This video was made possible by Hover. Get 10% off your first purchase of a custom
domain or email address at Hover.com/wendover. COVID-19—that’s the answer. That’s what caused all the shortages of
2020 and 2021. That’s it. COVID-19 caused the shortages in the same
way that an iceberg caused the Titanic to sink… or the collapse of Lehman Brothers
caused the Great Recession… or the straw broke the camel’s back. That’s really to say, COVID did cause these
shortages—they would not have happened in the manner they did, when they did, if not
for the pandemic. But just as the Titanic’s design flaws would
eventually lead to calamity, the vulnerabilities in the global economy would eventually lead
to a recession, and something would eventually break the overloaded camel’s back, COVID
caused these shortages, but it’s not what made them possible. What made them possible is a fundamental,
structural vulnerability in the way today’s supply chains work. On April 13th, 2021, Boba Bliss, a small bubble
tea shop in Dublin, California, posted on Facebook. They explained that they were having a hard
time getting their ingredients, and that this would mean their menu would have to change
daily—reflective of what they could actually get from their supplier. On April 15th, MighTea Boba, in Canandaigua,
New York explained on Facebook that they would have to serve a smaller quantity of tapioca
pearls in each drink, and would no longer be offering extra as an option, due to a shortage
of this ingredient. Bing’s Boba Tea in Tucson, Arizona said
much the same one week later, and Tea Hut in San Francisco, California then announced
that they would have to raise their prices due to a 26% rise in their ingredient costs. All across the country, shops selling this
popular Taiwanese drink simply could not get ingredients in the quantities demanded, despite
no dramatic increase in demand. However, thousands of miles away, in Taiwan,
where much of the world’s Bubble Tea ingredients are made, things were operating fairly normally. With single-digit daily case numbers for much
of COVID’s reign, factories on the island were able to work at full-force in a way they
couldn’t elsewhere but still, somehow, Boba Bliss, MighTea Boba, Bing’s Boba Tea, Tea
Hut, and thousands of other shops across the US couldn't get their product. The problem had less to do with anything happening
in Taiwan, and more with what what happening here—in the waters off the coast of Los
Angeles. Throughout the first half of 2021, a rotating
cast of dozens of cargo ships have dotted the Pacific’s horizon. Each sat there, at anchor, sometimes for weeks,
until a spot opened for them at the port of Los Angeles or Long Beach. This is abnormal. While the year prior it was possible for a
ship or two to have to wait a day or two, it was never dozens of ships for dozens of
days. Transit time from Taiwan to Los Angeles typically
takes about two weeks, so an additional ten days of waiting represents a near doubling
of shipping times. The root cause of this was, of course, a perfect,
pandemic-fueled storm. As the 2020 holiday season approached, more
people were getting back to work in the US, consumer spending was ticking up, and online
shopping was exploding. With limited access to travel, restaurants,
shows, and other services, physical products were one of the few ways people could spend
their discretionary income. More goods than ever were coming from factories
in Asia, and 49.1% of those imports to the US passed through one of just two ports—Los
Angeles and Long Beach. Compared to a year prior, before COVID hit
the US in earnest, February 2021 saw a 31% increase in ships and a 49% increase in container
traffic at these two ports. They just couldn’t keep up. Simultaneously, however, a significant tranche
of dock-workers were constantly out sick due to COVID itself or the quarantine procedures
it demanded. But the disorder doesn’t end there. While a year ago a 20-foot container would
cost about $1,800, they now run for $3,500. There’s a regional shortage of shipping
containers that’s having global consequences. You see, in 2020, just as much of the world
entered lockdowns, China’s manufacturing industry was emerging from it. The entire world bought masks, personal protective
equipment, and regular goods from the country and once those containers arrived in ports
like Long Beach, they were unloaded. However, due to those destination country’s
lockdowns, there wasn’t really much that needed to be shipped out. For every 100 containers that are imported
into the US, only 40 are exported. So, containers stacked up in the places there
weren’t needed, because they weren’t needed, and they didn’t make it back to the places
where they were, like Asia. In the case of the ports of Los Angeles and
Long Beach, their capacity crunch means they don’t even have the time to justify loading
ships with empty containers for return to Asia. Not only that, but a shortage of truck drivers
in the US means that it’s tough to actually get empty containers back from their final
destinations to ports to send them back to Asia. So, a shortage a shipping containers is worsening
a shortage of shipping capacity, which is worsened by a shortage of port capacity, which
is worsening the shortage of shipping containers, which itself is worsened by a shortage of
truck drivers, all of which is causing a shortage of bubble tea ingredients. Shortages causing shortages causing shortages—its
a vicious cycle that is only worsening as economies reopen. Across the world, there’s a proliferation
of scarcity. Lumber prices in the US quadrupled after predicted
decline failed to manifest, and a boom in construction and renovation did instead. The use and construction of pools also accelerated,
as outdoor space became more valuable, spurring increased demand for chlorine which, when
mixed with reduced supply as a result of a fire at a major chlorine plant in Louisiana,
led to sky-high prices, and insufficient availability. As restaurants pivoted to take-out and delivery,
bulk ketchup was out, and single-serve packets were in, but with manufacturers unwilling
to spend significantly to increase production capacity for a short-term bump, the packets
became scarce, and companies started successfully selling them for $10 per 50 on eBay. However, the greatest shortage of all can
be seen here, in the empty parking lots of Anchorage, Alaska’s airport. The state relies heavily on its summer tourism
season, and after missing it last year, 2021’s season is crucial. Facing uncertainty about the legality of their
operation until May, cruise companies cancelled many of their summer sailings to Alaska, so
this year is all about independent, domestic tourists. To traverse the vast wilderness of the last
frontier, independent travelers need rental cars. However, these travelers can’t get rental
cars—regardless of which date you search in summer 2021, there simply isn’t availability. For the lucky few who do find one, current
market rates are over $500 a day for a compact car. American travelers can now legally, safely,
and easily get to Alaska, but they can’t get around Alaska, which means that eager
travelers aren’t going. You see, during the depths of the pandemic,
Hertz, Enterprise, National, and other rental car companies sold off much of their fleets
of cars—they needed money somehow, and it wasn’t coming from rentals themselves. Now, however, with vaccinations easily available
to all in the US, there is demand for rentals, yet no supply. In Alaska especially, with its highly seasonal
tourism market, its normal for the rental car companies to sell off their old vehicles
in the fall, and purchase new ones in spring, but the latter half of that didn’t happen
this year, because there’s a massive, global shortage of new cars, and manufacturers are
simply unable to fulfill the huge orders rental car companies are asking for. You see, in Spring, 2020, as COVID took hold
of the globe, car manufacturers cancelled and reduced their orders for components as
they anticipated reduced demand for new vehicles. They were right on that—demand did go down
as it tends to during any recession—but it recovered faster than anyone imagined. Regardless, the plan was that, once recovery
started, they’d boost component orders and manufacturing in step. The problem was that they’re now at the
back of the line, and for one, critical component of modern automobiles, there’s quite a long
line. Computer chips are sold out everywhere. It was the perfect storm of circumstances. First, the US’ trade war with China caused
the country’s manufacturers to start stockpiling the chips. Then, COVID led to production shutdowns in
certain areas of the world, demand for consumer electronics exploded as people spent more
time at home, and now, even the solution is causing problems as silicon is both needed
in computer chips and vaccine vials. Altogether, the reasons are complex, but the
result is clear: this is why you still can’t easily buy a PS5, this is why Samsung likely
won’t release a new Galaxy smartphone this year, and this is why you can’t get a rental
car in Alaska. In a twist of cruel irony, the car industry
is culpable for all of this. That’s because, decades ago, the very industry
that is now suffering the hardest propagated a system that made shortages such as this
so possible. Eighty years ago, as Japan emerged from World
War Two, Toyota had a problem. The world was marching towards further globalization,
and Japan especially was starting to develop a trade relationship with the US. American car manufacturers, at the time, though,
had a huge cost edge over their Japanese counterparts. Especially during the post-war economic boom,
demand for their vehicles was so high that American manufacturers had incredible economies
of scale. Their process was batch manufacturing—at
a given time, a given assembly line would build one type of one model of one vehicle,
exclusively. Then, they’d switch to another type of another
model, and so on and so forth. With this, the manufacturers could use massive
production lines working at breakneck pace, unlike Toyota’s. Theirs were small and slow. The domestic car market in Japan was limited,
and it demanded quite a lot of variety in vehicle types. This meant that they didn’t have the scale
to make batch manufacturing work well—at least as well as in the US. Their inability to realize the gains of batch
manufacturing meant that they simply would have to have higher prices compared to their
new American competitors, but there just wasn’t a clear alternative. So, they created one. They created the Toyota Production System. It had two core principles, starting with
autonomation—not automation, autonomation. This was their term for the efficient use
of automation. Now, complete automation would require machines
to build cars, plus diagnose any problems, plus fix those problems, but having machines
fix their own problems is very complicated and very expensive. So, in their autonomation system, they look
for only what machines can do better than humans, which in their context was most of
vehicle assembly and problem diagnosis, while problem-solving was left to humans. Autonomation was and still is a crucial, critical
component of the Toyota Production System, but it wasn’t the core principle that would
go on to change manufacturing fundamentally. What did was the principle of just-in-time
manufacturing. All it really is is this: each step in the
manufacturing process should end when the next one is ready to start. It’s a pull system, as opposed to a push
system. Just as your Coffee shop doesn’t start making
your latte until you ask for it, the polyvinyl butyral resin should only leave the chemicals
plant when the laminated safety glass production facility is ready to start making windshields,
and it should only start making windshields when the final assembly line is ready to put
all the pieces together, and it should only start putting all the pieces together when
the dealership is ready to put more cars on its lot. In the view of the Toyota Production System,
excess inventory is waste, because holding inventory costs money without making money. Elimination of excess inventory is elimination
of waste, and elimination of waste is what leads to production efficiency. This system worked. In the early 1950’s, Toyota was on the brink
of bankruptcy. Today, the company is the largest auto manufacturer
in the world, and the principles of the Toyota Production System can be found in any business
textbook. Just-in-time manufacturing is no longer an
innovation—it’s the norm. Articles aren’t written about companies
implementing just-in-time—they’re written about those that don’t. In fact, just-in-time has become even more
integral today. If there are six steps in a manufacturing
process and each holds two months of inventory, it would take a year to pivot to producing
a new product. The short product life-cycles of today’s
technology industry would not accept that. Just-in-time is such a simple principle, but
the pursuit of the elimination of waste is now the central mission of any major manufacturer. However, most did it wrong. Manufacturers globally saw the headline—elimination
of inventory leads to massive efficiency gains—and jumped on that without actually determining
what made it work for Toyota. They ignored that Japan’s small physical
size made for short domestic supply chains, less vulnerable to things going wrong. They ignored the company’s production leveling—finding
the average daily demand and producing that, regardless of short-term changes in demand. They ignored the fact that eliminating excess
inventory is different from eliminating all inventory. They ignored the principle of growing strong
teams of cross-functional workers, predicted on respecting people. They ignored the culture of stopping and fixing
problems, to get things right the first time. They ignored huge swaths of the Toyota Way
and created a system that’s less effective and less resilient, but can impress shareholders
through short-term savings. How Toyota has effectively implemented this
system fills books, but many are just reading the covers. Even Toyota, though, is not perfect. In 2011, Japan was rocked by a 9.0 magnitude
earthquake—the fourth strongest ever recorded anywhere. Not only did this cause immense destruction
to life and property, but it also led Toyota to recognize a flaw in its own system. As Japan recovered, some supply chains were
quick to as well—for example, securing plastic resin for door panel production is not difficult. There are plenty of manufacturers globally
creating easily substitutable alternatives. That’s not the case with, say, semiconductors. The hugely expensive facilities that create
these chips require years to construct, and after the 2011 earthquake, it took many months
to mend them back to operating status. This surfaced a truth that had never been
fully considered—not all supply chains are made equal. Plastic resin can handle supply chain disruption. Semiconductors cannot. Therefore, Toyota made changes. All along, their mission was not to eliminate
inventory full-stop—it was to eliminate excess inventory. Supply chain disruption is inevitable. It’s inevitable in the same way that Titanic
flawed design would eventually encounter an iceberg or the structural economic vulnerabilities
of 2008 would eventually collide with a market panic. Therefore, semiconductor inventory is not
excess because inevitably, due to the inevitability of disruption, excess semiconductor inventory
will eventually become necessary. Recognizing this, Toyota, in recent years,
has started to build up a stockpile of two to six months worth of chips, and that’s
why the company is the only major vehicle manufacturer that is unfazed by the semiconductor
shortage. Toyota followed its own principles. It did not stray from them, and it did not
reinvent them. It’s no surprise that Toyota excels at implementing
its own system, but it is a surprise that the entire manufacturing world has so wholeheartedly
embraced flawed implementation of the system. The reality is that just-in-time manufacturing
is more efficient, but some think that that efficiency must come with a trade-off in resilience. That’s simply not true. Proper just-in-time supply chains must inherently
be inflexible once formed, but their form is flexible. It’s a philosophy, not an equation. Shortages in an economy are incredibly complex,
and any explanation of them is an oversimplification, but just-in-time manufacturing does not have
to be the cause. In addition, disruption is inevitable, so
it can’t be the cause. You can’t blame the fact that your house
is sinking on the fact that you built it in the ocean. A ruthless pursuit of short-term profit at
the expense of long-term gain is the cause. Running as close as possible to the edge is
the most efficient manner to manufacture, until it isn’t. Constructing a resilient supply chain requires
long-term thinking, but most companies have not nurtured an environment that allows for
that. As the world recovers from the pandemic, many
will ditch what they call just-in-time manufacturing, as the alternative is to accept that the very
people in charge of those companies have’t implemented it properly. To be fair, few have, and even Toyota is still
learning how to best implement its own system. However, Toyota has proven that strict adherence
to its principles means just-in-time manufacturing can be everything at once—it can be both
efficient and resilient, if one knows what is truly excess. Proper implementation of the Toyota system
won’t fix every shortage but it did fix one shortage for one company. Therefore, if the auto industry had built
a stockpile of critical components, if it had implemented production leveling more strictly,
and if it had understood vulnerabilities in inbound supply chains, Alaska would have its
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I wish... This guy...could maybe speak... In full sentences!
The first 90 seconds are spent saying "how it is covid" and then "it isn't covid", and then it is again. "Covid caused it, but it's because the supply chain infrastructure is fragile".
Consider Covid the 100 year flood. The system can't be designed for 100% uptime.
His videos get a tad annoying at times.
My BS detector was going off so hard in the latter half of the video.
Tldr it was covid
I'm confused. He blames just-in-time manufacturing principles as a huge problem and doesn't elaborate on why or how they are a problem. He says just-in-time doesn't work in the USA because we have a large supply chain compared to Japan. Okay? I just straight up don't believe that. He doesn't have evidence of that at all.
He is making super bold claims without elaborating on them. He has an agenda to make USA auto companies as the idiots who didn't plan for the future - and then provides no evidence or specific examples for that. How the hell can executives predict the "perfect storm" that is occurring right now with covid and all this other shit?
The MAIN problem here is that semiconductors are primarily made in Taiwan and not many other places. There aren't enough factories producing semiconductors. He's overcomplicating shit.
Also Toyota stockpiled semiconductors...But that doesn't mean they won't start shutting down when that supply runs out.
This guy is missing a lot in this video. Feel free to give me feedback because I'm skeptical of this video.
edit: This video is ridiculous. He says "Disruption is inevitable - so it CAN'T be the cause". What? How the hell was anyone supposed to plan for abrupt semiconductor shortages let alone a pandemic? Clearly every single company that requires semiconductors didn't predict it. Is this guy scolding every single company that creates things using semiconductors for not predicting a ridiculous perfect storm situation? This video is half filled with nonsense.
He says "it's not covid" but then all the reasons are fundamentally because of covid. It's either a drop in supply (caused by covid related factors) or an increase in demand (caused by covid related factors).
Interesting video overall but it feels so drawn out. This could have been 3 minutes total.
2 minutes in and he's listing off restaurants that can't get tapioca for their boba tea