Harvard Business School professor Willy Shih joins WIRED to answer the internet's burning questions about the global supply chain. How do tariffs work? Why have egg prices become so high? Is the world in a trade war? When did a global economy first develop? How could the United States realistically bring back manufacturing jobs? Will global supply chains collapse? Answers to these questions and many more await on Supply Chain Support.
NOTE: On April 2, President Trump ended de minimis treatment for low-value imports from China via executive order, effective May 2.
Director: Lisandro Perez-Rey
Director of Photography: Constantine Economides
Editor: Alex Mechanik
Expert: Willy Shih
Line Producer: Joseph Buscemi
Associate Producer: Paul Gulyas; Brandon White
Production Manager: Peter Brunette
Production Coordinator: Rhyan Lark
Casting Producer: Nick Sawyer
Camera Operator: Jack Belise
Sound Mixer: Rebecca O'Neill
Production Assistant: Caleb Clark
Post Production Supervisor: Christian Olguin
Post Production Coordinator: Rachel Kim
Supervising Editor: Erica DeLeo
Additional Editor: Samantha DiVito, Jason Malizia
Assistant Editor: Justin Symonds
NOTE: On April 2, President Trump ended de minimis treatment for low-value imports from China via executive order, effective May 2.
Director: Lisandro Perez-Rey
Director of Photography: Constantine Economides
Editor: Alex Mechanik
Expert: Willy Shih
Line Producer: Joseph Buscemi
Associate Producer: Paul Gulyas; Brandon White
Production Manager: Peter Brunette
Production Coordinator: Rhyan Lark
Casting Producer: Nick Sawyer
Camera Operator: Jack Belise
Sound Mixer: Rebecca O'Neill
Production Assistant: Caleb Clark
Post Production Supervisor: Christian Olguin
Post Production Coordinator: Rachel Kim
Supervising Editor: Erica DeLeo
Additional Editor: Samantha DiVito, Jason Malizia
Assistant Editor: Justin Symonds
Category
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TechTranscript
00:00I'm Harvard Business School professor Willie Shi. I study supply chains.
00:03Let's answer your questions from the internet. This is Supply Chain Support.
00:12First question. An immortal kid asks, how do tariffs work?
00:15Well, tariffs are a surcharge that are applied on top of the cost of your import, right? So when
00:22you buy an import from some company abroad that's selling it to you, the U.S. government,
00:27for example, would add what amounts to a tax on top of that value. So if you bought something that was
00:35worth $100 and you have a 25% tariff, then the U.S. government would collect $25 from you in order
00:43for you to receive your package. The people who pay that tax are the people who buy the products,
00:49you and me, the consumers. At Michael Hughes 1, but seriously, y'all, what's with egg prices?
00:55First of all, we should recognize there are two different supply chains for chickens and eggs,
01:01right? Chicken meat is one supply chain, eggs are another supply chain. The hens that lay those eggs
01:06have suffered a lot from this avian bird flu, and that's led to the culling of a lot of those hens.
01:13When we cull all the egg-laying hens, the egg supply has gotten tight. That's why we've seen
01:18a huge increase in the price of eggs. So what we have to do is we have to rebuild the flock. There's
01:23another interesting aspect about chickens and hens. If you're an egg-laying hen,
01:29you need biotin in your chicken feed. And that biotin, by and large, comes from China. So if we
01:35get into a trade war with China, and China decides that they maybe want to restrict exports of biotin,
01:42all of a sudden, our hens are not going to be as productive laying eggs.
01:46That guy B Mills asks, are we in a trade war? Yes, we're in a trade war, and it's getting worse.
01:52The purpose of a trade war is to favor your producers versus those of another country.
01:59The trade war really started with the first Trump administration by applying tariffs to China. The
02:05Biden administration also maintained a lot of those tariffs and added some tariffs and other trade
02:11restrictions. President Trump is imposing tariffs because he says, I want companies to make things
02:17in the United States. And by making imports more expensive, I'm going to encourage you to make stuff
02:22in the U.S. Maybe it'll be cheaper. The problem with the tariff argument is the cost of doing things
02:28in the United States is very high. Even today, when you look at the cost of labor in the United States
02:34versus the cost of labor in a place like Mexico or China, it's still four or five times more expensive
02:41to do something in the United States. What can you then make in the United States and be competitive?
02:46You can make things in the United States where you don't have a lot of labor content in your products.
02:53An example of that might be a jet engine where there's significant labor costs, but as a percentage
02:58of the total value of the product is relatively lower. If I wanted to sample an iPhone,
03:04the typical labor content would be probably about four hours. In China today, so say it's $6 an hour
03:11times four labor hours, that's $24. Four hours of the labor in the U.S., that'll probably cost me $40 an
03:19hour. Okay, so that would be maybe $160 versus $24 to assemble that phone. It's not going to happen.
03:27At PapaFall asks, high as hell thinking, why the was toilet paper the first thing to go when this
03:33COVID hit? Okay, let's talk about toilet paper. There are two things to understand about toilet
03:37paper. Number one, demand is flat. It's not like there's some seasons you use more toilet paper.
03:42The second thing to think about is economists say it's not very tradable. And what that means is
03:48it's kind of low value and it takes up a lot of space. If you ship a truckload of toilet paper,
03:53you're not making a lot of money doing that. And so you don't want to ship it long distances. It makes
03:58no sense, therefore, to import toilet paper from China, right? If you live in New York City,
04:03your toilet paper is going to be made somewhere in the Northeast or maybe mid-Atlantic states. It's
04:08not going to be made far away. I'm going to have factories that are loaded to 90 or 95%
04:14churning out toilet paper. So we're going to have a well-organized, very tight supply chain that doesn't
04:20have a lot of slack. Then when consumers go in and buy a lot, you're going to run out because there's
04:25not a lot of slack capacity to increase how much you can make when demand suddenly rises.
04:30I'll bring in some more machines. I'll ramp up. I'll run extra shifts. I'll delay my maintenance,
04:35okay? And they'll make more toilet paper. Eventually, people who've been stockpiling all
04:40that toilet paper don't have anywhere else they can store it. Once you get the five-year supply,
04:44you know what? I think we have enough and they'll stop buying it. Then sales will fall off a cliff.
04:48And you know what? That's exactly what happened.
04:50At Gucon asks, is the supply chain back to normal? Well, that depends. A lot of people
04:55would tell you the new normal is one where we constantly have surprises and disruptions.
05:01One example of a shock would be weather that causes port congestion. We remember during the
05:07pandemic where we had over a hundred ships waiting to unload off the ports of Los Angeles and Long
05:12Beach. There's been big congestion off the ports of Shanghai and Ningbo in China. Another great example
05:18of the shock was when the Houthis started attacking ships that were going through the Red Sea to try to
05:24get across the Suez Canal. That caused a major shock to supply chains when shipping companies
05:30said, huh, I can't use the Suez Canal anymore. At BS Viagra asked, how fragile is our supply chain when
05:36Houthi pirates can upend it and force us into battle? What the Houthis did is they occupied a strategic
05:42position on the strait that connects the Suez Canal with the Indian Ocean. That's the major trade lane
05:49from Asia to Europe. Historically, most of the shipments from China go through the Straits of
05:54Molucca and they would go through the Suez Canal to Europe. But when the Houthis started attacking
06:00container ships in the Red Sea, that made the Suez unpassable for many of them. So then a lot of them
06:06had to sail all the way around Africa. That added maybe 10 or 12 days to the voyage. That also removed
06:1312 percent of the global capacity of container ships just because they were occupied sailing
06:19around Africa. You may remember the movie Captain Phillips where they looked at piracy off Somalia
06:26and the east coast of Africa. Anytime you have a major trade lane, it is susceptible to disruption just
06:32by these incidents like that. If you look at China, for example, they are paranoid that most of their oil
06:39has to flow through the Straits of Molucca between Indonesia and Malaysia right off of Singapore.
06:45They call that the Molucca Dilemma. A lot of China's paranoia comes from they only have one coast.
06:52They feel hemmed in by the string of islands from Japan to Taiwan to the Philippines. So when you study
06:58geography, you can see these choke points on major global trade lanes, all of which represent important
07:06vulnerabilities. From the AskHistorians subreddit, at what point in history did the global economy
07:11start to develop? Let's look at a timeline. Trade really began with the Romans who were trading salt
07:19and other products. Remember, salary was money for salt. That was the original definition. The next big
07:25era was the Venetians. This is Marco Polo bringing back silk and ceramics from China across the Silk Road. We
07:34saw a real expansion of trade in the 1700s. This is when we had the sailing ships that would go
07:42around Africa to the Far East or they would go to the Americas to bring back gold or trade in rum.
07:50And then we had a pause between World War I and World War II where there were a lot of tariff barriers
07:55and kind of a lot of inward looking. We saw post-World War II a big expansion in trade and we saw
08:02this huge boom starting in the late 1990s but really gathering pace in the time from 2001 until 2010.
08:11The movement of factories for things like textiles, clothing, consumer products, toys out of the United
08:20States into a low-cost region like China where labor costs were often 1 20th of what they were in the U.S.
08:27In more recent times, starting in probably around 2016, we've seen beginnings of a trade war between
08:34the U.S. and China. Companies moving, starting to move production out of China. Countries like the U.S.
08:40applying tariffs to Chinese exports and then getting reciprocal tariffs applied to American exports.
08:48At GSW81, Donnie wants to know, why is the United States importing any food?
08:53The U.S. has one of the best agricultural regions in the world. Now it turns out though that a lot of
09:00food requires a lot of labor to harvest. For example, fresh fruits and vegetables. Let's take a crop like
09:07strawberries. We use a lot of labor on temporary immigrant visas, so-called H-2A visas, who can come in
09:14to California to pick strawberries. But when you're done with all the costs for that temporary labor, it costs
09:20you around $26.50 an hour to pick strawberries in California. Whereas, if you wanted to pick them in
09:27Mexico, it's about $1.50 an hour. That's why it makes economic sense to import strawberries from Mexico.
09:36The same thing actually applies for things like apples, blueberries, tomatoes grown in Canada. It's
09:43actually cheaper to grow them in Ontario and ship them across. We are a large food exporting country.
09:49In fact, we are the largest food exporting country. But our food exports tend to be in commodities
09:56where you can have a lot of automation and you can have a lot of productivity. Think of things like
10:01corn, wheat, soybeans, where a farmer and a relatively small crew can run a very large farm and produce
10:09enormous quantities of these products without a lot of labor.
10:13At YouNormal asks, what causes supply chain issues? The problems come from disruptions. Disruptions may
10:19be caused by any kind of shortage in parts or they may be caused by logistics issues, moving parts between
10:27various links. What had happened at the beginning of the pandemic was sales fell off a cliff for cars and
10:35trucks in North America. Many of the Detroit automakers canceled a lot of their parts orders, especially
10:41for microchips. Now, when demand picked up again, they went back to reorder those microchips. But meanwhile,
10:48the suppliers of microchips sold their capacity for other uses like in appliances and computers and other
10:55things. So all of a sudden, the car makers couldn't get those microchips. When you're building a complex
11:00product like a pickup truck, if you're short one part, you don't get to finish the truck. If you look
11:05at a typical car or pickup trucks, it may have a power steering assembly that comes from Mexico,
11:12or it may have castings that are used inside that come from India or China. A lot of products that we
11:19see, even though they are assembled in the US, have parts that come from all over the world. And that's
11:24what makes them complicated. This next question is from Quora. Which country has bigger ports,
11:29China or the US? The big ports are all on the east coast of China. And that's because
11:34the Chinese government, starting in the late 1990s and 2000s, invested a lot in this infrastructure.
11:41They wanted to be efficient and make it easy for all of their manufacturers to ship goods abroad.
11:47And we're now seeing the consequences of that because these guys are huge and they're efficient.
11:52Number one is Shanghai. It's an amazing port. They built it on a man-made island out in the East
11:57China Sea and they built the bridge to get all the way out there. You build an island out in the
12:01South China Sea because you want deep water, right? And they want to be able to handle the
12:05largest ships. So Shanghai is the largest. Ningbo, which is on the opposite side of Hangzhou Bay from
12:11Shanghai. And those serve the Yangtze River Delta, which is this huge manufacturing hub. You have
12:17thousands of companies, literally, who package up their goods in containers and they take them to those
12:24ports. I visited the port in Shenzhen a couple of years ago and I asked them, it's like, how many
12:28trucks a day do you handle? And they say, oh, you know, we usually get 20,000 trucks a day. Imagine
12:3420,000 trucks going to the port of Newark, New Jersey. That would be like backing up from Newark
12:40to Philadelphia. By the way, I asked the guys in China, it's like, what's your worst traffic jam you
12:45ever had? It's like, ah, you know, 20 kilometers long. The US are total imports across all ports and across
12:53the borders. Bring in between 90 and 100,000 containers a day. That's across the whole country.
12:59A typical port complex in the US has a handful of slips for docking large ships. May have as few as
13:07two, may have a half a dozen. In Shenzhen, they probably have close to 20 slips for handling these
13:12ultra large ships. The largest port complex in America is the Los Angeles Long Beach complex. If we
13:19had congestion around Los Angeles Long Beach, some of them will go up to Prince Rupert in Canada.
13:25When you look at the time it takes to transit from Japan, it's about two days sooner than it takes
13:32to get down to Los Angeles or Long Beach. From Prince Rupert, and then we have Port of Oakland,
13:38which is actually a major export port for products from the Central Valley, things like almonds. Next
13:44question. Stilato Princess asks, why does Trump want the Panama Canal in Greenland? A lot of that is
13:50because these oversee critical sea lanes. In the case of the Panama Canal, obviously connecting the
13:56Pacific Ocean to the Atlantic on the shortcut through Central America, Greenland is becoming more
14:02important as people look at the warming Arctic. People are already experimenting with shipping goods
14:09from China to Europe through the Arctic because they can do it. We don't have ice all year anymore.
14:14Greenland, even though it's mostly covered by ice, has a wealth of minerals that are important,
14:20things like rare earth elements. So he thinks maybe he wants to have access to those. We talk about
14:26lithium for batteries a lot. A lot of that lithium comes from places like Chile in South America. They
14:33bring it to China and then they refine it. They control the refining capacity for rare earths. So
14:38what was until the mid 1980s, the world's largest rare earth mine is actually in Mountain Pass,
14:46California. But since China invested in that refining capacity, a lot of those rare earths have been
14:53going to China for processing and then China sells it to the rest of the world. Our next question is from
14:59Upbeat Mastodon 223. Is supply chain management is just basically coordinating supplies from one
15:06place to another by communication or is it more than that? Supply chain management is all about
15:12matching supply with demand. In other words, customers want to buy stuff and I want to make sure
15:18that all the steps I need everywhere from production to shipping it around is in place to meet that need.
15:26If you work in supply chains, you have to worry about your supplier network. Where are all the
15:32components and all the parts that you use to make your product going to come from? How are they going
15:37to get there? How many do I want to have on hand when I'm assembling them? All those things you have to
15:45figure out when you look at the customer demand. Some products have different kind of demand profiles,
15:51right? A lot of them have a big back to school season. A lot of them sell a lot of their products
15:58between October and end of December for the holiday season. If you're in the supply chain for candy,
16:05you have to figure out how I'm going to prepare for this huge spike of demand in the three weeks before
16:10Halloween when most of the candy in the country is sold. That's the type of job a supply chain
16:16professional has to deal with. At Be Like Wes asks, Bro, how does KFC run out of chicken?
16:22Great illustration of supply chain resilience because back a couple of years ago KFC in the UK
16:29changed their distribution network. They shifted over to DHL as their distributor who had one warehouse for
16:38distributing all their chicken to their stores. One day there was a string of huge traffic accidents
16:45around that warehouse which prevented any trucks from getting out so they couldn't get any other
16:49chicken out to their stores and so you have KFC hanging signs in their windows, sorry no chicken.
16:56This is a classic example of the trade-off of resilience versus cost in a supply chain. They
17:03only went down to one warehouse which is less expensive but it's less resilient. Five warehouses
17:09meant you take one out the other four can still go. At Christian Suji says,
17:13Imagine having one of the busiest canals for shipping in the whole world but your dead ass never
17:18expanded to one cargo ship-wide part of the canal. Like what do you expect? A whole global supply chain
17:24obviously will grind to a halt. I think Christian is talking about an incident in the Suez Canal during
17:29the pandemic. That was when the Ever Given was trying to go through the canal during high wind conditions
17:34and it got stuck sideways and it blocked the canal. You say, well how could one ship block the canal?
17:40Well this ship is 400 meters long, longer than a football field. Remember, a lot of this infrastructure
17:46was built a long time ago before we had some of these mega ships. For example, the Panama Canal was
17:52built at the beginning of the 20th century before we even had container ships. The first container ships
17:58only held like 50 containers at a time. These days, the biggest ships hold 24,000 containers and they are
18:06400 meters long, which is a lot longer than a football field. So the ships have gotten bigger
18:12because they're more efficient and you can move more stuff at a lower cost and the infrastructure
18:18hasn't kept up. At Thomas Testia, how about the broken supply chain and food processing industry
18:24crippled by Trump's elimination of two million legal immigrant visas? That's a big problem because a lot of
18:29jobs in fruit and vegetable harvesting as well as food processing are jobs that frankly American
18:36citizens don't want. In the state of California, for example, half the agricultural workforce is
18:42undocumented illegals. So if we deport those, then the question is going to be who's going to pick those
18:48fruits and vegetables? We see undocumented workers as well in a lot of dairy plants, a lot of food
18:55processing plants, meat processing. So we're highly dependent on immigrants, many of them undocumented.
19:01Jabe Thomas, Republican asks, how could the U.S. bring back manufacturing and industry? What we can do is we
19:07have to focus on industries where either we don't have a lot of labor content in those products or areas
19:15where we can win on the basis of productivity. If you're going to have high labor costs, that labor has to have
19:22high productivity. The way you do that is with automation, with new designs. It's a tough problem
19:28because as we move production offshore, let's say furniture manufacturer, which really left North
19:34Carolina, those people moved on to other jobs. So now if you want to bring production back, you've got
19:40to train people how to make furniture again. It would take time and it would take money. One of the other
19:46things that we have to recognize is when we offshored production, that means we took a factory and we
19:52moved it to China. When we moved it to China, you had to build the building, hire the worker, hire the
19:56management, train people, bring in suppliers. What paid for all of that was lower product cost.
20:01Typically, the amount you would save would pay for itself within a year or sometimes even less.
20:08That was moving from a high-cost country to a low-cost country. Now, if you want to move from a low-cost
20:13country to a high-cost country, what's going to pay for it? Because you're not going to save anything,
20:18but you still have to build the factory. You still have to hire the workers. You still have to train
20:22the workforce and your product is going to cost more. So it's a very difficult problem. Next question.
20:27I'm sitting here in my leather recliner wondering how all the individual parts came together
20:33to deliver this level of chill for me. That's a great question because I visited one of these leather
20:39recliner factories in China and it in itself is a great story of globalization. They got their leather
20:46from the United States. They bought their lumber to make the frames from Argentina and they bought
20:53the chemical foam that they used to line the chair from the Netherlands. So all those parts came together
21:00in this factory in Shenzhen. That factory had a warehouse that had a half million cow hides that
21:07they were using to make recliners and they would fill about 160 shipping containers a day stuffed full of
21:14leather recliners. Then they'd send them down to the port. Historically, a lot of Asian goods would
21:19come from Los Angeles and Long Beach and come to rail hubs like Chicago or Kansas City or Dallas. Now,
21:26Chicago is a major hub for containers that come from Asia and are going to be distributed across the
21:33Midwest. Trucks that will serve as far east as Ohio and sometimes maybe even New York. Increasingly,
21:40what we're seeing is traffic coming through the Panama Canal and going to Gulf ports like Houston and
21:47then coming north out of Houston to serve the middle of the country. Then they would go into a distribution
21:53center and from the distribution center, they might go to the furniture showroom or they might go to a
21:58local warehouse outside of the city. So when you order that recliner, that last mile delivery to your
22:04house would be from that last warehouse. At Larissa Ariri asks, how is Temu so cheap? Two things to
22:11remember about Temu. Number one is Temu and Shein don't have their own factories. They are actually
22:17pure supply chain companies because what they do is they match demand from you with suppliers in China
22:25who then send the product directly to you. The other way they can be cheap is there's this exception to
22:31the import regulations is called the de minimis exemption. Most Shein and Temu products come
22:37in under the de minimis exemption. Anything under $800 doesn't have to file customs paperwork. Just to
22:44give you a scale, de minimis exemption packages are coming in at the rate between three and four
22:52million packages a day. And that means three to four million packages a day that come in without having
22:58to do any customs inspection or filing any paperwork. What these guys have discovered is our products are
23:05light enough and the cost is low enough that we could ship it by air cargo. If you look at like the
23:12last few months of 2024, these de minimis shipments from companies like Temu and Shein were about half of
23:21the air cargo traffic across the North Pacific and half the air cargo traffic from China to Europe.
23:29At Conflicted Art wants to know, I just wanted to go to sleep last night and instead I laid there awake
23:34for hours thinking, how is there another GPU shortage? First of all, we have a huge spike in demand for
23:39GPUs. That stands for graphic processing units, a computer chip that is used in AI applications. Those GPUs
23:48by and large are manufactured by one manufacturer in Taiwan. Taiwan Semiconductor Manufacturing, also
23:56known as TSMC, owns about 95% of the capacity in the world. The reason we're short is it takes a while
24:06to ramp up that most sophisticated capacity. The factory to make these GPUs right now, they started
24:13about 20 billion dollars to build one of those factories and it takes about two years to build and
24:19equip one of those factories. Those factories also make chips for iPhones, personal computers, the
24:25servers that go into the cloud data centers at Amazon and Facebook and other places. So there's a lot of
24:31demand for those chips and there's relatively little supply. Mostly what we're seeing here is a demand spike.
24:39Our next question is from Automatic Call Days, is there any way of knowing how many shipping containers
24:44are in the world? I would guess there are hundreds of millions of shipping containers out there. Now
24:48what happens is shipping containers are mostly made in China because steel is cheaper in China and
24:54shipping containers are pretty much all steel. Most of them come out of China to the US to Europe and
25:00they're filled with goods. We don't have nearly enough stuff to put in them to send them back. So a lot of
25:06empty containers end up hanging around. The container lines all sometimes had ships to pick up all those
25:12empties, but we tend to have a huge imbalance on empties and full containers, right? We'd have a lot
25:17of yards clogged with empty containers waiting to go back.
25:20At Douglas Lumsden 1 asks, I'm debating whether to buy a few of these eight foot wide, 49 foot long,
25:269.5 foot tall steel shipping containers. How expensive could they be? It's probably around a thousand bucks.
25:32The shipping lines all sell their containers after a certain number of years and a lot of people use
25:37them for storage and other purposes. I guess you could buy one. I once thought about converting one
25:43into an apartment so anytime I wanted to move I could call a shipping company and say, hey, move this to
25:48Hong Kong and then I'd have my house ready. But I never did that. For context, there are different
25:52sized containers, right? There's some that are 20 feet long, some are 40, some are 53 and a half feet long.
25:59Basically, it's just a steel box. So if you have a good use for steel boxes, I guess you could do it.
26:05There will never be a shortage of used shipping containers.
26:08At Benpo234 asks, WTF, do rare earth metals have to do with my wait time for my RAV4 Prime?
26:15Rare earth metals show up in a lot of crazy places. So for example, efficient motors have this rare earth
26:22called neodymium. And neodymium is what you use to make magnets. Most of that comes from China,
26:28by the way. And in those batteries, now you have metals like lithium and cobalt and other metals,
26:34which are really controlled by China in that supply chain.
26:37At Preston Brooks SC says, you all bought a damn candy bar at a gas station recently?
26:43A regular size Snickers bar is over $3. What? Has the supply chain of creamy nougat or crunchy
26:49peanuts been severely compromised by COVID or something? Let's talk about the chocolate supply
26:54chain. A lot of it comes from the Ivory Coast in Africa. And because of weather,
26:57the cocoa crop this year was really bad. So the cost of cocoa went way up. And that's why your
27:02Snickers bar is more expensive. Peanuts are okay. No new news on peanuts.
27:06At CheckyStomper69 asks, Wait, wait, wait. Forget the oil and steel and aluminum lumber.
27:12If the US slaps us with tariffs, where the are they going to get potash? Potash is a fertilizer that is
27:19used by farmers around the world, across the United States, and we get it all from Canada.
27:24So he's right. If we put tariffs on Canada and they retaliate by restricting potash,
27:31that will hurt us. But it will also hurt the Canadian exporters, the potash.
27:35We also get a lot of oil and steel and aluminum from Canada. One reason aluminum is cheaper to produce
27:43in Canada is because they have a lot of hydropower. We get oil from Canada, primarily the tar sands,
27:50the Athabasca tar sands in Alberta. And we have refineries in the US that are very well geared to
27:57that type of refining. Different oils, depending on where they are pulled out of the ground,
28:02have a different chemical composition. And depending on that composition, refineries have to be geared to
28:08that particular composition. So US Gulf Coast refineries are geared to refining the type of
28:15crude that comes out of Canada. And Eric Oden asks, what is better alternative to JIT,
28:21just-in-time inventory? Because clearly that's not working anymore. Toyota came up with just-in-time
28:27after World War II when they didn't have a lot of resources. Okay. And the idea was,
28:32don't feed me anything until I need it, but feed it to me exactly when I need it.
28:36Toyota learned a lot during the 2011 East Japan tsunami and earthquake when one factory that
28:44was producing 45% of the world's engine microcontrollers shut down, and it shut down
28:50Toyota's production. And they then realized at the time, they said, hey, wait a minute,
28:54our semiconductors come from geologically and geopolitically unstable parts of the world.
29:01So what we really need to do is we need to think in terms of lead time.
29:05I'm going to hold an inventory that reflects what's the lead time I would need to replace it
29:11if I had a sudden interruption. So going into the pandemic, you might have noticed Toyota kept
29:17producing cars almost a year longer than many of their competitors because they had brought in a
29:22lot of inventory. So just-in-time plus lead time is a better way to look at this.
29:28I think that's a little pessimistic because we are a very interdependent world. I think we're
29:42moving to a world of more regionalized production. We may get to a kind of aligned block, America and
29:50Europe and Japan and Korea versus China. But I think we are so dependent on getting things from
29:58other parts of the world, we can't do it all ourself anymore. So I don't think it's going to be
30:03collapsed, but they're going to look different. Those are all the questions for today. Thank you for watching.