Catching up on the global supply chain with Dr. Walter Kemmsies

万博2.0app下载集团新闻编辑杰夫·伯曼最近陷入with global trade economist Dr. Walter Kemmsies, president of The Kemmsies Group, a provider of industrial and logistics real estate brokerage and consulting services. Kemmsies provided Berman with a wide-ranging overview of various aspects of the global supply chain, including: the Russia-Ukraine conflict; how to deal with China, supply chain operations, and oil and fuel prices, among others. Their conversation follows below.

LM:How do you view the current state of things on a global basis, as they relate to the global supply chain?

Walter Kemmsies:For strategic reasons, the U.S. is dealing with both Russia and China. We have always been very accommodative to Japan, Korea, Hong Kong, Taiwan and other places because that kind of just kept the very large underdeveloped and unstable Russian and Chinese regimes in place.

And to get all that cargo into the U.S., you had to go through the West Coast from Vancouver and all the way down to Los Angeles and Long Beach. Whether or not it is that rush, or fire hose, to not just serve the West Coast but the rest of the country is going to continue is a good question. I personally think it will continue but with less and less China involved.

LM:How come?

Kemmsies:中国的问题是,它证明了itself to be just as untrustworthy as we thought it was 50 years ago. They don’t deliver on any promises and still have these strange notions of taking over the world, I don't know how else, to put it. This has been pointed out by the previous administration and also by both political parties in the U.S.

The West Coast is expensive to get goods through, because there is scarce capacity that has to get allocated. And you know it's the West Coast that has done very well and has tremendous operations, if you look at the volumes that come through. At some point, some of the users of the West Coast don’t have to be users of the West Coast and will pull away; you are seeing that already.

LM:In what ways?

Kemmsies: We have seen major retailers announce they are building 500,000 square-feet to 1.5 million square-feet and in one case up to 4 million square-feet in the Northeast, and also along the Southeast and the Gulf Coast. A lot of these companies are asked by Wall Street analysts—the same ones that talk companies into developing unstable supply chains in the hope for just-in-time (JIT) operations and all of that. And now they are looking to see if companies are doing things on a just-in-case (JIC) basis. So, the analysts always trying to find some kind of an angle to beat on, and right now everybody is fixated on how do you prevent this from happening again.

What is good here is that we are not seeing irrational changes in the way supply chains are operated, but we are seeing a lot of rational behavior. And what that means is to follow the example set by some retailers a few decades ago. Target was probably the first major retailer to engage in a four or five corners strategy: bring your goods and through as many options, as you can and minimize the redundancy but accept the fact that you know redundancy is cheap insurance for when things go wrong. I think that was established by Rick Gabrielson [former Target Senior Director of International Transportation] many years ago has been terrific for the company all the way to today

I think we are going to see more of that. I have noticed retailers are opening up these big buildings in port cities on the eastern gulf coast and that will continue. Part of this has got to impact the calculus of the labor unions and terminal operators on the west coast—they have the best and fastest way to get cargo from Asia into the Midwest, but that advantage is getting eroded by higher and higher costs and by non-market costs such as the attempts to reduce the environmental impact of the freight system. I think there are more jobs available in the stevedoring industry than there are stevodores available to work in the industry, but we always hear this worry that the jobs will go away and I just don’t see how that could happen. So, maybe some of the guys on the workers side realized that if they can work together with the terminal operators and if we could have respect for the public sector, the private sector, and labor and use that to create some type of sustainable self-sustaining cycle that would be good but so far, we have only heard aggressive language and it does not have to be that way.

LM:这意味着从一个工作吗s and labor perspective?

Kemmsies:Automation if done properly does replace some human activity, not completely and it opens the door for other activity so jobs are created by technology and jobs are created by automation and making sure that those jobs are available to those who are doing less of those activities and more of those activities. That should be the name of the game, but there is this irrational fear that the jobs will be eliminated completely—right now the automation should really be focused on improving labor productivity and that would allow labor to do a wider range of things and the more productive labor is the higher salaries can be on an economically sustainable basis, but we are not hearing that debate and that is a shame

LM:Shifting gears to the Russia-Ukraine conflict. How do you view it, from a supply chain and logistics perspective?

Kemmsies:One thing you need to ask yourself is: why now? Why not ten, three or five years ago or five years from now? To me, that is one thing I don’t understand; it may be the case that with the world, with Europe and North America pushing so hard to get away from carbon sources of fuel, specifically oil and gas, that this really does threaten the Russian economy. When I was an economist and had to go out and forecast GDP for the top 50 economies in the world, we used to look at the correlation of country GDP to certain things like oil prices

如果我们要相信,计量经济学dels for Russia or for Canada, we would look at our forecast for oil prices to see if they correspond to GDP growth rates that the big statistical models put out, and I believe that almost every economist out there—when they find a disagreement between their detailed analyses and what the oil price forecast says that they do what I did—ditch the other forecast and go with what the oil price says.

There is a correlation: the higher the oil prices, the higher the GDP growth in Canada and the higher the growth in Russia. We could go into all of the arguments of why that may be the case, but if you think about it for a few minutes you can see why that makes so much sense.

But now, what happens if the world does not use oil anymore? Russia is one of the world’s largest growth supplier….then what do you do? It has other resources it could sell but would really need to change the structure of the economy to rely more on other things than oil or they could try to open up and become a democracy and a market-oriented economy.

There are huge amounts of physical and intellectual capital in Russia, and it could be a great economy but trying to hold on to the past and selling oil and coal and all of that is, I am sorry, “oh so 19th century.” And, unfortunately, the leadership in Russia has a lot of people that want to go back to coal and trains and the old ways and they are kind of an anachronism.

最大的问题是:美国将会发生什么and how the Russia Ukraine situation plays out? If it is resolved in a good way where we don’t have to deal with Putin and his gang of folks anymore who support him that would be kind of a good way. the world could help Russia move towards a non-carbon very wealthy nation because of all of the capital it has invested in over the last 100 years or so. The other way this can end is in some kind of permanent isolation of Russia, meaning ten or more years, maybe 20…or Russia gets completely isolated or hangs on to a few countries and threatens with its nuclear [threats], in which case the world ring fences in the Russianj economy and it slowly chokes. How bad would that be for us? The quicker we get away from oil, the sooner. It is not bad at all for the rest of the world.

LM:In what ways?

Kemmsies:There is not much that Russia imports and exports when it comes to modern economic equipment and materials, and we can switch that very easily to other parts of Europe, if not to South America, and I believe that is happening already. A lot of those companies can train workers in Africa, South America and other parts of Asia and basically put Russia into a very bad situation, and that is where I get a little nervous.

Let’s say it gets so bad they get rid of Putin and bring in a Putin 2.0 type that thinks he will take over the world and are a big pain in the neck because they have this nuclear arsenal. You could end up going through wave after wave of that. But the more likely outcome is Russia turns Ukraine into another Afghanistan like it had before and everything pulls away from them and Russia remains a pain in the neck. If wrong—and I hope I am—the world will come out of this in a much better place. But we have to plan on this dictator staying around too long and doing too much damage, so the smart thing is to get the hell out of the way and that is what I think supply chains will do globally.

LM:With goods spending seeing a mild decline, due to inflation and more consumers spending on services, what does that mean for supply chains, in terms of operations and processes?

Kemmsies:With things returning to normal, the big question becomes what happens to all of the boxes and containers….because if you look at the big surge in volumes at the ports, it was on the import side. And when you look at which importers, it was the retailers, as non-retail includes milk, gasoline and cars and things like that and that stuff does not come here in boxes usually. When you look at data for retail sales that surged, it looks to me like we peaked in November and December, and I am betting hard that the January retailer sales was much lower and February also and I think we will continue to trip down towards normal levels.

Retailer inventories are no longer at 2015 levels, and they are back to where they were in 2020. The only problem is retailer sales are well above where they were in 2020 so you still have a very low inventory-to-sales ratio.

There is still empty space on shelves, because we have not completely restocked things. If you could have measured how empty the shelves were a year ago compared to six months ago versus now, I believe you would find that we are finally beginning to see the shelves stocked.

LM:Where do things go from here?

Kemmsies:It means we will definitely see a freight recession. This is what happened in 2016, when you had transportation executives, notably from the railroads say “I have never seen a decline in rail ton miles without there being an economic recession.” And people like me then say there is no reason to believe a decline in ton miles for railroads indicates that there was a recession.

LM:How come?

Kemmsies:After what happened on the West Coast, which forced a lot of cargo to go to the East Coast and then run via truck or train to wherever it had to go in the first place.. .so, in 2015, we had run up a lot of excess ton miles in order to get stuff where it had to go, because the West Coast was difficult to get through. If I am wrong, it will be because everyone has to flee the West Coast due to the contract negotiations. The last time the West Coast lost a lot of business to the East Coast a lot of cargo owners were using the joint venture container terminals that the ocean carriers want the cargo to go to. You don’t find those joint ventures on the Gulf and East coasts as numerous as you do on the West Coast.

You don’t have ocean carriers telling you the East and Gulf Coasts are not as good as the West Coast for service, because a lot of people found out in 2015 and 2016 that the East Coast was pretty darn good at what it did

So, you create too much of a fracas right now, when companies are already being asked by Wall Street: what is your strategy to prevent this supply chain problem again? This would not be the right time to extend the chaos caused by Covid. To have non-market forces throw us off things is not good for anybody. The East Coast might say “yeah we will get some more volume, but if you want a strong economy you need the West Coast to be strong, too.”