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Supply Chain Problems

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Global shortage of shipping containers highlights their importance in getting goods to Amazon warehouses, store shelves and your door in time for Christmas

The global economy depends on shipping containers. AP Photo/Seth Wenig

Anna Nagurney, University of Massachusetts Amherst

Take a look around you.

Perhaps you're snacking on a banana, sipping some coffee or sitting in front of your computer and taking a break from work to read this article. Most likely, those goods - as well as your smartphone, refrigerator and virtually every other object in your home - once were loaded onto a large container in another country and traveled thousands of miles via ships crossing the ocean before ultimately arriving at your doorstep.

Today, an estimated 90% of the world's goods are transported by sea, with 60% of that - including virtually all your imported fruits, gadgets and appliances - packed in large steel containers. The rest is mainly commodities like oil or grains that are poured directly into the hull. In total, about US$14 trillion of the world's goods spend some time inside a big metal box.

In short, without the standardized container, the global supply chain that society depends upon - and that I study - would not exist.

A recent shortage of these containers is raising costs and snarling supply chains of thousands of products across the world. The situation highlights the importance of the simple yet essential cargo containers that, from a distance, resemble Lego blocks floating on the sea.

A Roman fresco depicts a Nilotic scene with pygmies in a boat loaded with amphorae.
Ceramic containers called amphorae were often used by the Greeks and others to transfer liquids like wine as well as grains. PHAS/Universal Images Group via Getty Images

Trade before the container

Since the dawn of commerce, people have been using boxes, sacks, barrels and containers of varying sizes to transport goods over long distances. Phoenicians in 1600 B.C. Egypt ferried wood, fabrics and glass to Arabia in sacks via camel-driven caravans. And hundreds of years later, the Greeks used ancient storage containers known as amphorae to transport wine, olive oil and grain on triremes that plied the Mediterranean and neighboring seas to other ports in the region.

Even as trade grew more advanced, the process of loading and unloading as goods were transferred from one method of transportation to another remained very labor-intensive, time-consuming and costly, in part because containers came in all shapes and sizes. Containers from a ship being transferred onto a smaller rail car, for example, often had to be opened up and repacked into a boxcar.

Different-sized packages also meant space on a ship could not be effectively utilized, and also created weight and balance challenges for a vessel. And goods were more likely to experience damage from handling or theft due to exposure.

A trade revolution

The U.S. military began exploring the use of standardized small containers to more efficiently transport guns, bombs and other materiel to the front lines during World War II.

But it was not until the 1950s that American entrepreneur Malcolm McLean realized that by standardizing the size of the containers being used in global trade, loading and unloading of ships and trains could be at least partially mechanized, thereby making the transfer from one mode of transportation to another seamless. This way products could remain in their containers from the point of manufacture to delivery, resulting in reduced costs in terms of labor and potential damage.

In 1956 McLean created the standard cargo container, which is basically still the standard today. He originally built it at a length of 33 feet - soon increased to 35 - and 8 feet wide and tall.

This system dramatically reduced the cost of loading and unloading a ship. In 1956, manually loading a ship cost $5.86 per ton; the standardized container cut that cost to just 16 cents a ton. Containers also made it much easier to protect cargo from the elements or pirates, since they are made of durable steel and remain locked during transport.

The U.S. made great use of this innovation during the Vietnam War to ship supplies to soldiers, who sometimes even used the containers as shelters.

Today, the standard container size is 20 feet long, eight feet wide and nine feet tall - a size that's become known as a "20-foot-equivalent container unit," or TEU. There are actually a few different standard sizes, such as 40 feet long or a little taller, though they all have the same width. One of the key advantages is that whatever size a ship uses, they all, like Lego blocks, fit neatly together with virtually no empty spaces.

This innovation made the modern globalized world possible. The quantity of goods carried by containers soared from 102 million metric tons in 1980 to about 1.83 billion metric tons as of 2017. Most of the container traffic flows across the Pacific Ocean or between Europe and Asia.

The Ever Given cargo ship loaded with shipping containers appear stuck in the mud along the Suez Canal in March 2021
The Ever Given was stuck for almost a week in the Suez Canal. AP Photo/Mohamed Elshahed

Ships get huge

The standardization of container sizes has also led to a surge in ship size. The more containers packed on a ship, the more a shipping company can earn on each journey.

In fact, the average size of a container ship has doubled in the past 20 years alone. The largest ships sailing today are capable of hauling 24,000 containers - that's a carrying capacity equivalent to how much a freight train 44 miles long could hold. Put another way, a ship named the Globe with a capacity of 19,100 20-foot containers could haul 156 million pairs of shoes, 300 million tablet computers or 900 million cans of baked beans - in case you're feeling hungry.

The Ever Given, the ship that blocked traffic through the Suez Canal for almost a week in March 2021, has a similar capacity, 20,000 containers.

In terms of cost, imagine this: The typical pre-pandemic price of transporting a 20-foot container carrying over 20 tons of cargo from Asia to Europe was about the same as an economy ticket to fly the same journey.

Cost of success

But the growing size of ships has a cost, as the Ever Given incident showed.

Maritime shipping has grown increasingly important to global supply chains and trade, yet it was rather invisible until the logjam and blockage of the Suez Canal. As the Ever Given was traversing the narrow 120-mile canal, fierce wind gusts blew it to the bank, and its 200,000 tons of weight got it stuck in the muck.

About 12% of the world's global shipping traffic passes through this canal. At one point during the blockage, at least 369 ships were stuck waiting to pass through the canal from either side, costing an estimated $9.6 billion a day. That translates to $400 million an hour, or $6.7 million a minute.

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Ship-building companies continue to work on building ever larger container vessels, and there's little evidence this trend will stop anytime soon. Some experts forecast that ships capable of carrying loads 50% larger than the Ever Given's will be plying the open seas by 2030.

In other words, the shipping container remains more popular - and in demand - than ever.

This is an updated version of an article originally published on April 5, 2021.The Conversation

Anna Nagurney, Eugene M. Isenberg Chair in Integrative Studies, University of Massachusetts Amherst

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Should we expect the vegan revolution to be different this time around, since it is marketed as "plant-based" food?

(In which case, all plant eating animals might qualify.....)

Dr. Sylvain Charlebois thinks that this time is different.

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Chipotle depends on a more complex supply chain for its 1,900 outlets that includes scores of small, independent farmers.

That can lead to ingredient shortages and questions about food safety.

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Chipotle is fresh -- and suddenly, that's a problem.

Members of Franchise-Info weigh in on the topic.

"Made in China" can kill. in 2007, it killed Zhang Shuhong. Zhang's company was Lee Der Industrial.

"Lee Der had been an important vendor for Mattel. ... Everything began to unravel, however, after Mattel discovered lead on toys based on Dora, Elmo and other beloved characters." Secrets of the Money Lab, Chapter 6.

When Dora & Elmo were transformed from cuddly to toxic, both Mattel and Lee Der were in deep trouble.Zhang was betrayed by his supply chain - when someone added lead to the paint. The paint on those toys for American children.

At the height of the scandal, "Made in China" toys threatened 300,000 children with lead poisoning. Mattel paid over $30 million for the product recall. Zhang paid with his life, he hung himself.

Lee Der had its export license revoked - a corporate death. And the brand "Made in China" suffered badly.

Yet, Zhang was an experienced vendor, who had worked with Mattel for over 15 years.

But, as the supply chain got longer and more fragmented both Zhang and Mattel lost control over quality.

Mattel was perplexed: "They [Lee Der] understand our regulations, they understand our program, and something went wrong."

Contrast Mattel's compliance program to what Kroc, McDonald's and their meat suppliers did in the late 50's with hamburger.

Mystery Meat

In the late 50's, hamburger was mystery meat. At times, unsafe, contaminated and poisonous. "Nitrates were used to keep the meet pink, even when it had turned"

At other times, soy protein was added. Soy protein was cheaper and because the soy absorbed water, there was less shrinkage in cooking.

The only regulation in place was that anything designated as "hamburger" could not have more than 30% fat. So, meat suppliers added extra blood to meet this requirement.

Finally, beef offal could be ground up and added to the "hamburger" mix.

The Standard or Recipe

The recipe for "hamburger" was created with the help of Golden States Food Corporation, GFS.

(GFS went on to be a major supplier with McDonald's. It is now the third largest beef supplier, with revenues over $6 billion. Not a bad payday for helping create and maintain a standard.)

The Strategic Problem

The negotiating strategy of the meat suppliers at the time was this:

Agree on a price with a drive-in, independent or chain, but then lower the quality to make the deal "work economically".

Since there were no standards or recipes for hamburger, the meat purchasers always had to bargain hard on price - quality could not be bargained for.

Remember that the regulations only required that anything called "hamburger" didn't have a fat content higher than 30%.

Suppliers could not credibly commit -in advance- to delivering standard hamburger.

This hurt consumers. It hurt the drive-ins and chains. Battling over pennies left no room for paying for the costs of monitoring and controlling quality.

It was the classic chicken and egg problem. If the drive-ins could expect high quality, they could pay more because the individual monitoring costs would be less, and they could charge consumers a bit more.

But, suppliers knew that they couldn't deliver high quality hamburger because some drive-in's would adulterate it and also sell it for the higher price.

The market for quality unravelled, before it got even started.

The Solution: High Standards and Tough Compliance

To solve this strategic problem, Ed Turner and others first decided that the McDonald's standards would hold fat content to between "17 and 22.5%".

And that "hamburger" had to be "83% lean chuck "shoulder" from grass-fed cattle and 17 percent choice plates (lower rib cage) from grain-feed cattle."

Some suppliers thought they could cheat McDonald's. Since the supply chain was fragmented and local, these supplier thought McDonald's would not and could not police their standards.

"They had not counted on the intensity of McDonald's commitment to its meat standards.

Rather than leave the inspection of meat to visual inspections -the method used by the McDonald brothers and most other drive-in operators - Turner and Karos advised franchisees to have the meat routinely analyzed in labs."

Finally, McDonald's provided other simple tests for its franchisees to use, conducted surprise inspections, and kicked out suppliers who failed the standards.

They also quit "hard bargaining" on price - giving up a few pennies on the pound to the meat suppliers.

It is this type of dedication to creating and enforcing standards, in collaboration with its franchise operators and meat suppliers that made McDonald's the force it is today.

It is a good reminder of the value of franchising: the creation and maintenance of standards as a result of collaboration between buyers and sellers & without relying upon the penalties provided by government regulation.

Sources:

Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business Chapter 6- In Whom We Trust.

McDonald's: Behind The Arches Chapter 6 - Making Hamburger.

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All marketing programs have a cycle. Dates and time lines that need to be adhered to in order to make sure that the overall plan is a success. It is all about developing a program that communicates the brand messaging and develops a strong call to action.

For many of my clients, this means developing a custom marketing piece that is unique to them and speaks directly to their brand and messaging. Custom usually equates to overseas and in today's market, that still mostly means Made in China.

As I tell my clients over and over again, if you want quality, but you want it at a lower price point, time lines need to be extended. That means being able to look 90-150 days into the future depending on the project.

Now comes the tricky part. . . Chinese New Year. For those people who live on a Lunar Calendar, it comes at the same time every year. However, to those of us in North America, we need to be cognisant that the date moves and that production SHUTS DOWN for upwards of 3 weeks per year.

This is something that people out West do not seem to grasp. People travel like it's American Thanksgiving, but stay for a longer period of time. It can take them upwards of 5 days to get home and 5-7 days to get back, if they do come back. Projects that arrive at the plant less than a month before Chinese New Year can almost be guaranteed to not ship until after people come back.

This can lead to real panic for those who have not planned accordingly. We tell our clients that we should have orders to China no later than the second week of November. There are moulds to be made, proofs to be sent and signed off upon, raw materials to be ordered and time allocated for production and shipping prior to Chinese New Year.

If you are currently dealing with people who do not regularly procure from Asia, don't. They will not have the expertise to drive the process, assure product quality, make sure that proper testing is done to meet North American safety standards and have no recourse with suppliers if there is a problem.

In today's world, where everyone thinks they can just go online and procure custom projects from overseas and have them arrive on time and right, they will eventually be sadly mistaken.

Let us be your experts to help you drive your marketing process, develop custom marketing pieces that dovetail with your brand and messaging and take care of your offshore procurement and development. We have nearly 20 years experience and we are hear to Get YOU Noticed! in a positive way.

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