This is 99% Invisible. I'm Roman Mars. There's an image that stuck with me from the early pandemic that I'll never forget. It's the image of dozens of cargo ships stacked high with hundreds of thousands of containers anchored off the coast of Southern California. They were all just sitting there. I remember passing them in my car and the containers were stacked almost as high as the bridge I was driving over. And then of course, there were the grocery store shelves.
It was empty of flour and olive oil. In east, I remember I really wanted bakers used for the first time in my life, but no dyes. There are also big delays for online orders on everything from furniture, bicycles, and car parts to PPE and medical supplies.
Before the pandemic, you rarely heard people use the phrase, global supply chain, the incredibly complex network of corporations, factories, and transportation companies that we depend on to make and move goods around the world. We just ordered our stuff that was often made on the other side of the planet and it came right to our front doors, sometimes within hours.
The system seemed to be just humming along smoothly in the background, but Peter Goodman, who covers economics for the New York Times, says that for decades, there have been signs that the global supply chain was actually on the brink of a meltdown. There's a guy, Oxford named Ian Golden, who predicted that a pandemic would hit the global supply chain and cause financial shocks bringing the global economy to its knees.
Peter says most of the warnings were ignored by corporate leaders and then COVID hit. The pandemic was more of a reveal than a source of distress. It was the moment where it was just inescapable that we are depending upon these jury rigged supply chains with inadequate supervision without enough regulation such that there are now some gaping vulnerabilities. For many of us, the pandemic was the first time we saw these gaping vulnerabilities in our global supply chain system.
Peter has been reporting on how long-standing problems like corporate greed, overseas manufacturing, and our appetite for cheap stuff are what made this system buckle in 2021. In his new book called How the World ran Out of Everything Inside the Global Supply Chain, Peter's written about his findings, including one invention that really shaped the supply chain system we know and don't exactly love today.
So the key innovation that allows companies to draw on suppliers around the globe is the advent of something we now take for granted, the shipping container. Before that, loading goods was the primary impediment to moving them around the globe. It was extremely dangerous work. It was extremely expensive. You had these dock workers who had spent days and days just staring at piles of stuff.
How am I going to get this side of beef into the available space on this cargo ship alongside a drum full of chemicals and a bunch of shoes and bales of hay? It's like a three-dimensional jigsaw puzzle. People would be crushed by falling crate, stuff would shift around it be damaged, stuff would get stolen because it just wasn't a standardized process.
And then in the early 1950s along comes a guy named Malcolm McClain and he figures out by eventually standardizing steel boxes that you can load at the factory with goods and then use cranes to lift them onto the backs of trucks, onto trains and onto ships. He can make it much easier to move cargo around. So what Malcolm McClain's invention allows is this seamless movement of goods from factories and now the container ship becomes an extension of the factory itself.
And there's a couple of knock on effects of this. There used to be people standing on the dock working the dock figuring out how to like load everything efficiently. This is all done by a group of people called dock workers or longshoreman. Could you talk about that? Like what impact did the rise of shipping container have on those workers?
Sure. So the shipping industry from inception has been looking to squeeze dock workers out of the equation because dock workers are a natural source of labor mobilization. They hold a gun to the head of the global economy. Right. If we don't satisfy them and pay them enough that they're willing to go do this dangerous physically demanding work, then they can withhold their labor and ships don't move and trade doesn't happen.
And so as a result, they have kind of built in pricing power and have tended to get very good deals. And so a lot of the technology that's arisen and today it's robotics and automated shipping terminals in the beginning with the shipping container is about diminishing the dependence on those human beings and squeezing them out of the cost equation.
And I have there be less friction in the system. Yeah. Yeah. So I want to ask about another innovation that you write about that drives the global supply chain. And it's not an invention like the shipping container. It's a concept created at the end of World War II called Justin time. And it was thought up as a way to help companies be more efficient. So could you sort of lay out where Justin time came from and what it was meant to do?
Justin time is this sensible idea pioneered by Toyota that instead of operating the way Ford did where it's just you know all on mass assembly make as many cars as possible. Just shove them down the throats of the sales channels and let them figure out how to sell the product make as much product as possible.
Well Toyota post-second World War is dealing with the devastation of the war. They got limited capital. They have limited development. But land in Japan because Japan tends to be very mountainous. And they say that's not going to work for us. We need to operate more the way a supermarket manages milk. In fact, Toyota executives went to the United States and not only visited Ford factories they visited supermarkets.
And they said, yeah, think like milk. The grocer needs enough milk that no customer leaves unhappy that they can't buy milk. But you don't want so much milk that some of it goes bad and you're spilling it. We needed to be delivered just in time. So Toyota takes this approach to making cars and they have their suppliers clustered, closed at hand. And they say just bring us the parts and components that we need in real time.
Right. And this approach makes Toyota wildly successful one of the most successful car companies on the planet. And then Toyota starts openly sharing its method with other automakers and then other companies that don't make cars. They also study and use this Justin time system. Can you talk about this moment when Justin time sort of reaches beyond Toyota? Sure. So you know, you go back to the 1980s when there's a lot of fear mongering in the United States about the rise of Japanese industry.
There's also a lot of admiration and Toyota is at the center of it. And suddenly every business conference you go to or you look at the cover of glossy magazines like Forchian or Forbes, you know, there are these celebrations of the Toyota production system or lean manufacturing it becomes known as and and everyone in the business consulting world and especially McKinsey is pushing the idea that lean is synonymous with efficiency with the world.
And the right kind of capitalism and lean is good. Okay. So then in the 1980s Justin time makes this leap as a kind of dominant managerial philosophy out in the larger business world where it becomes almost a pathology. There's a version to having anything in house other than what is making money right now and that idea becomes supercharged. Could you talk a little bit more about how the consulting class and corporate executives push this to its limit.
So by the dawning of what we can call financialization, which is the paramounts of shareholder interests above all combined with the rise of business consulting outfits like McKinsey has been a lot of time in the book talking about McKinsey's role. This sensible idea of Justin time becomes it's very crude imperative to just kill inventory inventory is bad. You don't want parts and warehouses. You don't want extra product and let's face it the business consultants. Their boss is the shareholder.
So everything is about making the share price go up and in this vein McKinsey pushes this idea that you know the template for corporate successes you fire lots of people you turn full time workers into part time workers so that you can employ them when you need them and you're not stuck paying them and dealing with their hassles like their family problems and sick children and their commutes you know you just pay for when they're actually needed people are inventory you know in the McKinsey.
So you can actually transfer the information and at the same time you empty out your warehouses you go Justin time you look for cheaper suppliers around the globe which increasingly means greater distance between the place you're selling your good the place you're making your good and everybody pretends that the oceans don't really exist anymore because container shipping is so cheap and it's so reliable.
It's a nexus of interest the business consultants have come up with a perfect way for the corporate executives to lower their costs and increase their profits and make their share prices go up and that means relying on containers ships and supply chains that are spaning oceans and this relying on someone else is one of the other key parts of this global supply chain namely off shoreing and the role of China.
So you talk about that ascendancy and how China fits into the global supply chain. Yeah I mean it's it's a confluence of events that play out right at the same time I mean basically China comes out of the cultural revolution in the mid 1970s this time of
the century up he will ferment violence people are poor or beleaguered and a done shall ping consolidate power in China and done shall ping reacts to the ideological up he will of the cultural revolution by essentially concluding that ideology doesn't matter what matters is national development and he institutes a bunch of market embracing reforms that brings this industrial boom to China.
And at the same time the Chinese government manages to get China into the world trade organization will crack open export markets for Chinese goods because China has become the ultimate place to make products cheaply and at scale and this serves the interests of publicly traded corporations the United States we spend a lot of money lobbying the Clinton administration.
Clinton comes into office and not even a decade later he's leading the charge to get China into the WTO because he's vacuuming up campaign contributions from American retailers and manufacturers who are eager to make use of Chinese labor to drop the cost of production.
And I become like super specialized become the factory of the world I mean you write that in 2021 Chinese companies are making something like 80% of the world's air conditioners 2 thirds of our mobile phones and this work is spread across various regions in China so that different provinces have their own specialties so how did that happen like how did China go from having all these different regional niches here and there to where the whole country is eventually dominating world markets.
Yeah so I was actually based in China from 2001 to 2006 and so I saw you know up close what unfolded after China enters the WTO and what happens is all this foreign investment pours in and individual towns become you know that's the microwave town where suddenly 40% of all the microwave ovens are made in this pair of factories and guandong province
Oh over here in Gijing province all the neckties are made here suddenly Italian necktie plants are going out of business as China takes you know 60 70% of the of the world share of making neckties and so it goes you know blue jeans t-shirts it starts small and eventually turns into electronics and of course now we know you know computing elements and so eventually China emerges as the so called factory floor to the world.
I mean if all the production is over there and you want to make something in the 21st century and you want to be remotely competitive with other people who are making stuff you either go to China or you're out of business. Coming up as the global supply chain buckled during covid one US toy maker went on a nail-biting mission to get his products on shelves and time for Christmas with that story teaches us about how the whole system broke and how to fix it after the break.
Starting in the early 2000s China began to emerge as the center of international manufacturing but when covid hit China also became the epicenter of a global supply chain crisis in his book Peter Goodman traces the chaos that meltdown created particularly for a toy company called glow that's GLO no W glow one of the countless businesses that was stuck in supply chain hell.
At the start of the pandemic glow was a relatively young company created just six years earlier by an entrepreneur named Hagen Walker. Yeah Hagen Walker is an interesting character he's a guy who graduated from Mississippi State University in Starkville Mississippi graduates with this degree in engineering has an internship at Tesla turns down a full time job because he wants to go back to his college town and start his own business.
Hagen started out making small novelty plastic cubes that lit up when you drop them in water his first customers were bartenders who use the cubes to add a little flair to their cocktails he developed that idea into light up bath toys in 2019 that innovation landed him an incredible opportunity. This turns into a deal to make floating bath toys for Sesame Street themed for Elmo and Julia a new character Sesame Street introduced around 2020 who has autism.
This Sesame Street contract was the most important deal Hagen Walker startup had ever had the goal was to have the bath toys on shelves in time for the 2021 holiday shopping season. At first Hagen planned to get all the parts he needed made domestically but he quickly learned that it was going to be incredibly expensive if not impossible to manufacture his toys in the US.
And finally somebody in Georgia says you know this is too complicated you gotta make this in China when production has moved to China you either go there or you have a hard time making stuff and so he follows the path of least resistance in late 2020 Hagen decided to get his toys made in China where he learned that some parts of the process.
But some parts of the process would be 12 times cheaper than in the US but as the pandemic spread Hagen soon found out how fragile the global supply chain really was. China is struggling to turn itself back on there are still COVID lockdowns the worst ones in Wuhan which is where COVID first emerges in early 2020 or actually late 2019.
There are shortages of all sorts of components in China is not unwilling to exercise state power and so he needs plastic to make these dolls he's told by his factory in the city of Ningboa China.
You better make the biggest order you can one shot because you're going to have a hard time finding plastic the government's having us prioritize use of plastic for things like medical devices kind of hard to argue with the logic of that like you know what do we need more ventilators or you know light up Elmo dolls.
We're afraid of the pandemic there are restrictions on on movement so this factory says we're having a hard time employing enough people we're not sure about the raw materials place the biggest order you can possibly afford so that's what Hagen does. Right and then the toys get made and and then what happens to them so when it's time to get the order shipped that's when things get really alarming that's when Hagen goes on a website called free toast think of this is like
Speedy for people who need to book shipping containers and he discovers that a journey that used to cost two thousand boxes now going to cost them twenty thousand plus and even as he's agreeing to these astronomical prices he's saying himself I cannot disappoint Sesame Street Elmo cannot be late for Christmas I will pay whatever it costs he's being told by shipping agents in Hong Kong in the Chinese city of Shenzhen in Queens in Los Angeles.
Hey sorry there's no room on the ship and it turns out you know as I discovered the book this is happening throughout. The importing world I mean even large companies like Columbia sportswear that have contracts to move certain number of containers per month or being told oh sorry no room on the ship but actually there is room on the same ship if you're willing to pay.
Expodited handling fees special pandemic searchers you know all sorts of made up names for things that amount to paying a lot more for the thing that you thought you had contracted I mean I mean this really is as if you know we showed up as consumers at you know L.A.X. Thinking we're going to get on a plan for JFK that's what says on the ticket we bought the ticket and they say to us no no we don't have space but if you pay ten times as much well we got space right now.
And otherwise you're going to keep waiting and this is what's happening to hanging into importers in general yeah okay so you write that one of the big problems manufacturers were facing with the global supply chain was. A gross miscalculation of how covid would affect demand could you think what everyone got wrong. One of the things that has happened is the people running global businesses have wildly. Flubbed the forecasting of what's supposed to happen in the pandemic.
Economists look at the fact that factories can produce not just in China but in Europe and eventually in North America and people are getting thrown out of work unemployment rates are going up and they say okay we get it this is going to be a nasty recession.
There is spending power being taken out of the economy because people are losing their jobs and as a result of that there will be less demand for all sorts of things and transportation companies say well for running a shipping carrier we're not going to need as many ships so we'll we'll park some in warm waters in Greece and just wait till the economy comes back.
A computer chip manufacturers get. Reductions in order for computer chips and so their own suppliers get reductions and so on so many goes well what actually happens as we now learn is it. It's true we're not going to offices anymore so the local sandwich shop doesn't have any business and those people are.
Are laid off but we're now stuck in home you know cooking 27 meals a day for cooped up school children and we now actually need more kitchen appliances we're not going to the office but now the bedroom is the office we need desk chairs we need more computer monitors we need iPads for the kids trampolines for the backyard we need all of this stuff and a lot of that stuff is made in China specifically so there's this surge of demand this is what hagan is leaning into it the same time he's trying to make his cubes.
Everybody's trying to make stuff and then when stuff eventually gets made the shipping industry gets overwhelmed because they've effectively mothballed some of their fleet and then they discover that makes prices skyrocket we can charge whatever we want and people are so desperate to get their.
And then the products to home markets and time for Christmas they'll pay whatever it takes oh that's actually really good yeah and this is another place where he can get snack because once his toys are made and ready to go he can't find a shipping container in China that he can use to bring them to his warehouse in Mississippi and that's because the shipping companies they're just making a killing moving factory goods from China to the west coast of the US and then sending the empty container back to China to refill as fast as possible to make the trip.
And so that's all they want to do but hagan was desperate to get his toys to the US so he just went crazy working the phones calling every agent he knew between New York and China he fired off emails he talked to factory owners until finally he gets his bad toys in a container and onto a ship bound for Southern California where there were even more supply chain issues yeah yeah for sure take the twin ports of Los Angeles and Long Beach this is the gateway for roughly 40%.
All imported goods reaching the United States by container we got dock workers sick we don't have as many working people we've got a shortage of truck drivers because truck drivers are sick and also people are stuck in these long cues the ships themselves 50 60 70 ships floating waiting for their chance to pull up at the docks because there's so much volume fewer people to move this stuff with the other end so that's the way to get the money.
The other end so the whole system just kind of buckles at once and so in mint October we're talking just like barely over a month before the holidays shopping season starts the ships with hagan's toys approach the port along beach right and the first thing that happens is this ship gets stuck in a queue for several weeks where it's just floating around off the coast of Southern California with I got an estimate roughly.
A billion dollars worth of stuff just floating there we're talking like enough hieniken to satisfy the city of San Francisco for a year enough cornhole game equipment to satisfy the whole country for months and the stuff is just floating you know in the ships surrounding hagan walkers vessel which pulls up at the docks and shipping agent he talks to in Queens New York says.
Give up on rail rail is a fiasco let me see if I can get you a long haul truck now long haul trucking is besieged by delays there supposedly truck driver shortages which is really the industry's way of describing the fact that they've downgraded this job. To such a hell of state that they can't find enough people to do this job in the minute unemployment goes down people go do something else well.
Hey Walker gets lucky they find a truck driver and the truck driver brings his container full of these Elmo dolls from Southern California to his warehouse of Mississippi time for Christmas it ends happily for hey Walker but not for everybody else. So despite all these obstacles by the skin of his teeth this works out for hagan walker but in your book he and others have discovered that maybe it's time to stop relying so heavily on China as the place where everything gets made.
And they look at other countries around Asia and beyond in order to give themselves some more resiliency but leaving China is much easier said than done so what are the obstacles with this.
So you know if you're a giant company like Walmart then sure okay we'll move a little bit of production in the India or Mexico or wherever if you're a small business like hey and Walker you know he actually comes out of the pandemic experience wanting to move some of his production out of China he's he's concerned.
About the trade war he's concerned about being vulnerable to increase shipping costs so he takes trip to Vietnam he explores moving production there he thinks about Cambodia and in the end he stays in China and he shows me an app that he uses to order raw materials since part of Ali Baba you know it's like the Amazon of China and he says look you know if I need some electronic component I can put out a request for proposal in 50.
For proposal in 15 minutes I can have a dozen bids I've got reviews of the factories that reply I can chat with people there pretty much 24 or 7 English is no problem at all said if I try to build that in Vietnam it would take me years just to find a handful of suppliers where China is set up to do this business so in the end he's decided that even though the risks are now evident the rewards are too great.
And it's risky to actually move the business somewhere else it will be very difficult for global manufacturing to break up with China you have the story where the kicker to that is is even if you do you know business with Vietnam one of their components that they need to do the thing that they're doing they also outsource that to China.
Vietnam is heavily dependent on the Chinese supply chance reality okay but still it seems like for us companies who want to build resiliency one of the lessons is what they call near showing could you talk about how some companies are pushing to move manufacturing nearer to the US yeah well companies like Walmart let's so take take Walmart for example so 15 years ago if you were a manufacturer of a retail product your hope is that you're going to be able to move the business.
So you're hoping to get on the shelves of Walmart superstar and you find a Bentonville Arkansas you have to go to them by the way it's like going to see the Pope they don't come to you you go and you wait for your appointment with the buyers representative of Walmart and they would ask you where you making this product and 15 years ago if you said anywhere other than China you had a problem because the assumption was you couldn't possibly be getting the lowest possible price could be making it most efficiently at scale well today if you go to Bentonville and you have that same conversation with Walmart where you making the most
of the product and the answer is only China you have a problem they want a backup plan and I've been writing stories about how you'll Walmart's been moving production to Mexico to Central America to India and this is all a reflection of the reality that they've discovered that you actually are leaving money on the table if you can't keep your products in stock.
Okay, so besides near shoring what are some of the lessons learned to avoid another meltdown like the one we saw during COVID like do you have a prescription for how things could be better yeah well I think I think first of all we got to have serious antitrust enforcement and we've seen some of that from from the Biden administration but there needs to be follow through I mean the fact that we have entrusted much of our productive capacity to these industries rail in particular.
Shipping another where we have de facto monopoly power able to dictate prices and manipulating the supply of their services so that we're constantly in a state of agitation about our ability to move goods that's that's just simply got to be looked at by government antitrust and enforcement authorities and then to you know realize that it was absurd to treat a factory in southern Ohio as the functionally equivalent of a factory in China that's not to demonize the factory.
And it's not to demonize globalization but to recalibrate it so that it makes you know common sense we need backup supplies and by the way just in time works better if more of our productive capacity is closer to the consumer and I think you know our own experience in the last few years when we've heard so much about the supposed labor shortages well most of the time when we dig into labor shortage is what we find or that workers have been getting a better job.
Workers have been getting a bad deal for for years they've they've lost the ability to balance their family lives in their own interests with their work in many instances people are working very very hard and are still at poverty they require government supports like food stamps just to keep themselves fed and people fed up and when there's a shock and unemployment drops and people have bargaining power they're going to demand a better deal and I think they're going to be able to do that.
And I think that you know I guess the thing I would prescribe is the realization that we've optimized the supply chain for big box retailers and we've done that in the name of you know anything that drops prices is good for consumers and anything that's good for consumers is good for society well find me the person who's only a consumer we are consumers we're workers we're parents we're children and the whole thing will work in much more stable fashion whether that's the capacity to make a ventilator in the middle of a paper.
And then we're going to have a ventilator in the middle of a pandemic or amuse ourselves with you know light up cubes whatever it is people have to get paid enough that they feel a real incentive to keep doing the thing that we would like them to do.
How do you get people to internalize the human cost of an efficient global supply chain like your book is a very humanist book like you you can sense your outrage of the Union Pacific Railroad worker who has to like camp on the side of the road now or something like this like if part of making this resilient for all of our sake and making the world a better place is putting yourself in the mind or recognizing what we're doing.
Recognizing what has been happening to the working class how do you do that like how do you build that into the values of your system I think you have to find a way at a regulatory level to diminish the incentives to just do whatever takes to make your share prices go up and some of that's antitrust you know and some of it is labor safety regulations work
play safety regulations food safety regulations but you know one of the things that I think it's most important for consumers to ask to the extent to which consumers are going to be thinking about these things where's my money going exactly I mean we like to think of ourselves as the swash buckling capitalist society we got a lot of cordial welfare in our society and a lot of it comes you know at the expense I mean the subsidy is often the safety or ability to spend time with your family
or enjoy your life or go see a doctor when you need to that's a that's a subsidy that you know as Barbara Aaron Reich once put it like what are at the end of the book you know the the working poor they're like the ultimate philanthropist they are giving us their safety their security their time so that the rest of us can get stuff that's cheap well if there's one thing I hope my book will bring home for people it's there are a lot of cost to that kind of cheapness and we all bear them because when when you're a medical device manufacturer and you're a medical department.
You're a manufacturer and you can't make a ventilator in the middle of a pandemic because you've gone so lean with your inventory or you haven't gotten enough people on hand in your factories you don't get to say well at least our share prices high nobody's buying that Peter the book is so nicely put together and entertaining until such a complete story I really appreciate I've loved reading it so thank you so much for talking with us. Thank you thank you so much.
Peter Goodman's book is called How the World ran out of everything inside the global supply chain it is a fascinating read so go check it out we talked about a ton of stuff that didn't make an into this story it's all in the book it's fantastic. 99% of what was produced this week by Christopher Johnson edited by Nina Pottock mixed by Martin Gonzalez music by Swan Rihall.
Kathy to his are executive producer Kurt Colstad is the digital director to Lenny Hall is our senior editor Taylor Cedric is our intern the rest of the team includes Chris Barube Jason Dalyone and it fits Gerald Gabriella Gladney Vivian Leia, Lashamadon, Jacob Moldenon Medina Kelly Prime Joe Rosenberg and me Roman Mars the 99% of his below go was created by Stefan Lawrence.
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