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Hanjin: optimisation is the enemy of resilience

3 min read

So a big shipping company went bankrupt -- why should you care? Because it's a sign of serious trouble in the global infrastructural metasystem also known as "the supply chain":

With little or no inventory of essential goods and raw materials retailers and manufacturers are subject to disruptions all along their supply chains which reach around the globe. A breakdown at any step can quickly bring activity to a halt on the factory floor or on the sales floor.

Just-in-time is very efficient financially (until, of course, it isn't). Little money is tied up in inventories or the space to warehouse them. But just-in-time is not very resilient. It used to be that businesses stockpiled goods and critical resources to ensure against disruptions. But the advent of computerized tracking combined with more efficient shipping practices worked to end the stockpiling of inventories.

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The Hanjin bankruptcy also calls into the question the wisdom of allowing so much freight--7.8 percent of all trans-Pacific U.S. freight--to be handled by one carrier. And yet large size and just-in-time systems create what economists like to call economies of scale. Goods and services are provided more cheaply.

But such systems are not resilient. Resilience often requires redundancy and that spells inefficiency in today's business climate.

This problem is endemic to the majority of infrastructures, if not all of them. Optimisation is the enemy of resilience -- and, indeed, can end up being counterproductive. All complex systems end up with a certain amount of loss to noise and friction, and it is often possible to iterate much of that lossiness away by tweaking the system, adding feedback loops, that sort of thing. But there's a problem not unlike the EROEI problem in energy extraction, in that once the major problems are fixed, the minor problems that remain become ever more subtle and difficult to work on, and you eventually reach a tipping-point where you're expending as many resources on trying to squelch the noise as you expect to recover by squelching it (which takes you into Red Queen's Race territory, wherein you're running as fast as you can simply to stay in place).

This is compounded by an approach to systems management that indulges in what Haraway indentified as the God's-eye view -- it is impossible to truly understand any system to which you perceive yourself as being somehow external or superior.

But mostly it's a bottom-line thing: businesses like Hanjin compete on capacity, as pointed out above, which means that profit margins are very, very thin (a fact obscured by the sheer number of transactions), and the arbitration systems on which the market is based keep a downward pressure on price (to the extent that it is often possible to find shipping capacity available at negative prices -- capacity which the shipper will effectively compensate you for using). The Hanjin bankruptcy may mean we've reached a point where the profit margin of running a sizable shipping company has reached parity with the inescapable losses from noise in the system: they effectively cancel each other out, and the organisation runs at a net loss.

What happens when there's no money to be made in moving matter around?