Economics · Reality

All At Sea.

CMA_CGM_Benjamin_Franklin
The Benjamin Franklin, arriving at the Port of Los Angeles. The only problem is they can’t handle a vessel with ten storeys of containers. (There are 12 European ports that can, but Americans know that Europeans are behind the times.)

You see, the only negotiating handle the shipping companies had was price. After all, if you’re shipping a container, the ultimate commodity – you can put anything in them just as long as it’s safe and within the weight limits – all you can say about the thing is that it needs handling. There is literally nothing special about it.

In this situation, the shipping company was treating the shipping itself as a commodity, just like the containers they were moving.

Which is the kernel of the problem, really.

If all a company can do is tell their customers “we can be cheaper” – after all, the point of a container is that it handled in the same way by any company – there’s not a great deal a business can do when it comes to other businesses saying “we can be cheaper”. Nor does it take much intelligence, leave alone imagination to say something along the lines of “we can be cheaper”. If everybody’s moving the same stuff, if everybody’s using the intelligent sales pitch of “we can be cheaper”, you can see that cheapness is going to impact on profits pretty quickly.

Getting out of this hole would be easy, but for one very large problem. When the businesses you’re doing business with are all commodity based businesses – that is to say, they’re all shipping containers – the only thing they’re interested in is how cheap you can be.

And cheapness always comes at the expense of the worker. Either they work harder for less, get given a bigger machine so they can be more “productive” – or they get sacked. The Panamax container vessels can carry 13,000 twenty foot containers. They have a crew of around thirty. The downside is that they burn a hundred tons of fuel a day. Naturally there’s the ready excuse that this is a lot less fuel than two smaller vessels… but then, they came about because there was the handy excuse that when they were new, they used a lot less fuel than two smaller vessels. Nobody thought about how much fuel a sailing ship uses… because a sailing ship simply cannot compete in a world that demands that a ship arrive at Rotterdam on Friday 16th April.

At 3 in the afternoon. Because the trains are lined up and waiting for their cargo.

Oh, and sailing ships need more crew, too.

A boss can own a monster cargo ship, it is valuable and can be stated in his account book as an asset. He can’t do that with the wages he pays, so the less he pays out, the more he has for himself. That is “Purchase Money” in a nutshell: it’s all about me and mine and the rest of the world can fuck off.

The problem for the boss is that all the other ship owners in the world are saying “fuck off” back to him – and the customers needing containers shipped can say to the shipping companies: “which of you is the baddest, meanest, nastiest, most horrible, and cheapest?” Especially the last. When all the shipping companies are at each other’s throats, it’s pretty easy to get a better price, isn’t it?

Because the customer cares as much for the rest of the world as the shipowner.

And a crash in prices is the result.

Everybody knows that China’s exports have fallen over the last year. In fact, they’ve fallen by some 9%. Not so much, and to the docile mind of the bureaucrat, it means that freight charges must have fallen by a similar amount. Only in the world of business, nothing is linear; nothing adheres to the laws of Newton. Just because the levels of freight needing to be transported has fallen by nearly 10% doesn’t mean the charges agreed by the shipping companies have fallen by that amount.

The Shanghai Containerized Freight Index (SCFI), which tracks spot-market rates (not contractual rates) of shipping containers from Shanghai to 15 destinations around the world, dropped 3.6% for the latest reporting week to 472, after another failed price recovery. It’s down 58% from February last year, [41% from March last year].

Wolfstreet

Shipping rates for containers have fallen dramatically in the space of twelve months.
Shipping rates for containers
have fallen dramatically in the space of twelve months.

Container prices to the US continue to be higher than to Europe, European ports can handle larger ships, allowing for massive discounting compared to the US. Even so, US prices have been hammered. What’s more, as you’ve seen, it’s a problem that’s been caused by the shipping companies themselves.

Container prices to the US continue to be higher than to Europe, European ports can handle larger ships, allowing for massive discounting compared to the US. Even so, US prices have been hammered. What’s more, as you’ve seen, it’s a problem that’s been caused by the shipping companies themselves.

Purchase Money.

It’s how a business basing itself on Purchase Money is actually strangling itself with its own noose. Both customer and ship owner alike. It is a concept dreamed up by Rudolf Steiner in the 1920s to explain how failing economies led to the First World War. But then, the war didn’t solve any problems any more than the thinking behind Purchase Money does.

Because when both customer and supplier are locked in this strangle-hold where both want cheapness, there is no way out. This was the point where I took down my shingle as a marketer, and employed my talents as a writer instead. It’s what people said I did well; as a copywriter I could woo the readers with ease… my problem was that whilst my Dutch readers enjoyed my website, they only wanted the cheapest. The Dutch businessmen wanting a marketer skilled in wooing customers only wanted to say “we can be cheaper”. Which trips off the tongue easily enough but doesn’t do much for the company’s profits. Everything I stood for was what the businessman – or their customers – didn’t want: they actually wanted to tighten the noose where I had wanted to loosen it for them.

The Noose.

In future posts in this series, I will be looking at other aspects of how people strangle themselves. Some of them metaphorically, some of them literally. In all cases, it has been the result of a lack of imagination and it is this that leads people to become dependent on ever more powerful inputs. Be it a hundred tons of fuel a day, be it bloodier movies, or just a faster car.

 

Related:

Wining and Dining

P 602i Wining And DiningThere is something special to being invited to a posh restaurant by a charming, well dressed man. In a corner, there’s a piano playing some gentle jazz, along with a soft tenor sax adding to the warm, sultry feeling of a top-class restaurant. You’ve been invited by an aquaintance of yours, a friend of a friend, let’s say. This isn’t just girls who like this kind of thing, boys enjoy a decent glass of wine and a nice meal too.

After all, a well tailored suit that hugs a man’s body so neatly means that the gentleman is definitely a gentleman. His friendliness, his manner and his ability to make money mean one thing and one thing only: he’s going to make more. Which means that if you’re in on the deal, you will too.

Read more…

 

Meeting A Successful Businessman

Hitting The Wall.

A businessman who knows how to sell.
A businessman who thinks invested money was his income.

Last night I was invited to dinner by my friend, Henrik; and we met Jan, Henrik’s cousin and erstwhile business owner.

I stated to him the simple truth of economics: “The customer values your product more than you value your money; the businessman values your money more than he values his products.”

Jan asked me to shorten it, so I did: “The customer values your product more than you value your money; for you, it’s the other way around.”

But that was as far as I got with his understanding of this, I mean he heard the words all right, he just couldn’t comprehend them. It took me three minutes to realize I’d hit a wall.

By this time he was spouting on about how he’d had a factory and another two in planning.

I asked him who his best customers were, and he hadn’t a clue.

Read more…

 

How To Work With American Businessmen

88695-p507i2b-2bchinaman2bbusinessman2bshaking2bhands2bwith2ban2bamerican2bbusinessmanIn One Easy Lesson
Technology is one of those areas where price competition is at its toughest, and companies across the planet are producing equipment that is effectively the same – from diggers to supertankers. Oh, and computers of course. The result of producing all but identical equipment means there’s little choice you can make between them all, except of course, if you’re an expert. Which means most people buy either out of habit – or failing this, on price.

Read more…

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