Motley Fool Hidden Gems Investing - Factory to Your Front Door: Inside the Global Supply Chain

Episode Date: January 16, 2022

At some point in their journey, 90% of the world's goods travel by ship. Ordering something on Amazon may be simple, but getting to your front door is anything but. It's a topic that Christopher Mims, technology columnist for The Wall Street Journal, covers in his book Arriving Today: From Factory to Front Door – Why Everything Has Changed About How and What We Buy. In this episode producer Ricky Mulvey talks with Mims about his book, covering topics including: - The roots of the microchip shortage - Why Uber had a difficult time disrupting the trucking industry. - What it’s like to work in an Amazon fulfillment center - How to explain the metaverse to your mom You can follow Christopher Mims on Twitter @mims. Host: Ricky Mulvey Guest: Christopher Mims Engineers: Rick Engdahl, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

So it was just absolutely bizarre to me that to this day, to get every single one of these ships into port, in every port, on the face of this earth, a harbor pilot has to risk their life every time. I'm Chris Hill, and that was Wall Street Journal technology columnist Christopher Mims. When you buy a USB charger from Amazon.com, if you're like me, you're probably not thinking about the thousands of miles the product travels to get to your front door. Today on Motley Fool Money, producer Ricky Mulvey talks with Mims about his book, Arriving Today, From Factory to Front Door, Why Everything Has Changed About How and What We Buy. It's a

conversation that pulls the curtain back on just-in-time delivery to show the roots of America's shipping crisis. They also discuss the microchip shortage and what it's really like to work in an Amazon fulfillment center. My guest today is Christopher Mims. He's a technology columnist for the Wall Street Journal and the author of Arriving Today, From Factory to Front Door, Why Everything Has Changed, about how and what we buy. Christopher, this is a book about the things we take for granted, essentially the ability to hit a button on Amazon and then have a USB charger show up to your door in in some cases less than a day is this is that was that kind of the impetus to write this book yeah I wanted to write an

explainer but of course halfway through my research the pandemic hit so it it really got bigger than that and became about how the supply chains that get us everything that we take for granted uh have really been tested and now you know in some cases have if not broken really been pushed beyond their boundaries. And of course, how that's affecting everything around us from the availability of goods to persistent inflation. And it's about this sort of entangled web of people, organizations, and ports where you saw this mix of, in some cases, very human interaction with the goods we buy. And then in some cases, a very automated, very automated systems. Can you tell me a little bit about what you saw in Vietnam and how that kind of contrasted from what we have

the ports of the United States. So the main port in Vietnam, which is the terminal I went to, is called ChiMap. It is, you know, kind of average in terms of the level of automation that it has, which means that, you know, you have lots of machines, cranes, trucks, but they're all driven by people. Now, that is still an extremely efficient system because the whole thing is overseen by this port management software, which is doing all of these really complicated things in software, like deciding when a container needs to move, how to minimize the number of touches per container as it's, you know, lifted by these, um, gantry cranes and then lifted by the really big ship to shore cranes onto a ship. Because the whole game is when a ship comes in, how do you

unload thousands of containers as quickly as possible? You know, oftentimes it's in 24 hours or less or two days or less. Um, and then how do you load the appropriate containers back onto it as quickly as possible? That's all software. So that part is very sophisticated, but it's all done by humans. So humans are being directed by the algorithm. Once that container gets to the United States, if it's going to the biggest port on the West Coast, which is LA slash Long Beach, it's two ports that are adjoined but governed by separate civic bodies, especially if it's at the port of Long Beach, but also if it's at the TRAPAC terminal at the port of Los Angeles, those are highly automated ports. So what that means is they can stuff more containers into a

smaller footprint and they can move those containers off of ships faster. And part of the reason they can do that is because they have so much more predictability because they're using so many robots, you know, which are driven by this software, which is deciding where to move containers. That allows them to schedule the trucks that come in and take the containers out of the port in a much sort of tighter way. And they and the turnaround is much faster. And that has been a major bottleneck at those ports it's not just how can we get the containers off of the ships fast enough really at this point it's how can we get them onto trucks quickly enough and that's a place where automation and robotics really helps and you know that tray pack port

for example in los angeles it's so automated that those containers once they get off of the ship that's the last time a human being's involved in moving them around until they get onto a truck so entire time that they're resident in the port, it's literally these robots, self-driving robots, moving them around, self-driving cranes, picking them up, stacking them, and rearranging them. A lot of the algorithms you describe, it's all about cutting wasted movement, but even as they get to this, the thing I kept thinking about reading your book is, even as we get these algorithms looking for wasted movement or trying to solve things like the traveling salesman problem, it still tends to be almost impossible because of the human

interaction with it or because of just life happening, essentially, as these containers move along. Yeah. A supply chain, I call it a physical internet. The problem is that there's a lot less predictability because you have things like weather. And if you're trying to move stuff on trucks, the algorithm can only predict so much. You also described some of these absurdities to it, which is you described the cod that is caught in Scotland and then filleted in China and then shipped back to Scotland. I guess my question that I'm going with that, or that I wanted to get to too, is back to Vietnam in a way, which is you see this constant shipping for packaging and for assembly. How does that play into something like microchips, where it's being

assembled someplace, packaged in Malaysia, and then shipped to the United States? microchips really embody the way that manufacturing and supply chains have become one in the same because in the old days you know in the days of ford it was like you know steel rubber fuel would go into a factory you know raw goods and then finished goods would come out the other end that doesn't happen anymore in almost any goods so with microchips especially the journey is unbelievably long i'll just i'll give you the short version because i love how improbable it is it starts with ultra pure quartz sand in appalachia of all places that is then shipped halfway around the world where it's melted down and uh and turned into like an ingot which is a

single crystal of silicon that might happen you know somewhere in australia or something that is then shipped to let's say south korea taiwan china and those ingots are sliced into wafers which are going to be uh you know shipped to a so-called fab a chip fabrication facility where you know there are hundreds sometimes thousands of individual manufacturing steps to etch the circuit into the chip then once those chips have been you know broken off of those individual wafers and tested then they're going to let's say be sent to a place like malaysia for what's called packaging that's where the chip goes into the little you know black thing with legs it makes it look like a bug that sticks it to a pcb board only then may it go to a place like foxconn in

shenzhen or somewhere in south korea where it's going to be um put into a phone uh and that involves a lot of you know human labor so that journey it's you see this individual item crisscrossing the world multiple times and the supply chain is so long that it is tremendously vulnerable to disruption because if anything goes wrong at any of those points it can impact a significant portion of the world's advanced semiconductor manufacturing and that is an extreme example but you know as you said like there are other examples too like cod being caught off the coast of scotland um shipped to china where it is filleted uh you know frozen and then shipped back to scotland where it is made into fish and chips so this is around the

world journey just to save on labor costs because traditionally at least chip shipping has been so cheap yeah i think you've mentioned that a flat screen tv is two dollars to get it to a port yes that was the case now it's 10 times that right it was you know the code because the cost of a shipping container from asia to the u.s west coast it was around 2000 you know and then it has peaked at high at as high as 20 000 in the last six months so is shipping costs the only reason for something like microchips you know one of the common questions complaints is why can't you just build the resiliency in the United States for that. You have the raw materials here. Why can't we, why hadn't that been done by a lot of these makers and manufacturers? Yeah, the short answer

is expertise and the sort of what's called the path dependence of technological innovation. But the bottom line is that, you know, the supply chains to build every little piece of every little thing you need to make a cell phone let's say that's all you know within 100 miles of shenzhen but all of those individual suppliers and there may be hundreds or thousands of them you would have to recreate that entire ecosystem inside the u.s so that's why when people say oh we should bring chip production back to the u.s great but you're only bringing back a portion of that production it's almost like you know if somebody said hey uh why can't we just you know why doesn't Canada have its own Detroit or something? Well, it's because Detroit is this

massive connected web of suppliers all feeding into the big three. So you can't reproduce that overnight. As a matter of fact, it takes like a century or if you're China and you really accelerate the process, you can leapfrog and create like the Detroit of electric vehicles, which of course they've done now. I've heard you reference in other interviews, the book Entangled Life by Merlin Sheldrake, which is a great book about fungal networks and how they affect life around us and are much more complex than we think and do things that almost seem conscious. What are some of those, as you were reading that book about fungal networks and thinking about supply chains, what are some of the similarities you saw from the natural world

in our very human world? Well, there is this discipline, which I really think deserves more attention. It's called industrial ecology. And it's, you know, can we apply what we have learned about the way that ecosystems function to the way that uh you know economies function you know like is there what is the crossover between economics and natural science because look i mean they're both sciences at the end of the day and i think that that kind of what these things have in common is that like you know the fungal networks beneath our feet on which we depend for all of our food all of our forests all of it they're massively interconnected and they are networks of trade So trees and fungus are trading sugars for micronutrients all the time, and they're using these networks to send goods to one another.

So when you look at the global human webs of trade, they're no less complicated. I mean, that's why we keep getting caught flat footed by, you know, a natural disaster or a factory shutdown in some place we've never even thought about before. Turns out to be integral to the production of a drug or smartphones or whatever. And it's because there's just this incredibly dense interconnectedness. And I think that, you know, a useful way to think about that is really to think about it in the aggregate. Like macroeconomists try to study this stuff generally by looking at top line numbers. But there is a lot of value in examining the individual networks of trade and components. And, you know, frankly, there are people who are in business schools everywhere who study

this, but they've sort of been ignored for a long time. I mean, one person I talked to said, yeah, like the operations professors here, this really is their time to shine because normally people are like, well, we don't really care. Logistics is boring. It turns out logistics is not just fascinating, but essential. And if you look at the world's biggest companies, who is the CEO of nearly the world's biggest company? Tim Cook, logistics expert. There's a reason for that.

Why is Toyota the biggest manufacturer of automobiles in the world? Logistics. So this is really the secret sauce for so many of the biggest companies. And those who can't master it just get eaten. But in some cases, it can be a life or death experience for people like harbor pilots who are taking these ships for just a few miles into the port. Yeah, I mean, that's the thing that's so remarkable about, you know, pressing buy now and getting something tomorrow is that there's so much automation, there's so much AI, but there are parts of it that are just absolutely 18th century. It's like something out of a Herman Melville novel. And one of those is the harbor pilot.

So, you know, 90% of the goods that are around you right now came to you by ship and every single one of those items to get to you in a containerized ship. At one point, um, a harbor pilot had to get on a small dinghy, a harbor boat, um, and travel out to this giant container ship that's waiting in the harbor and get onto that ship in order to navigate it into the port because it's so hard to navigate into ports. You need a specialized pilot to do that. You can't have a regular pilot.

And those pilots actually live at or near the ports that they are employed by. And in order for that harbor pilot to get onto that giant ship, they literally have to stand on the edge of their harbor pilot boat and time it just right and kind of just gingerly take a step up.

It's like almost like a little leap onto what is to this day a rope ladder and then scramble up that rope ladder to get into this giant ship that can be carrying hundreds of millions of dollars worth of goods and you know harbor pilots over the course of their careers have a 1 in 20 chance of dying on the job if they miss time that little leap or don't scramble up the rope ladder fast enough then the swell of the ocean is going to catch them and suck them under and then their survival rate is like zero so it was just absolutely bizarre to me that to this day to get every single one

of these ships into port, in every port on the face of this earth, a harbor pilot has to risk their life every time. For you to get your flat screen TV or your USB charger. And it kind of goes into this theme where supply chains now have these jobs that are intensely skilled harbor pilots, long haul truck drivers. And then you also have companies like Amazon trying to remove every piece of skill that the human needs to have to the point where you're just essentially a placeholder between robotic assembly machines. Yeah, you're the glue between the islands of automation, as people in the industry call it.

So yes, it is very polarized. And I think this is true of a lot of our labor force. And this is why I think logistics is such a powerful lens for the present and future of work, because you have so many jobs that are de-skilled, whether it's fast food or call centers or working in an Amazon fulfillment center. And then you have so many people above the API,

as they say, so many people above the automation and the algorithm, whose jobs are incredibly important and have more leverage than ever and are paid more than ever. Some of this is a product of, as you described, Taylorism and Bezosism. Yeah. Frederick Taylor, he's just like the OG of management consultants. At the beginning of the 20th century, he famously or infamously figured out all the time and motion studies and the ways to optimize the actions of people who work in factories and that sort of thing you know it happened at the same time as henry ford was figuring that out in his factory so that was really the birth of this modern industrial labor that you know gets

depicted by charlie chaplin in the movie modern times and that sort of thing and then basisism is just the modern version of all that time and motion and optimization stuff where every single action is intensely monitored by technology so if you work in an amazon fulfillment center there is a camera that is watching every single move that you make as you pluck items off of a robotic shelf and put them into a bin to be sent on their way to a customer you know they before they had cameras they actually like would uh and this is still true a lot of facilities the gun that you were scanning items with the the upc code with was you know monitoring the rate at which you were doing that and if you slow down for even just a few minutes it would beep at you and be like hey

time off task like i'm flagging you if this happens again i'm gonna warn your manager uh who is going to give you a talking to you and ultimately could fire you. So it is this very intense surveillance, which is used to optimize, you know, workers, I want to say to within an inch of their life. Amazon would take issue with that because it is a sort of floating rate at which people are pushed to work at. But the system is really designed to push people to work as hard as they can and as efficiently as possible. And of course, for some people, that's too much. And that's why Amazon has had problems with, you know, worker injuries and that sort of thing. And it fundamentally changes the relationship a worker has with their boss, which is instead of

the boss is saying, hey, I noticed this. Now the boss is at a place like an Amazon fulfillment center is just looking at the algorithm and almost reporting to the employee. Yes. So the boss gets to play the good cop in this equation and the bad cop is the algorithm, which is actually monitoring the pace at which you're working. And, you know, this is true across a lot of industries and you know you have seen it with um another example is like automated scheduling systems starbucks had trouble with this a few years ago where you know people would get scheduled for a shift late at night and then the algorithm with no human involvement would schedule them for the next shift first thing in the morning so they'd be going home you know

midnight and then coming back at 5 a.m to reopen um they got in trouble for that and changed their policies but i think it's very telling that when you look at why workers unionized at the first you know, nice Starbucks ever just happened in, I believe, Boston. It wasn't about pay. It wasn't about benefits. It's about they want more control over the conditions of their work. The same thing happens every time workers walk out at an Amazon fulfillment center. You know, workers want some agency. It's partly about dignity, but for a lot of people, it's also just that they legitimately want to be able to push back and be like, sometimes I have a bad day or sometimes the algorithm or this thing that's monitoring my work is misunderstanding what and why I'm doing,

or maybe there's some perverse incentives here, which are pushing me to, um, bump up the numbers that the algorithm is measuring, but that's not actually leading to good work outcomes. And the work becomes repetitive in a way that injures. So you talked to one Amazon worker who, I think he was there for about six weeks and then ended up getting carpal tunnel. So, I mean, I think Amazon does a very poor job of screening out people who are most likely to get injured. I mean, look, we all know that working in these facilities is difficult. It's repetitive. It's hard. You know, that's why people who work in them are called industrial athletes. you know it's the same thing as if you were going to go be a logger or work in construction but you know people above a certain age just their bodies cannot cope with the pace of work and the and the repetition of things over and over again there's also a danger you know if you do enough

repetitive work like this that you can get repetitive stress injuries that show up years or decades later and you know that was told to me by researchers academic researchers who had actually worked with Amazon, with workers in their own facilities, said, you know, we are trying to optimize workflows at Amazon to prevent injuries, even that might show up years later. And this is something where you would almost, so a company like Amazon really prides itself on Kaizen continuous improvement. If a worker sees something going wrong, they can help fix it. But you don't see that play out for something like preventing workplace injuries, would you say? No. I mean, Amazon uses continuous improvement, you know, so-called lean principles, Kaizen, Toyota production system, whatever you want to call it. They definitely use that to identify problems and kind of bottlenecks and such. But, you know, integral to the original formulation of that at Toyota was workers have a lot of agency. Workers have a so-called and-on cord next to them, which they can pull, stop the entire assembly line to be like, we have a problem right here. We need to deal with it.

You know, an Amazon worker who, you know, frankly, is, thanks to Amazon's automation, totally interchangeable and can be replaced with somebody who can be trained within a day, has a very different relationship with their employer than a lifelong, you know, assembly worker at an automotive plant in Toyota in a country like Japan, which has a totally different relationship with work and with the social safety net. So Amazon has really imported a lot of those ideas, as have other manufacturers in the U.S. But the thing that they did not import was the the agency of workers. Do you see this as like a long term risk for Amazon, which is simply the turnover is so high and they're so large that they might almost run out of people who are willing to do this work? That's a good question. You should ask the same question of, you know, Walmart or Dollar General. I think that it is obvious that, you know, Amazon now has been offering, you know, $22 an hour and a $3,000 signing bonus at some of its fulfillment centers. I mean, this is only two years after they were touting moving to a $15 wage. I believe that Amazon has to raise wages like that in order to

attract and retain workers. So, you know, does Amazon have enough money to continue to attract and retain people regardless of working conditions? Maybe. But does that affect their bottom line? Is that affecting the profitability of their retail business? I would say absolutely. So, you know, could they reorder things so that, you know, the workers were maybe working a tad slower, but in a more sustainable way and there was lower turnover. Yeah, probably. But Amazon doesn't seem to want to explore that fork of, you know, the realm of possibility. I also want to transition and talk about the trucking industry with you, which is a topic I know you're, you're, you're pretty passionate about. And the thing that, um, I was especially, or that struck me so much is that

you have a lot of companies trying to, again, automate trucking to the, um, as much as possible, you even rode on a truck that was being driven by a computer, by an algorithm. But in so many cases, this industry is driven by human relationships that many tech disruptors have found it very difficult, if not, like Uber Freight, for example, very difficult, if not impossible, to completely disrupt. Yeah, billions of dollars in investment has been poured into, hey, can't we just replace all of these agents who are assigning loads to long-haul truckers with an algorithm and just turn it into a job board or like an uber type algorithm like the way the uber's passenger service or uber eats works and the answer is no so this remains an

incredibly labor-intensive business there's a reason that the world's largest logistics company ch robinson uh based in the u.s you know this is mostly what they do is just thousands or hundreds of agents just you know connecting shippers with truckers and it is because you know carrying a load of goods it's not like just picking up a random passenger and dropping them off at a bar 15 minutes later like you know there's so much that uh needs to be considered in terms of you know what kind of a driver is this are they willing to take this load can they connect up this load with subsequent loads right like imagine that if i live on the east coast and somebody wants me to haul something all the way to middle America or the West coast. Well, I'm not going to take that

job unless you can immediately connect me with another load going the other direction. You know, these are the kinds of problems that algorithms should be able to handle, but it's, it remains just this resolutely ad hoc relationship based business, which is remarkably, um, immune to any attempts by anyone to automate it. And so, you know, it remains also a very fragmented business partly for that reason. Do you think that has to do with, um, one of the reasons it's hard to automate is the, in some way, in some cases, race to race to the bottom for, um, what truck drivers are paid to haul things. So, uh, I think one of the, uh, agents companies in your book describes how he wanted to work with Uber freight, but then the job had gotten taken away and then he'd seen

it was given to someone for a lower wage. So there's a little bit less trust with a lot of these large tech companies who want to get involved in the business. Yeah, he actually that was he was working with Amazon Logistics for a very short period. And, you know, he felt really screwed by them. And the thing is that, you know, these people have these people being small trucking companies, which is the majority of truck transportation in America. You know, they're operating on razor thin margins you know the moment that rates drop for shipping you know dozens or hundreds of these little companies get wiped out so trust is very important you know and if you are putting loads on a job board and then you take it off and give it to somebody else right

away and it's transparent that that's what you're doing like you're dead to that business and they're just not going to deal with you anymore so um yeah i think that that's absolutely true and part of the problem here is that you know trucking in america truck transportation is still relatively cheap because it was deregulated in 1981 under President Jimmy Carter. But that means that there's not a lot of resilience in the system because you have all these owner-operators and small trucking companies. It's pretty easy to get into the business. You get a loan in a truck. And as long as you have drivers with this great driving license, you can just get on the road. But there's not a lot of longevity because these little companies and these little owner-operators

get wiped out as soon as rates drop because everyone is paid by the mile. I've heard you talk about how when trucking became deregulated, a lot of the lobbying groups that represent truckers end up just looking after the largest companies, while that might not better serve the interests of the majority of those in the trucking industry. Yeah, the American Trucking Association basically represents America's largest trucking companies. In any other industry, that would mean they represented the lion's of the industry in trucking. Incredibly, that means they represent less than 20 percent of the industry. And yet they're the ones talking to Congress. They're the ones talking to the press.

They're the ones setting the agenda. They're the ones who got a provision in the in the latest big spending bill that got passed in Congress, which, you know, expands. It's a it's a sort of smallish program to expand training and licensing of long haul truck driving to 18 year olds. Previously you had to be 21, which is in their interest, right? They just, they want more people fresh out of high school to join their big trucking companies and drive for a while because there's, it's an industry with very high turnover. So they constantly need new warm bodies to be coming into it. So it's, it's not as simple as saying there's a, there's a trucking shortage because no one wants to drive a truck. Tons of people want to drive trucks. They just don't

want to keep driving trucks. I want to ask one question as we're getting to time, you've been writing a little bit about the metaverse and how difficult it is for going away from logistics and how difficult it is for companies to essentially enter it and get people to wear things on their face. But talking to a Wall Street Journal tech columnist, I'm going to see my family over the holidays. How do I explain to my mom what the metaverse is? Well, you can just tell her it's mostly nonsense for now. I mean, I would say it's the internet in 3D. Okay, perfect. My guest today is Christopher Mims. He's a technology columnist for the Wall Street Journal. He's the author of Arriving Today, From Factory to Front Door, Why Everything Has Changed, About How and What We Buy.

Christopher, where's the best place for someone to buy your book? Oh, well, I mean, ironically, of course, it's Amazon. That's all for today. Quick reminder, the stock market is closed on Monday for the MLK holiday, but coming up later this week, we've got a lot more as earnings season heats up, including the latest results from Netflix and a deep dive into financials with Jason Moser and Matt Frankel. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you on Tuesday.