Houthi rebels seek targets to strafe
Ships must take longer route
Rising costs will break out
Feel the pinch as your wallet will chafe
Showing posts with label shipping. Show all posts
Showing posts with label shipping. Show all posts
Sunday, January 28, 2024
Tuesday, December 29, 2015
Monday, September 01, 2014
US Inland Waterways Investments Support Ocean-Bound Economy
America often shortchanges its infrastructure needs. That may change since the President signed the Water Resources Reform and Development Act (WRRDA) of 2014 into law. The details on the WRRDA include a revised formula for funding lock improvements that do not hold the Inland Waterways Trust Fund hostage to a single installation. The relevant House committee helpfully provides the bill's highlights.
The nation's waterborne commerce is vital to the economy, despite this report from Taxpayers for Common Sense that bemoans a decline in traffic volume on our waterways. It may not have occurred to that group that traffic declines as waterways become less navigable and locks fall into disrepair. This forces shippers to move by road and rail, which are more expensive per ton-mile than barge movements. Lack of upkeep may very well be the reason waterborne commerce suffers. The Congressional Research Service's May 2013 report on inland waterways provides a more balanced view of the cost-sharing funding arrangements for the Inland Waterways Trust Fund (IWTF).
Data from NOAA's ENOW series show the economic importance of ocean-bound commerce. The IWTF's primary arteries connect the Great Lakes and Gulf Intracoastal Waterway. Substandard locks and dams on those rivers jeopardize a significant amount of barge traffic in grains, coal, and petrochemicals. Try running a modern economy without affordable access to those feedstocks.
Public infrastructure is expensive. Highways, ports, and waterway systems must be serviceable for commerce to proceed. The Waterways Council noted how multiple stakeholders, from the public and private sectors, recognized the need for waterway infrastructure modernization. The new funding and management mechanisms under WRRDA came just in time.
The nation's waterborne commerce is vital to the economy, despite this report from Taxpayers for Common Sense that bemoans a decline in traffic volume on our waterways. It may not have occurred to that group that traffic declines as waterways become less navigable and locks fall into disrepair. This forces shippers to move by road and rail, which are more expensive per ton-mile than barge movements. Lack of upkeep may very well be the reason waterborne commerce suffers. The Congressional Research Service's May 2013 report on inland waterways provides a more balanced view of the cost-sharing funding arrangements for the Inland Waterways Trust Fund (IWTF).
Data from NOAA's ENOW series show the economic importance of ocean-bound commerce. The IWTF's primary arteries connect the Great Lakes and Gulf Intracoastal Waterway. Substandard locks and dams on those rivers jeopardize a significant amount of barge traffic in grains, coal, and petrochemicals. Try running a modern economy without affordable access to those feedstocks.
Public infrastructure is expensive. Highways, ports, and waterway systems must be serviceable for commerce to proceed. The Waterways Council noted how multiple stakeholders, from the public and private sectors, recognized the need for waterway infrastructure modernization. The new funding and management mechanisms under WRRDA came just in time.
Monday, March 10, 2014
Major Canal Revenue Hardly Indicates Global Shipping Health
I read a brief blurb in a financial publication that some hedge fund managers track oddball data to generate alpha. The specific mention of the Suez Canal's revenue as an indicator of the global shipping industry's health caught my eye. I wondered if there is anything to this relationship. I didn't have to wonder for very long.
I checked out the websites for the Suez Canal Authority and the Panama Canal Authority. I needed to see if one canal is a more useful indicator than the other. I discovered that each canal breaks down their tariff structure by type of ship, hull status (single vs. double), size, and other factors. The reasons are obvious for those of us with experience in maritime logistics. Different size ships require different handling procedures and must be arranged in queues that maximize the throughput of a canal's available capacity. The immediate conclusion is that a canal's gross annual revenue indicates little about the health of specific ocean carriers that specialize in bulk petroleum, LNG, containers, vehicles, and other types of cargo.
The Suez Canal Authority does not publish annual financial statements on its website. They do publish annual summaries of traffic by ship type but I cannot tell from reading those reports whether they are audited by an independent accounting firm. A Google search of "Suez Canal revenue" reveals that major news services dutifully report changes in the canal's revenue, but these rely on the Egyptian government's announcements. The World Shipping Council's presentation on the Suez Canal notes that only 7.5% of the world's total ocean trade passed through the canal in 2007. I cannot take this canal seriously as a robust global indicator.
The Panama Canal Authority publishes its annual audited financial statements under the "Financial Information" tab on its website. The statements are calculated in balboas, the Panamanian currency. Comparing them the USD for each annual reporting period is easy for analysts who can translate each year's revenue into the prevailing historical exchange rate on the day that period ended. That would be an apples-to-apples comparison. The World Shipping Council's presentation on the Panama Canal does not mention that canal's portion of world trade. That is not sufficient for me to take this canal seriously as an indicator.
The incomplete data picture for these two canals, both from their own sources and a primary industry source, mitigate their productive use as indicators for the health of the global shipping industry. Financial analysts should not waste one more day using major canal revenue as a proxy for the shipping sector. They should instead use references like IHS Global Insight's liner industry valuation study for the World Shipping Council. Comparing numbers of vessel types on order to the numbers being mothballed or scrapped will indicate whether the industry is committing capex to expansion. Analysts can also use the IAPH statistics on port traffic to see trends in end-to-end transit worldwide data. Combining these sources with the Baltic Dry Index illustrates whether tonnage and traffic trends match up with market prices. Canal revenue data is just distracting noise compared to global data.
I checked out the websites for the Suez Canal Authority and the Panama Canal Authority. I needed to see if one canal is a more useful indicator than the other. I discovered that each canal breaks down their tariff structure by type of ship, hull status (single vs. double), size, and other factors. The reasons are obvious for those of us with experience in maritime logistics. Different size ships require different handling procedures and must be arranged in queues that maximize the throughput of a canal's available capacity. The immediate conclusion is that a canal's gross annual revenue indicates little about the health of specific ocean carriers that specialize in bulk petroleum, LNG, containers, vehicles, and other types of cargo.
The Suez Canal Authority does not publish annual financial statements on its website. They do publish annual summaries of traffic by ship type but I cannot tell from reading those reports whether they are audited by an independent accounting firm. A Google search of "Suez Canal revenue" reveals that major news services dutifully report changes in the canal's revenue, but these rely on the Egyptian government's announcements. The World Shipping Council's presentation on the Suez Canal notes that only 7.5% of the world's total ocean trade passed through the canal in 2007. I cannot take this canal seriously as a robust global indicator.
The Panama Canal Authority publishes its annual audited financial statements under the "Financial Information" tab on its website. The statements are calculated in balboas, the Panamanian currency. Comparing them the USD for each annual reporting period is easy for analysts who can translate each year's revenue into the prevailing historical exchange rate on the day that period ended. That would be an apples-to-apples comparison. The World Shipping Council's presentation on the Panama Canal does not mention that canal's portion of world trade. That is not sufficient for me to take this canal seriously as an indicator.
The incomplete data picture for these two canals, both from their own sources and a primary industry source, mitigate their productive use as indicators for the health of the global shipping industry. Financial analysts should not waste one more day using major canal revenue as a proxy for the shipping sector. They should instead use references like IHS Global Insight's liner industry valuation study for the World Shipping Council. Comparing numbers of vessel types on order to the numbers being mothballed or scrapped will indicate whether the industry is committing capex to expansion. Analysts can also use the IAPH statistics on port traffic to see trends in end-to-end transit worldwide data. Combining these sources with the Baltic Dry Index illustrates whether tonnage and traffic trends match up with market prices. Canal revenue data is just distracting noise compared to global data.
Tuesday, January 07, 2014
First Consideration Of World Oil Price Components
I got thinking about the components of the market price for oil after I finished my analysis of the US Navy's renewable energy policies in my latest Third Eye OSINT article. That article was oriented to military affairs, and this article is for business. I'll develop the complete breakdown in a longer report to publish at Alfidi Capital, but I'll start here with some basic components.
Production cost. This varies by wellhead but investment banks covering the oil sector figure some broad averages each year. The best way to look at production cost (for my purposes anyway) is by country and then by type of oil: light sweet, heavy, shale, etc. The EIA has a good breakdown of oil and gas production costs in the US.
Transportation cost. This includes shipping by ocean carrier, pipeline, and rail. Oil imports to the US move primarily by ocean carrier and pipeline. The Association of Oil Pipe Lines (AOPL) has a general breakdown of the traffic but I don't know when that data was published. Barge movement plays little role for unrefined petroleum but is a major transportation mode for refined petrochemical products. Platts breaks down oil shipping prices by seaborne routes. I'm too cheap to pay for Platts' data so I'll have to wing it with open source data I find for free. FERC's oil pipeline page shows that their indexing methodology for rate changes is tied to the BLS Producer Price Index for Finished Goods (PPI-FG) plus a statistical adjustment. I find it interesting that the AOPL mentions several alternate methods FERC may use to adjust its approved pipeline rates. That AOPL link is so intriguing I used it twice in a paragraph.
Security premium. RFF studied the oil price security premium in 2010. I mentioned this study in my Third Eye OSINT article (see the link up top). Platts analyzed a security premium specific to the Middle East in 2011.
Other factors. Stanford's Energy Modeling Forum studied oil price determinants in a 2010 workshop. Their conclusions considered asymmetric information, inventories, and futures market speculation. I have not yet decided whether insurance cost gets its own special treatment or should be counted as a subset of production and transportation. I should also account for the US tax code's oil depletion allowance. The International Energy Agency's (IEA) statistics site has a lot of pricing and volume data but I will dig deeper to see if they have cost data. Likewise, the Oil and Gas Financial Journal has plenty of current market data but for this project I need to see if they have cost breakdowns buried somewhere.
This analysis is by no means mature. Like I said above, it's more suitable for a longer report. These components matter for both the West Texas Intermediate and Brent crude prices. I'll develop each of the ideas above from the perspective of an energy contract trader who must hedge the price of oil. I want to understand energy price movements so I may use futures contracts to hedge my own portfolio. Financial engineering techniques for energy and other hard assets may prove very useful to me during a hyperinflationary period in the US.
Production cost. This varies by wellhead but investment banks covering the oil sector figure some broad averages each year. The best way to look at production cost (for my purposes anyway) is by country and then by type of oil: light sweet, heavy, shale, etc. The EIA has a good breakdown of oil and gas production costs in the US.
Transportation cost. This includes shipping by ocean carrier, pipeline, and rail. Oil imports to the US move primarily by ocean carrier and pipeline. The Association of Oil Pipe Lines (AOPL) has a general breakdown of the traffic but I don't know when that data was published. Barge movement plays little role for unrefined petroleum but is a major transportation mode for refined petrochemical products. Platts breaks down oil shipping prices by seaborne routes. I'm too cheap to pay for Platts' data so I'll have to wing it with open source data I find for free. FERC's oil pipeline page shows that their indexing methodology for rate changes is tied to the BLS Producer Price Index for Finished Goods (PPI-FG) plus a statistical adjustment. I find it interesting that the AOPL mentions several alternate methods FERC may use to adjust its approved pipeline rates. That AOPL link is so intriguing I used it twice in a paragraph.
Security premium. RFF studied the oil price security premium in 2010. I mentioned this study in my Third Eye OSINT article (see the link up top). Platts analyzed a security premium specific to the Middle East in 2011.
Other factors. Stanford's Energy Modeling Forum studied oil price determinants in a 2010 workshop. Their conclusions considered asymmetric information, inventories, and futures market speculation. I have not yet decided whether insurance cost gets its own special treatment or should be counted as a subset of production and transportation. I should also account for the US tax code's oil depletion allowance. The International Energy Agency's (IEA) statistics site has a lot of pricing and volume data but I will dig deeper to see if they have cost data. Likewise, the Oil and Gas Financial Journal has plenty of current market data but for this project I need to see if they have cost breakdowns buried somewhere.
This analysis is by no means mature. Like I said above, it's more suitable for a longer report. These components matter for both the West Texas Intermediate and Brent crude prices. I'll develop each of the ideas above from the perspective of an energy contract trader who must hedge the price of oil. I want to understand energy price movements so I may use futures contracts to hedge my own portfolio. Financial engineering techniques for energy and other hard assets may prove very useful to me during a hyperinflationary period in the US.
Thursday, July 25, 2013
Updating the Jones Act for the 21st Century
The Committee on the Marine Transportation System (CMTS) is the US government's interagency effort to regulate waterborne traffic and commerce. It needs to address one of the most important laws governing the marine industry. The best thing CMTS can do for marine transportation is advocate for changes to the Merchant Marine Act of 1920, aka the Jones Act. That protectionist law allowed US maritime vessel builders and service providers to operate behind a safe wall for years. The results have been a mixed bag.
The Jones Act never defined the term "seaman," leaving the courts to define exactly which categories of maritime workers are covered and thus eligible for redress of grievances in civil court. A broader definition means more employers will take risk mitigation seriously knowing that more people can sue them.
The disadvantage of protectionism is that some domestic markets are denied superior service and surge support is unavailable in the event of logistics bottlenecks during crises. The GAO found that Puerto Rico's economy would probably benefit from access to foreign flag carriers who can operate more cheaply than US carriers protected by the Jones Act. The Deepwater Horizon blowout in 2010 could have been resolved more speedily if more foreign-flagged vessels had been allowed to participate earlier. Alas, the Jones Act hindered their ability to respond.
Here's the Alfidi Capital solution. CMTS should staff "Jones Act 2.0" so the White House can draft legislation for submission to Congress. The main points are as follows. First, define "maritime worker" as any sailor, dockworker, rig operator, or any other person who works in, on, or around a waterborne vessel of any draft. Make that labor classification as broad as possible. Second, exempt Alaska, Guam, Hawaii, and Puerto Rico from the requirement to ship using only US-flagged carriers. Those lands are isolated from the US mainland's transportation system and higher shipping costs negatively affect the quality of life and viability of small businesses in those areas. Finally, allow the Secretary of Transportation to immediately waive Jones Act provisions that prevent non-US flagged carriers from operating in US waters or the outer continental shelf without requiring lengthy reviews. This waiver would be triggered by the President's declaration of a federally-designated disaster area that mobilizes FEMA, the Coast Guard, and other national-level resources.
These three measures are a small start towards a reformed Jones Act for the 21st century. I'll bet even Popeye the Sailor Man would support them if it meant he could get his spinach shipped faster and cheaper. Okay, maybe that's a stretch, but it's the only colorful seagoing image I can manage.
The Jones Act never defined the term "seaman," leaving the courts to define exactly which categories of maritime workers are covered and thus eligible for redress of grievances in civil court. A broader definition means more employers will take risk mitigation seriously knowing that more people can sue them.
The disadvantage of protectionism is that some domestic markets are denied superior service and surge support is unavailable in the event of logistics bottlenecks during crises. The GAO found that Puerto Rico's economy would probably benefit from access to foreign flag carriers who can operate more cheaply than US carriers protected by the Jones Act. The Deepwater Horizon blowout in 2010 could have been resolved more speedily if more foreign-flagged vessels had been allowed to participate earlier. Alas, the Jones Act hindered their ability to respond.
Here's the Alfidi Capital solution. CMTS should staff "Jones Act 2.0" so the White House can draft legislation for submission to Congress. The main points are as follows. First, define "maritime worker" as any sailor, dockworker, rig operator, or any other person who works in, on, or around a waterborne vessel of any draft. Make that labor classification as broad as possible. Second, exempt Alaska, Guam, Hawaii, and Puerto Rico from the requirement to ship using only US-flagged carriers. Those lands are isolated from the US mainland's transportation system and higher shipping costs negatively affect the quality of life and viability of small businesses in those areas. Finally, allow the Secretary of Transportation to immediately waive Jones Act provisions that prevent non-US flagged carriers from operating in US waters or the outer continental shelf without requiring lengthy reviews. This waiver would be triggered by the President's declaration of a federally-designated disaster area that mobilizes FEMA, the Coast Guard, and other national-level resources.
These three measures are a small start towards a reformed Jones Act for the 21st century. I'll bet even Popeye the Sailor Man would support them if it meant he could get his spinach shipped faster and cheaper. Okay, maybe that's a stretch, but it's the only colorful seagoing image I can manage.
Tuesday, October 09, 2012
Observing the Global Market Minefield
There are too many mines in the water to count. The best course for a boat in these waters is to stand still and let some other imprudent captain detonate them. Let's consider the mines in plain sight.
Some specialized analysts, as good as they can be with a given sector sometimes, still miss the big picture. Wondering whether port capacity can keep up with growth in container traffic may be a moot point very soon. The IMF keeps flashing the warning signal about a renewed global recession. Ocean carriers won't need so many container ships after all and port officials can quit thinking about expansion for the rest of this decade.
Greece is all-in on a financial transactions tax and other European countries are cheering them on. I've voiced my support for such a tax here in the U.S. because it will make hedge funds' HFT business lines painfully expensive. This long-term social good comes with a short-term cost. HFTs now generate so much of the volume on exchanges that destroying them will shatter market confidence and probably send indexes reeling. That's fine with me, because I need some bargains to buy.
In the dust-up over whether the BLS's latest unemployment report was realistic, you may have missed the Census report on factory orders declining by 5.2% in August. Ouch.
Sanctions on Iran are destroying its currency and economy. Tehran is countering with tighter controls on currency trading. The flexibility of that "exchange center" goes beyond currency and could easily adapt itself to a domestic rationing regime for basic commodities. Iran may very well earn enough in net exports to muddle through tighter sanctions next year. Never underestimate an authoritarian regime's ability to survive by transferring hardship to its people. This contest with the mullahs would be terrific bloodsport if the world economy were healthy, but the Iranian wild card is to shut the the Strait of Hormuz and spike world oil prices. There's your trigger for depression, if you wish to take notice.
BTW, the continued ability of World Bank and IMF officials to talk out of both sides of their mouths is unintentionally humorous. The preferred solution to "fiscal cliffs" offered by globalist bankers is more kick-the-can delays in austerity that will eventually turn hard landings into smoking craters. They know full well that heavily indebted economies cannot grow their way to prosperity. The gods of the growth cargo cult must be appeased until the island is inundated by a hyperinflationary tsunami.
Why do I even bother connecting the dots? Well, for one thing I just like to mouth off. I also want a publicly available record that I did not throw my portfolio into a black hole along with every other dummy on Wall Street. Let them strike the sea mines first. I'll note the clear path marked by derelict hulks (i.e. asset classes to avoid) and tow them for salvage (buy the dummies' assets out of bankruptcy).
Some specialized analysts, as good as they can be with a given sector sometimes, still miss the big picture. Wondering whether port capacity can keep up with growth in container traffic may be a moot point very soon. The IMF keeps flashing the warning signal about a renewed global recession. Ocean carriers won't need so many container ships after all and port officials can quit thinking about expansion for the rest of this decade.
Greece is all-in on a financial transactions tax and other European countries are cheering them on. I've voiced my support for such a tax here in the U.S. because it will make hedge funds' HFT business lines painfully expensive. This long-term social good comes with a short-term cost. HFTs now generate so much of the volume on exchanges that destroying them will shatter market confidence and probably send indexes reeling. That's fine with me, because I need some bargains to buy.
In the dust-up over whether the BLS's latest unemployment report was realistic, you may have missed the Census report on factory orders declining by 5.2% in August. Ouch.
Sanctions on Iran are destroying its currency and economy. Tehran is countering with tighter controls on currency trading. The flexibility of that "exchange center" goes beyond currency and could easily adapt itself to a domestic rationing regime for basic commodities. Iran may very well earn enough in net exports to muddle through tighter sanctions next year. Never underestimate an authoritarian regime's ability to survive by transferring hardship to its people. This contest with the mullahs would be terrific bloodsport if the world economy were healthy, but the Iranian wild card is to shut the the Strait of Hormuz and spike world oil prices. There's your trigger for depression, if you wish to take notice.
BTW, the continued ability of World Bank and IMF officials to talk out of both sides of their mouths is unintentionally humorous. The preferred solution to "fiscal cliffs" offered by globalist bankers is more kick-the-can delays in austerity that will eventually turn hard landings into smoking craters. They know full well that heavily indebted economies cannot grow their way to prosperity. The gods of the growth cargo cult must be appeased until the island is inundated by a hyperinflationary tsunami.
Why do I even bother connecting the dots? Well, for one thing I just like to mouth off. I also want a publicly available record that I did not throw my portfolio into a black hole along with every other dummy on Wall Street. Let them strike the sea mines first. I'll note the clear path marked by derelict hulks (i.e. asset classes to avoid) and tow them for salvage (buy the dummies' assets out of bankruptcy).
Thursday, October 04, 2012
Debating Shale Oil And Transport
There's plenty of room for disagreement over the widely divergent economic sources the two Presidential candidates cited in their debate last night. What isn't debatable is something they both found agreeable: U.S. shale oil production is strong and is reducing this country's dependence on imported oil. The shale boom blessing may drive an unanticipated effect on the fortunes of some ocean carriers. Demand for oil tankers to service U.S. imports will probably suffer. The entire shipping industry has been on a newbuild frenzy since the Great Recession went into hiatus in 2009 but that affection for new hulls has been most visible in the containerized shipping sector. Petroleum carriers will soon find out just how much an overcommitment to new hulls will cost them.
I've been tracking a couple of oil carriers off and on for about three years but I never went long their stocks. If the whole sector suffers, the carriers with the least debt and fewest newbuild commitments may merit my investment. If the renewed global recession (yes, it's here already) crashes crude oil prices, the weakest ocean carriers may look for acquirers.
Full disclosure: No positions in the shipping sector at this time.
I've been tracking a couple of oil carriers off and on for about three years but I never went long their stocks. If the whole sector suffers, the carriers with the least debt and fewest newbuild commitments may merit my investment. If the renewed global recession (yes, it's here already) crashes crude oil prices, the weakest ocean carriers may look for acquirers.
Full disclosure: No positions in the shipping sector at this time.
Wednesday, August 29, 2012
Trouble Pulls Into Port If ILA Strikes
Those of you awaiting the remainder of my commentary from last weekend's Money Show need to wait one more day. I'd like to take this opportunity to mention how a likely slowdown in port activity is about to put the final nail in the coffin tipping the U.S. economy back into recession.
The ILA is about to authorize a strike by its port workers. The specific port where the strike starts isn't relevant because of the ILA's reach across the East and Gulf Coasts. This is very bad news for retailers who need to stock up on inventory prior to the Christmas shopping season. Union greed is once again putting America's international trade in a headlock.
The lesson of a similar strike in 2002 on the West Coast was that shipping traffic could be diverted from West Coast ports to the East and Gulf. Port operators in the West plan to reverse that flow this time around but they shouldn't count their chickens before they're hatched. Remember the Occupy movement's success in shutting down the Port of Oakland? This is a national election year and Occupy hasn't gone away. The two busiest West Coast ports are Oakland and Long Beach but California's electoral votes are not going to be seriously contested this time (it's a lock for the incumbent). That won't matter much to Occupiers. The movement still has heavy union support and can easily be mobilized again to send a political message.
A union hand in an Occupy glove remains a risk to the U.S. retail supply chain. It can easily metastasize into a live threat. An ILA East/Gulf strike combined with West Coast port agitation could mean a very "blue Christmas" for retailers.
The ILA is about to authorize a strike by its port workers. The specific port where the strike starts isn't relevant because of the ILA's reach across the East and Gulf Coasts. This is very bad news for retailers who need to stock up on inventory prior to the Christmas shopping season. Union greed is once again putting America's international trade in a headlock.
The lesson of a similar strike in 2002 on the West Coast was that shipping traffic could be diverted from West Coast ports to the East and Gulf. Port operators in the West plan to reverse that flow this time around but they shouldn't count their chickens before they're hatched. Remember the Occupy movement's success in shutting down the Port of Oakland? This is a national election year and Occupy hasn't gone away. The two busiest West Coast ports are Oakland and Long Beach but California's electoral votes are not going to be seriously contested this time (it's a lock for the incumbent). That won't matter much to Occupiers. The movement still has heavy union support and can easily be mobilized again to send a political message.
A union hand in an Occupy glove remains a risk to the U.S. retail supply chain. It can easily metastasize into a live threat. An ILA East/Gulf strike combined with West Coast port agitation could mean a very "blue Christmas" for retailers.
Tuesday, May 15, 2012
China's Oil Thirst Drives Everything
The China growth story is still sputtering, but some pillars take longer to collapse then others. PetroChina has just surpassed Exxon in oil production. The Chinese government created PetroChina to serve its geopolitical goal of maximizing the material prosperity of its people. Pumping as much oil as possible is the priority, with capitalistic concepts like ROI as a secondary concern. Please note that PetroChina (PTR) has an ROE of over 13% and has added steadily to its retained earnings. The stock is a success story primarily due to geopolitical realities. They can sustain that growth if they can muscle into more acquisitions in Africa and the Middle East.
China's oil thirst is also driving rates for VRCC hulls. That's good news for non-captive oil tanker operators who have capacity to spare. Such capacity may get tight if the price of oil keeps dropping. Lower oil prices in the U.S. mean less domestic production here and more imports from somewhere else where production is cheaper. China's slowdown means more than just cheaper commodity inputs for the U.S. and Europe. It means the Chinese government's hidden subsidies to its state-sponsored resource explorers will be more costly and less effective at creating a veneer of prosperity. If China is concerned about reducing the cost of capital available to its economy, then opening its economy to more foreign investment is certainly one solution. Cost of capital is probably not the main concern of Chinese regulators; fighting fraud and making the yuan more globally fungible rank higher on the national priority list.
Full disclosure: No positions in PTR or XOM. Long FXI with covered calls.
China's oil thirst is also driving rates for VRCC hulls. That's good news for non-captive oil tanker operators who have capacity to spare. Such capacity may get tight if the price of oil keeps dropping. Lower oil prices in the U.S. mean less domestic production here and more imports from somewhere else where production is cheaper. China's slowdown means more than just cheaper commodity inputs for the U.S. and Europe. It means the Chinese government's hidden subsidies to its state-sponsored resource explorers will be more costly and less effective at creating a veneer of prosperity. If China is concerned about reducing the cost of capital available to its economy, then opening its economy to more foreign investment is certainly one solution. Cost of capital is probably not the main concern of Chinese regulators; fighting fraud and making the yuan more globally fungible rank higher on the national priority list.
Full disclosure: No positions in PTR or XOM. Long FXI with covered calls.
Monday, May 14, 2012
Financial Sarcasm Roundup for 05/14/12
Today I'll revive a tradition that I maintained a couple of years ago. I had posted rundowns of some key business headlines about once a week. My problem then was that my summary comments just weren't snarky enough and the titles of my posts weren't very catchy. I may have remedied those problems by pushing up the sarcasm throttle and calling this the "Financial Sarcasm Roundup." Let's run some headlines today with my full-blown invective and see if anyone pays attention.
The State of California is weighing in on a solar project down in the SoCal desert. K Road Power promises that its Calico Solar plant won't get in the way of endangered tortoises and other critters. That's not good enough for environmentalist groups but it sure is good enough for me. I spent some idle time down in the SoCal deserts as a kid when I was forced to visit the dead branches of my family tree. Any animal hardy enough to survive down there probably has enough survival instinct to move out of the way of bulldozers. It's really funny that environmentalists are lobbying against a green energy project. They don't understand that the absence of this solar project means more reliance on the fossil fuel power plants they despise so much.
JPMorgan is about to face the great cleansing fire of regulatory scrutiny for letting its prop trading (thinly disguised as yield hedging, or something) get out of hand. Not to worry, it will all be over in a fortnight once the regulators get intimidated by the records they'll have to review. Only one executive has been thrown under the bus so far. Her replacement is a trader whose previous employer (Long Term Capital Management) did a great job of showing the world how geniuses with exquisite financial models can destroy investments. The end result of the perfunctory regulatory review will not be a revival of interest in the Volcker Rule. Insiders have too much money at stake to let a silly rule get in the way of building financial WMDs.
Yahoo hired a CEO who faked a degree in computer science. That's the best metaphor I've seen for how they lost their early lead in search engine market share to Google. Maybe they've been hiring people since the early 2000s who merely claim to know how to program code.
Moller-Maersk placed an order with Daewoo for the world's largest container ship. Those wacky Danes have never shed their Viking genes. A grand total of 18,000 TEUs worth of capacity is going to find itself idle if the global economy goes down the tubes in 2013. Petrobras has a pretty good plan for repurposing oil tankers as drilling platforms. Grabbing difficult oil from the seabed is the wave of the future; the pun on "wave" is intended. I think Petrobras could make Moller-Maersk an offer for that big container ship and its planned sister ships if this whole global trade thing doesn't work out.
Full disclosure: No positions in any companies mentioned.
The State of California is weighing in on a solar project down in the SoCal desert. K Road Power promises that its Calico Solar plant won't get in the way of endangered tortoises and other critters. That's not good enough for environmentalist groups but it sure is good enough for me. I spent some idle time down in the SoCal deserts as a kid when I was forced to visit the dead branches of my family tree. Any animal hardy enough to survive down there probably has enough survival instinct to move out of the way of bulldozers. It's really funny that environmentalists are lobbying against a green energy project. They don't understand that the absence of this solar project means more reliance on the fossil fuel power plants they despise so much.
JPMorgan is about to face the great cleansing fire of regulatory scrutiny for letting its prop trading (thinly disguised as yield hedging, or something) get out of hand. Not to worry, it will all be over in a fortnight once the regulators get intimidated by the records they'll have to review. Only one executive has been thrown under the bus so far. Her replacement is a trader whose previous employer (Long Term Capital Management) did a great job of showing the world how geniuses with exquisite financial models can destroy investments. The end result of the perfunctory regulatory review will not be a revival of interest in the Volcker Rule. Insiders have too much money at stake to let a silly rule get in the way of building financial WMDs.
Yahoo hired a CEO who faked a degree in computer science. That's the best metaphor I've seen for how they lost their early lead in search engine market share to Google. Maybe they've been hiring people since the early 2000s who merely claim to know how to program code.
Moller-Maersk placed an order with Daewoo for the world's largest container ship. Those wacky Danes have never shed their Viking genes. A grand total of 18,000 TEUs worth of capacity is going to find itself idle if the global economy goes down the tubes in 2013. Petrobras has a pretty good plan for repurposing oil tankers as drilling platforms. Grabbing difficult oil from the seabed is the wave of the future; the pun on "wave" is intended. I think Petrobras could make Moller-Maersk an offer for that big container ship and its planned sister ships if this whole global trade thing doesn't work out.
Full disclosure: No positions in any companies mentioned.
Thursday, May 03, 2012
RIP FastShip, Hello TGPS
Oceangoing shipping is an industry that is very resistant to technological change. The basic hull designs and propulsion systems of supertankers and container ships haven't changed much in decades. The cost of a new large ship and a port facility to match its configuration is enough to make innovation prohibitively expensive. Game-changing technology in shipping has a different flavor than some new app in social media.
I have been watching FastShip since 1995. Their concept of adapting the hull designs for speedboats to large ships configured for containers and roll-on / roll-off cargo had the potential to speed shipping times. Give them credit for big, bold thinking in technology. The problem is that shaving a day or two off trans-Atlantic shipping times won't make a material difference in the economics of most finished goods. Pacific Ocean lanes might have been a different story but FastShip never tried to go there. A speedy cargo ship would mainly be attractive as an alternative to air freight for perishable food that must be delivered fast. It's unfortunate that FastShip never raised enough capital to build their first ship and dock; the company went bankrupt in March. FastShip's end clears the way for an application of speed on a smaller scale. I would like to see a shipbuilder spend some R&D on a medium-size (Panamax or smaller) hydrofoil or hovercraft for use on short routes.
Shipping innovation lives on in propulsion. Gamma Light and Heavy Industries (GLHI) has developed The Gamma Propulsion System (TGPS) to cut fuel consumption and emissions. If this really works as advertised, the impact of oil price volatility on shipping costs will be dramatically reduced. Shippers can curtail their slow steaming incidents and reduce the cost of any fuel hedges they use.
Comparing these two technologies is instructive for shipbuilders. Radical redesigns to hulls and docks are costly and have little payoff except in niche applications. Power train improvements can be adapted to existing hull designs. That's how you score innovation in shipping.
Full disclosure: No positions in any companies mentioned.
I have been watching FastShip since 1995. Their concept of adapting the hull designs for speedboats to large ships configured for containers and roll-on / roll-off cargo had the potential to speed shipping times. Give them credit for big, bold thinking in technology. The problem is that shaving a day or two off trans-Atlantic shipping times won't make a material difference in the economics of most finished goods. Pacific Ocean lanes might have been a different story but FastShip never tried to go there. A speedy cargo ship would mainly be attractive as an alternative to air freight for perishable food that must be delivered fast. It's unfortunate that FastShip never raised enough capital to build their first ship and dock; the company went bankrupt in March. FastShip's end clears the way for an application of speed on a smaller scale. I would like to see a shipbuilder spend some R&D on a medium-size (Panamax or smaller) hydrofoil or hovercraft for use on short routes.
Shipping innovation lives on in propulsion. Gamma Light and Heavy Industries (GLHI) has developed The Gamma Propulsion System (TGPS) to cut fuel consumption and emissions. If this really works as advertised, the impact of oil price volatility on shipping costs will be dramatically reduced. Shippers can curtail their slow steaming incidents and reduce the cost of any fuel hedges they use.
Comparing these two technologies is instructive for shipbuilders. Radical redesigns to hulls and docks are costly and have little payoff except in niche applications. Power train improvements can be adapted to existing hull designs. That's how you score innovation in shipping.
Full disclosure: No positions in any companies mentioned.
Wednesday, May 02, 2012
Monday, December 19, 2011
Alpha-D Updates For 12/19/11
I made very simple changes to my portfolio today. My covered calls on GDX and FXI expired unexercised. I renewed them with monthly expirations. The underlying equity positions have fallen from the last price I paid for them, so the possibility that these calls may be exercised raises the further risk that I will either realize a tax loss or repurchase them at a disadvantageous price. Such is the nature of equity investing with covered call writing. I'm fine with that.
I also remain the proud owner of some California muni bonds that will mature in 2012. They are useful as a deflationary hedge. I bought them at a premium to their face value because their coupons were higher than going rates on Treasuries. The premium nets out against other capital gains; the cash flow from interest is tax free. It is difficult to justify further purchases of fixed income products in a macroeconomic environment where central banks worldwide seem determined to devalue fiat currency. Bonds and cash do poorly when such conditions persist.
I continue to be intrigued by the relative performance of FRO and SFL, two shipping twins I've been watching for years. I missed my chance to buy SFL in 2008 when it was dirt cheap but now I'm tempted to go for it. Bear in mind that the lesson of 2009 is that stocks can go even cheaper, so I'm willing to wait. I'm also strongly considering taking a bearish position on YRCW (actually YRCWD for a while) by either buying puts or going short the stock. I posted an update on YRCW last week and I'm finally tempted to actually make some money from this trucker's sad decline. I'll let you know what I decide in a day or two.
That's all for now. Check back later for more genius updates. I might as well remind people that my disclosures are not investment advice. Consider my discussion to be a form of entertainment. I don't give advice on what other people should do with their money. I certainly don't take advice on what to do with mine.
I also remain the proud owner of some California muni bonds that will mature in 2012. They are useful as a deflationary hedge. I bought them at a premium to their face value because their coupons were higher than going rates on Treasuries. The premium nets out against other capital gains; the cash flow from interest is tax free. It is difficult to justify further purchases of fixed income products in a macroeconomic environment where central banks worldwide seem determined to devalue fiat currency. Bonds and cash do poorly when such conditions persist.
I continue to be intrigued by the relative performance of FRO and SFL, two shipping twins I've been watching for years. I missed my chance to buy SFL in 2008 when it was dirt cheap but now I'm tempted to go for it. Bear in mind that the lesson of 2009 is that stocks can go even cheaper, so I'm willing to wait. I'm also strongly considering taking a bearish position on YRCW (actually YRCWD for a while) by either buying puts or going short the stock. I posted an update on YRCW last week and I'm finally tempted to actually make some money from this trucker's sad decline. I'll let you know what I decide in a day or two.
That's all for now. Check back later for more genius updates. I might as well remind people that my disclosures are not investment advice. Consider my discussion to be a form of entertainment. I don't give advice on what other people should do with their money. I certainly don't take advice on what to do with mine.
Saturday, December 17, 2011
More Seaborne Stupidity From Blueseed
I posted a while back on the Seasteading Institute's hair-brained idea for a floating city. My criticism of the concept was focused on the impossibility of economics, defense, and sovereignty for such an enterprise. Well, the software and venture capital geniuses behind the Seasteading concept haven't given up on their bold vision to defy physical reality. The entrepreneurs who've never built physical infrastructure are back with a brand new application of their knowledge gaps.
Blueseed is the latest Silicon Valley effort at making an end run around national sovereignty. Their concept of mooring a barge in international waters would theoretically allow high tech workers with H-1B visas to commute to jobs in Silicon Valley without revisions to U.S. immigration laws that otherwise limit foreign residency. It's a less ambitious concept than Seasteading but it still has practical problems.
Let's say they moor this thing "twelve miles southwest of San Francisco Bay" as the Huffington Post article says they will. What ferry terminals are in that area that will enable the offshore residents to get from the barge to land transportation links into Silicon Valley? A quick look at a Google map shows us that the closest feasible landing point for any ferry from such an area would be Half Moon Bay, because it's the only town of any size with a road link into Silicon Valley (Highway 92 to Highway 35 to CA-280 or US 101) and potential for berthing ferry ships. Ferrying people twelve miles from a barge to the relatively shallow waters of Half Moon Bay is logistically feasible. I have taken several ferry rides across Victoria Harbor in Hong Kong, including a long ferry all the way to Lantau Island. Ferrys and hydrofoils were quite active along a distance comparable to the one Blueseed proposes to transit. The feasibility of this concept will depend very much on the construction of an adequate ferry terminal in Half Moon Bay. I've been to Half Moon Bay many times; the waterfront there can probably accommodate a ferry berth approximately half a kilometer south of the existing marinas. Blueseed will have to build a brand new pier, roads, bus terminals, and parking lots to enable ground transportation links for disembarking ferry passengers. The article's admission that "it hasn't been determined exactly which port Blueseed would use" is an understatement.
The page for concept vessels once again shows a glaring ignorance of logistics. The residential barge has containers stacked up on one end, but there is no sufficient room for material handling equipment on deck to maneuver said containers into a storage area for offloading. That's just as well, because the warehousing area appears to be nonexistent. There's one photo of a passing containership offloading containers onto the barge with its own onboard crane. That's pretty funny. How much do they plan to pay for regular replenishment from a fully-loaded container ship that's on its way to Hong Kong? I am not aware of any attempt ever in human history to offload a TEU container on the high seas from ship to ship. Underway replenishment between ships is done by many navies but this involves a conveyor system hanging between ships for bundles and palletized loads. Blueseed needs to ask the U.S. Navy how it resupplies ships at sea so they can see how challenging it will be.
The article mentions that a "live-work space" on the barge will cost $1200 per month. That's hilarious. A one-bedroom apartment in San Francisco costs $1500 per month, in a city with a fully mature civil infrastructure that delivers energy, water, and goods in and waste out. Doing those things at sea will cost a premium. The MBA geniuses running the cost estimates need to at least triple that $1200 estimate for a conservative number, then ask themselves how many H-1B visa computer engineers can afford to pay that rent on Silicon Valley startup compensation levels.
The existing leadership of Blueseed makes me wonder about execution. They are all ex-Seasteaders with plenty of entrepreneurial zeal and zero experience in maritime engineering, civil engineering, mass transit, or other relevant disciplines. I do respect their selection of Max Hardberger as a technical advisor. If anyone could pull off a radically new seagoing concept, this guy can. I heard him speak about his adventures at the Golden Gate Breakfast Club. There needs to be an adult in the room among all of these wide-eyed kids with MBAs and law degrees. I suspect Max is going to end up laughing all the way to the bank as he tells these kids week after week what the sea won't allow them to do.
I think it's okay that rich Silicon Valley Internet entrepreneurs want to keep trying to secede from reality. They're welcome to do so with their own money. They should not approach the taxpayers of Northern California towns to subsidize this tomfoolery. I truly believe that business leaders should spend time and money promoting pro-business immigration policy instead of residential sea barge folly.
Blueseed is the latest Silicon Valley effort at making an end run around national sovereignty. Their concept of mooring a barge in international waters would theoretically allow high tech workers with H-1B visas to commute to jobs in Silicon Valley without revisions to U.S. immigration laws that otherwise limit foreign residency. It's a less ambitious concept than Seasteading but it still has practical problems.
Let's say they moor this thing "twelve miles southwest of San Francisco Bay" as the Huffington Post article says they will. What ferry terminals are in that area that will enable the offshore residents to get from the barge to land transportation links into Silicon Valley? A quick look at a Google map shows us that the closest feasible landing point for any ferry from such an area would be Half Moon Bay, because it's the only town of any size with a road link into Silicon Valley (Highway 92 to Highway 35 to CA-280 or US 101) and potential for berthing ferry ships. Ferrying people twelve miles from a barge to the relatively shallow waters of Half Moon Bay is logistically feasible. I have taken several ferry rides across Victoria Harbor in Hong Kong, including a long ferry all the way to Lantau Island. Ferrys and hydrofoils were quite active along a distance comparable to the one Blueseed proposes to transit. The feasibility of this concept will depend very much on the construction of an adequate ferry terminal in Half Moon Bay. I've been to Half Moon Bay many times; the waterfront there can probably accommodate a ferry berth approximately half a kilometer south of the existing marinas. Blueseed will have to build a brand new pier, roads, bus terminals, and parking lots to enable ground transportation links for disembarking ferry passengers. The article's admission that "it hasn't been determined exactly which port Blueseed would use" is an understatement.
The page for concept vessels once again shows a glaring ignorance of logistics. The residential barge has containers stacked up on one end, but there is no sufficient room for material handling equipment on deck to maneuver said containers into a storage area for offloading. That's just as well, because the warehousing area appears to be nonexistent. There's one photo of a passing containership offloading containers onto the barge with its own onboard crane. That's pretty funny. How much do they plan to pay for regular replenishment from a fully-loaded container ship that's on its way to Hong Kong? I am not aware of any attempt ever in human history to offload a TEU container on the high seas from ship to ship. Underway replenishment between ships is done by many navies but this involves a conveyor system hanging between ships for bundles and palletized loads. Blueseed needs to ask the U.S. Navy how it resupplies ships at sea so they can see how challenging it will be.
The article mentions that a "live-work space" on the barge will cost $1200 per month. That's hilarious. A one-bedroom apartment in San Francisco costs $1500 per month, in a city with a fully mature civil infrastructure that delivers energy, water, and goods in and waste out. Doing those things at sea will cost a premium. The MBA geniuses running the cost estimates need to at least triple that $1200 estimate for a conservative number, then ask themselves how many H-1B visa computer engineers can afford to pay that rent on Silicon Valley startup compensation levels.
The existing leadership of Blueseed makes me wonder about execution. They are all ex-Seasteaders with plenty of entrepreneurial zeal and zero experience in maritime engineering, civil engineering, mass transit, or other relevant disciplines. I do respect their selection of Max Hardberger as a technical advisor. If anyone could pull off a radically new seagoing concept, this guy can. I heard him speak about his adventures at the Golden Gate Breakfast Club. There needs to be an adult in the room among all of these wide-eyed kids with MBAs and law degrees. I suspect Max is going to end up laughing all the way to the bank as he tells these kids week after week what the sea won't allow them to do.
I think it's okay that rich Silicon Valley Internet entrepreneurs want to keep trying to secede from reality. They're welcome to do so with their own money. They should not approach the taxpayers of Northern California towns to subsidize this tomfoolery. I truly believe that business leaders should spend time and money promoting pro-business immigration policy instead of residential sea barge folly.
Tuesday, November 01, 2011
Alfidi Capital Open For Business During Oakland General Strike
The Occupy Wall Street movement is morphing into something that hasn't been seen in America for decades. What started as a well-intentioned critique of unpunished fraud in the finance sector now has the potential to do as much damage to economic life in this country as any malfeasance on Wall Street.
Occupy Oakland has called for a general strike tomorrow, November 2, 2011. Their stated intent is to shut down the Port of Oakland, one of the largest in the United States. These activists fail to realize that the Port of Oakland is a vital transit point for goods headed to Asia. The port exports an enormous amount of meat, fruit, nuts, cereals, and grains essential to healthy diets. Even a one-day shutdown endangers the global supply chain for Asian retailers and will have unpredictable effects on the lives of American producers. Any resultant food shortages in Asia will be the moral responsibility of Occupy Oakland's strike participants. Any collapse in revenue from American exporters of food and finished goods will be on their heads as well.
Loyal readers of this blog know that I have often criticised Wall Street firms myself. I started my own firm as an antidote to the tainted investment products I saw from dysfunctional firms. Entrepreneurship can solve whatever core problems afflict capitalism. Activists who can't see the second-order effects of their actions will disrupt the economic lives of entrepreneurs who are not at all responsible for Wall Street's excesses.
Alfidi Capital will remain open through any general strike. My business will never shut down due to social unrest or political extortion. I stand in solidarity with other entrepreneurs and self-employed creatives who know how to make free market capitalism work.
Occupy Oakland has called for a general strike tomorrow, November 2, 2011. Their stated intent is to shut down the Port of Oakland, one of the largest in the United States. These activists fail to realize that the Port of Oakland is a vital transit point for goods headed to Asia. The port exports an enormous amount of meat, fruit, nuts, cereals, and grains essential to healthy diets. Even a one-day shutdown endangers the global supply chain for Asian retailers and will have unpredictable effects on the lives of American producers. Any resultant food shortages in Asia will be the moral responsibility of Occupy Oakland's strike participants. Any collapse in revenue from American exporters of food and finished goods will be on their heads as well.
Loyal readers of this blog know that I have often criticised Wall Street firms myself. I started my own firm as an antidote to the tainted investment products I saw from dysfunctional firms. Entrepreneurship can solve whatever core problems afflict capitalism. Activists who can't see the second-order effects of their actions will disrupt the economic lives of entrepreneurs who are not at all responsible for Wall Street's excesses.
Alfidi Capital will remain open through any general strike. My business will never shut down due to social unrest or political extortion. I stand in solidarity with other entrepreneurs and self-employed creatives who know how to make free market capitalism work.
Wednesday, October 12, 2011
Low Spot Rates Portend Tougher Times for Shippers
Shipping stock aficionados need to take note that Trans-Pacific spot rates are hitting lows. Expect to see the effects on shippers' earnings in Q4. The carriers that come out healthy will be those that avoided rushing into newbuild orders in late 2010. Check the 2010 and 2011 10-Ks' MD&As for mentions of capex committed to new hulls.
Oh, BTW, the pending federal legislation to slap sanctions on China for keeping its currency strong will probably launch a trade war that hurts the rest of those shippers that stayed healthy. We won't see much more of the modest August rise in container traffic; that was driven by macroeconomic demand in Asia for commodities and beggar-thy-neighbor pricing differences with bulk shippers. Choppy waters lie ahead for ocean cargo carriers.
Nota bene: No positions in shipping stocks at this time.
Oh, BTW, the pending federal legislation to slap sanctions on China for keeping its currency strong will probably launch a trade war that hurts the rest of those shippers that stayed healthy. We won't see much more of the modest August rise in container traffic; that was driven by macroeconomic demand in Asia for commodities and beggar-thy-neighbor pricing differences with bulk shippers. Choppy waters lie ahead for ocean cargo carriers.
Nota bene: No positions in shipping stocks at this time.
Tuesday, August 16, 2011
Initial Design Photo Of Seasteading City Demands Ridicule
Two days ago I posted some mild criticisms of the Seasteading Institute's floating city plan. Now I'm adding more fuel to my fire. This article displays a concept model of this artificial island for billionaires. I'll republish the photo below.
Do you see something wrong here? Check this out. That's a container ship parked next to an offshore platform. The offshore platform has no cranes, no piers, no material handling equipment, or anything else that is absolutely required to make an economically viable effort at getting those containerized goods off the ship and into the hands of the platform's wealthy denizens. Seasteaders need a crash course in supply chain management. They should hire me as a consultant. I'll raise my rates just for them so they can brag about paying top dollar for advice.
I'll offer yet another item to my litany of nonviability. This city-state has no way to feed itself. You can't live without food no matter how many billions you have in your Swiss account or how fast your satellite broadband connection zips around the world. Are they going to have dedicated fishing fleets prowling local waters? A steady diet of nothing but cod, tuna, and king crab will bore these urban transplants to death in no time. Most American city supermarkets require replenishment every few days, depending on inventory turnover and spoilage. How many supermarkets can fit on a floating platform? I'm guessing just one, and it will be about the size of a typical Trader Joe's in San Francisco. How will it be supplied? Remember, there are no plans yet for the cranes and dock space necessary to make any trade in goods, let alone food imports, physically possible. Maybe Whole Foods can deliver risotto by airdrop (*snicker*).
I've figured out the mentality behind this effort. It's a stab at creating a gated community to reflect the exclusive status the creators of this stupidity feel they deserve. The thing about gated communities on land is that they're already connected to the infrastructure for energy, water, waste disposal, and transport that makes them livable. There won't be enough space on an ocean-going platform to make all of that possible. Check out the cramped quarters on an aircraft carrier for the only existing model of how thousands of people can live at sea. Note that the carrier needs to replenish its nuclear reactor's fuel every few years (in drydock, on land, which will negate our seasteaders sovereignty!) and is never self-sufficient in food or material goods. The carrier's residents have little personal space, let alone enough space for a hundred billionaire condos. The mentality of rich folks who expect Jeeves to rush into the parlor with a cocktail every time they ring a silver bell from Tiffany's doesn't transplant to a cramped offshore platform. Some rich people apparently aren't satisfied with seceding from society; they want to secede from reality as well.
Have at it, seasteaders. You'll never get off dry land. Oh, if you need some more material for future designs, look no further than fiction.
Here's a final bit of free advice. Focus these platforms on fulfilling an unmet need for energy production from waves, tides, and offshore windfarms and you'll have an excuse to park them within sight of the shore. Proximity to shore means you can build causeways wide enough for trucks or trams and not worry about the lack of space for containerized trade I mentioned above. Get them approved as special economic development zones and you'll have reason to build things into them that would otherwise raise NIMBY objections. There may even be enough room for a dozen or so billionaire bachelor pads if they can stand the noise from all of the energy-generating infrastructure. Once they're profitable, maybe the residents can install a country club on the side of the platform facing the ocean. That will give them the illusion of turning their back on landbound commoners and seceding from reality, which is what they obviously want anyway. I'd love to see these things operating near San Francisco, as the backers intend, but I'll help them keep the endgame in mind. Hire me now before my rates go up again.
Full disclosure: I think this whole idea is stupid.
Do you see something wrong here? Check this out. That's a container ship parked next to an offshore platform. The offshore platform has no cranes, no piers, no material handling equipment, or anything else that is absolutely required to make an economically viable effort at getting those containerized goods off the ship and into the hands of the platform's wealthy denizens. Seasteaders need a crash course in supply chain management. They should hire me as a consultant. I'll raise my rates just for them so they can brag about paying top dollar for advice.
I'll offer yet another item to my litany of nonviability. This city-state has no way to feed itself. You can't live without food no matter how many billions you have in your Swiss account or how fast your satellite broadband connection zips around the world. Are they going to have dedicated fishing fleets prowling local waters? A steady diet of nothing but cod, tuna, and king crab will bore these urban transplants to death in no time. Most American city supermarkets require replenishment every few days, depending on inventory turnover and spoilage. How many supermarkets can fit on a floating platform? I'm guessing just one, and it will be about the size of a typical Trader Joe's in San Francisco. How will it be supplied? Remember, there are no plans yet for the cranes and dock space necessary to make any trade in goods, let alone food imports, physically possible. Maybe Whole Foods can deliver risotto by airdrop (*snicker*).
I've figured out the mentality behind this effort. It's a stab at creating a gated community to reflect the exclusive status the creators of this stupidity feel they deserve. The thing about gated communities on land is that they're already connected to the infrastructure for energy, water, waste disposal, and transport that makes them livable. There won't be enough space on an ocean-going platform to make all of that possible. Check out the cramped quarters on an aircraft carrier for the only existing model of how thousands of people can live at sea. Note that the carrier needs to replenish its nuclear reactor's fuel every few years (in drydock, on land, which will negate our seasteaders sovereignty!) and is never self-sufficient in food or material goods. The carrier's residents have little personal space, let alone enough space for a hundred billionaire condos. The mentality of rich folks who expect Jeeves to rush into the parlor with a cocktail every time they ring a silver bell from Tiffany's doesn't transplant to a cramped offshore platform. Some rich people apparently aren't satisfied with seceding from society; they want to secede from reality as well.
Have at it, seasteaders. You'll never get off dry land. Oh, if you need some more material for future designs, look no further than fiction.
Here's a final bit of free advice. Focus these platforms on fulfilling an unmet need for energy production from waves, tides, and offshore windfarms and you'll have an excuse to park them within sight of the shore. Proximity to shore means you can build causeways wide enough for trucks or trams and not worry about the lack of space for containerized trade I mentioned above. Get them approved as special economic development zones and you'll have reason to build things into them that would otherwise raise NIMBY objections. There may even be enough room for a dozen or so billionaire bachelor pads if they can stand the noise from all of the energy-generating infrastructure. Once they're profitable, maybe the residents can install a country club on the side of the platform facing the ocean. That will give them the illusion of turning their back on landbound commoners and seceding from reality, which is what they obviously want anyway. I'd love to see these things operating near San Francisco, as the backers intend, but I'll help them keep the endgame in mind. Hire me now before my rates go up again.
Full disclosure: I think this whole idea is stupid.
Sunday, August 14, 2011
Floating Civilization Adrift On An Ocean Of Dreams
Ask any seagoing folk - career sailors, merchant mariners, professional yachtspersons - about life on the ocean and they'll tell you it's grand. Out at sea, you can commune with nature on a daily basis and fantasize about chasing Moby Dick or exploring Davy Jones' locker. You can also live as a permanent expatriate in exotic ports of call, with adventures in Polynesia and the Mediterranean beckoning.
You can also fantasize about creating your own civilization from scratch, if you have lots of time and money on your hands. Serial entrepreneurs with libertarian ideals have those resources in spades. Some of them are willing to take a stab at creating a floating nation. New business models always need to be tested against the real world and this is no less important than for a new model of nationhood. The folks at the Seasteading Institute should consider how the following topics affect their plans.
Economic viability. A floating colony of a few hundred people will not have a diverse economy. The types of people who are attracted to this lifestyle and can afford it are knowledge workers. Hedge fund managers and media consultants can probably afford to buy a plugged-in condo on a twenty-story semi-submersible platform. They will also be uniquely vulnerable to the kind of downward pressure on compensation from global wage arbitrage that is offshoring white-collar intellectual work to China and Southeast Asia. Speaking of Southeast Asia, Singapore and Hong Kong are densely packed urban centers with vibrant knowledge economies, just like our imaginary seaborne civilization. They also have world-class port facilities and plenty of infrastructure for high-tech manufacturing. Putting any of that infrastructure onto a floating platform on the scale needed to make a viable economy is probably impossible. It will also require a whole bunch of workers with skill sets completely alien to our effete urban wannabe platform dwellers.
Sovereignty. Here's a sticky subject. Floating platforms periodically need maintenance to remain functional. The entire "city" will probably have to be towed to the nearest shipyard dry-dock every few years for months of maintenance. Your precious homestead will be jacked out of the water for hull inspections, barnacle scraping, systems retrofitting, and all kinds of upgrades and services that are absolutely necessary to ensure the enterprise does not sink while it's on the water. This raises a very important point besides the livability of the platform while it's in drydock. A platform parked on land is subject to the laws and regulations of the nation where it's parked. That means the enterprise's sovereignty will most likely be erased when it pulls into port. The platform's residents will have to vacate their homes while the superstructure is undergoing maintenance, so once they're on land they are fair game for the local government. The libertarian fantasy of permanent life at sea bumps into the hard reality of periodic maintenance.
Physical security and safety. Building a whole town on the same superstructure as a semi-submersible drilling rig exposes the residents to the kinds of risks oil workers have taken for decades and adds some new ones. Will the structure have enough lifeboats moored in case something happens to render the thing unstable? What happens to one of these floating communities if a hurricane or tsunami comes its way? Today's oil drilling platforms have to be towed to shore upon notice of inbound hurricanes, as in the Katrina disaster. A tsunami would leave even less time to evacuate, so the rig would be stuck while residents scramble into lifeboats that will then be carried away by the tsunami's force. Ask yourself if you're in for the ride of your life. "All aboard the tsunami express - woooooo!" Daisy-chaining a few dozen platforms together to make an archipelago holds the entire civilization hostage to a structural failure on one platform. Think about that one: You look out your twentieth floor window and watch one of your neighboring platforms sinking, knowing your platform is chained to it by permanent infrastructure. Your twentieth floor view will be an underwater view in about five minutes. Ask anyone who's ever evacuated a sinking ship or drilling rig - like the Deepwater Horizon after it blew out in April 2010 - just how difficult it is to get into a lifeboat in a pitching sea. The people who survive those things are tough, trained marine technology experts; one disaster rehearsal with a bunch of transplanted urbanites will convince quite a few of them that ocean life isn't all it's cracked up to be.
Self-defense. This is closely related to the above paragraph on safety during structural failures. Security against natural disasters is hard enough without throwing malice and international intrigue into the mix. A floating rig full of rich, influential Westerners is a tempting target for blackmail by a rogue state. Think Somali pirates are tough? Try deterring a whole flotilla from a starving country hostile to the West without the protective umbrella of your own military. The aggressor wouldn't even need a WMD. They could just park an autonomous underwater vehicle loaded with high explosives under one of the platform's submerged pontoons. The floating city-state's mayor would then get the following call on his satellite phone: "Hello, this is Kim Jong Il, the Dear Leader of the Democratic People's Republic of Korea. You will wire $US100mm to my account in Zurich or I will blow your city out of the water. Cast your eyes out two miles at 15 degrees north latitude for a demonstration explosion. (BOOM!) See that spray cloud? That's you if I don't get your money. My hackers have already identified your account numbers so all you have to do is hand it over. You have one hour to complete the transaction or you sleep with the fishies. Thank you in advance for your business." Laugh all you want at the James Bond-type brinkmanship. Dictators are amoral psychopaths who will salivate at the target presented by a bunch of wealthy idealists aimlessly riding the waves. Try calling the nearest U.S. Navy carrier battle group if you need help in a pinch.
There's nothing wrong with testing the viability of permanent, autonomous floating communities. Private investors are welcome to do anything they like with their money. Nothing in the concept mandates that the communities be ocean-going. I suspect that the most viable application of this concept is a series of connected platforms moored very close to shore, no more than a mile or two out. They could hold a kind of special economic status (like Hong Kong, or other countries' designated high-tech zones for foreign direct investment) that would incentivize investment and give residents plenty of autonomy short of full independence. Tethering them to shore makes connecting infrastructure for energy input, waste output, and movement of people and goods much easier.
The genesis of the concept makes me wonder about people who wander outside their circle of competence (hat tip to Warren Buffett). Launching and managing a business model that focuses on shooting electrons between e-commerce portals like EBay and PayPal requires advanced skills in computing and electrical engineering. Those skill sets are not identical to those required to move and sustain physical structures in the chaotic real world where human life and property must be safeguarded from accidents and malice. Please tell Thomas Friedman that the world is not flat.
Nota bene: I have no desire to start my own brand new civilization offshore. I'm busy trying to save the one that's onshore.
You can also fantasize about creating your own civilization from scratch, if you have lots of time and money on your hands. Serial entrepreneurs with libertarian ideals have those resources in spades. Some of them are willing to take a stab at creating a floating nation. New business models always need to be tested against the real world and this is no less important than for a new model of nationhood. The folks at the Seasteading Institute should consider how the following topics affect their plans.
Economic viability. A floating colony of a few hundred people will not have a diverse economy. The types of people who are attracted to this lifestyle and can afford it are knowledge workers. Hedge fund managers and media consultants can probably afford to buy a plugged-in condo on a twenty-story semi-submersible platform. They will also be uniquely vulnerable to the kind of downward pressure on compensation from global wage arbitrage that is offshoring white-collar intellectual work to China and Southeast Asia. Speaking of Southeast Asia, Singapore and Hong Kong are densely packed urban centers with vibrant knowledge economies, just like our imaginary seaborne civilization. They also have world-class port facilities and plenty of infrastructure for high-tech manufacturing. Putting any of that infrastructure onto a floating platform on the scale needed to make a viable economy is probably impossible. It will also require a whole bunch of workers with skill sets completely alien to our effete urban wannabe platform dwellers.
Sovereignty. Here's a sticky subject. Floating platforms periodically need maintenance to remain functional. The entire "city" will probably have to be towed to the nearest shipyard dry-dock every few years for months of maintenance. Your precious homestead will be jacked out of the water for hull inspections, barnacle scraping, systems retrofitting, and all kinds of upgrades and services that are absolutely necessary to ensure the enterprise does not sink while it's on the water. This raises a very important point besides the livability of the platform while it's in drydock. A platform parked on land is subject to the laws and regulations of the nation where it's parked. That means the enterprise's sovereignty will most likely be erased when it pulls into port. The platform's residents will have to vacate their homes while the superstructure is undergoing maintenance, so once they're on land they are fair game for the local government. The libertarian fantasy of permanent life at sea bumps into the hard reality of periodic maintenance.
Physical security and safety. Building a whole town on the same superstructure as a semi-submersible drilling rig exposes the residents to the kinds of risks oil workers have taken for decades and adds some new ones. Will the structure have enough lifeboats moored in case something happens to render the thing unstable? What happens to one of these floating communities if a hurricane or tsunami comes its way? Today's oil drilling platforms have to be towed to shore upon notice of inbound hurricanes, as in the Katrina disaster. A tsunami would leave even less time to evacuate, so the rig would be stuck while residents scramble into lifeboats that will then be carried away by the tsunami's force. Ask yourself if you're in for the ride of your life. "All aboard the tsunami express - woooooo!" Daisy-chaining a few dozen platforms together to make an archipelago holds the entire civilization hostage to a structural failure on one platform. Think about that one: You look out your twentieth floor window and watch one of your neighboring platforms sinking, knowing your platform is chained to it by permanent infrastructure. Your twentieth floor view will be an underwater view in about five minutes. Ask anyone who's ever evacuated a sinking ship or drilling rig - like the Deepwater Horizon after it blew out in April 2010 - just how difficult it is to get into a lifeboat in a pitching sea. The people who survive those things are tough, trained marine technology experts; one disaster rehearsal with a bunch of transplanted urbanites will convince quite a few of them that ocean life isn't all it's cracked up to be.
Self-defense. This is closely related to the above paragraph on safety during structural failures. Security against natural disasters is hard enough without throwing malice and international intrigue into the mix. A floating rig full of rich, influential Westerners is a tempting target for blackmail by a rogue state. Think Somali pirates are tough? Try deterring a whole flotilla from a starving country hostile to the West without the protective umbrella of your own military. The aggressor wouldn't even need a WMD. They could just park an autonomous underwater vehicle loaded with high explosives under one of the platform's submerged pontoons. The floating city-state's mayor would then get the following call on his satellite phone: "Hello, this is Kim Jong Il, the Dear Leader of the Democratic People's Republic of Korea. You will wire $US100mm to my account in Zurich or I will blow your city out of the water. Cast your eyes out two miles at 15 degrees north latitude for a demonstration explosion. (BOOM!) See that spray cloud? That's you if I don't get your money. My hackers have already identified your account numbers so all you have to do is hand it over. You have one hour to complete the transaction or you sleep with the fishies. Thank you in advance for your business." Laugh all you want at the James Bond-type brinkmanship. Dictators are amoral psychopaths who will salivate at the target presented by a bunch of wealthy idealists aimlessly riding the waves. Try calling the nearest U.S. Navy carrier battle group if you need help in a pinch.
There's nothing wrong with testing the viability of permanent, autonomous floating communities. Private investors are welcome to do anything they like with their money. Nothing in the concept mandates that the communities be ocean-going. I suspect that the most viable application of this concept is a series of connected platforms moored very close to shore, no more than a mile or two out. They could hold a kind of special economic status (like Hong Kong, or other countries' designated high-tech zones for foreign direct investment) that would incentivize investment and give residents plenty of autonomy short of full independence. Tethering them to shore makes connecting infrastructure for energy input, waste output, and movement of people and goods much easier.
The genesis of the concept makes me wonder about people who wander outside their circle of competence (hat tip to Warren Buffett). Launching and managing a business model that focuses on shooting electrons between e-commerce portals like EBay and PayPal requires advanced skills in computing and electrical engineering. Those skill sets are not identical to those required to move and sustain physical structures in the chaotic real world where human life and property must be safeguarded from accidents and malice. Please tell Thomas Friedman that the world is not flat.
Nota bene: I have no desire to start my own brand new civilization offshore. I'm busy trying to save the one that's onshore.
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