Sunday Digest #21
Sunday Digest #21
Supply Chain Kerfuffle
[AI generated image]
In March 2021, the Ever Given, a 224,000-ton container ship, got stuck in the Suez Canal. It was the equivalent of an arterial blockage in the circulatory system of the global economy. The restriction forced the diversion of 364 other ships around Africa, adding two weeks and millions of extra dollars in costs to their journeys. The blockage couldn’t be more inconveniently located, with 30% of the world’s container traffic transiting the Suez Canal. Global shipping rates spiked 61% in a week. Luckily for the global economy, and the Ever Given’s captain, an armada of tug boats was able to unstick the ship.
Unfortunately for the world, a worse ocean shipping calamity has befallen us in 2024. Iran-backed Houthi rebels based in Yemen have taken to firing missiles and exploding drones at passing ships in the Bab al-Mendab Strait, a maritime choke point near the Suez Canal. Their actions are ostensibly against Israeli ships in response to the war in Gaza, but in reality, they’re firing indiscriminately.
Maritime shipping insurance policies are void if a vessel knowingly travels through pirate infested waters, so to be safe, 95% of commercial shipping has rerouted around Africa, adding weeks and millions in added costs to the shipping route.
Unlike the Ever Given mishap, this situation is unlikely to be quickly resolved. The US Navy and a coalition of allies launched Operation Prosperity Guardian in an attempt to deter the Houthis and keep the high seas safe. That effort failed. Then last Thursday, the US and a smaller group of allies launched military strikes against Houthi targets. The strike cost a half billion dollars in response to a series of missile and drone strikes that cost tens of thousands of dollars. The next day, the Houthis fired another missile at a passing ship[i].
Despite overwhelming military strength, we know how this story ends in the Middle East. Air strikes alone are unlikely to stop the Houthis, who endured nine years of war against a similarity well-armed Saudi military. The American people wisely won’t allow troops on the ground in Yemen, even if the Army had enough recruits. If they did, fighting against a scrappy insurgency didn’t go well in Iraq or Afghanistan and there’s no reason to think it would work in Yemen either. So, a military solution is unlikely.
The result will be higher shipping costs, delays, and the return of inflation. The higher shipping rates will directly impact Asia-to-Europe routes, but the stress on the global shipping system will eventually yield higher rates for everyone. About 5% of the world’s seaborne oil goes through the Bab al-Mendab Strait but due the war in Ukraine, 1-2 million barrels per day of Russian oil formerly bound for Europe has been rerouted to India and China through the Strait. So far, Russia, China, and India have not been involved in the military action against the Houthis. As this crisis goes on, it will be interesting to see what the Eastern powers do.
The long-term solution to this problem is reshoring American manufacturing so consumers aren’t beholden to far away pirates. In the near-term, the fix is ending the Gaza conflict and forging a diplomatic solution with the Houthis. The world has changed and America cannot solve every problem with the application of military force. The US is on track for this intervention to end in one of two ways, both bad. The US will either get bogged down in another Mideast quagmire. Or more likely, the world will see a lack of American credibility when it fails to follow through on the promise to stop Houthi attacks and reopen the Bab Al-Mendab Strait.
News
1 US electricity demand booms, sparking power grid stability concerns
2 Hertz to sell 20,000 electric vehicles
3 US has released more than 2.3 million migrants into US since 2021: report
4 US moon shots fail while Chinese efforts move ahead
5 Public approval of Chinese government overstated: new paper
1 US electricity demand booms, sparking power grid stability concerns
US electricity demand is booming after years of stagnation, driven by emerging technologies such as artificial intelligence and electric vehicles and prompting warnings over the stability of the power grid. Retail sales of electricity will total nearly 4bn kilowatt-hours this year, a record, the government’s energy analysis agency forecast this week. The North American Electric Reliability Corporation, a regulatory body, has sharply increased projections for peak power demand for the next decade, reversing steady or falling growth rates from previous years.
FT
2 Hertz to sell 20,000 electric vehicles
Hertz is selling about a third of its global electric-vehicle fleet, a major reversal for the rental-car company after it positioned itself as a champion of the technology with plans to vastly grow its fleet of plug-in models. Hertz said Thursday that it would sell about 20,000 EVs in the U.S., and use some of the proceeds to purchase internal-combustion-engine vehicles. The company in a regulatory filing cited weaker demand for electrics, and their higher operating costs.
WSJ
3 US has released more than 2.3 million migrants into US since 2021: report
U.S. Customs and Border Protection has released more than 2.3 million migrants into the United States at the southern border under the Biden administration, allowing in the vast majority of migrant families and some adult groups, according to a new report.
WaPo
https://www.washingtonpost.com/immigration/2024/01/06/biden-migrants-us-mexico-border/
China Watch
4 US moon shots fail while Chinese efforts move ahead
The first NASA-financed commercial mission to send a robotic spacecraft to the surface of the moon will most likely not be able to make it there.
The lunar lander, named Peregrine and built by Astrobotic Technology of Pittsburgh, encountered problems shortly after it lifted off early Monday morning from Cape Canaveral, Fla. But a failure in the lander’s propulsion system depleted its propellant and most likely ended the mission’s original lunar ambitions.
NYT
NASA delayed its upcoming Artemis II mission, the first American attempt to send people near the Moon since 1972, which had been scheduled for this year. It will now wait until 2025. A subsequent mission to land two astronauts on the Moon’s south pole was also put off.
Economist
http://espresso.economist.com/1e3572313d21c2bf591caa7d263d2f33
China is going to launch the Chang’e-6 mission and bring back rock samples from the far side of the moon. It’s a big deal and has never been done before
SCMP
5 Public approval of Chinese government overstated: new paper
Most public opinion research in China uses direct questions to measure support for the Chinese Communist Party (CCP) and government policies. These direct question surveys routinely find that over 90 per cent of Chinese citizens support the government. From this, scholars conclude that the CCP enjoys genuine legitimacy.
When respondents are asked in the form of list experiments, which confer a greater sense of anonymity, CCP support hovers between 50 per cent and 70 per cent.
The China Quarterly
Media
I’m really enjoying Season 2 of Reacher on Amazon Prime. He’s a beast.
There you have it, the twenty-first edition of Sunday Digest featuring modern pirates, shy CCP-voters, and a steroid-addled good Samaritan. The portrait of a world spinning faster and faster. The good news is you have Netflix, Uber Eats, and running water. Until next time, be a good citizen, quit doomscrolling, and go outside.
Ad Astra Per Aspera!
[i] UKMTO
