Pushkin from Pushkin Industries. This is Deep Background to show where we explore the stories behind the stories in the news. I'm Noah Feldman. One of the important stories that's come out of COVID is the disruption of the global supply chain. If you've recently tried to buy a new car or some furniture, you know all about this problem. The system of making and distributing goods around the world is not working quite the way we're accustomed to it working, and we're not exactly clear on how to fix it. For today's show, we wanted to speak to someone could explain what's going on to us and deepen our understanding and knowledge of this headline topic, supply chain disruption. I'm very glad to say that our fantastic team here at Deep Background found someone who could do exactly that. Hannah Kane is the founder and CEO of a Loom, a global supply chain company based in California. She has decades of experience in supply chain management, and I'm going to talk to her about what's causing supply chain slowdowns, what we should think of the supply chain as actually being the role that government has to play in this and how we make our way out of it over time. Hannah, thank you so much for joining me. So, when we entered this COVID world, many people who were consumers spent exactly zero time ever thinking about the words supply chain. I'm sure if one ran any kind of a company that made a product, these were everyday, day to day concerns. But the sense from the end consumer's perspective was it's all under control, right, We're convinced there are people out there like you who are expert in it, who keep it all flowing, and the rest of us just didn't worry about it very much. Then COVID came and suddenly everyone noticed that we were interdependent on one another in a very complex set of ways. And then people started using the words supply chain problems to justify almost any change. Was there a particular feature in your view of the COVID disruptions. Are there specific moments or events that you could point to as inherently transformative that sort of put your topic on the front page or was this just a slow, gradual thing that the rest of you were following the entire time and the rest of the world only noticed it because of these events well, it's a little bit of both. So for a long time we have been teaching at the edge of the ABYSS when it comes to supply, and many of us have already wasted flags because things like infrastructure has been totally underserved. When you look at at our population growth, we are essentially in the US thirty three percent more population over the last three decades, and we're allmost invested in the new infrastructure. And that is a huge problem because we know that the demand is going up, but in the end we need to have the infrastructure to keep up with that. So we knew things like infrastructure was the problem. We also know that regulations are exploding. And when I say regulations, it's things like how do you get product from point A to point B. You've got to get it out of one country into another country. The bureaucracy and the regulations concerning that keep increasing. We are at a trade wall with a number of different open countries, and that trade those trade walls really heavily impact the supply team. So all of this is not really COVID related. You know, we saw it coming. We've been dealing with it for a long time. Edge of the ABYSS is a very strong formulation. And it's fascinating because I mean, of course it's going to leave it to ask you whether we're now in the ABYSS or whether we're still clinging to the edge of it. But before I ask you that infrastructure, do you mean give some examples? Do you mean ports where products arrive, roads where things are carried by trucks, railroad? What are the features of infrastructure in the US that seemed particular lead to have been teetering on the edge of the abyss to you? I think pots are a really good example, and that's mainly the seaports. We also have some restrictions on our airports, restrictions on planes and trock limitations. We certainly have a big crisis when it comes to a number of truck drivers. We simply have two few truck drivers. And this already started and had become an issue before COVID. But what happened with COVID was really that all of a sudden we saw a big demand shift. Demand switched to home partucts, shift to shifted to different parduct types, and and all the travel money went away and instead it was used on getting a new, more fancy home television home set up for your home office, etc. And all of a sudden that demand shift happened. So that was a really big supply chain event that happened in the beginning of the pandemic. And then you had the other The other problem was that you had the disruption and the labor and that was a global issue. So those two issues to get have made it now it's too complex. So if you think back a couple of yes, you could probably do a fodcast that was ninety percent great. You could probably plan for ninety to ninety eight percent of all events that were going to happen. And here during COVID we have been lucky if we've been hitting fifty sixty seventy percent great focast. And then when you look at what the SAT mean and supply chain, it means said, you're buying the wrong thing. I want to talk about the demand shift and I want to talk about the labor disruptions, both of which I think are hugely fascinating and important, and also both of which are relevant to the question of inflation. But I also want to ask you about how unique the United States is with respect to these infrastructure problems, because in other places in the world that at least I traveled to. Back when we traveled more, it struck me that, at least at a superficial level, the infrastructure seemed much fresher, much newer, and much more updated than in the US. I don't just mean Western European countries, where Americans who are accustomed to traveling to those countries in the last thirty or forty years are accustomed to seeing the infrastructure as being really superior to US infrastructure, but also in countries that one might have thought of as developing countries, some of which are not so developing anymore and are are pretty developed, but some of which are really still very much developing countries, which still looked like they had newer airports, newer roads. I'm not an expert in seaports, but you could drive by and see large, functioning seaports that looked like they were fancier than the ones that we see, at least in the northeast. Am I right to think that the US lagging behind an infrastructure is pretty distinctive? It is. It most definitely is, and certainly I mean the physical infrastructure. We're definitely lagging, and especially compared to some of the growing Asian nations. There are some great standouts in Asia where they built infrastructure and in a very impressive manner, China Coast in one of them, Singapore, Japan to a very large extent. And then there are some countries that are lagging behind, and we are seeing as we already pre pandemic, we saw a shift away from China with shifting productions to a country like Vietnam where also the infrastructure is really lacking and companies have their product get stuck in Vietnam because they cannot get it moved, they cannot get it out of the country, and so it's a course of board. Infrastructure really important and it's an important consideration when you design your supply team. Where is the infrastructure that can really help you. Another area where the US is, of course lacking, is in the technology. We are not nearly as advanced as some of the top players within broadband and speed of the networks and for that matter, coverage in remote areas. So that's another area we need to work on. You mentioned, and the regulatory barriers to smooth supply chain operation. The trade wars I sort of can account for. I personally don't believe they're rational. I don't think they're helping for the most part, at least in the United States and the trade wars that we've started in recent years. But at least I can understand where they come from. Right, there's a domestic sentiment that says we're getting taken advantage of by other countries. There are interests domestically that imagine that it will lead to more US jobs. There's not a lot of evidence that always happens, but at least you can understand the impulse. But what about the other kinds of regulatory barriers that you mentioned. I mean, what's in it for the regulators? Who is asking for greater regulatory intervention in ordinary effective trade? Well, let me give you a couple of examples. California decide that, in order to get products from the ports and into the country, use something called yage. Those twyage trucks have traditional in the most polluting trucks on the road, and California decided that you cannot use trucks that are older than yet two thousand and eleven to move products from the port. And that regulation then meant that many of the truckers simply could not do it, could not move that product. And so that's a small part of the port crisis, but certainly it happens. And I think we all have the sympathy for the environmental regulations that we don't want polluting trucks out there, but this is an example of where where the balance may shift and it may become more difficult. Another type of regulation is hope for social responsibility, where you can say child's labor, we don't want any child's labor or other human rights abuses in the supply chain, and had then creates some intrigacies in where you place the supply chain and how you are able to run. So there's a lot of regulationship are very important in many ways, but certainly they impact a supply chain. We'll be right back, Hannah. You spoke of the demand shift that happened at COVID when suddenly consumers didn't want to buy the same things they previously wanted to buy. I recognize that that can cause problems for the supply chain. If I'm running a company and I suddenly need some product that I didn't otherwise have, and where I need more of something that I had a little bit of, is it fundamentally a supply chain problem though, or is that fundamentally just the kind of economic problem that sometimes arises, right? I mean, if we said that there is a change in supply of a product or a change in demand of a product, those seem to be underlying economic forces that they impinge on the supply chain, but they don't seem to be answerable as it were, just via the supply chain. Well, it certainly it becomes the supply chain problem because you need to be able to produce what the consumer wants in the end. That's what it's about, is producing what is needed and getting it to the location where it's needed. And so when we saught the demand shift, of course companies have to respond and it creates a lot of problems when we have these big swings. As we saw, the swings are becoming bigger over time, and it's a very interesting thing. I think social media is driving a lot of the demand shifts. That many people go and buy what others seem to be buying, and so you get these big shifts, and of course they need to be produced. What also has happened over time is that we as consumers have gotten really spoiled when we get it in any type, configuration color it said right that we want. And one of the ways companies have tried to minimize complexity and focus on at least getting product out in the supply chain is to cut down on the number of selections. And you see that a little bit when you're out shopping, that there's a little bit less selection these days than they used to be. Not that we are suffering any big card shifts, but it's a good way to decrease the complexity. And complexity is really a big issue in supply chain right now because the systems cannot handle it, and because there's so many unexpected events, and supply chain professionals are joggling all these balls in the air because of those shifts. The complexity also seems to be part of our current moment of consumerism, where I not only understand that if I go to the shop, the product that I want may exist in ten colors, but I expect it to exist in those colors as well, and that's sort of what keeps me buying in some sense, at least to the low end of expenses. But when you gave that answer, which is totally fascinating to me, I had this feeling that maybe people are using the words supply chain is kind of an excuse to kind of catch all excuse that, at least for some consumers, I think, I include myself here might be misleading. So you know, it's been COVID. I've been sitting on my couch a lot. My couch isn't very good. It's time for a new couch. So I go, this actually happened to me recently. I go shopping for the couch and they say, oh, for that couch, the weight will be you know, nine months. And I say, well, oh my goodness, that seems like a long time to wait for the couch, and they say, well, supply chain. Then they also say, but actually there is one color, and if you get that couch in this one color, we actually do have those, and those are in the warehouse and you can get those. Now, I guess it is a supply chain question. You're convincing me that everything is a supply chain question, because if they have something in the warehouse and I can get it, that means the supply chains has sent it here and it's functioned correctly, and if I'm willing to buy the product, you know, even if it's not the color that I would have first chosen. Pretty good, right, It's a pretty good outcome. The year weight for the sofa or the couch and the color that I would have wanted. Seems to be that they're using the word supply chain as a shorthand for We had no idea so many people were going to want to buy sofas, and so it takes a while to make the new sofas. And we also have to hire people. You spoke about labor. We have to hire people in the factory wherever that is to build these sofas, and we need to hire truckers so that the sofa can be transported, and if it's coming internationally, it has to come in through report. But they're using supply chain effectively as a grab bag to mean all of those things, and I think too many consumers, at least to myself, it sounds like they're saying, oh, it just takes a long time for it to get here, or something like that, or you know, there was a particular part of the fabric that we can't get enough of because people want that. But the reality seems to be that they just didn't anticipate that there would be the kind of demand that there is, and they can't be blamed for that. I mean, no one could have anticipated we would all spend such a higher percentage of our days sitting on our couch than we previously did. But it sounds like the words supply chain are covering many, many different causes of delays. That is correct, and that's because I gained the supply chain is ultra complex and there are many different places where you can have and currently you have delays in the supply chain. And so what supply chain professionals do is they try to work around these delays and try to circumvent them. But you can only do so much. If we step back and look at this over a long time and sort of from a more macroeconomic standpoint, what has happened over the last thirty years is we have driven cost of manufactured goods down and down and down, so it's now cheaper than ever to buy a thing, and that's of all a good thing. That downside that we are seeing now is as we are producing cheap things in cheap countries and cheaper countries and driving down the manufactured cost, we are increasing the risk and we are also increasing the supply chain cost, the supply chain cost of transportation and customs, cleerens and all of those type of things, and governance for that matter. So that's what we're seeing right now, and explosion and those costs. It's not really that the things are getting much more expensive to manufacture. It's all the extra supply chain cost, and we are seeing the increased problems in managing that complexity. So I'm sorry you have to wait for your sofa. I can't help you get it there far. I just I just took the one color they had in stock because I didn't want to wait a year for za. You know, I was a good soldier at least with respect of that decision. Labor, So, labor cost is obviously an important part of making anything and an important part of transporting anything. And as you mentioned, manufacturing costs have been going down, and some of that is by pushing down wages in some places and times, but more of it is by gaining efficiencies from other aspects. Right now, at least in the United States, the cost of labor is very high for complex reasons that no one fully understands. That that that I have to do with people coming back from COVID and deciding they're not going back to the jobs they were in before and they don't wish to participate in the official economy in that way. When you think about labor in its relationship to the supply chain, how do you think of that. I think it's a course abort. So we already, as I mentioned, have a labor crisis, ongoing labor crisis in truck Trucking has been an area where we have seen a lot of retirement and not a lot of new people coming in, and so that has been a big concern for a while and been talked about for a while. But you're right, what we're seeing right now is an emotional shift where everybody is asking themselves whether they're working the right job and whether they want to do something different, and it's certainly impacting the supply chain big time. You're also seeing an increased need for staff in the supply chain, so a lot of the workforce have shifted from retail to supply chain. So we're buying more and more online, We're getting more and more shipped to our homes, so people move from retail into warehouses. There's a big move to automate much of what's going on and the supply chain, but there's still we still need labor, and so I am very concerned about the inflation that we are seeing and the inflationary pressures coming from the labor as well as inflation or materials and components coming in and for that to finish good, so the cost is just going up tremendously. I think we are going to see the supply chain crisis continuing for another several years. And I think supply chain issues are going to stick with us for a while until we get the infrastructure fixed, until we get more automation in the supply chain, until we get better systems to be able to handle with all the exceptions that we deal with in supply chain. So definitely a lot of big investments need to happen and development needs to happen before we are in a position where we can say supply chain is just humming it all. So what I'm hearing you saying is that the process of not only manufacturing but of delivering things is a process that is still very human intensive. Right, Maybe someday we'll have automated trucks, but we don't have automated trucks. Maybe someday we'll have a way in a fully automated fashion, and to take the products off the ship at the port and put it onto the trucks or the trains and get it from place to place. We don't. We still require human beings to participate in this. So I guess the question I want to end with is, when you say, you know, well we need more automation in this space, how fast can that happen and how good will that be? Are these jobs that can be replaced by automation as opposed to by humans, at least in the foreseeable future, and will that lead to the opposite effect, an effect where many many people whose jobs depend on being the human beings who operate the supply chain find themselves desperately needing some other kind of work, much as we've seen in manufacturing, where many relatively good blue collar jobs went away, and to the extent they're replaced, they're replaced by much less appealing surface sector jobs. I mean, is it basically the case that that's going to happen and elsewhere in the supply chain as well. It just hasn't happened yet. I am a firm believer that automation and it's not a bad deal, and that it's all about how we transition the workforce. I don't see right now that we're going to have a surplus workforce. I see that we are very much in need of more workforce, and I think that trend is going to stay with us for a long time. And the other thing we can do, apart from, of course, automation, is to go in and say, maybe we can do more near sourcing and not have to transport products so far distances. We are seeing that right now, corporations are coming in and saying, Okay, we have so much cost in transporting all these goods around, maybe we can buy some of them locally where we need them and closer to the market. And so that's called near sourcing and a really strong strategy from a sustainability standpoint. But also it takes risks down. The closer you are to the less, the less can go wrong in the supply chain, and so that may be a possible opportunity for small and mid sized companies also to come in and play a stronger role in the supply chain. So there's a lots of good things that could come out of this as cooperations, A reevaluating their supply chains. And I want to thank you so much for educating me and our listeners and for the fascinating and important work that you do. And I guess I want to apologize on behalf of all of us for not paying enough attention to the significance and importance of supply chain affairs until suddenly we experience disruptions. Thank you very much, Thank you. We'll be right back. Talking to Hannah Kane brought home some reality to me that I truly did not anticipate before speaking to her. Maybe, like a lot of you, I've mostly taken the excuse supply chain delays to be a reasonable explanation of the difficulty in getting goods to market in the time of COVID. But as Hannah argued, we were on the edge of the abyss her striking phrase even before COVID happened. In other words, the global supply chain was already extraordinarily delicate, and as population grew, regulation not only the good kind, but also the kind that comes with trade wars, was increased, and as our infrastructure above all continued to degrade. In the United States, we were already, without quite knowing it, in a position where the slightest disruption to our regular economy could really break the supply chain in a range of ways. At the same time, just in time, servicing had made us expect to get things when we wanted them, how we wanted them, in a way that was probably ultimately unsustainable. It follows from this that the major shifts of the pandemic, the demand shift, the labor shift, and other challenges, we're just really the straw that broke the camel's back, albeit a rather a large bale of straw. That means, according to Hannah, that we're not going to see a rapid turnaround or a set of improvements in the global supply chain just because things begin to get back to a new normal post COVID. Instead, we're going to have to actually build better infrastructure. We're gonna have to engage in a rationalization of our trade policies if and when that actually happens. We're gonna have to develop norms appropriate to a consumer economy where we can't always expect to get everything we want magically when we want it. And most troublingly, according to Hannah, we also need substantial automation through the supply chain. As you heard That's a little worrisome because the kinds of jobs that the supply chain historically supported in transport were at least sometimes relatively good blue collar jobs, many times unionized jobs. If those are going to go away as part of the rationalization of the supply chain, it means further problems of the kind were already familiar with as manufacturing jobs have gone away. That means that making the global supply chain hum again is going to have distributive effects in our real economy, distributive effects that we have to develop good policy solutions to address in a manner that is fair and just. Regular listeners of this podcast know that I am no MBA, and I have the feeling that my ignorance of the everyday processes of how a business transports things around the world was particularly in evidence today. But maybe for that reason, I found this conversation especially powerful and especially illuminating, and I certainly appreciated Hannakane's extreme clarity of analysis and purpose. Until the next time I speak to you, breathe deep, think deep thoughts, and have a little fun. If you're a regular listener, you know I love communicating with you here on deep background. I also really want that communication to run both ways. I want to know what you think are the most important stories of the moment, and what kinds of guests do you think it would be useful to hear from. More So, I'm opening a new channel of communication. To access it, just go to my website Noah Dashfelman dot com. You can sign up from my newsletter and you can tell me exactly what's on your mind, something that would be really valuable to me and I hope to you too. Deep background is brought to you by Pushkin Industries. Our producer is mo La Board, our engineer is Bent Holliday, and our showrunner is Sophie Crane mccibbon. Editorial support from noam Osband. Theme music by Luis Gara at Pushkin. Thanks to Mia Lobelle, Julia Barton, Lydia, Jean Coott, Heather Faine, Carlie mcgliori, Maggie Taylor, Eric Sandler, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com. 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Pushkin from Pushkin Industries. This is Deep Background to show where we explore the stories behind the stories in the news. I'm Noah Feldman. One of the important stories that's come out of COVID is the disruption of the global supply chain. If you've recently tried to buy a new car or some furniture, you know all about this problem. The system of making and distributing goods around the world is not working quite the way we're accustomed to it working, and we're not exactly clear on how to fix it. For today's show, we wanted to speak to someone could explain what's going on to us and deepen our understanding and knowledge of this headline topic, supply chain disruption. I'm very glad to say that our fantastic team here at Deep Background found someone who could do exactly that. Hannah Kane is the founder and CEO of a Loom, a global supply chain company based in California. She has decades of experience in supply chain management, and I'm going to talk to her about what's causing supply chain slowdowns, what we should think of the supply chain as actually being the role that government has to play in this and how we make our way out of it over time. Hannah, thank you so much for joining me. So, when we entered this COVID world, many people who were consumers spent exactly zero time ever thinking about the words supply chain. I'm sure if one ran any kind of a company that made a product, these were everyday, day to day concerns. But the sense from the end consumer's perspective was it's all under control, right, We're convinced there are people out there like you who are expert in it, who keep it all flowing, and the rest of us just didn't worry about it very much. Then COVID came and suddenly everyone noticed that we were interdependent on one another in a very complex set of ways. And then people started using the words supply chain problems to justify almost any change. Was there a particular feature in your view of the COVID disruptions. Are there specific moments or events that you could point to as inherently transformative that sort of put your topic on the front page or was this just a slow, gradual thing that the rest of you were following the entire time and the rest of the world only noticed it because of these events well, it's a little bit of both. So for a long time we have been teaching at the edge of the ABYSS when it comes to supply, and many of us have already wasted flags because things like infrastructure has been totally underserved. When you look at at our population growth, we are essentially in the US thirty three percent more population over the last three decades, and we're allmost invested in the new infrastructure. And that is a huge problem because we know that the demand is going up, but in the end we need to have the infrastructure to keep up with that. So we knew things like infrastructure was the problem. We also know that regulations are exploding. And when I say regulations, it's things like how do you get product from point A to point B. You've got to get it out of one country into another country. The bureaucracy and the regulations concerning that keep increasing. We are at a trade wall with a number of different open countries, and that trade those trade walls really heavily impact the supply team. So all of this is not really COVID related. You know, we saw it coming. We've been dealing with it for a long time. Edge of the ABYSS is a very strong formulation. And it's fascinating because I mean, of course it's going to leave it to ask you whether we're now in the ABYSS or whether we're still clinging to the edge of it. But before I ask you that infrastructure, do you mean give some examples? Do you mean ports where products arrive, roads where things are carried by trucks, railroad? What are the features of infrastructure in the US that seemed particular lead to have been teetering on the edge of the abyss to you? I think pots are a really good example, and that's mainly the seaports. We also have some restrictions on our airports, restrictions on planes and trock limitations. We certainly have a big crisis when it comes to a number of truck drivers. We simply have two few truck drivers. And this already started and had become an issue before COVID. But what happened with COVID was really that all of a sudden we saw a big demand shift. Demand switched to home partucts, shift to shifted to different parduct types, and and all the travel money went away and instead it was used on getting a new, more fancy home television home set up for your home office, etc. And all of a sudden that demand shift happened. So that was a really big supply chain event that happened in the beginning of the pandemic. And then you had the other The other problem was that you had the disruption and the labor and that was a global issue. So those two issues to get have made it now it's too complex. So if you think back a couple of yes, you could probably do a fodcast that was ninety percent great. You could probably plan for ninety to ninety eight percent of all events that were going to happen. And here during COVID we have been lucky if we've been hitting fifty sixty seventy percent great focast. And then when you look at what the SAT mean and supply chain, it means said, you're buying the wrong thing. I want to talk about the demand shift and I want to talk about the labor disruptions, both of which I think are hugely fascinating and important, and also both of which are relevant to the question of inflation. But I also want to ask you about how unique the United States is with respect to these infrastructure problems, because in other places in the world that at least I traveled to. Back when we traveled more, it struck me that, at least at a superficial level, the infrastructure seemed much fresher, much newer, and much more updated than in the US. I don't just mean Western European countries, where Americans who are accustomed to traveling to those countries in the last thirty or forty years are accustomed to seeing the infrastructure as being really superior to US infrastructure, but also in countries that one might have thought of as developing countries, some of which are not so developing anymore and are are pretty developed, but some of which are really still very much developing countries, which still looked like they had newer airports, newer roads. I'm not an expert in seaports, but you could drive by and see large, functioning seaports that looked like they were fancier than the ones that we see, at least in the northeast. Am I right to think that the US lagging behind an infrastructure is pretty distinctive? It is. It most definitely is, and certainly I mean the physical infrastructure. We're definitely lagging, and especially compared to some of the growing Asian nations. There are some great standouts in Asia where they built infrastructure and in a very impressive manner, China Coast in one of them, Singapore, Japan to a very large extent. And then there are some countries that are lagging behind, and we are seeing as we already pre pandemic, we saw a shift away from China with shifting productions to a country like Vietnam where also the infrastructure is really lacking and companies have their product get stuck in Vietnam because they cannot get it moved, they cannot get it out of the country, and so it's a course of board. Infrastructure really important and it's an important consideration when you design your supply team. Where is the infrastructure that can really help you. Another area where the US is, of course lacking, is in the technology. We are not nearly as advanced as some of the top players within broadband and speed of the networks and for that matter, coverage in remote areas. So that's another area we need to work on. You mentioned, and the regulatory barriers to smooth supply chain operation. The trade wars I sort of can account for. I personally don't believe they're rational. I don't think they're helping for the most part, at least in the United States and the trade wars that we've started in recent years. But at least I can understand where they come from. Right, there's a domestic sentiment that says we're getting taken advantage of by other countries. There are interests domestically that imagine that it will lead to more US jobs. There's not a lot of evidence that always happens, but at least you can understand the impulse. But what about the other kinds of regulatory barriers that you mentioned. I mean, what's in it for the regulators? Who is asking for greater regulatory intervention in ordinary effective trade? Well, let me give you a couple of examples. California decide that, in order to get products from the ports and into the country, use something called yage. Those twyage trucks have traditional in the most polluting trucks on the road, and California decided that you cannot use trucks that are older than yet two thousand and eleven to move products from the port. And that regulation then meant that many of the truckers simply could not do it, could not move that product. And so that's a small part of the port crisis, but certainly it happens. And I think we all have the sympathy for the environmental regulations that we don't want polluting trucks out there, but this is an example of where where the balance may shift and it may become more difficult. Another type of regulation is hope for social responsibility, where you can say child's labor, we don't want any child's labor or other human rights abuses in the supply chain, and had then creates some intrigacies in where you place the supply chain and how you are able to run. So there's a lot of regulationship are very important in many ways, but certainly they impact a supply chain. We'll be right back, Hannah. You spoke of the demand shift that happened at COVID when suddenly consumers didn't want to buy the same things they previously wanted to buy. I recognize that that can cause problems for the supply chain. If I'm running a company and I suddenly need some product that I didn't otherwise have, and where I need more of something that I had a little bit of, is it fundamentally a supply chain problem though, or is that fundamentally just the kind of economic problem that sometimes arises, right? I mean, if we said that there is a change in supply of a product or a change in demand of a product, those seem to be underlying economic forces that they impinge on the supply chain, but they don't seem to be answerable as it were, just via the supply chain. Well, it certainly it becomes the supply chain problem because you need to be able to produce what the consumer wants in the end. That's what it's about, is producing what is needed and getting it to the location where it's needed. And so when we saught the demand shift, of course companies have to respond and it creates a lot of problems when we have these big swings. As we saw, the swings are becoming bigger over time, and it's a very interesting thing. I think social media is driving a lot of the demand shifts. That many people go and buy what others seem to be buying, and so you get these big shifts, and of course they need to be produced. What also has happened over time is that we as consumers have gotten really spoiled when we get it in any type, configuration color it said right that we want. And one of the ways companies have tried to minimize complexity and focus on at least getting product out in the supply chain is to cut down on the number of selections. And you see that a little bit when you're out shopping, that there's a little bit less selection these days than they used to be. Not that we are suffering any big card shifts, but it's a good way to decrease the complexity. And complexity is really a big issue in supply chain right now because the systems cannot handle it, and because there's so many unexpected events, and supply chain professionals are joggling all these balls in the air because of those shifts. The complexity also seems to be part of our current moment of consumerism, where I not only understand that if I go to the shop, the product that I want may exist in ten colors, but I expect it to exist in those colors as well, and that's sort of what keeps me buying in some sense, at least to the low end of expenses. But when you gave that answer, which is totally fascinating to me, I had this feeling that maybe people are using the words supply chain is kind of an excuse to kind of catch all excuse that, at least for some consumers, I think, I include myself here might be misleading. So you know, it's been COVID. I've been sitting on my couch a lot. My couch isn't very good. It's time for a new couch. So I go, this actually happened to me recently. I go shopping for the couch and they say, oh, for that couch, the weight will be you know, nine months. And I say, well, oh my goodness, that seems like a long time to wait for the couch, and they say, well, supply chain. Then they also say, but actually there is one color, and if you get that couch in this one color, we actually do have those, and those are in the warehouse and you can get those. Now, I guess it is a supply chain question. You're convincing me that everything is a supply chain question, because if they have something in the warehouse and I can get it, that means the supply chains has sent it here and it's functioned correctly, and if I'm willing to buy the product, you know, even if it's not the color that I would have first chosen. Pretty good, right, It's a pretty good outcome. The year weight for the sofa or the couch and the color that I would have wanted. Seems to be that they're using the word supply chain as a shorthand for We had no idea so many people were going to want to buy sofas, and so it takes a while to make the new sofas. And we also have to hire people. You spoke about labor. We have to hire people in the factory wherever that is to build these sofas, and we need to hire truckers so that the sofa can be transported, and if it's coming internationally, it has to come in through report. But they're using supply chain effectively as a grab bag to mean all of those things, and I think too many consumers, at least to myself, it sounds like they're saying, oh, it just takes a long time for it to get here, or something like that, or you know, there was a particular part of the fabric that we can't get enough of because people want that. But the reality seems to be that they just didn't anticipate that there would be the kind of demand that there is, and they can't be blamed for that. I mean, no one could have anticipated we would all spend such a higher percentage of our days sitting on our couch than we previously did. But it sounds like the words supply chain are covering many, many different causes of delays. That is correct, and that's because I gained the supply chain is ultra complex and there are many different places where you can have and currently you have delays in the supply chain. And so what supply chain professionals do is they try to work around these delays and try to circumvent them. But you can only do so much. If we step back and look at this over a long time and sort of from a more macroeconomic standpoint, what has happened over the last thirty years is we have driven cost of manufactured goods down and down and down, so it's now cheaper than ever to buy a thing, and that's of all a good thing. That downside that we are seeing now is as we are producing cheap things in cheap countries and cheaper countries and driving down the manufactured cost, we are increasing the risk and we are also increasing the supply chain cost, the supply chain cost of transportation and customs, cleerens and all of those type of things, and governance for that matter. So that's what we're seeing right now, and explosion and those costs. It's not really that the things are getting much more expensive to manufacture. It's all the extra supply chain cost, and we are seeing the increased problems in managing that complexity. So I'm sorry you have to wait for your sofa. I can't help you get it there far. I just I just took the one color they had in stock because I didn't want to wait a year for za. You know, I was a good soldier at least with respect of that decision. Labor, So, labor cost is obviously an important part of making anything and an important part of transporting anything. And as you mentioned, manufacturing costs have been going down, and some of that is by pushing down wages in some places and times, but more of it is by gaining efficiencies from other aspects. Right now, at least in the United States, the cost of labor is very high for complex reasons that no one fully understands. That that that I have to do with people coming back from COVID and deciding they're not going back to the jobs they were in before and they don't wish to participate in the official economy in that way. When you think about labor in its relationship to the supply chain, how do you think of that. I think it's a course abort. So we already, as I mentioned, have a labor crisis, ongoing labor crisis in truck Trucking has been an area where we have seen a lot of retirement and not a lot of new people coming in, and so that has been a big concern for a while and been talked about for a while. But you're right, what we're seeing right now is an emotional shift where everybody is asking themselves whether they're working the right job and whether they want to do something different, and it's certainly impacting the supply chain big time. You're also seeing an increased need for staff in the supply chain, so a lot of the workforce have shifted from retail to supply chain. So we're buying more and more online, We're getting more and more shipped to our homes, so people move from retail into warehouses. There's a big move to automate much of what's going on and the supply chain, but there's still we still need labor, and so I am very concerned about the inflation that we are seeing and the inflationary pressures coming from the labor as well as inflation or materials and components coming in and for that to finish good, so the cost is just going up tremendously. I think we are going to see the supply chain crisis continuing for another several years. And I think supply chain issues are going to stick with us for a while until we get the infrastructure fixed, until we get more automation in the supply chain, until we get better systems to be able to handle with all the exceptions that we deal with in supply chain. So definitely a lot of big investments need to happen and development needs to happen before we are in a position where we can say supply chain is just humming it all. So what I'm hearing you saying is that the process of not only manufacturing but of delivering things is a process that is still very human intensive. Right, Maybe someday we'll have automated trucks, but we don't have automated trucks. Maybe someday we'll have a way in a fully automated fashion, and to take the products off the ship at the port and put it onto the trucks or the trains and get it from place to place. We don't. We still require human beings to participate in this. So I guess the question I want to end with is, when you say, you know, well we need more automation in this space, how fast can that happen and how good will that be? Are these jobs that can be replaced by automation as opposed to by humans, at least in the foreseeable future, and will that lead to the opposite effect, an effect where many many people whose jobs depend on being the human beings who operate the supply chain find themselves desperately needing some other kind of work, much as we've seen in manufacturing, where many relatively good blue collar jobs went away, and to the extent they're replaced, they're replaced by much less appealing surface sector jobs. I mean, is it basically the case that that's going to happen and elsewhere in the supply chain as well. It just hasn't happened yet. I am a firm believer that automation and it's not a bad deal, and that it's all about how we transition the workforce. I don't see right now that we're going to have a surplus workforce. I see that we are very much in need of more workforce, and I think that trend is going to stay with us for a long time. And the other thing we can do, apart from, of course, automation, is to go in and say, maybe we can do more near sourcing and not have to transport products so far distances. We are seeing that right now, corporations are coming in and saying, Okay, we have so much cost in transporting all these goods around, maybe we can buy some of them locally where we need them and closer to the market. And so that's called near sourcing and a really strong strategy from a sustainability standpoint. But also it takes risks down. The closer you are to the less, the less can go wrong in the supply chain, and so that may be a possible opportunity for small and mid sized companies also to come in and play a stronger role in the supply chain. So there's a lots of good things that could come out of this as cooperations, A reevaluating their supply chains. And I want to thank you so much for educating me and our listeners and for the fascinating and important work that you do. And I guess I want to apologize on behalf of all of us for not paying enough attention to the significance and importance of supply chain affairs until suddenly we experience disruptions. Thank you very much, Thank you. We'll be right back. Talking to Hannah Kane brought home some reality to me that I truly did not anticipate before speaking to her. Maybe, like a lot of you, I've mostly taken the excuse supply chain delays to be a reasonable explanation of the difficulty in getting goods to market in the time of COVID. But as Hannah argued, we were on the edge of the abyss her striking phrase even before COVID happened. In other words, the global supply chain was already extraordinarily delicate, and as population grew, regulation not only the good kind, but also the kind that comes with trade wars, was increased, and as our infrastructure above all continued to degrade. In the United States, we were already, without quite knowing it, in a position where the slightest disruption to our regular economy could really break the supply chain in a range of ways. At the same time, just in time, servicing had made us expect to get things when we wanted them, how we wanted them, in a way that was probably ultimately unsustainable. It follows from this that the major shifts of the pandemic, the demand shift, the labor shift, and other challenges, we're just really the straw that broke the camel's back, albeit a rather a large bale of straw. That means, according to Hannah, that we're not going to see a rapid turnaround or a set of improvements in the global supply chain just because things begin to get back to a new normal post COVID. Instead, we're going to have to actually build better infrastructure. We're gonna have to engage in a rationalization of our trade policies if and when that actually happens. We're gonna have to develop norms appropriate to a consumer economy where we can't always expect to get everything we want magically when we want it. And most troublingly, according to Hannah, we also need substantial automation through the supply chain. As you heard That's a little worrisome because the kinds of jobs that the supply chain historically supported in transport were at least sometimes relatively good blue collar jobs, many times unionized jobs. If those are going to go away as part of the rationalization of the supply chain, it means further problems of the kind were already familiar with as manufacturing jobs have gone away. That means that making the global supply chain hum again is going to have distributive effects in our real economy, distributive effects that we have to develop good policy solutions to address in a manner that is fair and just. Regular listeners of this podcast know that I am no MBA, and I have the feeling that my ignorance of the everyday processes of how a business transports things around the world was particularly in evidence today. But maybe for that reason, I found this conversation especially powerful and especially illuminating, and I certainly appreciated Hannakane's extreme clarity of analysis and purpose. Until the next time I speak to you, breathe deep, think deep thoughts, and have a little fun. If you're a regular listener, you know I love communicating with you here on deep background. I also really want that communication to run both ways. I want to know what you think are the most important stories of the moment, and what kinds of guests do you think it would be useful to hear from. More So, I'm opening a new channel of communication. To access it, just go to my website Noah Dashfelman dot com. You can sign up from my newsletter and you can tell me exactly what's on your mind, something that would be really valuable to me and I hope to you too. Deep background is brought to you by Pushkin Industries. Our producer is mo La Board, our engineer is Bent Holliday, and our showrunner is Sophie Crane mccibbon. Editorial support from noam Osband. Theme music by Luis Gara at Pushkin. Thanks to Mia Lobelle, Julia Barton, Lydia, Jean Coott, Heather Faine, Carlie mcgliori, Maggie Taylor, Eric Sandler, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com. 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