The global supply chain has been a topic of concern and discussion for many years, but the COVID-19 pandemic has brought its fragility into sharp focus. Esteemed economist Peter Goodman's book, 'How the World Ran Out of Everything,' offers a comprehensive analysis of how the pandemic disrupted the global supply chain and its profound impact on daily life [78f678c9].
Goodman highlights the skyrocketing shipping prices, reaching levels comparable to the pandemic era when container shortages were rampant. He asserts that major corporations have manipulated their markets by restricting product supply, resulting in inflated prices and societal disparities. Goodman specifically mentions the meatpacking industry, where major companies control 85% of the capacity for meatpacking in the United States. He argues that these companies are exporting more meat than ever, sacrificing the lives of slaughterhouse workers for the profit margins of monopoly companies [78f678c9].
The disruptions caused by the pandemic have had lasting impacts on the US economy, particularly in terms of inflation. In fact, supply chain disruptions contributed to about 60% of the increase in US inflation in the two years following the outbreak of the coronavirus pandemic [78f678c9].
One of the key factors contributing to the fragility of the global supply chain is the reliance on Chinese manufacturing. China accounts for over 95% of shipping-container production, making it a dominant player in the industry. When shipping-container prices skyrocketed in 2020 and 2021, it became more profitable for shipping companies and leasing firms to send containers back to Asia as quickly as possible, resulting in a trade imbalance that negatively impacted US exports [78f678c9].
Another factor is the 'Just in Time' manufacturing model, which aims to minimize inventory costs by producing goods only when they are needed. While this model has been successful in reducing costs and improving efficiency, it also leaves the supply chain vulnerable to disruptions. The pandemic exposed the risks of relying on a system that lacks redundancy and buffers to absorb shocks [78f678c9].
The power dynamics within the shipping industry also contribute to the fragility of the global supply chain. Shipping companies hold significant control and leverage over the movement of goods, often dictating terms to manufacturers and retailers. This concentration of power can lead to exploitative practices and unfair treatment of workers [78f678c9].
The COVID-19 pandemic has forced companies to reassess their supply chain strategies and make some changes. Some companies are diversifying their manufacturing locations to reduce dependence on a single country, while others are increasing inventory levels to mitigate the risk of future disruptions. Workers in the industry are also gaining more leverage as labor shortages and increased demand for goods give them bargaining power [78f678c9].
However, the book expresses skepticism about the long-term changes to the global supply chain. It argues that the underlying forces of reliance on Chinese manufacturing and the 'Just in Time' model are deeply ingrained and difficult to overcome. The author suggests that true resilience in the supply chain will require a fundamental rethinking of these forces and a shift towards a more diversified and resilient manufacturing ecosystem [78f678c9].
The recent ransomware attack on the dealer management software system called CDK Global has highlighted the vulnerabilities of the middleman economy. Car dealerships across America have been unable to sell cars for more than a week, resulting in significant financial losses. This incident is similar to previous hacks on middlemen such as SolarWinds and Change, revealing the risks associated with relying on these intermediaries [a374940d].
The article argues that the middlemen in the economy offer little value and increase prices, making them attractive targets for hackers. It suggests that these middlemen have become systemically important critical infrastructure (SICI) and calls for a better understanding of the risks they pose. The author also criticizes the role of private equity and unaccountable behemoths in these situations, highlighting the need for regulation and accountability [a374940d].
The structure of the economy is failing due to the lack of security and the dominance of middlemen. The article proposes treating these middlemen as public utilities or regulating them to protect the public's interests. It emphasizes that the public's perception of an economy that doesn't work in their favor is a result of the tyranny of the middleman [a374940d].
Overall, the COVID-19 pandemic has exposed the fragility of the global supply chain and highlighted the need for more resilient and sustainable practices. It has brought attention to the exploitation and unseen labor behind the convenience of online shopping, as well as the power dynamics within the shipping industry. While some changes have been made in response to the pandemic, the long-term transformation of the supply chain remains a complex and challenging task [78f678c9].