1. Large is not always good. Marc Levinson writes how the latest giant container ships have, instead of lowering transport costs and raising efficiency, has increased costs, reduced speeds, and created a host of other problems.
Discharging and reloading the vessel took longer as well, and not only because there were more boxes to put off and on. The new ships were much wider than their predecessors, so each of the giant shoreside cranes needed to reach a greater distance before picking up an inbound container and bringing it to the wharf, adding seconds to the average time required to move each box. Thousands more boxes multiplied by more handling time per box could add hours, or even days, to the average port call. Delays were legion... The land side of international logistics was scrambled as well. At the ports, it was feast or famine: Fewer vessels called, but each one moved more boxes off and on, leaving equipment and infrastructure either unused or overwhelmed. Mountains of boxes stuffed with imports and exports filled the patios at container terminals. The higher the stacks grew, the longer it took the stacker cranes to locate a particular box, remove it from the stack and place it aboard the transporter that would take it to be loaded aboard ship or to the rail yard or truck terminal for delivery to a customer. Freight railroads staggered under the heavy flow of boxes into and out of the ports. Where once an entire shipload of imports might be on its way to inland destinations within a day, now it could take two or three. Queues of diesel-belching trucks lined up at terminal gates, drivers unable to collect their loads because the ship lines had too few chassis on which to haul the arriving containers.
2. Gautam Bhan writes about the lop-sided nature of urban land distribution,
Despite the language of “encroachment” and widespread “land grab,” bastis (slums) are on a minute portion of city land — less than 0.6% of total land area, and 3.4% of residential land in the 2021 Delhi Master Plan. This tiny percentage supports no less than 11-15% but possibly up to 30% of the city’s population, most settled for decades. One example shows how skewed this number is. In 2017, parking Delhi’s 3.1 million cars used 13.25 sq km of land, or 5% of all residential area. Cars, then, have more space than the housing of workers, residents, and families.
3. Obituary in FT of Lee Kun-hee, Samsung's Chairman. Lee was a real business titan and a force behind South Korea's economic transformation.
Samsung, which pulled away from Hyundai to become the biggest of South Korea’s chaebol, or industrial groups, by a wide margin. The company is the largest maker of memory chips, smartphones and electronic displays, Samsung C&T built the world’s tallest building in Dubai and Samsung Heavy Industries is the world’s third-largest shipbuilder by sales. Other subsidiaries’ range from theme parks to insurance. It is for the transformation of Samsung Electronics, however, that Lee will be most remembered. Samsung was a minor player in the global technology industry when he took the helm in December 1987, succeeding Lee Byung-chull, his father and the group’s founder... Within five years, Samsung was the world’s biggest producer of memory chips underpinned by billions of dollars of annual investment, even during downturns. Despite this success, shoppers around the world continued to view Samsung’s consumer electronics as poorly designed and undesirable. Lee’s aggressive interventions to change this perception have now become legend. The most famous came in 1995, after the humiliation of finding that Samsung mobile phones he had given as gifts did not work. Two thousand Samsung employees at a phone manufacturing factory south of Seoul were instructed to don headbands marked “quality first” and gather outside. Thousands of phones and other electronic devices — with an estimated total value of $50m — were incinerated on a bonfire and the ashes were pulverised by a bulldozer.
As I blogged earlier, Samsung's spectacular success breaks the mould on several scared tenets of modern business organisation and management techniques. See this from The Economist.
3. Chandra Nuthalapati et al have a good study that informs significant gains for vegetable farmers from selling directly to supermarkets,
Even after controlling for differences in quality and other relevant factors, we found that imputed farmgate prices that farmers receive in supermarket channels are around 20% higher than the prices received in traditional channels for most of the vegetables considered. For some of the vegetables, price differences are even higher. We also found that selling to supermarkets involves lower transaction costs for farmers than selling in traditional markets, as supermarket collection centers are located closer to the villages and involve lower commission fees Higher prices seem to be needed as an incentive for farmers to deliver to supermarket collection centers, because supermarkets do not offer any other incentives to farmers. In other countries, where supermarkets often procure vegetables from farmers through contracts, farmers benefit from lower price risk or from inputs and extension provided as part of the contracts. In India, supermarkets procure vegetables without contracts, so that higher mean prices are important to ensure regular supplies. We found significant price incentives for comparable qualities. In addition, higher quality grades are rewarded in supermarket channels, which is often not the case in traditional channels. Our data showed that farmers who supply supermarkets typically sell their highest-quality vegetables in supermarket collection centers, whereas they sell lower-quality produce in traditional markets.
While this will surely have some positive effect, these are excessively big effects. Something going on here about the study.
4. Bihar sugar mill industry fact of the day,
Around 1980, Bihar accounted for 30% of the country’s sugar production, and 28 functional sugar mills. It has now come down to less than 5% of the production, and has 10 mills... At the end of 2016-17, only about 2,900 of Bihar’s estimated 3,531 factories were operational, employing on an average 40 people each. The national average is nearly double, 77 workers. The average salary per annum per worker in Bihar then was Rs 1.2 lakh, again less than half of the national average of Rs 2.5 lakh.
The UAE accuses Mr Erdogan of colonial delusions, supporting Islamist groups and forming a hostile axis with Qatar, its Gulf rival. The belief in Abu Dhabi is that wealthy Qatar provides the funding, and Turkey the muscle as Mr Erdogan seeks to position himself as a leader of the Sunni Muslim world. “Turkey has many things to answer for, with its long-term attempts — in concert with Qatar and the Muslim Brotherhood — to sow chaos in the Arab world, while using an aggressive and perverted interpretation of Islam as cover,” Anwar Gargash, the UAE’s minister of state for foreign affairs, wrote in the French magazine Le Point in June as tensions over Libya soared. Sheikh Mohammed, known colloquially as MBZ, is spearheading the Arab push against Turkey’s influence... The UAE, which has an indigenous population of just 1.5m but is one of the region’s wealthiest countries, has long punched above its weight. Since the 2011 Arab uprisings rocked the region, Abu Dhabi has deployed tens of billions of petrodollars to bolster allies across the Middle East and Africa through trade, aid and the use of military resources. The Gulf state’s foreign investment and bilateral aid to eight countries including Egypt, Pakistan and Ethiopia, has totalled at least $87.6bn since 2011, according to the American Enterprise Institute, which analysed publicly available data.
Turkey is today the hub for the region's dissidents, especially Islamists, who pose an existential threat to the monarchical autocracies. UAE's normalisation of relations with Israel should be seen in this backdrop - an attempt to ingratiate itself in the West, against Turkey.
A related issue is the intensification of the stand-off between Armenia and Azerbaijan over the Armenian enclave of Nogorno Karabakh in Azerbaijan. One important reason for the breakage of the Russia-brokered truce which has held since 1994 has been Erdogan and Turkey, which have aggressively armed and supported Azerbaijan, thereby emboldening it. A humanitarian disaster is now unfolding which has displaced nearly half of the enclave's population.
6. From Ananth, this article by Norman Doidge on the problems with RCTs in medicine,
An important review of RCTs found that 71.2% were not representative of what patients are actually like in real-world clinical practice, and many of the patients studied were less sick than real-world patients. That, combined with the fact that many of the so-called finest RCTs, in the most respected and cited journals, can’t be replicated 35% of the time when their raw data is turned over to another group that is asked to reconfirm the findings, shows that in practice they are far from perfect. That finding—that something as simple as the reanalysis of the numbers and measurements in the study can’t be replicated—doesn’t even begin to deal with other potential problems in the studies: Did the author ask the right questions, collect appropriate data, have reliable tests, diagnose patients properly, use the proper medication dose, for long enough, and were their enough patients in it? And did they, as do so many RCTs, exclude the most typical and the sickest patients?
7. The reality with Uber's misleading minimum wage adherence claim.
Drivers will be guaranteed earnings — 120 per cent of the local minimum wage — though with a significant caveat: Uber won’t count the time drivers are waiting to be matched with a passenger. When you factor in that period, a Berkeley study suggests that Uber’s promised $15.60 minimum an hour instead becomes, on average, just $5.64, once adjusted for driver expenses such as fuel.
8. This shocking story of the flight of ABC's Beijing Correspondent from China tells everything about today's China, which clearly does not abide by any rules applicable for civilised nations.
9. A rare example of expose of corruption in the defence forces, which is without doubt at least a pervasive as elsewhere (perhaps even more given the lack of external oversight). The problem though with dragging CBI, CVC etc into investigating works, especially those done in places like Ladakh during the ongoing stand-off, is that it could backfire badly and end up delaying and derailing even those critical and time-bound works.
10. Talking of burying your head in the sand, and Eugene Fama, in this interview, is a great exhibit. The level of obduracy on financial markets, negative rates, private debt, impact of central bank policies, business concentration and so on is stunning. Virtually every paragraph is an exercise in denial of reality. Evidently Fama is living in a different world.
11. Economist hails Aditya Puri as the world's best banker!
First, Mr Puri’s management style, which features a clear vision, microscopic attention to detail, blunt speaking and a knack for retaining talent... The second factor is strategic discipline. Mr Puri intuited that Indian consumers and firms would be a consistent money-maker and has stuck to that view. He took the sophisticated processes used by foreign banks and used them to target local retail and commercial clients. The result is a large branch network, half of which is outside cities. The firm’s cash-machine and credit-card networks are the largest among India’s private banks. Mr Puri stayed away from foreign ventures and investment projects, avoided lending to India’s indebted oligarchs, and financed HDFC’s balance-sheet through deposits rather than debt... The final element is HDFC's approach to technology—though not a pioneer, it is a fast follower.
12. A Livemint story of the PLI scheme for mobile phone manufacturing, which has a five year allocation of Rs 41,000 Cr. This about the success of the segment as well as the distance to be travelled,
India had two mobile manufacturing units in 2014. By 2019, there were over 200. The number of mobile handsets produced shot up from 60 to 290 million in the same period; the value of handsets produced jumped 10 times to $30 billion... China exported phones worth over $100 billion in 2019; Vietnam over $35 billion. India exported less than $3 billion in 2018-19.
Even with the PLIs, India stays below Vietnam and China on cost-competitiveness,
Assuming that $100 is the cost of producing a phone without subsidies, China can make it at $80 after factoring in the incentives the country provides. Similarly, the cost of manufacturing a phone in Vietnam. The PLI scheme bridges some of India’s deficit. The manufacturing cost, after factoring in PLI and other subsidies, totals $92-$93.
Interesting thing about the extent of subsidy, which is very significant,
The scheme is also a massive discount on India’s current value-add, the advisor mentioned above explained. Manufacturers in India import most of the components and the assembly value ranges between 8% and 15%. “If 15% is the assembly price, an incentive of 6% is almost a 50% discount," he said.
These are very instructive numbers. If even with assembly, India is not able to compete with Vietnam and China, that's disturbing. But perhaps, this underscores the need to localise component production to become competitive. That will hopefully happen in due course and the PLI scheme will expedite. But till then, the incentive is a massive subsidy cost being incurred. If it does not catalyse component manufacturing, then this can just as well be described as a corporate freebie.
13. The IPO of Ant Financial to raise about $35 billion, the world's largest ever, has attracted a staggering $2.8 trillion of orders from more than 5 million individuals, a sum which exceeds the value of all stocks listed on exchanges in Germany or Canada. For retail investors, the simultaneous listing at Shanghai and Hong Kong was oversubscribed more than 870 times. The company has a billion users and more than $17 trillion in yearly payment volumes.
14. Gillian Tett points to the alarmingly low CDS recovery rate projects with the recent corporate bond auctions.
Most CDS contracts stipulate that financiers need to know what a company’s cheapest available bond will be worth at the point the company defaults. That’s because CDS contracts make investors whole by paying them the bond’s original face value minus its market value. When a company goes bust, financiers hold an auction to determine the market price, and the resulting prices offer one guide to what creditors think the company’s remaining assets are worth. Over the past decade, the average CDS auction prices have moved in a band between 10 and 60 cents on the dollar, but have generally been between 30 and 40 cents. However the nine US auctions conducted in the year to August produced an average price of just 9 cents — and just 2.4 cents if you look at the worst four: Chesapeake, California Resources, Neiman Marcus Group, and McClatchy.
Worsening matters, bondholders are being continuously shortchanged,
And because loans take priority over bonds in a bankruptcy, the practice has also weakened bondholders’ claims, sparking fights in some bankruptcies... Bondholders’ claims have been further undermined by debt exchanges and stealthy asset transfers, including one known as the “J-Crew trap door”. Named after the recently bankrupted US retailer, it refers to a manoeuvre pulled off by the company’s private equity owners in 2016 in which they transferred intellectual property rights across to new lenders, out of the reach of the original creditors. Similar tactics have emerged at other troubled groups such as Travelport.
And all this is being driven by the search for yield among investors,
Indeed, four-fifths of US loans issued last year were “covenant-lite”, that is they had little or no control over borrower behaviour, up from one-fifth at the start of the decade. That is because investors are so desperate to chase returns in a zero-rate world that they no longer dare to impose covenants. Indeed, the hunt for returns is so frenzied that junk bond yields have plunged from 12 per cent in March to below 6 per cent. Cheap money, in other words, is enabling some zombie companies to stagger on, even as creditor value shrivels — until they collapse.
15. Fascinating article about the QR Code, the low-profile but functionally valuable invention in 1994 by Masahiro Hara to track components in car factories. Its use took off with its adoption by Ant Financial to make mobile payments through Alipay, and has not looked back. It was the crucial link which enabled the use of mobile phones for digital payments. It's now being used for everything from digital payments to browsing dinner menus online.
Mr Hara worked at Denso Wave, part of a components group allied to Toyota, which used barcodes to label components in plants. But the barcode, first used in an Ohio supermarket in 1974, could be hard to use — as anyone who has tried to scan a bag of frozen peas will know — and did not hold much information. He solved the data constraint by making the QR code a two-dimensional square instead of a horizontal strip, allowing it to store up to 4,200 characters compared to 20 on the barcode. His team also conquered the time-consuming awkwardness of barcodes — every QR code includes three squares at its corners that help scanners to focus rapidly (hence, quick response). Japanese carmakers found it very useful: it saved some workers from having to scan up to 1,000 barcodes a day.
This is one more to the point I've been making that Alibaba is a more entrepreneurial e-commerce engine than Amazon,
The QR code enabled Ant to pioneer mobile payments in China through its Alipay super app. The renaissance of QR codes, after years of half-baked efforts by US advertisers and retailers to use them for marketing campaigns and shopping vouchers, shows that it takes time for the strengths of some inventions to emerge.
And this is interesting, an illustration of how non-patenting of such general purpose ideas can have large positive externalities,
But Denso Wave realised that the QR code had greater potential and did not enforce its patent rights. That enabled others not only to use it free but make variations for their industries. The invention knocked around for a decade without finding another compelling use until Alibaba, the Chinese ecommerce group co-founded by Jack Ma, realised it could be used for payments. Shopping in the US and Europe, both online and in stores, is mostly done with payment cards, but the QR code offered an alternative.
It was the industry's good fortune that the QR Code was not invented in the US by the likes of Apple, who would have immediately patented it.
16. A summary of the changes incorporated in the regulations proposed to implement the new labour codes in India.