On supply-chains

Workers of the world unite; you have nothing to lose but your chains.

Karl Marx & Friedrich Engels, The Communist Manifesto

Until quite recently, many people lived their lives in blissful ignorance of supply-chains. Unless you happened to work in logistics, you would just order stuff and it would magically arrive. There would be things in the shops. You could go to a filling-station and there would be fuel. It all just worked.

I need hardly point out that this happy state of affairs no longer obtains throughout much of the industrialised world. Currently for the wealthier parts it is mostly an inconvenience. apart from being a major driver of inflation; it’s rather more serious in places like Sri Lanka and Lebanon and likely to get more so, especially across North Africa.

As with most things that happen, there are various factors at play. We all learn at school that the First World War was caused by the assassination of Archduke Franz Ferdinand, but the reality is that there were many, many causes of that war, and it would almost certainly have happened at some point even if Gavrilo Princip had missed. Indeed, there’s a whole academic industry devoted to studying the causes of the war.

In the present case, people tend to point at issues like Covid or Brexit or the war in Ukraine and blame the evil Chinese/EU/Russians/little men in pointy hats. It’s certainly true that the was has helped the price of oil and natural gas to rise even further, although people tend to skate over the fact that Brent crude was well over $90 a barrel even before the war, which is not exactly cheap. The Chinese lockdowns have slowed down its production for export, which is obviously bad news for those countries that no longer manufacture stuff and depend on the Chinese.

These are all shocks to the system, but the real issue is that the system itself is so rickety. It only works when a number of things happen to be the case:

• It is cheap and easy to move goods from one place to another. There have been solutions to this problem historically that didn’t rely on fossil fuels – the Chinese used to move goods by wheelbarrow, for example – but we aren’t using those solutions today, and the price of oil is quickly becoming prohibitive. A few enterprising people are beginning to try and bring back sailing-ships for freight (these guys, for example), but there’s a very long way to go.
• It is easy and convenient to take goods across national borders. This is certainly no longer the case for trade between Britain and the EU, but this issue is showing up elsewhere in various ways. India, for example, has recently decided to restrict exports of wheat.
• It is easy and convenient to pay for foreign goods. One of the interesting aspects of the war in Ukraine has been the decision to exclude Russia from the SWIFT payment system, and Russia’s subsequent demand to be paid for its goods in its own currency. This is leading more or less directly to energy shortages in Europe, where natural gas has mostly been supplied by Russia. Diesel is also an issue.
• Storage facilities are cheap and plentiful so that the system can smooth over any temporary disruptions to the flow of goods. Well, we don’t do that any more. Nowadays we prefer to use the “just in time” approach. To quote from the linked article: “…you don’t stockpile products and raw materials just in case you need them—you simply reorder products to replace those you’ve already sold.” Good luck with that. I’m particularly enjoying the word “simply” in that sentence. Again, natural gas is a case in point; with its trademark foresight, the UK government scaled back storage capacity just in time for prices to rise.
• There are people willing and able to do the work. I’m thinking here mostly of lorry-drivers, or rather of all the people who could drive lorries but have realised they’d rather do something else. Still, I guess a shortage of drivers is less of an issue if you can’t afford the diesel to fuel the lorries or get the spare parts to keep them on the road.
• End users can absorb all these extra costs. Up to a point, of course, they will, if the alternative is starving; but only up to a point. In the UK we are currently enjoying what is delicately referred to as a “cost of living crisis,” which is a polite way of saying that we are rapidly approaching that point, if we haven’t already reached it.

A major problem in any of these areas would be worrying. Seeing issues in all of them is downright scary. It’s a miracle that it still functions at all.

Of course, it doesn’t have to be like this. Indeed, there’s no way it can carry on like this. Supply-chains need to be shorter and simpler. That implies that goods will need to be produced a lot closer to where they are needed. Now this all sounds fine and dandy, but many of us are going to have to redefine the word “needed” in ways we have not been brought up to expect.

Consider food. I talk about food a lot on this blog, because it’s something we all have in common – we may not all choose to eat the same things, but we all eat something, with the possible exception of breatharians. Many parts of the industrialised world are partly or wholly dependent on food imported from elsewhere; the UK certainly falls into that category, but so is much of USA, for example. Egypt, apparently, is heavily dependent on wheat imports, a fact which would have astonished any citizen of the Roman Empire. We are all noticing the effect of the current war on supplies of sunflower oil.

So if it can’t be produced within a reasonable distance of where you are, you won’t be eating it. This is not the end of the world. People inhabited the British Isles for millennia without ever tasting a pineapple. That is actually business as usual. We have forgotten this, because we have grown up with a normality that is profoundly abnormal. At some stage the laws of physics were always going to reassert themselves, and that moment may be coming soon.

Now there is the more pressing issue of whether enough of anything can be produced within a reasonable distance of where you are. If you look at the map of the United Kingdom, you will see it is largely covered by a network of (what originally used to be) market towns about twenty miles apart. That’s a reasonable radius if you are moving goods around by horse and cart: ten miles to market, and ten miles home again. We are no longer used to thinking on that scale.

Most of us, however, are now living in cities. As an example of how cities were fed before the Industrial Revolution, let us consider eighteenth-century Paris, which had a population of about 600,000 people – pretty big for those days, nothing to write home about today. It was fed in large part by the efforts of intensive market-gardeners based around the city, many of whose techniques have been picked up and developed by today’s organic growers. There were, nevertheless, bread riots, and eventually France ended up having a revolution at least partly as a result.

This is not an encouraging precedent. Of course, not all cities had this problem; contemporary London was bigger than Paris, and managed to get by. Still, it does suggest that having the bulk of your population in big cities is not the ideal strategy. If you can’t get the food closer to the people, then you need to get the people closer to the food. The alternative won’t be pretty; some analysts are already predicting another go-round of the Arab Spring in view of the current state of the global wheat market, and food riots are not something confined to Arabs.

All this implies a major change in our practical arrangements, and not just when it comes to food. For example, according to this paper, “In recent years ore supplies [for the British iron and steel industry] have come mainly from Australia, Brazil, Canada and South Africa.” Those are pretty long supply-lines.

So far as I can tell, nobody is planning for any of this. It’s going to be a mess, and all bets are off. On an individual level, while you might be able to grow some of your own veg, you’re probably not going to mine your own coal.

I wish I had something more cheerful to say about this. The best I can do is to suggest is that maybe the wheels won’t come off this thing just yet, but it definitely resembles a clown car more than it does a BMW.

In the meantime, enjoy your pineapple.

Comments are welcome, but I do pre-moderate them to make sure they comply with the house rules.