Humans Are What’s Wrong with the Global Supply Chain
Most business is driven by an incentive to grow. The global supply chain follows a different narrative. Growth costs more than is affordable for the steamship line whose business it is to transport cargo, and there’s no way for these carriers to differentiate from competitors. Instead, carriers cut their costs and increase their margins.
The supply chain is broken because there are too many people who are doing too many things wrong. The result is human suffering. Businesses are deprived of the goods they sell. Communities are deprived of the food imports upon which they depend and workers are exploited. These practices are part of the history of the shipping industry. While identifying their symptoms is easy, finding root causes is difficult when the problem behaviors are taken for granted.
The most visible symptom of the ineffectual structure of shipping is criminal corruption, the type that lands an executive in prison seemingly every year; for example, the conviction of an employee of shipping line NYK with price fixing. Lacking solid data to prove price fixing is rampant, trade is structured to make it a very tempting crime because transporting cargo is a uniquely low-margin business in which the cost of growth is linear.
Customers of shipping lines aren’t encouraged to pay one particular carrier more for better offerings. Another option is for lines to improve customer experience, which could justify a carrier charging higher prices, but that means hiring workers. A carrier is likely to differentiate by lowering prices with lower interest rates on financing of new ships and loans that insure cargo.
Shipping lines will try to negotiate with banks for better interest rates, but this requires them to promise a certain volume of business to support the number of ships the bank is financing. Some lines are fortunate enough to be headquartered in countries that subsidize their business, giving them an edge over competitors. Lines that fail to secure good rates or subsidies have to consider other means to either increase margins. They can spend less on labor, which can easily lead to exploitation; an example of this is labor abuses in the Thai fishing industry.
Limited opportunity to differentiate and charge more is one reason margins are tight for shipping lines. Another is that adding a new line of business is expensive. In most industries, expansion becomes cost-effective over time, but not for carriers. Each new shipping line requires as many workers as established lines, so to start running a new ship between ports is as expensive as founding an entire new carrier company. This deters shipping lines from expanding and working with more customers, reinforcing their focus on increasing margins by lowering costs.
Examining the Root Cause
This problem of restricted expansion is where you understand that people are the problem. Too many workers are needed to keep things running because too much work is required for basic tasks. The average shipment with French carrier CMA CGM entails 22 booking changes before it’s booked to be transported.
Instead of a customer filling out a form online that automatically transfers information to every electronic location where it needs to be, workers physically copy and paste addresses from incoming orders to outgoing directions for laborers handling the physical cargo. Invoice errors are inevitable in this process, leading to billing disputes. The typical shipper loses $50,000 to $150,000 a year from invoice mistakes by carriers, according to one auditor. The ramifications of an error can be even more costly. If a dispute means a grain import doesn’t dock and unload, people aren’t eating.
As much attention as we pay to exploitative labor practices in palm oil production and brick making, we rarely look at the expenses that might incentivize these tragic systems. We bemoan world hunger and the irony of food waste, but we rarely look at why more food isn’t transported. The incentive and why is our broken global supply chain, and the problem is people. Automating shipping would lead to fewer errors and workers, which could lower transportation costs and allow for more cargo to be transported. Until shipping is automated, it will be glutted with people performing minute, redundant tasks, with a high propensity for error.