The Fruits of Civilization (49) Inefficiency

Inefficiency

The idea that a market-based economy has an inherent efficiency is a long-standing myth, first perpetuated by Adam Smith in 1776 but enthusiastically endorsed by rubes since. There is not a shred of evidence that competitive economics, via the price mechanism, delivers efficiencies.

Actuality is quite the contrary. Until oligopolization occurs in an industry, free enterprise is a free-for-all, profligate in waste. Whence emerges a central characteristic of unplanned economies: inefficiency.

The most striking thing about modern industry is that it requires so much and accomplishes so little. Modern industry seems to be inefficient to a degree that surpasses one’s ordinary powers of imagination. Its inefficiency therefore remains unnoticed. ~ E.F. Schumacher

 The Transportation Logistics Industry

The transportation logistics industry is exemplary of industrial inefficiency. All told, road haulage of all kinds earns $700 billion (€636 billion) a year in the US, and over €310 billion ($341 b) in Europe. Worldwide firms such as UPS, DHL, and FedEx are household names. But even they compete with innumerable small haulers.

Whereas the top 5 airlines in the US earn 90% of the industry’s domestic revenues, the top 5 cargo firms haul in just 20%. 11% of America’s truckers are independent owner-operators, not employees. Low barriers to entry into haulage is the reason freelance lorries take the lion’s share of the market.

Computer networks coupled to mobile phones is improving efficiency and lowering the brokerage fees by which haulage deals are made. In engendering freelance work, this technology is a force against consolidation; hence, the inefficiency continues. Every year, American trucks travel 80 billion km – 28% of their total mileage – without a load. In Europe, 25% of the lorries on the road are empty.

Road haulage is the retail end of trade transport. Goods traverse the globe on ships. 90% of world trade is carried onboard merchant ships, of which there are 50,000. 90% of the cargo afloat is on huge container ships.

Like land logistics, the shipping business is badly managed from a holistic perspective. Overcapacity from a binge of shipbuilding that began around 2011 led to huge losses in 2016 at 11 of the 12 largest shipping companies in the world. Sending a container from Shanghai to Europe cost in 2016 half of what it did in 2014.

The way that shipping companies run their business has been inscrutable: costs are some 30% higher than they could be because the shipping industry long resisted computerization. Most ships lack basic sensors which ensure that hatches are closed before leaving port. Huge maintenance bills could be reduced by using sensors to facilitate predictive maintenance.

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The root of logistics inefficiency owes to the diaspora of humanity. Having humans hither and yon in utter disorganization is a generator of both economic opportunity and disorder but unequivocably an unmitigated environmental assault.