Blog: You, us, everyone

The stranding of the 400-meter-long and 56-meter-wide Ever Given has once again emphasized how fast the globally interconnected economy is creaking under stress.

Recently, a number of events have fragilized world trade and the well-being of humanity. The interconnectedness of today’s world is truly showcased by an incident like the stranding of a container ship.

The world economy has undergone a number of strains; first there was Covid-19, which highlighted the shortage of protective gear, medical supplies, and our limited capacity to produce vaccines (not because of lacking research results, but rather due to lacking production capacity). More recently, a severe winter-storm put refineries and other industries out of work across the Southern part of the United States. This affected polymer production and products used across all industries, including pharma and the roll-out of vaccination products.  And a few weeks later, a fire at the Renesas Electronics chip factory in northern Japan caused further disruption to a semiconductor industry already reeling from shortages. This occurred on the back of a change in consumer behavior; during lockdowns, consumers ordered more electronics (PCs, laptops, and wearable gear, amongst others) which changed the supply/demand equation in an unexpected manner.

But after all this, why do we grumble? Things are still perfectly well-orchestrated. E-commerce models that serve consumers around the world 24/7 work with perfection. Delivery models put in place by Alibaba, Noon, Zalando, and Amazon, to name just a few, rely on a complex network of shipping, haulage, logistic, and distribution companies. The system did perfectly well at its job; even during peak-time of the pandemic consumers had their deliveries, supermarkets were full with both consumer staples and discretionary goods, and there was petrol at the gas station. As of today, more than 528 million doses of vaccine have been given across the globe, and a simple dose of vaccine relies on more than 250 components that come from different countries on different continents.

However, a few things have gone wrong ever since start of Covid-19. For instance, at present, containers are in the wrong part of the globe. As result of that, shipping prices have gone up. More importantly, to cover the higher demand for oversees transport capacities, older containers were put into service and ships are loaded up to full capacity. Consequence: a number of ships on route to Los Angeles have lost between October 2020 and February 2021 about 5’000 containers. This about a quarter the number of containers loaded onto Ever Given.

How can we do better without losing its benefits?

Waterways like the Panama and Suez canals continue, more than ever, to hold grip on global commerce. Perhaps alternatives such as the new silk-road might be the opportune developments that we may welcome once the full consequences and the ripple-through effects are analyzed. Whatever is undertaken, global trade will not dissipate; it was and is part of humanity. Bringing home the production, as articulated by the former US administration, avoiding strategic connections with other countries for specific products and protocols such as for 5G, or imposing extra taxes to perused companies and societies to change to a more sustainable expansion won’t change the fact that we rely on a broad supply chain.

Reorganizing world trade

Mrs. Okonjo-Iweala, Director-General of the World Trade Organization, outlines how we are not going from globalization to “slowbalization” but rather through a period of reorganizing globalization. And I can only agree to this. Ever since 1990, global commerce has been growing at twice the rate of output because big economies such as those in China, India, and Eastern Europe were being integrated into the global economy. Now that they have been more or less absorbed, it is only natural that things slow down, but this does not mean we have reached the high-water mark.

That economies and concepts can evolve is clearly showcased by the run-up of Iraq’s invasion of Kuwait which stressed the oil market at that time. In less than a few weeks, oil prices had more than doubled. Today, given that there is a broader range of producers, consumers rely on an expanded supply chain that is more global, and such an event would be a non-event—we would not expect barrel prices to spike up by that much.

As the supply chain has its own supply chain, we believe that the IIoT, one of our favorite secular investment themes, has a bright future ahead. Technology is able to provide a workaround to nearly all issues and believing that end-consumers don’t understand the economic ramifications is wrong.

The digital world is able to trace the production progress. I remember the time when my son ordered a parka online. The sales company was able to provide him real-time access to the production cycle. Giving that kind of insight to consumers provides a highly valuable input, and this, I believe, will ultimately allow people to better understand global connectivity and will consequently allow them to consume in a more conscious manner. But for that to start, the consumer needs to be made aware of it.