Lawrence Person's BattleSwarm Blog

China’s trade balance may have just hit a record on the back of resurgent exports and slowing inflation, but the favorable impact to China’s mercantlist economy was more than wiped out by the just released record PPI and resurgent CPI.

China’s National Bureau of Statistics reported that in October, CPI rose 1.5% Y/Y, higher than the 1.4% expected, and a 0.7% sequential increase from the September print; the CPI increase was evenly split between base effect and sequential growth.

At the same time factory gate, or PPI, inflation hit a fresh all time high of 13.5%, steamrolling the 12.4% consensus estimate, and rising at the fastest pace since records began in November 1995.

While the gradual increase in CPI is alarming, and the NBS said that it was affected by weather, commodities demand and costs – it was the producer price inflation that was far more alarming, soaring as a result of a tight supply of energy and resources. In reality, however, there was just one key variable – thermal coal, which as we said last month indicates that PPI will continue rising far higher, although judging by the recent sharp reversal in the price of Chinese thermal coal (if only for the time being), this may be as high as PPI gets.

Or so Beijing should hope because with the spread between PPI and CPI hitting a new all time record, virtually no Chinese companies that use commodity inputs – which in China is a vast majority – are making any profits.

DHL releases service announcements every week so shippers in their network know what to expect at ports all around the world. The most recent announcement came out today, and it shows that the situation at America’s top West Coast port complex is not improving. Here’s DHL’s summary of the port conditions at Los Angeles/Long Beach:

Ships are waiting 13-22 days to catch a berth. Currently there are 72 vessels waiting for a berthing spot. Both ports are seeing record volumes month after month and the ships at anchor are delayed an average of 4 days. Delays forcing the ships to wait at anchor are expected to continue for the remainder of the year. All terminals remain extremely congested and evaluating a reduction on their window for export cargo acceptance from four to three days. The expected spike on imports generated by the peak season and cargo pre-shipped is already here making the operation more complex. Local trucking delays have been reduced and are being closely monitored. The LAX/LGB rail operations from all terminals and the off dock ramps continues to deteriorate as demand exceeds capacity, therefore inland moves by rail can suffer considerable delays.

That’s not an encouraging description, and there has not been movement in the right direction. The waiting time and number of ships waiting have been steady for over a month now, according to DHL. If anything, they are getting slightly worse. Here’s how those estimates have changed over time:

“Port congestion has been a problem for months now, and we’ve yet to see signs of improvement.”

So, not only will you have to wait literal months for products you’ve ordered to finally make it to their destination, now it looks like you’ll be lucky if any of these things make it to your house because homeless people are stealing from unprotected parked trains.

We have covered the ocean-carrier side of this crisis (‘In Deep Ship’), and the new fee equivalent to $1m a day, and rising $1m each following day, for a 10,000 TEU vessel whose cargo is stuck in LA/LB port. However, we stressed in that report that the supply chain issue is more systematic. So, allow me to share quotes from an article exposing there is ‘No Trucking Way’ we are about to return to normal:

“Think of going to the port as going to WalMart on Black Friday, but imagine only ONE cashier for thousands of customers…Most port drivers are ‘independent contractors’, leased onto a carrier who is paying them by the load. Whether their load takes two hours, fourteen hours, or three days to complete, they get paid the same, and they have to pay 90% of their truck operating expenses…I honestly don’t understand how many of them can even afford to show up for work…In some cases they work 70 hour weeks and still end up owing money to their carrier.

So when the coastal ports started getting clogged up last spring due to the impacts of COVID on business everywhere, drivers started refusing to show up. Congestion got so bad that instead of being able to do three loads a day, they could only do one. They took a 2/3 pay cut and most of these drivers were working 12 hours a day or more…Many drivers simply quit. However, while the pickup rate for containers severely decreased, they were still being offloaded from the boats. And it’s only gotten worse…The ‘experts’ want to say we can do things like open the ports 24/7, and this problem will be over in a couple weeks. They are blowing smoke, and they know it.”

The author also points out a crippling shortage of truck chassis; warehouse workers, again due to low-pay and Covid, so unloading takes longer; and warns soon there will be less, not more truck drivers. Crucially, he bewails that ocean carriers, ports, trucking companies, warehouses, and retailers are all making great money – so won’t invest before the system collapses further. If so, this book-ends the 1980 deregulation of the US trucking industry under President Carter.

Meanwhile, Senator Manchin just said ‘No Trucking Way’ to the White House’s fiscal plans, again, which already fail to address the above logistical problems. Perhaps it’s time for US economists to study what weak, share-cropper logistics and on-off fiscal and central-bank liquidity largesse do for emerging markets’ macroeconomic and financial stability?

Indeed, Bloomberg reports: “Chinese households are encouraged to stock up on a certain amount of daily necessities, such as vegetables and meat, in preparation for the winter months, according to a notice from Ministry of Commerce aimed at ensuring supply and stabilizing prices of such items for the next few months. Major agricultural distributors are encouraged to sign long-term contracts with producers. Reserves of meat and vegetables will be released on a timely basis to replenish market supply.”

The biggest number of clearinghouse violations by far — 56 percent — are for marijuana use, according to federal data. (Amphetamine and methamphetamine violations account for 18 percent, while cocaine and various opioids account for 15 percent and 4 percent, respectively.) Some argue that because marijuana can stay in the body for up to 30 days, testing does not accurately reflect whether a person is driving while under the influence.

(Hat tip: Director Blue.)

• As Mario Loyola laid out, “The World Economic Forum rates America’s shipping-industry regulations as the most restrictive in the world, chiefly because of the Jones Act. Stifling regulations have left America with the most inefficient ports in the world. A recent review of container-port efficiency ranked the ports of Los Angeles and Long Beach below ports in Tanzania and Kenya, near the bottom of the list of 351 top ports. America’s ports are effectively third-world. The 50 most efficient ports in the world are mostly in Asia and the Middle East; none are in America.”
• Loyola continues, “Above all, it is the shortage of truck drivers that’s causing the current crisis. And why do we have that shortage? One reason, according to truck drivers, is that the restrictions on their access to ports are too onerous. The Jones Act has made that problem worse, too. The Jones Act ‘has made coast-wise shipping prohibitively costly and therefore put additional pressure on alternative inland transit such as trucks and trains,’ Lincicome writes. “In practice, this means badly needed rigs that could be servicing U.S. ports currently are instead stuck on I-95 ferrying oranges from Florida to New York.”
• Earlier this year, Heavy Duty Trucking reported that the Biden administration had imposed a tariff on truck chassis (the framework that provides the truck base that includes the wheels and axles) made in China; “chassis or sub-assemblies imported from China for the next five years will be subject to tariffs/duties that would add up to more than twice the value of the actual chassis itself.”
• Weston LaBar, executive director of the Harbor Trucking Association in California, told Heavy Duty Trucking that that, “The [U.S. International Trade Commission] really botched their decision, at a time when our industry is needing to inject more equipment, both for capacity and for folks trying to retire older equipment. Now people have to stretch out the useful life of existing equipment, which isn’t an ideal thing from a safety standpoint. And now we’ve created scarcity and increased the cost.”
• California imposed regulations requiring trucks built before a certain date to replace their engines or not operate in the state.
• Our Dominic Pino observes that the Biden administration wants to make two-man crews for freight-train engines standard, forever — no matter what technological advances occur. The unions for the train crews argue that trains are like planes and require two engineers — unlike a freight truck, which can be safely driven by one person. “As the Association of American Railroads says, plenty of other trains operate just fine with only one person at the controls. In the European Union, Australia, and New Zealand, one-person crews are the norm, and even in the U.S., passenger trains are commonly driven by one person.”

I’m exactly the sort of person who should be up-to-the-minute on what the senators from Arizona and West Virginia are doing and whether the progressives will go along and whatever else it is that has caused Congress to accomplish absolutely nothing under supposed Democratic control. But I’m not.

I’m up-to-the-minute on the price of eggs. And the cost of cans for cranberry. And the likelihood of empty shelves when I shop for all the children in my life come December.

I’m up-to-the-minute on all the big ships you can see lined up just waiting to unload at San Pedro, which is pretty far south of where we’re sitting.

Twelve dollars for a dozen eggs. At the farmers market on Sunday, I did my own survey. Three stands were $11. The rest were $12. Ten minutes ago, they cost $6.

One hundred dollars. That’s how much it cost my handyman to fuel up his truck.

They’re warning that the price of canned cranberries is going to be 50% higher this year because of the scarcity of aluminum for the cans.

Remember overnight deliveries from Amazon? Notice that all those overnight specials now take three days, and certain products are already being slated for January delivery.

everyday items have started disappearing, leaving the stores with nothing to replace them with.

Belton resident Laura Zarate said it started slowly.

She’d go to her local store to buy groceries and the store didn’t have something she needed.

Now her shopping list is getting lighter as more items move to her can’t get list.

“When I walk in, on the shelves I see they don’t have a lot of things anymore that we used to buy. They’re kind of empty sometimes. It worries me,” Zarate said.

And it should worry all of us. In a global economy that lives or dies by its dependence on consumer spending, transportation becomes a vital link in getting products to consumers through something called “the supply chain”.

The supply chain is a network of transportation that takes goods from factories to airplanes and eventually to warehouses and eventually us.

And what’s the weak link here?

“The breakdown is in the supply chain in general,” a Port of Los Angeles longshoreman said.

However, this supply chain didn’t just have weak links, it looked like a roving gang with bolt cutters tore into it.

Take Christmas for instance, those decorations that didn’t show up in August could be the only thing we get.

“The cut-off was probably about a month ago,” said a L.A. warehouse manager, talking about when most of Decembers merchandise should have been here.

But that supply chain, that network, now has holes in it and empty store shelves prove it.

What are stores doing about the supply chain problem?

Frankly, everything they can and everything they can think of because if they aren’t selling, they aren’t making any money.

Stores blame shipping companies and shipping companies blame overseas companies, who blame the shipping companies and it goes round and round until it just becomes background noise, leaving Laura Zarate, paying more for much less to buy.

People started noticing it when ships mysteriously started dropping anchor off the coast of California.

A backup caused by only so many parking spots and so many employees unloading the ships.

“Everything. Everything on paper, your shirts, your shoes, your bike, computers, air conditioner, everything. Everybody’s waiting for,” said dock workers when asked about the growing problem.

The world shutdown is the cause but experts say we added to the problem by believing stories shipping companies spun of how their super-efficient delivery system meant you didn’t need a stockpile of stuff.

“We’ve had a lot of shortages, truck drivers and high utilization of our supply chains since the pandemic started. When you put all that together plus the shift of consumer spending from more services more towards goods, which has created more demand so it’s kind of like a perfect storm really says everything that could go wrong did go wrong and all at the same time,” said Michael Bomba, Ph.D., of the G. Brint Ryan College of Business, at the University of North Texas.

He says we will soon have to address the issue of better pay for truck drivers, another by-product of shifting spending and COVID.

(Hat tip: Vance Ginn.)

How it started: How it’s going: pic.twitter.com/11fDAHZcWT

— Ramp Capital (@RampCapitalLLC) November 5, 2021

Today in Costco in SI, NY.😳 #LetsGoBrandon pic.twitter.com/jGCDh1Ytn7

— Ana María (@byANNiOtherName) October 14, 2021

Yesterday we learned President Biden thinks the supply chain issue — the nation's biggest problem — was caused by factories shutting because of COVID.

That is not even in the same zip code as the actual problem.

I hope no wars start. We have no Commander in Chief.

— Scott Adams (@ScottAdamsSays) November 7, 2021

A Saturday morning in Joe Biden’s America… pic.twitter.com/i2ppNwQ0NA

— Congressman Greg Murphy, M.D. (@RepGregMurphy) October 30, 2021