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Friday, January 11, 2008

FAR Future, Episode 19: Up Against the Wal

I’ve been doing a fair amount of writing, and some of it on future episodes. I hope to (eventually) return to a twice-weekly schedule, but for now I’ll try to do at least one a week.

Thursday, February 21, 2013
Up Against the Wal

From the “right thing for the wrong reasons” category: WalMart closed a couple of stores last week. “Low performers” is a phrase we’ll probably hearing a lot more out of Bentonville. Looking at a map, I’m guessing that those stores were using more fuel than the beanie counters want — they’re likely at the end of the supply line. That “warehouse on wheels” became a warehouse on rails pretty fast, but they still have to truck the stuff from the depot.

Speaking of WalMart, that article about Chinese factories knocking down outside walls so they can work by daylight was interesting. Even more so are the Chinese freighters being rigged with sails — people used to move a lot of freight that way, but how quick they can train a new generation of sailors is beyond me. There’s no telling how long it will be before they can start shipping a significant about of stuff that way, but I’m guessing it’s a bluff to keep people from reshoring (love that new buzzword, it rhymes with “restoring”). Just think: in a couple of generations, “Chinese junk” went from a name for a kind of boat, to the stuff they put in the boat to ship here, and now it’ll become a boat again. Long supply lines — or rather, the fuel costs associated with them — have to be eating up any advantages in labor costs… especially since the workers have woken up and started demanding a bigger share of the pie.

I haven’t seen anything on the US news sites, but there was a brief mention on the BBC site about container-loads of stowaways taking the slow boat from China to wherever. The only places where I’ve seen details are the nationalist (i.e. racist) sites — not even Shotgun Sam has brought it up yet — and I tend to discount most of that drivel. But either they’re sourcing the same lies, or they’re sourcing the same facts. Anyway, as the story goes: the Chinese government is outfitting shipping containers with food, water, toilets, and hammocks, loading about 10 or 20 people in each one, and putting several containers on each ship leaving the country. They ship to warehouses controlled by some front group, get the stowaways fake papers, and turn ’em loose. The only primary differences I’ve seen in the stories is who’s behind it: either the government (letting volunteers ride for free to get them out of the country) or a tong/mafia group (high payments, indentured servitude on this end of the ride). The US government is (supposedly) looking the other way in return for the Chinese government not calling their notes all at once. The Chinese have been collecting on our debts, but slowly, probably to keep from crashing our economy (or inviting a default), and probably to subsidize worker pay hikes.

Meanwhile, back here at home, Wally don’t wanna play with the locals, but I suspect it’s inevitable — if they want a store fill of crap, they need to fill it up somehow. But the domestic companies aren’t giving WalMart much of a discount these days, especially the ones who have reshored their operations. Wal-Mart naturally wants cost-reduced versions of stuff like microwaves and furniture, but I’m sure they’ve seen the surveys too. People buying appliances don’t want throwaway crap anymore, and they’ll pay for stuff that’s going to last a while. The “Site-to-Store” feature they’ve had for years accounts for a huge percentage of their sales now — I think anyone who has wasted gas going to Wally-World for something that was out of stock has become an instant convert.

Ironically, Wal-Mart’s cutthroat pricing policies are exactly what has come back to bite them. Higher-end retailers have barely seen any price moves; there are plenty of margins to cut into and a lot more goodwill with their suppliers. Not so with the razor-thin margins “enjoyed” by Wally’s suppliers: if labor costs go up, if shipping costs go up, if materials costs go up (and all of them have lately), Wally either has to absorb the increases themselves (and pass it on to their customers) or lose another supplier. So the prices are going up at the low end a lot more than the mid-range or high-end, at least so far. That’s one jaw of the pliers: the other is that much of Wally’s price-conscious customer base is spending all their dough just to keep the heat on. You would think that would be offset by formerly higher-end shoppers looking to stay on a budget, but the ones who have spoken out about it said the price breaks aren’t worth the hit to quality.

At work, we didn’t so much reshore as reshuffle. Our manufacturer in China is still making stuff for the Asia-Pacific market. A company we bought a while back has a factory in Mexico, so that’s where we moved Western Hemisphere production. Finally, we contracted with a factory in Italy to handle Europe/Middle East/Africa products. One of the manufacturing guys I talk to about one of our products says that’s becoming a trend: build the stuff close to where it’s being sold; sending information is still dirt-cheap and you can save big on shipping costs. Translating documentation is another inflation-resistant service — it’s all handled electronically and the people doing the actual translations often have wind or solar power (like me) to avoid blackout issues.

Things got a little shaky at work late last summer; the blackouts made it pretty difficult for our customers to deliver the goods to their customers, and we had an alarming dip in orders. Fortunately, things improved with cooler weather, and they’re pledging to not get caught out like that again, so maybe I’ll stay employed for another year. Our new product, an EMTA that can go 2 days on battery power, with data and two phone lines in constant use, made us one of the few growth companies last year… which is why I was able to afford my own backup power; our stock zoomed up and I cashed in some options. Go us. :-)

It’s already starting to warm up; the in-laws have started trays of tomato plants. We’ll be starting our gardens before you know it. This year, we probably won’t be going to Wal-Mart for much of anything, though.



  1. Excellent FAR! Gee, this post kinda sounds like the business climate here in Michigan, now! Not five years out.. K-Mart has closed some stores here and I suspect more this year, even the one here, where I live.

    Far, what happens when some products become worthless? That is, when there is no margine of profit? If the price of fuel doubles and you're margine is say only 10% now, then why bother producing the product any longer? I might susgest that for many products, as well as services, we are at the threshold now. Let's face it, that time for some has gone and went.

    Take it one more step further... Why bother growing crops when that margin is'nt met either? When the "Meals on wheels program" looses it's margin, or when the people can no longer afford the cost of food delievered in this matter, what happens? How far away are we from that point, right now? How long has it been since the goverment has subsidized farmers in order to continue operating this way? For that matter, subsidizing the poor in order to afford it?

    I very much like you're idea about some companies actually making profit, here. This might come at a price when the Chinese come here and take what is legally theirs................

    I also liked your idea that blackouts will occur the most and be more severe during the hottest months.

    Thanks, yooper

  2. Hey Yooper. K-Mart closed most of their stores here several years ago. There used to be two or three on my commute line, now there's none.

    I think products with no profit margin either get discontinued or become (higher-priced) "specialty" items. Food in general won't be one of those, because people aren't going to stop eating, although specific items (or methods of production) might die out — maybe I'm biased, but I can see factory-style chicken production becoming unprofitable (indeed, I touched on that in earlier episodes). I expect farming to again become more labor-intensive, although I think it's more likely that there will be labor pools rather than large families, but at the same time I expect more people will have to grow their own food. Backyard chicken coops in cities could easily make a comeback, when "store-bought" chicken becomes hard to come by.

    BTW, I like your "decline or collapse" article. I'm trying to absorb it more completely, then come up with my own answer to your closing question.

  3. Hello Far! I suppose, put another way, when it costs more to get fuel, than what's its worth, then your vehicle becomes worthless. Another way of looking at it, if it takes a half a tank of gas for your motorcycle to obtain fuel, then at that point that motorcycle becomes, "useless".

    To carry this concept one step further, if it takes as much energy or more to pump the remaining oil from an exsisting well, than the energy produced from that pumped oil, then in effect, that oil becomes, "useless". At that point it becomes a "sink".

    If factory style chicken production becomes unprofitable, then at that point we can expect our population to decline because it was that "style" that enabled our population to explode in the first place.

    Thanks, yooper

  4. Hey Far, correction, if it take a FULL tank of gas to obtain gas, then that vehicle becomes "worthless". Anyway, I'm sure you get the idea. Btw, you're right about that people have got to eat. At least, that's what my Dad used to always tell me. For the past four years we have been dumping the crop in the woods.... I ask him now, "What are the people eating now?".............

    Thanks, yooper

  5. Sure, Yooper. The technical term is EROEI (Energy Returned On Energy Invested). When it takes more energy to get the oil out than it can provide, oil will be useful only as petrochemicals (rather than an energy source).

    That's got to be maddening, dumping your crop in the woods. What do you grow? Couldn't the local food banks do something useful with it?


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