Stephen B. Morton/AP Photo
Ship-to-shore cranes load and unload containers from a cargo ship at the Georgia Ports Authority Garden City Terminal, December 17, 2021, in Savannah, Georgia.
The global cargo shipping and logistics system fails as a network because of fragmentation and poor coordination among its multiple elements. One aspect of this failure that has gotten little attention is fragmented data.
Each link in what should be a coordinated system refuses to share real-time information with other links. Rather, everything is treated as proprietary information.
So, if Bed Bath & Beyond has ordered so many thousand dozen towels from a supplier in China, the company has no information on when the shipment left port, what ship it’s on, when it might land, when it might get to the warehouse, and when it might arrive. More importantly from a systems perspective, the government doesn’t get this information, which is essential in streamlining traffic flow.
John Porcari, the man President Biden has assigned to get things moving better at the ports, compares the global cargo shipping system to the global air traffic system. In 1978, the terms of airline competition were deregulated, but government retained responsibility for the system as a whole, via the FAA and comparable agencies in other countries.
Not only does air traffic control know the location and destination of every plane in the air or on the ground minute to minute. Data are also fully transparent to competitors. “In the airline industry,” says Porcari, “everybody knows everything—load factors, pricing, cost per seat mile—and the industry is better and more competitive for it.”
Each link in what should be a coordinated system refuses to share real-time information with other links.
But in the global system for moving cargo, nothing is transparent and proprietary information is treated as so many trade secrets. “In data terms, the supply chain system is largely flying blind,” Porcari says. “The administration has worked with industry and the ports to create newer, higher-frequency metrics that we have been sharing with the public. But to operate with greater efficiency, velocity, and resiliency, more data-sharing is needed. On an everyday basis and certainly in times of need, this deficiency of data hurts our economy and our ability to manage the supply chain.”
Porcari is about as well positioned as any public official to bring more efficiency to the global logistics system. In August, President Biden created the post of Port Envoy and persuaded Porcari to take the position. As Port Envoy, Porcari, formerly deputy secretary of transportation under President Obama, is the liaison between the DOT and the White House supply chain task force, and between the government and all the private-sector players that depend on ports. His job includes every aspect of what comes into ports on ships and every element of how the stuff goes out.
Porcari, however, has no authority to demand information. What he can do is bring private players to the table and try to persuade them that more data-sharing is in everyone’s interest.
That is certainly the case from the perspective of the system as a whole. But it may or may not be literally true in the case of an ocean shipping company trying to maximize profits by not disclosing preferential rates, or a huge player like Walmart that can negotiate special deals.
UCLA professor Miriam Posner, a supply chain expert, uses the case of Amazon. The digital behemoth, she writes in a recent article, is “not so much a retailer as a supply chain incarnate. Its advantage lies in the high speed and the low price with which it can get a set of bath towels to your door. No wonder the retailer is famously tight-lipped about its supply-chain infrastructure. Few people outside of Amazon know much about the software that Amazon uses to manage its logistics operations.”
So the supply chain system is not only inefficient generally. It reinforces monopoly power.
The links in the supply chain include the cartel of eight major ocean shipping companies; the marine terminal operators (who are not the same as the owners of the ports); the stevedores who unload the ships; the “middle mile” companies that hire truckers to take the goods to local warehouses; rail shippers; and the companies that run the final distribution centers.
For the most part, these people do not share data with each other, especially when it comes to players without the extreme concentrated market power of Amazon. Stuff simply arrives when it arrives. And that leads to gross inefficiencies that clog the entire system.
As Porcari explains, in order to make the system work efficiently, government needs to know the real-time location of containers, who has possession of the cargo, the velocity that it’s moving at, and what’s known in the industry as “dwell time”—how long it’s on a ship, in port, at a warehouse. “Ideally, we should know where cargoes are—who has possession and the velocity at which they are moving. ‘We’ does not just mean government,” Porcari adds. “Industry should have this data and they are also flying blind. This holds back their ability to drive efficiency or productivity improvements in their operations and in the system overall.”
In principle, it should be easy to assemble the data. Every container is numbered, and the ocean shipping company has a record of what’s in it and where it is headed. And there is one curious exception to industry’s right to not share data with the government. The ocean shippers have to provide precise information on what’s in every container, and when the ship plans to dock, to U.S. Customs and Border Protection, for national-security purposes.
This requirement was imposed after the attacks of September 11, 2001, in the Maritime Transportation Security Act of 2002. Requiring this information to be shared with other government agencies is technically feasible, but would require legislation.
I’ve long thought that global climate change was the ultimate refutation of the premise that markets are efficient, since markets have consistently priced carbon too low once you factor in the economic costs of degradation of the planet. But the supply chain catastrophe is an equally powerful embarrassment to the invisible hand.
In an Adam Smith world, markets would devise a way to fix this mess. But because of the fragmented self-interests of the multiple players in the chain, market logic only adds to the balkanization. The supply chain mess is a collective-action problem. And only collective action by government can create, regulate, and monitor an efficient global logistics system.
