The Underlying Problem

While I’m not fully persuaded that the underlying problem that the author calls out is pointing a finger in the right direction, I found a number of aspects of Eric R. Byer’s post at RealClearPolicy on skyrocketing costs in ocean carrier service interesting. Here’s a sample:

Companies are seeing skyrocketing freight prices and increasing detention and demurrage fees. The spot price for a container from Asia to the west cost of the United States is up by 454% so far this year, and to the east coast, rates are up by 404%. On top of this, ocean carriers have levied exorbitant fees on customers for containers they are physically unable to retrieve from the ports due to congestion, labor shortages, and limited port hours. Severe weather, antiquated port infrastructure, as well as railroad and ocean shipping mergers and consolidations have also worsened the situation.

He then generalizes the issue:

To be clear, what we’re now facing is nothing short of a complete breakdown of the U.S. supply chain. Across the country, hospitals and water treatment facilities are running out of liquid oxygen — which is used in everything from purifying drinking water to treating COVID-19 patients. Failure of a water system to provide drinking water to the community it serves would have cascading impacts, potentially including shutting down hospitals.

but while this is interesting:

Chemical distributors are also having trouble importing lactic acid, a compound used in medical devices such as pins and sutures; glycerin, an essential ingredient in antibiotic products and hand sanitizers; as well as citric acid, an active ingredient in nearly every cleaning product in your bathroom as well as most of the drinks on the shelf of your grocery store.

That last caught my attention. The total revenue represented by our total imports of lactic acid and citric acid is less than $150 million per year—that’s a, shall we say, spit in the ocean in the total scheme of things, but lactic acid and citric acid are used in so many products the cascade effects could be substantial. I was curious, however. Why are we importing either one? We actually export both of those substances and could be producing a lot more. Why are we importing them and who are the suppliers?

As it turns out we import citric acid from Canada and China (in that order) and we import much of what lactic acid we import from the Netherlands. Why are we importing? In the case of citric acid both Canada and China are dumping it on the U. S. market, something we have allowed to go on for years with all sorts of products. We can’t afford to take a blind eye to those activities any more.

In the case of lactic acid our major supplier is the Netherlands (the Netherlands!) and to the best of my ability to discover the imports seem to be an arbitrage matter as anything else.

The one thing of which I’m confident is that in dealing with commodities like citric acid or lactic acid low labor costs aren’t the reason for the imports. There is relatively little labor involved in production. It probably isn’t the cost of the raw materials, either. There are cases in which the raw materials for producing lactic acid are exported and then re-imported as lactic acid which sounds pretty perverse to me. Again, why are we importing these materials?

There is no such thing as an environmentally-friendly container ship and, frankly, I doubt that such a development is likely. The real solution is a supply chain much less dependent on long range transport. Now that we know it’s a risk we should be onshoring the production of a lot of those materials.

Mr Byer attributes the rising prices of transport to “ocean carrier greed”. I would need more data to support that explanation. Have the carriers’ costs risen? Or are they engaging in profiteering of the sort that goes on during many disasters? While distasteful and painful such behavior is not entirely malignant. It’s called “rationing by price” and sometimes it’s the best way of allocating scarce resources.