  I’ll keep checking as they make progress on concrete actions.  Most of my folks have not found sufficient volumes of non-tariffed substitution goods. So, passing along additional costs is their current “contingency plan”. Many still hope that there will be a quick return to status quo ante (ala Columbia — the potential Mexico delay has been received like a jolt of caffeine). There is, of course, no direct impact on physical flows.  So, the consequences depend on how long some significant proportion of consumers are willing to pay higher tariff-related costs… and if these higher value pull signals attract/motivate currently unrecognized sources of push to compete at these higher price-points.  For many products it will probably be a few weeks before we have much confidence in how demand will respond and supply will adapt.  Sorry I don’t have any talkative friends.

A few hours later the “Mexico delay” was confirmed and the hit on Canada was also postponed for thirty days. China has now retaliated in a very restrained way. President Trump expects to talk with President Xi later today.

A personal challenge in all this drama and delay and (can we call it) diplomacy: On March 4 I am scheduled to give rare public remarks on Supply Chain Resilience. That audience will want much more than I could give them today.

Closing status of 2024 US Flows

Posted on by Philip J Palin

According to the Bureau of Economic Analysis, December demand — measured by Personal Consumption Expenditures — increased 0.7 percent compared to November. This was almost twice the rate of increased personal income (0.4 percent) continuing a steady — supply-chain-friendly– ascent in real (inflation-adjusted) consumption that started in mid-2021. See first chart below.

In response to this sustained demand (sustainable is a different issue), US productivity continued to climb. The real US Gross Domestic Product increased 2.3 percent in the fourth quarter of 2024. See second chart below. According to the BEA, “The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributor to the increase was health care. Within goods, the leading contributors to the increase were recreational goods and vehicles as well as motor vehicles and parts.” Employment continues to be what has been considered healthy since the 2008 Great Recession (here and here and here). Real average earnings are at or above pre-pandemic trends.

Connecting demand to supply continues to demonstrate some excess capacity (but less than December 2023 or September 2024 for that matter). Last week Todd Davis at Sonar aggregated the following recent trucking indicators and much more.

  • Spot Rate Trends:
    • December 2024 spot rates peaked due to holiday capacity constraints and shorter hauls, not increased volume.
    • Tender rejection rates rose to 10.16% on Dec. 22, more than double the 2023 Christmas peak of 5.58%.
  • Refrigerated Truckload Market (Reefer):
    • Reefer rates hit seasonal highs in January, driven by protect-from-freeze demand during cold weather.
    • Rejection rates remained above 14% post-Christmas, reflecting tighter capacity than in the dry van market.
  • Dry Van Market:
    • Rejection rates are increasing but remain lower than those in the reefer market, indicating looser capacity.
  • Flatbed Market:
    • Flatbed rates declined throughout late 2024, with recovery unlikely until spring due to seasonal demand lulls.
  • Regional and Seasonal Dynamics:
    • Local freight demand grew by 7% in December, while long-haul shipments dropped nearly 10%, with more freight shifting to intermodal transport.
    • Weather disruptions in January impacted operations, particularly in the Midwest and Southeast.
  • Market Tightness and Outlook:
    • Gradual tightening is evident, with capacity becoming noticeably strained during peak seasons.
    • Spring 2025 could bring capacity challenges if seasonal demand rebounds sharply.

Downstream pull is positive. Upstream push is well-calibrated with pull. There is some turbidity and volatility in the channels between push and pull, but plenty of ability to keep flow going.

Resilience realities

Posted on by Philip J Palin

Nicholas Morales at the Richmond Federal Reserve Bank has authored a helpful Economic Brief that concludes:

The push for resilient supply chains reflects a trade-off between stability and cost. While resilience investments protect against future disruptions, they may raise input prices and inflation in the short term. Given the likelihood of increased climate events and geopolitical tensions, resilience is expected to remain a key priority for firms and policymakers alike. However, resilience-focused policies such as re-shoring, tariffs and incentives for domestic production may place upward pressure on costs, which could have lasting impacts on inflation and productivity.

My approach to a related angle: In most firms which is more likely to receive priority, perpetual price competition or periodic existential risk?

Across my lifetime and still today, perpetual persistently beats periodic.

But the perception of periodic existential risk is amplified by the frequency and recency of such risks. This is especially the case where leadership differentiates between threats and vulnerabilities. Threats are external factors that are often tough to predict or control. As a result, external threats tend to be discounted. In contrast, vulnerabilities emerge from internal choices that, too often, totally neglect periodic existential risks. Explicit decisions to transfer, avoid, reduce, or accept vulnerabilities develops institutional insights and disciplines that pay out both perpetual and periodic benefits.

The Financial Times reports:

Eighty-five per cent of the 1,700 large company executives surveyed by The Conference Board late last year said they were planning to make significant changes to their supply chain, up 15 percentage points from last year, and significantly higher than right after the Covid pandemic. Their focus on supply chains comes alongside growing concerns about the future of global trade. Forty-five per cent of global CEOs in the Conference Board’s report cited intensified trade wars as the leading geopolitical conflict risk for 2025, double last year’s tally of 19 per cent. US executives were particularly worried, with 47 per cent mentioning trade wars as their biggest concern. “There were a lot of executives, particularly CEOs, focused on changing their supply chains . . . It’s returned to the top of the agenda,” said Dana Peterson, The Conference Board’s chief economist. [The Conference Board report is available here.]

Perceived — even demonstrated — existential risk is more frequent (here and here). C-suites, boards, and even shareholders remain preoccupied with the perpetual. But as the recent frequency of existential risk is perceived as increasing, so will attention to reducing vulnerabilities.

Neck strain and hourglass structures

Posted on by Philip J Palin

Tomorrow, Tuesday, January 7, face-to-face negotiations resume between the International Longshoremen’s Association (ILA) and the US Maritime Alliance (USMX). Dockworkers and port operators are facing a January 15 (extended) contract expiration deadline. According to Bloomberg, the crux of the stand-off involves “the use of semi-automated, rail-mounted gantry cranes at port terminals… Such equipment is permitted in the current contract and is already in use at some ILA-operated terminals, but union President Harold Daggett has said he won’t accept a contract that allows for any degree of automation, which he sees as a threat to dockworker jobs.”

In a December 20 statement, USMX argues:

A new Master Contract is essential to keeping our ports open and our supply chains strong. That is why USMX has tentatively agreed to a 62% wage increase for ILA members over the next six years, contingent upon finalizing all outstanding issues—a historic leading wage increase that showcases our commitment to American workers. Beyond the wage increase, central to successfully reaching a new long-term agreement is how we can also strengthen the ability of USMX members to make critical investments in technology and infrastructure to densify and improve the safety, productivity and efficiency of our ports, which provides a direct benefit to both ILA members and businesses in nearly every sector of the U.S. economy. American businesses rely on continuous improvements at our ports to help streamline their supply chains through expediting cargo turn times, attracting more vessel calls, and increasing overall capacity to meet their growing business demands on the export or import side.

On December President-elect Trump met with ILA leadership. Afterward he posted on social media, “I’ve studied automation, and know just about everything there is to know about it… The amount of money saved [instead of employing workers] is nowhere near the distress, hurt, and harm it causes for American workers, in this case, our Longshoremen… I’d rather see these foreign companies spend [profits] on the great men and women on our docks, than machinery, which is expensive, and which will constantly have to be replaced. In the end, there’s no gain for them, and I hope that they will understand how important an issue this is for me” (here and here).

A strike would seriously disrupt maritime flows from Boston to Houston, involving more than half of US container imports (see chart below). Maersk and other ocean carriers have urged customers to retrieve cargo before the end of next week (here and here). US West Coast ports have increased throughput as shippers seek to avoid potential close-downs (here). An extended port shutdown would seriously disrupt, delay, and increase costs across many US supply chains.

While obvious, it is sometimes helpful to be explicit: In most high volume supply chains, midstream functions (at the neck of the hourglass — here and here) are the crucial accelerants or constraints on velocity.

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January 8 Update

CNBC reports that a preparatory discussion was held on Sunday, January 5 between ILA and USMX, “A document produced from the meeting and reviewed by CNBC indicates ports willing to pair any new technology with new union jobs, but it could also introduce new risks to a deal, with added labor costs threatening terms agreed to in October for a 62% pay hike for union workers.”

On Monday gCaptain published a port operator perspective on the negotiations that is consistent with scuttlebutt emerging from my personal network. It is the insider details that matter most, so no pull quote on this one.

The Financial Times frames this particular contract negotiation in a broader context, “What were previously run-of-the-mill negotiations over pay and conditions have mushroomed into larger, more existential disputes over the relationship between humans and machines. Some 70 per cent of the 12mn people represented by the American Federation of Labor and Congress of Industrial Organizations now worry about being replaced by technology, estimates AFL-CIO President Liz Shuler: “Workers are fed up with how they’ve been treated for a long time and are scared about what the future might hold.” Whatever contract the longshoremen negotiate, say analysts, could help provide a template for agreements nationwide.”

January 9 Update: ILA and USMX have reached a tentative agreement. USMX and ILA released a very brief joint statement. (More and more)

Out of gas in Veľké Kapušany

Posted on by Philip J Palin

On January 1 pipeline flows of Russian natural gas across Ukraine to Veľké Kapušany, Slovakia (and elsewhere) came to an end (see map below, principal flows have moved between Sudzha, Russia (yellow NE) and Veľké Kapušany (yellow SW) ).

In February it will be three years since the Russians invaded Ukraine. Despite the war, a preexisting five year transit contract has been honored by Ukraine and deliveries continued. Volumes have gradually declined (here, here, and see chart below). But in 2024 more than 40 million cubic meters per day continued to flow west across the battlelines. (More and more and more.) Since mid-December EU natural gas futures prices have risen about one-quarter, perhaps as much because of cold weather as the anticipated loss of this gas connection (here and here).

There are many reasons that these natural gas flows continued for so long and now have stopped. Where high volume, high velocity channels between motivated buyers and sellers are available, flows are predisposed to persist. Ukraine consumed Russian gas (as did Moldova). Ukraine also earned close to $1 billion in annual transit fees. But as so often happens, “carrier” complications — as in an existential Russian military threat — finally combined to curtail and then terminate midstream flows. Downstream and upstream disruption/ destruction certainly happens (and can quickly devastate network flows), but midstream constraints are more common and can be just as profound.