After 9/11, especially the following summer, I noticed (anecdotal data here) that cars with US license plates visiting Eastern Canada where I live, which used to be dominated by New York and Vermont with occasional cars from NH, Connecticut, Massachusetts or NJ, now included regular plates from farther away (PA, MI, OH, VA, KY, even Texas), implying these people were driving 15 to 30+ hours rather than flying. This died down after about a year and everyone calmed down and got back on airplanes.
It will be interesting to see what happens this time around. If the consumer, who is now working from home more or less permanently, decides to stay home in their pyjamas and bake bread, there's going to be a huge shift in the retail market, with major impacts all the way back up the supply chain to raw materials and energy. This article (click here)serves to start the discussion.
Same old, same old? Or Brave New Post-Consumer society? The impact on the bio-products world is unpredictable. Simply making traditional products, but from a renewable raw material, may not be enough.
We certainly live in interesting times.
Friday, May 15, 2020
Saturday, April 4, 2020
Long term inpact of the pandemic: Fearless Predictions
Recently I wrote about stability of systems, in the context of the current pandemic. How things have changed in that short time! And still no sign of stability on the horizon at this point... the marble is rocketing around the salad bowl (or maybe heading over the Event Horizon into a Black Hole).
With lots of time on my hands as I sit at home reading online newspapers, it's time to make some Fearless Predictions.
I recall that after 9/11, there were plenty of predictions of massive change in the airline industry. In the summer of 2002 I recall seeing cars with license plates from much further away than usual as I wandered around my home city; these were people who were intent on vacationing, and were prepared to drive 10 or 20 hours rather than risk a 2-hour flight. But as we all know, air travel recovered, and the only impact was annoying (and probably relatively ineffective) security measures that added an anxious extra hour at airports. Will this time be different? Here are some specific potential impacts.
Cruise ships
Ah, yes, cruise ships. also known as floating Petri dishes. It is easy to predict the end of the cruise ship industry, but recall the Norwalk virus that turned cruise ships into floating vomitoria in the late '70s. The industry seems to have recovered from that one. Perhaps customers simply forgot about the issue. Which brings us to:
Commercial aviation
Are airplanes flying Petri dishes? Certainly I always seemed to come down with my annual flu bug shortly after getting off a long-haul on my way home from a conference, but of course I may have picked it up at the conference, not on the flight. As noted above, the flying public eventually flocked back to airports after 9/11 as the fear of being hijacked into a building was alleviated by the appearance of security at airports. (I flew to England for a conference on 9/13). Really cheap tickets helped. Will the fear of sitting next to someone hacking and coughing for a few hours be alleviated by additional medical screening, even if it might be of doubtful efficacy, to go along with removing our shoes and belts and limiting our creams and lotions to 100 mL bottles? Hard to say but meanwhile a lot of flimsier charter or discount airlines will have gone under, and a lot of experienced pilots may well have decided to retire.
In any case the trends towards alarmingly youthful pilots will continue. Some of them don't even look like they are shaving yet! (I am talking about the men, of course.)
Hotels and AirBnB
The hotel industry faces some challenges in the short term. Businesses are going to be watching every penny for the foreseeable future, and will be sending people to actual physical meetings only where it can be shown that it is absolutely essential to meet a mission-critical objective. Conferences and other gatherings that use hotel ballrooms and kitchens will also dry up. As for the tourist, well, who knows; some are hardier than others and aviation was flying packed tourist flights again with a couple of years of 9/11. But cheap gas will encourage the American tourist to drive, and so there could be an uptick in demand for hotels before aviation recovers.
As for AirBnB, well, it's toast. I hope. It's one thing to occasionally rent out a spare bedroom, quite another to take on loads of debt to buy apartment buildings with a plan to fleece travellers. These folks are facing bankruptcy wherein the real estate will be repossessed; hopefully all those flats can be returned to the rental pool permanently where they belong, without contributing to another subprime mortgage crisis. Which is what the forthcoming wave of AirBnB-related bankruptcies will be, even if the rates are not subprime this time around.
Commercial rental real estate
In urban areas, armies of office workers have left their cube farms in downtown high rise buildings. Having been handed a laptop and a cell phone on the way out, they are now working from home. Companies have been loath to encourage telework, perhaps because of concerns about employees goofing off if not supervised every instant of the day, but I suspect the average cube farm dweller manages to goof off even when "supervised". So if efficiency remains the same, why pay for all that expensive Class A downtown office space? Save the rental costs and transfer office expenses to the taxpayer via income tax credits for home office expenses.
So where does that leave owners of commercial office space? Ouch.
Oil and gas: Supply, demand and prices
OK, this one is a tough one, given the chaos a couple of wingnuts named Mohammed and Vladimir can wreak. Last time Saudi Arabia tried to kill off the US shale oil industry by opening up the taps, they failed after burning through hundreds of billions of dollars taken from their cash reserves. This time, with help from Vlad (increasing supply) and the pandemic (cutting demand), they might just succeed. Hopefully they will kill off the Alberta oil sands as well, causing Alberta to swing to development of massive green energy systems, because we know Alberta does massive energy systems really really well, but I'm not holding my breath on that one. So once the competition is decimated, Saudi Arabia and Russia will reduce production and hope to drive the price up again, in order to fix the damage to their treasuries. I am sure they are hoping that demand will be growing again by then, as the US tourist chooses to drive 20 hours to Niagara Falls rather than fly to Buffalo.
Recognition of the value of critical services
Nurses, doctors, heat and power plants, water and effluent treatment plants, garbage collection ... and undocumented immigrant farm workers, truckers and grocery clerks. (The US has been giving papers to undocumented, illegal migrant workers who are facing deportation. The papers state they perform an essential service and are allowed to break lockdown rules. Where is Cesar Chavez when you need him?) Hopefully these folks, who are belatedly getting some recognition for their contributions, can maintain some of the increased salaries and social security benefits that are being offered to keep them from quitting and taking advantage of government subsidies to people put out of work by the pandemic. The wealthy don't realise the importance of the proletariat who support their life styles. And yes, I count myself as wealthy, even if I'm not a millionaire.
Toilet paper and other "away from home" products
Manufacturers of tissue and towel (the fancy name for toilet paper and other absorbent papers) have switched capacity from the so-called away-from-home market (brown papers used in public restrooms, hotels and restaurants) to the consumer market where fluffier, whiter grades are needed. No big change here. But apparently the drop in milk consumption in institutional settings such as restaurants, hotels and (mainly) schools, has not been matched by an increase in home use. It seems that dairy producers in the US and Canada have been sewering milk that they can't sell, because the cow cranks it out regardless, to the tune of 3% of production. Now 3% sounds small but this is still millions of litres. Some has gone to increased cheese production, but that's also a market where there is only so much cheese that the world wants; making more isn't going to help. I would not have expected this, which raises the question: what other industries sell to both markets, and what might be the impact on them?
Local production of critical emergency material
In the Western world, several decades of cost-cutting have led to lots of things being made offshore in jurisdictions with cheaper labour. Americans shopping at Walmart have saved a pile of money, which is a good thing because their well-paying manufacturing jobs have all gone offshore and they are making less money in the service economy. But we are finding that pharmaceuticals, medical masks, gowns and specialised equipment such as ventilators are increasingly being requisitioned by the countries where the products are made. You don't see the US Department of Defence outsourcing production of ammunition, let alone fighter jets, to China... there will be opportunities for each country (or state, given the way the US is forcing states to compete with each other) to build up internal capacity for the next pandemic, with resulting new manufacturing capacity required.
Because there will be another pandemic.That's not a Fearless Prediction. That's a Fact.
With lots of time on my hands as I sit at home reading online newspapers, it's time to make some Fearless Predictions.
I recall that after 9/11, there were plenty of predictions of massive change in the airline industry. In the summer of 2002 I recall seeing cars with license plates from much further away than usual as I wandered around my home city; these were people who were intent on vacationing, and were prepared to drive 10 or 20 hours rather than risk a 2-hour flight. But as we all know, air travel recovered, and the only impact was annoying (and probably relatively ineffective) security measures that added an anxious extra hour at airports. Will this time be different? Here are some specific potential impacts.
Cruise ships
Ah, yes, cruise ships. also known as floating Petri dishes. It is easy to predict the end of the cruise ship industry, but recall the Norwalk virus that turned cruise ships into floating vomitoria in the late '70s. The industry seems to have recovered from that one. Perhaps customers simply forgot about the issue. Which brings us to:
Commercial aviation
Are airplanes flying Petri dishes? Certainly I always seemed to come down with my annual flu bug shortly after getting off a long-haul on my way home from a conference, but of course I may have picked it up at the conference, not on the flight. As noted above, the flying public eventually flocked back to airports after 9/11 as the fear of being hijacked into a building was alleviated by the appearance of security at airports. (I flew to England for a conference on 9/13). Really cheap tickets helped. Will the fear of sitting next to someone hacking and coughing for a few hours be alleviated by additional medical screening, even if it might be of doubtful efficacy, to go along with removing our shoes and belts and limiting our creams and lotions to 100 mL bottles? Hard to say but meanwhile a lot of flimsier charter or discount airlines will have gone under, and a lot of experienced pilots may well have decided to retire.
In any case the trends towards alarmingly youthful pilots will continue. Some of them don't even look like they are shaving yet! (I am talking about the men, of course.)
Hotels and AirBnB
The hotel industry faces some challenges in the short term. Businesses are going to be watching every penny for the foreseeable future, and will be sending people to actual physical meetings only where it can be shown that it is absolutely essential to meet a mission-critical objective. Conferences and other gatherings that use hotel ballrooms and kitchens will also dry up. As for the tourist, well, who knows; some are hardier than others and aviation was flying packed tourist flights again with a couple of years of 9/11. But cheap gas will encourage the American tourist to drive, and so there could be an uptick in demand for hotels before aviation recovers.
As for AirBnB, well, it's toast. I hope. It's one thing to occasionally rent out a spare bedroom, quite another to take on loads of debt to buy apartment buildings with a plan to fleece travellers. These folks are facing bankruptcy wherein the real estate will be repossessed; hopefully all those flats can be returned to the rental pool permanently where they belong, without contributing to another subprime mortgage crisis. Which is what the forthcoming wave of AirBnB-related bankruptcies will be, even if the rates are not subprime this time around.
Commercial rental real estate
In urban areas, armies of office workers have left their cube farms in downtown high rise buildings. Having been handed a laptop and a cell phone on the way out, they are now working from home. Companies have been loath to encourage telework, perhaps because of concerns about employees goofing off if not supervised every instant of the day, but I suspect the average cube farm dweller manages to goof off even when "supervised". So if efficiency remains the same, why pay for all that expensive Class A downtown office space? Save the rental costs and transfer office expenses to the taxpayer via income tax credits for home office expenses.
So where does that leave owners of commercial office space? Ouch.
Oil and gas: Supply, demand and prices
OK, this one is a tough one, given the chaos a couple of wingnuts named Mohammed and Vladimir can wreak. Last time Saudi Arabia tried to kill off the US shale oil industry by opening up the taps, they failed after burning through hundreds of billions of dollars taken from their cash reserves. This time, with help from Vlad (increasing supply) and the pandemic (cutting demand), they might just succeed. Hopefully they will kill off the Alberta oil sands as well, causing Alberta to swing to development of massive green energy systems, because we know Alberta does massive energy systems really really well, but I'm not holding my breath on that one. So once the competition is decimated, Saudi Arabia and Russia will reduce production and hope to drive the price up again, in order to fix the damage to their treasuries. I am sure they are hoping that demand will be growing again by then, as the US tourist chooses to drive 20 hours to Niagara Falls rather than fly to Buffalo.
Recognition of the value of critical services
Nurses, doctors, heat and power plants, water and effluent treatment plants, garbage collection ... and undocumented immigrant farm workers, truckers and grocery clerks. (The US has been giving papers to undocumented, illegal migrant workers who are facing deportation. The papers state they perform an essential service and are allowed to break lockdown rules. Where is Cesar Chavez when you need him?) Hopefully these folks, who are belatedly getting some recognition for their contributions, can maintain some of the increased salaries and social security benefits that are being offered to keep them from quitting and taking advantage of government subsidies to people put out of work by the pandemic. The wealthy don't realise the importance of the proletariat who support their life styles. And yes, I count myself as wealthy, even if I'm not a millionaire.
Toilet paper and other "away from home" products
Manufacturers of tissue and towel (the fancy name for toilet paper and other absorbent papers) have switched capacity from the so-called away-from-home market (brown papers used in public restrooms, hotels and restaurants) to the consumer market where fluffier, whiter grades are needed. No big change here. But apparently the drop in milk consumption in institutional settings such as restaurants, hotels and (mainly) schools, has not been matched by an increase in home use. It seems that dairy producers in the US and Canada have been sewering milk that they can't sell, because the cow cranks it out regardless, to the tune of 3% of production. Now 3% sounds small but this is still millions of litres. Some has gone to increased cheese production, but that's also a market where there is only so much cheese that the world wants; making more isn't going to help. I would not have expected this, which raises the question: what other industries sell to both markets, and what might be the impact on them?
Local production of critical emergency material
In the Western world, several decades of cost-cutting have led to lots of things being made offshore in jurisdictions with cheaper labour. Americans shopping at Walmart have saved a pile of money, which is a good thing because their well-paying manufacturing jobs have all gone offshore and they are making less money in the service economy. But we are finding that pharmaceuticals, medical masks, gowns and specialised equipment such as ventilators are increasingly being requisitioned by the countries where the products are made. You don't see the US Department of Defence outsourcing production of ammunition, let alone fighter jets, to China... there will be opportunities for each country (or state, given the way the US is forcing states to compete with each other) to build up internal capacity for the next pandemic, with resulting new manufacturing capacity required.
Because there will be another pandemic.That's not a Fearless Prediction. That's a Fact.
Wednesday, March 18, 2020
Globalisation has its flaws
What a difference a week makes! I was all set to jet off to Scandinavia this evening for the 2020 edition of the Nordic Wood Biorefinery Conference. (An excellent conference, by the way, and you should consider attending; it's been postponed to October 13-16).
I won't bother reciting facts about the coronavirus pandemic, as anything I write today will be obsolete tomorrow. But here are some random thoughts about this emergency.
First, it shows that the system of global interactions we've learned to call globalisation has some unintended consequences arising from a severe lack of resilience when faced with a jolt. The system may exhibit resilience in the face of some types of jolt, but a global pandemic is clearly not one of them.
In mechanical engineering and in design of control systems, Lagrangian dynamics define the equilibrium of a system. Imagine a marble in the bottom of a salad bowl; if you poke the marble, it will roll up the bowl a certain distance, then roll back, perhaps oscillating for a while before eventually returning to its original position. This is called stable equilibrium. Turn the salad bowl upside down and balance the marble on it (if you can...); poke the marble and it runs away, never to come back. The marble balanced on the inverted bowl may be in equilibrium, but it is unstable. The equations describing this include a term whose sign indicates the curvature of the response surface: positive means upwards (stable), negative downwards (unstable). The magnitude of the coefficient indicates how shallow or steep the curvature is. We're currently witnessing a pretty big negative coefficient. The trick is predicting the size and sign of the coefficient for extremely large, complex linked systems that are subject to seemingly irrational human actions, such as panic buying of toilet paper; I don't believe we will ever be able to do so, but the model provides a framework for thinking about resilience and stability of global systems. (For more on the topic of Lagrangian dynamics, see, for instance, here. Wikipedia also has a background article on the topic.)
Second, it shows just how much of the world economy is based on businesses that rely on spending at the discretionary end of the spectrum. This includes flights, cruises, hotels, restaurants and bars, movie theatres and concert halls, public sporting events, etc. The list is long, and covers industries that collectively provide a livelihood to an enormous percentage of humanity in the developed world.
Finally the question arises as to how quickly things will get back to "normal", if ever. There were similar questions following 9/11; history shows the stock market bottomed out about 18 months later before roaring back. And SARS was beaten back pretty quickly in 2003, when contact with China was much less common.
But this time may be different. Will business move back to expensive downtown real estate, with rows of employees in cubicles, or will the new video-conference, work-from-home approach become the new norm? Certainly the necessary systems are far more supportive of this than in 2001.Will the tourists return to Venice or the cruise ship industry? If not, what would they do instead, assuming similar levels of disposable income?
Coming back to the Lagrangian view of the world: system dynamics describe the system's response to local curvature of the surface of the universe. Through globalisation, we have moved from a local minimum (inherently stable, salad bowl facing up) to a local maximum (inherently unstable, salad bowl facing down). We've now been displaced from that local maximum by a jolt, and are hurtling downhill at a tremendous rate. But here is a critical question: are we headed back to the same local minimum? The universe can be considered a wavy surface with many peaks and valleys, and we may be headed to a completely new valley, or canyon, or something, of unknown depth and shape, where new conditions of stable equilibrium will exist. Given the gathering momentum, we may even crest other smaller peaks or ridges of instability before settling somewhere new.
So where will we all be in this new equilibrium state? Where will hotel employees or airline pilots earn a living? What will be the impact of the coming social upheaval? What will be the impact on the world's other major issue, namely climate change?
I won't stick my neck out making predictions. We are in uncharted territory. But I am reminded of the (likely apocryphal) Chinese curse: "May you live in interesting times."
I won't bother reciting facts about the coronavirus pandemic, as anything I write today will be obsolete tomorrow. But here are some random thoughts about this emergency.
First, it shows that the system of global interactions we've learned to call globalisation has some unintended consequences arising from a severe lack of resilience when faced with a jolt. The system may exhibit resilience in the face of some types of jolt, but a global pandemic is clearly not one of them.
In mechanical engineering and in design of control systems, Lagrangian dynamics define the equilibrium of a system. Imagine a marble in the bottom of a salad bowl; if you poke the marble, it will roll up the bowl a certain distance, then roll back, perhaps oscillating for a while before eventually returning to its original position. This is called stable equilibrium. Turn the salad bowl upside down and balance the marble on it (if you can...); poke the marble and it runs away, never to come back. The marble balanced on the inverted bowl may be in equilibrium, but it is unstable. The equations describing this include a term whose sign indicates the curvature of the response surface: positive means upwards (stable), negative downwards (unstable). The magnitude of the coefficient indicates how shallow or steep the curvature is. We're currently witnessing a pretty big negative coefficient. The trick is predicting the size and sign of the coefficient for extremely large, complex linked systems that are subject to seemingly irrational human actions, such as panic buying of toilet paper; I don't believe we will ever be able to do so, but the model provides a framework for thinking about resilience and stability of global systems. (For more on the topic of Lagrangian dynamics, see, for instance, here. Wikipedia also has a background article on the topic.)
Second, it shows just how much of the world economy is based on businesses that rely on spending at the discretionary end of the spectrum. This includes flights, cruises, hotels, restaurants and bars, movie theatres and concert halls, public sporting events, etc. The list is long, and covers industries that collectively provide a livelihood to an enormous percentage of humanity in the developed world.
Finally the question arises as to how quickly things will get back to "normal", if ever. There were similar questions following 9/11; history shows the stock market bottomed out about 18 months later before roaring back. And SARS was beaten back pretty quickly in 2003, when contact with China was much less common.
But this time may be different. Will business move back to expensive downtown real estate, with rows of employees in cubicles, or will the new video-conference, work-from-home approach become the new norm? Certainly the necessary systems are far more supportive of this than in 2001.Will the tourists return to Venice or the cruise ship industry? If not, what would they do instead, assuming similar levels of disposable income?
Coming back to the Lagrangian view of the world: system dynamics describe the system's response to local curvature of the surface of the universe. Through globalisation, we have moved from a local minimum (inherently stable, salad bowl facing up) to a local maximum (inherently unstable, salad bowl facing down). We've now been displaced from that local maximum by a jolt, and are hurtling downhill at a tremendous rate. But here is a critical question: are we headed back to the same local minimum? The universe can be considered a wavy surface with many peaks and valleys, and we may be headed to a completely new valley, or canyon, or something, of unknown depth and shape, where new conditions of stable equilibrium will exist. Given the gathering momentum, we may even crest other smaller peaks or ridges of instability before settling somewhere new.
So where will we all be in this new equilibrium state? Where will hotel employees or airline pilots earn a living? What will be the impact of the coming social upheaval? What will be the impact on the world's other major issue, namely climate change?
I won't stick my neck out making predictions. We are in uncharted territory. But I am reminded of the (likely apocryphal) Chinese curse: "May you live in interesting times."
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