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Black swan events in a world reliant on shipping container handling

A few days ago, my older daughter coincided with media headlines in asking for clarification regarding a question: Who are the Houthis, and why are these rebels attacking ships in the Red Sea with rudimentary but effective guerrilla warfare?

Though the last few years have been extraordinary enough (that is, compared with the boringly predictable years of global integration after the collapse of the Iron Curtain and the Soviet alternative to capitalism), it doesn’t come easy for our teenage children to understand that the chaos theory applies to complex integrated systems like world logistics.

That said, the butterfly effect remains a powerful metaphor.

The pandemic lockdowns, and then the memeified 2021 Suez Canal obstruction, created the breaking point to disrupt an important enough part of global logistics to affect supply chains and the way companies and countries offered services, produced goods, and controlled economic indicators such as inflation.

(N)Ever Given

On March 23, 2021, the Ever Given, one of the countless container ships that connect production hubs in East Asia to Western logistics centers, was left unmonitored long enough to be affected by strong winds in the Suez Canal, ending up wedged across and blocking all traffic in this essential artery between the Mediterranean, the Red Sea and beyond.

Murphy’s Law seemed to have played the role that social media memes had been hoping for, and the obstruction happened in the stretch where there’s a single channel for all traffic going in either direction, blocking all possible activity, slowing down trade between Europe, the Middle East and Asia.

A few days later, curious people followed social media updates on the goofy event, already worried companies were already dealing with costly consequences while waiting for the cargo accumulated aboard 369 ships queuing through the canal, or $9.6 billion worth of trade. On March 29, the vessel’s bow remained stuck in the sand but was finally freed thanks to the participation of 14 tugboats.

The Ever Given event (one cargo ship plugging virtually all major traffic between Asia and Europe) became yet another symbol illustrating the fragility of an interconnected global economy optimized to operate in real-time with little redundancies capable of aiding stressed systems in the event of a disruption, showing the Western public opinion, once again after the Covid-19 upheaval, that perhaps it’s not that convenient to completely rely on supply chains operating on-demand production on the other extreme of the world.

On bottlenecks, then and now

Like an accident blocking the road and railway tunnels connecting countries across the Alps, the Suez Canal event is the logistics equivalent of the ancient Battle of Thermopylae, when the Greek city-states under the command of Sparta blocked the narrow pass that stood between the Greek mainland and the mighty Persian Navy under Xerxes I.

History doesn’t repeat itself, but it often rhymes, and not knowing the tune may condemn people of different ages to repeat it, mused George Santayana (The Life of Reason, 1905). Now, an obscure insurgent group from Yemen that gets its support from Iran is posing a risk to ships venturing into the Red Sea and headed to Suez, forcing shipping and oil companies to suspend transit in the area as long as strikes from the Houthis are a possibility.

To answer my daughter’s question, we ventured online to find out more. When we began reading, the narrative felt retro-futuristic to my daughter, given pop culture references to teenagers today: while we grew up influenced by the launch of original sci-fi and post-apocalyptic movies like Star Wars or Mad Max, they are more familiar with their sequels, which describe how atomized rebel forces fight integrated regimes trying to keep complex, dynamic systems running.

So when I read to her about the Houthis (“The Houthi movement,” also known as Ansarallah—Supporters of God—, is one side of the Yemeni civil war that has raged for nearly a decade. It emerged in the 1990s, when its leader, Hussein al-Houthi, launched “Believing Youth,” a religious revival movement for a centuries-old subsect of Shia Islam called Zaidism.”), she simply said: “It makes sense.”

I kept reading:

“The Zaidis ruled Yemen for centuries but were marginalized under the Sunni regime that came to power after the 1962 civil war. Al-Houthi’s movement was founded to represent Zaidis and resist radical Sunnism, particularly Wahhabi ideas from Saudi Arabia. His closest followers became known as Houthis.”

When a cargo ship can’t rely on GPS navigation

I acknowledged that it read like one of the secondary plots of the last Star Wars prequels, making me wonder. But our conversation didn’t end with us wondering about the intricacies of chaos theory and how little events within complex systems can cause widely diverging outcomes.

I argued to my daughter that, as the world had become more interconnected and supply chains now were often in other parts of the world, running a really efficient production network often meant slashing stored inventory and any other form of redundancy: as demand and production are now related on almost real-time, any big event (a pandemic, a natural disaster, cargo ships clogging any of the world’s logistics bottlenecks, insurgent groups attacking oil and container vessels in unstable areas—just like the Houthis attacking at the Red Sea entry—, geopolitical instability in the South China Sea, etc.) could evolve into a black swan for global commerce.

Shipping containers, cargo ships, and their terminals, and oil tankers became a decisive part of the infrastructure that makes the world work to an extent that is difficult to comprehend. We all just got accustomed to it and take it for granted, I told my daughter. “How?” She asked. It just works, I replied.

But what happens if it stops working? Can we be sure no disruption will be big enough to compromise the navigation of the logistics and energy giants that power the world, as some recent movies and series portray?

Since we’re familiar with unconventional, often tucked away (if not remote) homes and rentals, we decided to spare some precious time and give a try to the Netflix post-apocalyptic series Leave The World Behind.

The truck driver that changed the world

In the series, a middle-aged professional couple from New York (Julia Roberts, Ethan Hawke) with two teenage children, a son and daughter, decide to try a luxurious rental home and transform a conventional weekend into an interesting family getaway in Long Island. The place is grand, though the family will soon realize something is odd when cellular and TV signals get knocked down and don’t come back.

Malcom McLean revolutionized transportation with the logistics concept that led to the shipping container, which cheapened and accelerated cargo shipments across the world

The series speculates on the consequences of a full-blown cyberattack from the point of view of one family who first believes it to be a simple blackout, though this time, reality won’t resume the way it should. The owners of the luxury rental are back before the rental is due, but the misunderstanding between the two families soon leaves way to a fight for survival when the world around them crumbles.

Suddenly, the prepper they had seen at the local supermarket hoarding goods before the event is vindicated, and they’ll soon realize that the “blackout” is serious: with no GPS and the Internet, navigation systems for planes, oil-tanker and cargo ships stop functioning, crashing down and against the shore.

Leave the World Behind reminds us how what we consider reality relies upon a series of breakthroughs that accelerated the production and delivery of goods and services, thanks to advancements like ubiquitous communications and cheap, effective logistics.

One of the unsung advancements that accelerated the world’s interconnection is the shipping container itself, and its story is as fascinating as unknown by the general public. Unlike Steve Jobs, Jeff Bezos or Elon Musk, the inventor of the shipping container, Malcom Mclean, is an anonymous figure.

The risks of relying too much on hyper-optimized systems

Mclean, a truck driver always willing to improve the nuisances that made his work harder, spent one holiday waiting for the cargo he had transported to be unloaded. While performing the tedious job, he had an epiphany: what if one could take the whole trailer instead of unloading its content each time?

The shipping container sped the transportation of goods in such a way that global shipping costs tumbled from $6 a tone to $0.16 a tone. As automation and now AI tools pose a risk to jobs that had managed to stay relevant until now, from computer programming to writing, it’s easy to forget that industrialization has been transforming jobs (and making some of them obsolete in the process) since England’s late eighteenth century.

When it got stuck in the Suez Canal, the Ever Giver cargo ship caused a gigantic queue of ships waiting to cross between the Red Sea and the Mediterranean, and vice-versa

With his invention, Malcom McLean reinvented himself as a businessman to successfully introduce the idea of the intermodal shipping container, revolutionizing trade by reducing costs, improving reliability, reducing cargo theft and cutting inventory costs, among other effects.

Sure of his idea, McLean secured a $22 million loan in the 1950s, buying two WWII T-2 tankers and converting them to cargo ships. In a few years, container traffic has become global, and now it’s a major driver of globalization. Would the world be ready to tackle major disruptions of shipping container freighting?

Like many other industries, sea container transport has been transformed by digital operators that simplify supply chain operations and administrative procedures that oftentimes are still reliant on manual processes and printed documentation.

Paradoxically, the more streamlined such processes become, the less redundancies systems maintain, which makes them more vulnerable to black swan events.