Special Report: Port of Earth Future

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Think of the pandemic restrictions required to shop in a grocery store. The lines are longer, you’re more uncomfortable, aisles are emptier than usual, and labor is shorthanded. The simple function of shopping for goods and services is no longer efficient in many places. Now, multiply this inefficiency by 1,000 and you have the global shipping crisis in need of a long-term solution.

The National Retail Federation reported that the “US retail industry directly employs about 29 million people and supports more than 42 million jobs.” Without a solution, I fear that America’s economic engine (the trade of consumer goods) will begin to permanently fracture this enormous percentage of America’s existing employment.

The definition of the word “port” will expand over the coming decade. Today, the sea is the most prolific method of international trade. And this dates back nearly 3,000 years. The earliest references to ports cite the Phoenicians, Greek, and Egyptians between the 5th and 10th century B.C. In what’s now Israel, Syria, and Lebanon, the Phoenicians pioneered trade through technological improvements in sailing that allowed for deeper water transit.

And then came the Americas (1492), the Suez (1869) and Panama Canals (1914). Between the births of the two passageways, air freight was born when silk was transported by air between Dayton and Columbus, Ohio. Within 60 years, DHL (1969) and Federal Express (1971) were born. And when airline deregulation was finalized in 1978, it enabled companies like FedEx to implement overnight shipping strategies over any route rather than assigning small freight loads to limited space on passenger flights. This development led to a procession of improvements (tracking systems, et al) that enable eCommerce today.

Since then, the largest retail corporations began innovating around freight management by acquiring their own aircraft to facilitate expedited shipping of smaller freight quantities. From the former specialty retail darling L Brands to today’s leading retailer Amazon, it is not uncommon to see planes ship raw goods to or from factories to regional fulfillment hubs. But despite the innovation of air freight, no innovation – yet – has been able to replace the old practice of high seas freight shipping. And today, 3,000 years later, the industry of trade is dealing with perhaps the most damning interruption to ocean freight in history.

In a recent 2PM report, I cited the anecdotal evidence of manufacturing and freight disruption. I walked through a number of Target stores and noticed something similar: empty aisles and barren shelves.

When businesses don’t know when things will change, it is difficult to prepare. Stores are emptying of available inventory, and not just because of high demand. We simply cannot make things like we used to. [1]

Not even the most adept virologist or economist understood the fullest extent of what an epidemic’s turn into a pandemic’s turn into an endemic would do to our global supply chain. The disruption of trade between the APAC region and the Americas has never been so strained and today, it can be seen from the coasts of Miami, New Orleans, Houston, and Los Angeles.

Since July’s COVID resurgence, there are now more than 60 container ships awaiting entry in the Southern California region. According to a report by Quartz, Captain Kip Louttit of the Marine Exchange cited 23 ships adrift at sea as there is no room for them to cast their anchors in shallow enough waters. A recent Bloomberg Businessweek Report illustrates the second-order effects of the labor shortage hindering the retail market that is perhaps America’s most critical economic engine:

Two years ago, a 40-foot container cost less than $2,000 to transport goods from Asia to the U.S. Today the service fetches as much as $25,000 if an importer pays a premium for on-time delivery, which is a luxury. That’s translated into big money for container carriers, with the industry on track to post $100 billion in net profit this year, up from about $15 billion in 2020, says John McCown, an industry veteran and founder of Blue Alpha Capital. [2]

The short-term solutions are scarce. Without the dependence on fully-functioning factories, employed docks, affordable container ships and available truckers, the empty shelves and inflation will continue into the foreseeable future. In Supply and Demand, I explain:

Retail supply chains will need to find both short-term solutions as well as rethink dependency on complex supply chains. Brands will invest heavily in flexible processes that can account for moments when things don’t run as planned. For now, expect delays.

The complexity of the supply chain has been complicated by labor shortages and other misallocations. The short-term solution may resemble the world’s largest retailers following the supply chain management techniques pioneered by companies like L Brands. But this is only a mitigation effort. Amazon Air flight activity has increased 17% between February and August 2021 after the company added 14 planes, including two that enable intra-Canadian operations. In addition to these 14 planes, Amazon uses up to 20-30 partner flights per day to ship goods from hub to hub according to a recent document: Blue Skies for Amazon Air.

Quite simply, the problem is an over-dependence on a 3,000-year-old technology (ocean freight). The long-term solution is a technology for the next thousand years.

The Long-Term Solution: Rocket Cargo

This idea is not novel. According to reports as recent as 2020, military publication Task & Purpose has cited suborbital transportation for US troops and supplies as having gained traction by the US Pentagon. And in October 2020, it was reported that the US Transportation Command (USTRANSCOM) partnered with SpaceX and two other Texas-based companies to develop rockets capable of carrying hundreds of tons of freight at speeds of 518 miles per hour, a vast improvement over the 23 nautical miles per hour (26.5 mph) that a container ship travels.

The partnership will allow USTRANSCOM to assess the business case and return on investment requirements for both government and commercial parties to enter into long-term space transportation surge capability agreements…. [3]

The commercial use of these technologies are being approached by a number of parties, with Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin as the leading parties in the battle for the orbital and suborbital skies. Blue Origin missions seemed to be focused almost exclusively on suborbital freight capabilities according to an August 2021 report by CNBC:

This New Shepard rocket booster, which is reusable, launched and landed for an eighth time. The booster and capsule for NS-17 are dedicated to flying cargo missions, with Blue Origin rotating it with another booster and capsule for crew missions. [4]

By 2025, a percentage of American retail freight will be shipped suborbitally by Blue Origin or SpaceX from regions like Xiangshan to states like Texas, Ohio, and Florida. The density of our major ports will never again experience what they are right now. While the current state of pandemic-disabled supply chain shortfall will not carry on forever, this period lasted long enough for distant uses of current technology to become current uses of once-distant technologies. While the visionaries among us have long imagined container ships in-part replaced by five-hour rocket trips between China and the United States, the average person would have never imagined so. It is no longer a far-fetched notion.

The trend of in-shored manufacturing will continue and companies like FedEx, UPS, and Amazon will continue to grow in state-to-state air freight efficiency but if we have learned anything in this two year period, it’s that point B to C is not nearly as difficult as point A to B. Until the United States no longer needs factories, warehouses, and processing facilities in other countries, our retail economy will require new technology. And when the first dozen or so trips finish, from China or India or Portugal or Los Angeles to the final destination, we may never again question the merits of of global trade.

Ports will no longer be reduced to ship-filled docks and major airport hubs. Rockets will take off and land in rural areas and exurbs that have long been unbothered by mass trade. The three thousand year old sea technology will survive on. The 100-year air technology will thrive on. And the suborbital consumer technologies forged this decade will all but ensure that global trade (and beyond) will drive on.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy and Christina Williams 

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