Planet Money - Two Indicators: Clogged Ports And Corporate Vets

Episode Date: July 7, 2021

We bring you two stories from The Indicator on two industries that are undergoing rapid change: vets and container shipping. | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

NPR. We are in a really wild moment in the economy right now. So many things are changing so fast. And it can be really hard to know which of these changes are permanent and which of these changes are temporary. Things that will just go back to the way they were before COVID. Hello and welcome to Planet Money. I'm Stacey Vanek-Smith. I am the host of Planet Money's daily podcast, The Indicator, where every day we take a slice of the economy

and explain it in 10 minutes or less. Today on the show, we have two stories from The Indicator about massive shifts we've seen in a couple of different industries that have been around for a long time. First up, we will take a look at the fleet of ships that are idling in the waters off the West Coast, waiting weeks to be able to unload. They're carrying things like our sneakers and our laptops. And it's not just the Suez traffic jam that's to blame. We talk to the Coast Guard and get up close to find out if the delays

and the rising costs these delays are causing are temporary or if they're the new normal. Also, we take a look at another business that is undergoing rapid change, the business of our pets, specifically the doctors of our pets. That's all coming up after the break. Our first story comes to us from Greg Rosalski, who writes our Planet Money newsletter. Our first story comes to us from Greg Rosalski, who writes our Planet Money newsletter. About 30 miles north of Seattle on the Puget Sound, there's this lovely little place called Whidbey Island. Most days, the tranquil sounds of rolling waves and chirping birds make it a quiet escape from the hustle and bustle of the city.

That sounds lovely. It's like it's like a visitor's brochure. These days, though, Greg, from what I understand, things are not so serene there. Residents have been complaining about this ruckus created by these humongous container ships that are anchored off the shore of the island. Scott Chaplin is the mayor of a town called Langley. I've been on the island on and off since 2008, and I never recall seeing them there except for maybe one last year. And this year, it's almost, I think since for the last few months, I've never not seen one. It's rare for these massive container ships to anchor near Whidbey Island. In fact, it's rare for them to anchor at all anywhere on the Puget Sound. Normally, they just pull right up to the port and start unloading their cargo. But the Puget Sound is chock full of container ships right now,

and they're like anchored all over the place. And these ships are enormous. They can be the length of multiple football fields, several stories high, stacked with metal containers from Costco, Apple, you name it. They can also make a lot of noise at night, which has many Whidbey Islanders kind of cranky. They're absolutely huge. They're so tall that they appear from the shore taller than the islands behind them. So they sort of block the view of the islands behind them. So what's going on? Why are there all these container ships at Whidbey Island? Well, the island is getting a front row seat to a huge surge in demand for imports. Imports that mostly come from East Asia through West Coast ports. Today on the show, we tell the story of how the ports got so clogged and what it means for the economy. Also,

the very serious story of Greg not being able to get the bike he wants. Please help me. In the early days of the pandemic, global trade just tanked. It was decimated. The decline of shipping was so dramatic that American scientists saw this like once in a lifetime opportunity to study what happened to whales in the absence of a constant deluge of vessels. And Stacey, I got to say, I actually read the study recently, probably because I have too much time on my hands. And it said that the noise the ships make stresses the whales out. that the noise the ships make stresses the whales out. And I immediately thought about those poor residents on Whidbey Island who are also getting stressed out

by the noise of ships. Oh, and it is not just Whidbey Island that is seeing a traffic jam of massive container ships. It is all up and down the West Coast. In the San Francisco Bay, the traffic jams have gotten so bad that the U.S. Coast Guard has been telling ships not to come into the bay at all. Robert Blumarth, he oversees vessel traffic for the Coast Guard

in San Francisco, and he says ships have been waiting for days, sometimes over a week, just to come in and drop off their cargo. It's completely abnormal. We've never had a situation since I've been here where ships have had to wait offshore. Lars Jensen is the CEO at Vespucci Maritime, and he spent 20 years studying the global container shipping industry. It is at least in a state of chaos that I don't think it has been in ever since it was invented in 1956. So 1956 was the year that the first container ship set sail from Newark, New Jersey. And it kind of might be hard to fathom like why that's actually a big deal. I mean, it's just like a ship with containers on it.

I mean, literally metal boxes. But these metal boxes enabled ships to carry dramatically more cargo. And by standardizing shipping practices and using new machines to handle the boxes, in shipping practices and using new machines to handle the boxes, shippers were able to dramatically slash the costs and the time it takes to load, unload, and transport the cargo in the metal boxes. Economists credit these metal boxes with increasing the efficiency of shipping so much that it stitched together the global economy more than anything before it. Literally like more than all free trade agreements put

together. Behold the power of the container. I can't contain myself. But now that the ports are so clogged and backed up, it's making it more difficult for stores to restock their shelves, manufacturers, car makers, and builders to get the parts they need, and farmers to export their produce. And not to be too self-centered here, but it's also been making it really hard for me to get the parts they need, and farmers to export their produce. And not to be too self-centered here, but it's also been making it really hard for me to get a bike. Like, I go to this bike shop and they tell me the earliest they can get me this bike is 2022. Wow. Seriously, 2022, next year. That's a long wait.

It really is. And because I'm a professional, I complained about this to Robert at the Coast Guard in San Francisco. I understand where you're coming from. I ordered a new specialized bike in February and they said I might not see it until next February. So now I'm waiting and waiting. Wait, so you don't have any special connections? No. Here you are at the port?

Come on. Unfortunately, I do not. All right. Well, you know, it was worth a try. But the real question is, how did we get here? So at the beginning of the pandemic, shipping companies started canceling their trips and docking their giant ships. Then the economy rebounded and American consumers unleashed this tidal wave of demand that swept through the country and the shipping industry because they started shifting their spending patterns from like services and haircuts and vacations to stuff like patio furniture, outdoor grills, big TV sets, electronics. New bikes.

Bikes. Stuff that largely comes from China on container ships. So we've had this like historic surge of demand for imports. And at the same time, the pandemic has slowed down the industry's ability to handle all this new cargo, not just at the ports, but, you know, at railroads, warehouses, distribution centers, basically everywhere. Containers have been piling up at dockyards and trains and trucks have been struggling to get them out fast enough. And then, just to make things that much worse, this March, the Ever Given, one of the largest container ships in the world, got stuck sideways in the Suez Canal in Egypt.

That blockage, of course, added greatly to the global shortage of ships and containers and clogged everything up even more. As if that wasn't enough, a few weeks ago, there was a COVID-19 outbreak at a major port in South China. Lars Jensen, the shipping expert, says that stranded even more ships and containers out at sea and led to another clusterfest in China. Right now, we are at a point where there is very literally not enough capacity. There are not enough ships. There are not enough containers to move all the cargo we want to move. With so much shipping capacity bogged down, importers and exporters have been competing for scarce containers and vessels and bidding up the price of shipping. The cost of

shipping a container from China or East Asia to the West Coast has tripled since 2019. These rising shipping costs are contributing to the inflation we keep hearing about. Inflation, of course, is rising prices. And when it costs more to ship stuff, you know, some of that cost gets passed on to consumers. On top of that, all the clogs at the ports are creating shortages and supply chain disruptions. And with demand really high and supply low or unreliable, that can also lead to price increases. As far as when it might get better, everyone we spoke to said probably not anytime soon. The crazy part of all this is that it's not even considered peak season for the shipping industry yet.

That typically starts in August when American stores start building up their inventories for the back- yet. That typically starts in August, when American stores start building up their inventories for the back-to-school and holiday seasons. Stacey, I guess the residents of Whidbey Island are going to have to deal with the nuisance of humongous container ships for at least the foreseeable future. As will the whales, Greg. As will the whales. Not the whales. That is Greg Rosalski, who writes the Planet Money newsletter. If you want more stories like these once a week in your inbox,

you can subscribe to that newsletter at npr.org slash planetmoneynewsletter. After the break, another story of an industry experiencing some big changes. Hint, one of these changes' name is gizmo. big changes. Hint, one of these changes' name is gizmo. In part two of today's episode, we talk about another part of the economy experiencing some massive changes, the veterinarian industry. Sally Herships brought this one to our attention. Gizmo is a flying squirrel. He lives in Marshalltown, Iowa, and recently Gizmo had to pay a visit to his vet. Grant Jacobson is Gizmo's vet. What was wrong with Gizmo? Well, he was a little less thrilled. He was here for a neuter surgery, so nothing wrong with him, but he might have had a

grudge had he known what was going on. What was that in the background? There's, oh, a dog, I'm sure, howling. Oh, okay. We've had, yeah. Just a six-minute drive away from Grant is another vet. So Gizmo has choices. But there is a backstory here because Grant worked for that other vet for 19 years. He says he was planning to buy the practice. It was kind of understood, in fact, that that would happen.

But then he started hearing these things from the owner that made him suspicious. Hey, there's going to be these people. They're from one of the corporations. They're doing a practice evaluation. You know, I'm not really planning to sell to them, but I want to find out what the place is worth. The suits showed up. You can see where this is going. Grant got beat out. He says those corporate visitors offered a million dollars more for the practice than he could afford. And he was not feeling happy about this.

Well, I mean, disappointing would be an understatement, that's for sure. The corporation that beat Grant's bid is Mars, the giant international chocolate company that makes M&Ms and Twix bars and has locations around the world. And this trend, it is all over. Corporate and even private equity money from everywhere from Goldman Sachs to Mars to JAB Holdings, which is the parent company of Krispy Kreme, has been pouring into the vet industry. Today on the show, when and why giant corporations started investing in health care for our gerbils and our dogs and our cats, and how all that corporate cash can impact independent vets like Grant. Not everybody is an animal lover. What? I know, I know. But for the 63.4 million Americans who own dogs,

the 42.7 million Americans who own cats, and of course, we can't overlook the owners of fish, birds, reptiles, horses, flying squirrels. For all of those pet owners, their love translates directly into dollar signs. You know, I have clients referring to their dogs as their children's siblings and their parents as their dogs or cats' grandparents. Dr. Medelier is a vet, and she sees this kind of spending firsthand all the time. Last year in the U.S., spending in the veterinary care market totaled $31 billion. Today, we spend more than double what we did a decade ago on our pets. And gosh, buying toys. Oh, thousands of dollars on

clothes. You know, people will redo their houses. What? Yeah, they'll build catteries outside. I'm actually going to do this. I don't even know what a cattery is. Stacey, you told me you were a cat lover. I doubt right now. People who will remortgage houses for some of these vet bills are $20,000, $30,000 if you're going to get a hip replaced, if you've had major operations. You've had clients who've remortgaged their houses? Yes. How are you going to, $30,000? Where are you going to get that money from? But it did not used to be this way. And I know

this may shock some pet owners out there, but when Medelger was a kid, a lot of animals were kept outside the house. Maybe you took them to the vet a few times a year. So when did we start spending $30,000 on surgery for our pets? Mike Dix was chief economist for the American Medical Veterinary Association, and now he's a consultant for vets. I teach veterinarians to ask clients one set of questions because it's very important. Where does your pet sleep? Four options. It sleeps outside.

It sleeps in the garage. It sleeps in the house. It sleeps in my bedroom. Mike says where our pets sleep illustrate this one huge shift that occurred, an invention which completely changed the way we interacted with and spend on our pets. the way we interacted with and spend on our pets. Oh, that human-animal bond thing really, really took off in the late 80s as parasiticides came on and we were able to keep those dogs in the house. Parasiticides?

Oh, sorry. Things that kill fleas and ticks. I mean, you know, love has its limits, right? Like, I love you, but do I love you enough to get fleas? That's a whole other level of love. And the more people are inside with those pets, the more they notice things. They notice the dog's itching or it's rubbing its eyes or it's dragging its butt on the floor, whatever. According to the American Pet Products Association, last year we spent over a record-setting $100 billion on our pets for food and treats and vets. So since the 80s and 90s, this spending has been increasingly catching the eye of corporations.

And veterinary practices can be seen as a reliable investment. It's got low overhead. It's not like you have to build a factory or create a production line. I wrote to Mars. I wrote to Mars. I wanted to know why the company invested in vets. They declined an interview. But Mars also makes pet food like pedigree and whiskers. So it just makes sense to also invest in vets. Mike says there are about 6,000 small to medium-sized vet practices and hospitals in the U.S., the kind that have at least two or three full-time vets on staff. But out of those, 5,000 of them are now owned by big corporations.

You might not know it because a lot of them like to keep that small business look and feel. But many are consolidating or even buying and flipping them. And that is having an impact on independent vets like Grant in Iowa. Vets are often in debt. They had to go to school, which is expensive. Average tuition is more than $200,000. Some vets will never be able to pay off their loans. They pay the interest and eventually the government just forgives the balance. One way to deal with servicing that debt is to become a practice owner. But you're squeezing them out, right? I mean, it was difficult for them to get in in the first place with that much debt.

But now with the corporate competition, it's almost impossible. Of course, it's always good to get a second opinion. Gary Ackerman was a vet for 20 years. Now he runs a consulting service for vets looking to sell their practices. And if that's you, you've got options. There are people visiting them. They got people calling them. They're getting emails. They're getting letters. You literally have to have your head in the sand to not be aware of what's going on there. If you're a vet who owns your own midsize practice, like three doctors and up, it is a seller's market. Gary says another reason so many corporations are interested is that over the past decade and a half, there have been all these huge leaps in technology with medicine, just like for humans.

It used to be exotic, but now you can do a total hip replacement on your chihuahua. And yet those upgrades do come with increased costs. But at the same time, he says big investors can operate more efficiently. Yeah, if you've got five practices that can access a $100,000 CT scanner, that's probably going to have better economies of scale than having to buy it for your individual practice. A lot of times, frankly, an individual practice can't afford that. Also, pretty much everyone we talked to agrees no vet went to school to get into the financial side of the business, right? They did it because they love animals. And there are still ways for vets to buy their own practices.

Like Mike, the veterinary economist, says you can buy the kind of small, single, or two-doctor practice that a big corporate buyer would not be interested in. or two-doctor practice that a big corporate buyer would not be interested in. Or also, he's developed a plan where an established vet sells off their practice over a period of like eight to 10 years to a younger employee. And back in Marshalltown, Iowa, Grant says starting his own practice, it was not what he planned, but he says business has actually been great. He's been hiring and expanding, and now he has a staff of almost 20 people. And Stacey, I know you're wondering about Gizmo the flying squirrel. I am wondering about Gizmo. How's he doing? How is Gizmo feeling, by the way? Oh, apparently okay, I guess. Yeah, I got a picture of a surgery site today. Is this normal?

Yes, this is normal. It's a scab where the surgery was. So yeah, yeah. These stories were originally reported for our daily podcast, The Indicator. If you liked what you heard, you should subscribe. These episodes were produced

by Brittany Cronin with help from Gilly Moon. They were fact-checked by Michael Ha and edited by Kate Kunkanen. This episode of Planet Money was produced by Dave Blanchard and edited by Alex Goldmark. This is NPR. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.