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Supply Chain Crisis Gives Once Invisible Shipping Industry Record Profits and New Adversaries



YIWU, China — 

Consider the plight of Xu Yaping’s flimsy swords and knockoff Barbies.

Exported from the International Trade City here, a wholesale market the size of 1,000 football fields, the toys for years have found their way across the world on ocean freight. But a once fast and cheap shipping network — accounting for 90% of global trade — has been upended by the pandemic and a supply chain crunch that has been roiling the ports of Los Angeles and Long Beach.

Amid a maze of cramped stalls in this bastion of globalization, Xu has watched her profits tumble: A container filled with $24,000 worth of toys headed for North America will now cost her more than 10 times the $1,250 fee she used to pay before the pandemic. Customers are canceling orders. Those remaining are buying a fraction of what they did before. Others are waiting for shipping rates to fall.

“They will say: ‘Ah, it’s expensive right now so let’s wait a couple of days,’” said Xu. “Then they’ll keep waiting, and the shipping fees will keep rising.”

Modern ocean freight has underpinned global trade for decades in relative obscurity, often beyond government regulators and hiding behind a veil of efficiency and reliability that cuts costs for storage by delivering goods “just in time” — the inventory system pioneered by Toyota and adopted worldwide. That’s no longer the case.

The business dominated by a handful of European and Asian players now finds itself at the center of a logistics knot that shows few signs of improving, contributing to the highest inflation rate in the U.S. since 1990 and triggering massive shortages of such diverse items as medical supplies, semiconductors, tires and toys.

It’s not a crisis of their making or one that’s hurting them financially: “These companies are making enough money in one year to cover whatever investments they’ve made in the last 10,” said Jason Chiang, director at Ocean Shipping Consultants in Singapore, a major transshipment hub. “One entire voyage is enough to earn back the cost of an entire ship. That’s like taking one trip as an Uber driver and being paid the value of the car.”

But the supply chain woes are bringing attention to an industry that for generations has raised concerns about fair competition, treatment of workers and damage to the environment. Shipping companies face a pivotal moment of either keeping the model that has made them vulnerable to boom and bust periods, or adapting to a world that will need bigger ports, greater warehouse and distribution infrastructure and more low-carbon ships. What it chooses to do will likely determine how the world economy responds to the next global crisis.

“What we are going through right now… nobody has ever seen before,” Otto Schacht, the head of sea logistics at Swiss freight forwarding giant Kuehne and Nagel, recently told Lloyd’s List, a 287-year-old British shipping journal. “It’s like the famous black swan theory. There are no black swans and all of a sudden there is a black swan. And I think one thing we realize: Things will not be as they were in the past.”

Shippers should hope not. An industry with an estimated 5,500 container vessels was caught unawares and flat-footed by the first COVID-19 lockdowns last year, paring their sailing schedules and disrupting the positioning of their fleets. When Americans flush with stimulus cash embarked on a spending spree a year later, there weren’t enough ships in place to meet the explosive demand.

Container ships sit off the coast of the ports of Los Angeles and Long Beach, waiting to be unloaded. Containers sit stacked on land nearby on Oct. 13.

(Allen J. Schaben/Los Angeles Times)

Exporters, freight forwarders and retailers started outbidding one another for a dwindling amount of space aboard cargo vessels from Asia. Some companies like Amazon, Walmart and Costco resorted to chartering their own boats. Every able container ship was pulled into service in a Dunkirk-like scramble to reach U.S. consumers.

When the flotilla arrived in Southern California, they found too few port berths and workers, warehouse space filling to capacity, and not nearly enough truck drivers and chassis to handle the containers quickly piling up. An unprecedented 70 vessels or more are now regularly bobbing in the waters outside the busiest port complex in the U.S. — a bottleneck expected to outlast the busy holiday season.

“Everything is so out of its normal balance it will take more than a year for global logistics to unwind,” said Peter Sands, chief analyst at Xeneta, a Norwegian analytics firm for the freight industry.

Making matters worse, a container shortage has plagued Asian exporters. The kind of steel boxes that carried Xu’s swords and knockoff Barbies across the ocean are returning to Asia at a rate of only one for every four arriving in the U.S., according to data provided by IHS Markit.

The logjam has sent shipping costs to record highs. The Shanghai Containerized Freight Index, a closely followed gauge measuring the cost of shipping from Chinese ports, soared 449% in early October compared with the same period two years ago.

The sunset illuminates the scene of dozens of container ships sitting off the coast of the ports of Los Angeles and Long Beach, waiting to be unloaded Oct. 13.

(Allen J. Schaben/Los Angeles Times)

“Just a perfect storm,” said Nathan Resnick, president and co-founder of Sourcify, a San Diego-based firm that links U.S. entrepreneurs to factories in Asia. “Small- and medium-sized businesses are struggling to fathom paying this much for freight.”

It hasn’t been bad for everyone. The cascade of problems has resulted in extraordinary earnings for shipping giants like Denmark’s Maersk, France’s CMA CGA, Germany’s Hapag-Lloyd and China’s Cosco, which were on track to reap a decade’s worth of gross profit in just one year.

Drewry, a maritime research consultancy, estimates container shipping lines could collectively earn up to $100 billion in net earnings by the end of 2021, tripling a forecast from March and putting the companies in the same league as corporate behemoths like Apple. Sleek they are not, but the ships, loaded and lumbering across the seas, are a reminder that old world ways are indispensable to the new world order.

Chiang said times were so good that a major freight liner invited suppliers, customers and other partners to a typically austere event to mark a recent quarterly earnings report and gave attendees GoPro cameras as gifts.

Though prices will eventually fall, shippers are seizing on the current chaos to lock customers into long-term contracts, a trend that puts more pressure on low-margin exporters like those in International Trade City in Yiwu. “Small businesses like us don’t have that cohesive power,” said Xu, the toy exporter.

The consequences of that reality are felt across this sprawling market where floors are split into sections dedicated to everything from cosmetics at one end, to buttons and zippers at the other. Animal slippers, beaded necklaces, keychains and disposable razors are lined in rows and ready to be sold for just a few cents apiece.

“Without long-term, stable orders, we probably can’t do this,” Xu said.

The sudden fortunes of ocean freight lines have led to accusations of profiteering, drawing scrutiny from governments and manufacturers. British trade groups are calling on the country’s Competition and Marketing Authority to investigate “cartel-like” pricing in the shipping industry.

The Biden administration signed an executive order in July that encouraged the U.S. Federal Maritime Commission to stop the shipping industry from charging U.S. exporters “exorbitant fees” for the time their freight took to be loaded and unloaded.

“In 2000, the largest 10 shipping companies controlled 12% of the market,” the White House said in a statement. “Today, it is more than 80%, leaving domestic manufacturers who need to export goods at these large foreign companies’ mercy.”

Critics say the industry’s consolidated power and the lack of government oversight have created blind spots that allow shipping lines to slow their costly transition away from sulphur-spewing bunker fuel and avoid improving working conditions for seafarers so that hundreds of thousands aren’t stranded aboard boats because of COVID-19 border closures.

The United States and 18 other countries on Wednesday committed to curbing emissions from the shipping industry, which accounts for 3% of the world’s CO2 emissions. The pledge, which came during the United Nations global climate summit, intends to eventually move freighters away from fossil fuels to cleaner energy to create zero-emission shipping lanes.

The new financial might of shippers is unusual for a business that’s notoriously fickle and tied to the whims of global markets. Building a cargo vessel can take years, which is why the industry often orders too many new ships when times are good and is saddled with a glut when times are bad.

“The history of this industry is up and down,” said Willy Shih, a professor at Harvard Business School who studies supply chains. “When there’s too much capacity, everyone loses their shirt. They’re making up for all those unprofitable years now while they can, but I don’t think it’s sustainable.”

Container ships are unloaded at the Port of Los Angeles as trucks line up to receive containers Oct. 13.

(Carolyn Cole/Los Angeles Times)

Order books for new vessels are filling up, analysts say, but shippers are also pouring money into other areas. CMA CGM said Wednesday it was paying $2.3 billion to buy a full stake in the third-largest terminal at the Port of L.A. Maersk is buying jetliners and expanding its air-freight and land-freight businesses, part of a wider strategy to offer the door-to-door services provided by the likes of DHL, UPS and FedEx. The world’s largest container shipping company has also placed orders for eight vessels that can run on carbon-neutral methanol as it tries to meet its goal of net-zero emissions by 2050.

Calls for a more resilient and greener supply chain in a post-pandemic world are likely to continue to raise questions about shipping.

“I hope the attention, such as it is, is lasting,” said Rose George, who detailed her five weeks aboard a container ship examining the human and environmental toll of shipping in a book titled “Ninety Percent of Everything.”

“Anything that makes us think about where things come from, and what it costs the world to supply everything all the time, just in time, can only be a good thing,” she said.

Times staff writers Pierson reported from Singapore and Su from Yiwu.

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Why Mexico’s President Is Promoting a Recall Against Himself




Standing before hundreds of thousands of cheering supporters in downtown Mexico City’s central square, President Andrés Manuel López Obrador saved his most striking comment for the end of his speech.

He urged the Mexicans packed into the Zócalo to participate in an April referendum to decide whether they want to boot him from office more than two years early.

“None of, ‘They chose me for six years and I can do whatever I want,’” López Obrador said at the rally Wednesday to mark his midterm. “If one who governs is not up to the task and obeying the people, revoke their mandate and out!”

The president, 68, likely believes he has nothing to worry about.

Recent polls show that about two-thirds of the public approve of his performance since taking office in 2018 on a platform that promised a radical transformation of Mexican society to combat corruption and inequality and to roll back free-market economic policies.

Families and marching bands making their way to the Zócalo passed vendors hawking gray-haired López Obrador dolls and posters with the hashtag #QueSigaAMLO, or “may AMLO continue,” referring to the president by his initials. Many said they view a referendum, authorized by a 2019 constitutional reform spearheaded by the president, as proof of his honest character when compared to decades of presidents accused of corruption.

“AMLO is the first president that dares to put himself to the test before the people,” said Debanhi Andrea Garcia, 22, who drove 14 hours from the state of Nuevo León with her boyfriend. “Because he’s like that, we support him.”

Supporters of López Obrador hold banners in support of the president at Mexico City’s Zócalo.

(Manuel Velasquez / Getty Images)

Mexicans have until Dec. 25 to sign a petition supporting the referendum, which can move forward only with the signatures of at least 3% of eligible voters, among other caveats.

So far, the initiative has received more than 703,000 signatures from Mexicans who have valid voting credentials, or 25% of the required total, according to the National Electoral Institute, an independent agency overseeing the process. (That tally includes signatures that will be discarded because they are duplicates or have other irregularities.)

Officially called the “revocation of mandate,” the measure follows other efforts by the president to increase citizen engagement in public policy. López Obrador has also backed referendums to decide whether former Mexican presidents should be prosecuted for alleged crimes, on the construction of a new airport near Mexico City and on the development of a tourism train line that would run through the Yucatan Peninsula.

“He does conceive his power as being a function of people reiterating their support actively,” said Francisco González, a professor of Latin American politics at Johns Hopkins University. “He wants it officially confirmed to give him that comfort of being the popular leader who is doing the right thing for Mexico.”

Since taking office, López Obrador has also expanded social welfare programs while introducing sharp austerity measures. He has halted renewable energy projects, promoted a constitutional reform to increase the country’s control of the electricity market, and given more power to the military — putting it in charge of projects such as the tourism train.

President López Obrador gives an address to mark the midpoint of his term.

(Manuel Velasquez / Getty Images)

His critics say that he hasn’t done enough to reduce high levels of homicides, including many killings of women and attacks against journalists and public officials. Dozens of candidates across the country were assassinated ahead of last spring’s midterm elections for governorships and legislative and mayoral seats.

Critics also are concerned about López Obrador’s attacks against democratic agencies that could check his power, notably the National Electoral Institute. He has repeatedly disparaged the independent agency, which last May sanctioned him for making statements in at least 29 news conferences that it said could be considered government propaganda that could influence the midterm elections. In Mexico, such statements by public officials are generally barred during the election season.

But the president’s vision of transformational change continues to resonate among many voters who view him as a paternal figure. López Obrador is in constant dialogue with his electorate, holding press conferences every morning that last hours.

“The figure he has constructed of an honest man, an honorable man, an incorruptible man — that helps him in a society that is used to seeing terribly corrupt politicians,” said René Torres-Ruiz, a political scientist at the Universidad Iberoamericana in Mexico City.

Even if enough signatures are gathered, hurdles to a referendum remain. The National Electoral Institute’s members have said that the agency doesn’t have the budget to carry out the vote and at least 40% of eligible voters must participate for the referendum to be binding. The referendum on former presidents last August fell far short of the 40% voting figure.

Ariadna Gomez, left, and another volunteer collect signatures for a referendum on whether Mexico’s president should continue.

(Leila Miller / Los Angeles Times)

Stephanie Brewer, the director for Mexico and migrant rights at the D.C.-based Washington Office on Latin America, said that winning a referendum would increase López Obrador’s perception that he could move forward freely with his agenda.

“What he wants is to come out of the vote, supposing there is one, politically strengthened with this renewed and amplified popular mandate,” she said.

Opposition parties have accused the president’s supporters of twisting the stated purpose of the referendum into a tool to promote López Obrador’s agenda. The 2019 reform called for a referendum to “revoke” a president’s mandate rather than “ratify” it and a complaint before the National Electoral Institute by the National Action Party referenced how volunteers have registered voters next to posters that advertise the referendum as a means of promoting the president rather than recalling him from office.

Luis Cházaro, a congressman from the Party of the Democratic Revolution, told The Times that the referendum “has been transformed into a promotional tool for the party.” He does not plan to participate.

In Coyoacán, a cobblestoned neighborhood in Mexico City known for Frida Kahlo’s home, volunteers last Sunday gathered signatures at a plaza in front of posters of the president that said “may AMLO continue.”

Ariana Garcia, a 24-year-old volunteer, said she uses the term “ratification” for people she senses like the president and “revocation” for those she thinks oppose him.

“People tell you, ‘But I don’t want my president to leave,’ so we tell them, ‘OK, then in this case you can ratify your support for the president,’” she said.

A supporter of López Obrador listens to his speech at a rally to commemorate the president’s midterm.

(Marco Ugarte/Associated Press)

Roberto Garcia, a systems engineer in Mexico City, said that he would vote against the president, uncomfortable that the federal government recently issued a decree that requires federal agencies to automatically approve infrastructure projects that are deemed to be of interest to the public or national security. He also sees the referendum as “a type of manipulation,” suspicious of why the president has contradicted the National Electoral Institute, saying it has enough funding to hold a vote he himself has fought for.

María de los Angeles Resendiz, a grandmother of 10 from the state of Mexico, will support López Obrador without hesitation.

Resendiz, 62, watches the president’s 7 a.m. news conferences each day with her husband while preparing breakfast and washing dishes. If she needs to skip one, she’ll track it down later on YouTube. She also listens to summaries in case she’s missed something.

Before López Obrador took power, Resendiz tried to stay as far away from politics as she could. She became disillusioned when she was a little girl after the 1968 Tlatelolco massacre, in which soldiers killed as many as 300 people at a student protest in Mexico City.

She called López Obrador a “simple” man who has won her confidence with his anti-corruption platform. She eagerly described how his government has set money aside for youth job training and expanded welfare payments to the elderly.

“He’s given us back our dignity,” she said. “I am proud to say that I am Mexican and that he is my president.”

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Op-Ed: the U.S. Shouldn’t Ignore Mexico’s Ongoing Human Rights Catastrophe



On Dec. 1, Mexican President Andrés Manuel López Obrador reached the halfway point of his six-year term. Since his election in 2018, López Obrador has not only failed to improve the country’s disastrous human rights record, he has worked to undo many of the hard-fought gains in transparency and the rule of law that rights groups, activists and campaigners have achieved since the end of one-party rule in Mexico in 2000.

The United States has been noticeably silent regarding the Mexican president’s accelerating attacks on democracy. President Biden has instead chosen to focus on enlisting López Obrador to prevent migrants from reaching the U.S. border.

López Obrador, a prominent anti-establishment figure in Mexican politics for decades, is the kind of populist leader that has become increasingly common in Latin America. He was democratically elected in a landslide on a promise to “transform” Mexico by taking back control of the country from the elites whose policies he blamed for economic inequality, social breakdown and growing violence.

López Obrador inherited a human rights catastrophe. When he came to office in 2018, 12 years of a military-led drug war had led to horrific abuses. Homicides hit staggering numbers. Thousands of people disappeared every year. But he has not addressed these problems. Soldiers continue to kill civilians. Homicides remain at historically high rates. And according to the government’s figures, more than 25,000 people have gone missing on his watch.

Even so, López Obrador has remained immensely popular with his base. He appears to believe that his continued popular support gives him the moral authority to concentrate as much power as possible in his own hands and to attempt to control every part of the state to bring about his promised transformation.

He labels anyone who criticizes him or stands in his way as a “neoliberal” or “conservative,” nebulous groups of supposed adversaries whom he describes as corrupt and morally bankrupt. Leveling this charge allows him to avoid responding to genuine concerns raised by journalists who question him, women’s rights campaigners upset at his lack of action on gender-based violence, Indigenous communities who oppose his megaprojects, environmentalists who disagree with his coal and oil-focused energy policy, and press freedom campaigners concerned about his government’s harassment of journalists, among others.

He has eliminated or proposed eliminating many government agencies not under his direct control, including the independent energy and telecommunications regulators, funds for protecting journalists and responding to climate change and natural disasters, the independent transparency agency and the independent electoral authority. He recently decreed that his government’s construction and infrastructure projects would be automatically granted permits without any review and that as matters of “national security,” would be exempted from transparency rules.

He has also gone after the judicial system, which has delayed or blocked a number of his projects and proposals as abusive or unconstitutional. His efforts to intimidate the judiciary have grown brazen. López Obrador has publicly singled out those whose rulings he dislikes and called for a judge who ruled against him to be investigated.

In April, his coalition in Congress passed a law — since overturned — to extend the term of the Supreme Court chief justice who has ruled in favor of the president. And in August, López Obrador held a referendum on whether the government should put five previous presidents on trial for alleged crimes such as “neoliberalism” and the “privatization of public goods.”

The U.S. policy of ignoring López Obrador’s attacks on the rule of law came into stark relief in June, when Vice President Kamala Harris visited Mexico and met with him. At the end of the trip, a journalist asked the vice president if the United States was concerned about López Obrador’s hostile attitude toward the media and civil society.

Harris initially responded that she had urged the Mexican president to respect the independence of the judicial system, the press and civil society. However, hours later, her spokesperson issued a correction to the Spanish wire service EFE, saying the vice president had been confused; she and the Mexican president had only discussed immigration and the economy, nothing else.

López Obrador will be in office for another three years. His coalition still controls both houses of Congress and he has made it clear that he is willing to amend the constitution if necessary to remove obstacles to achieving his goals. Unless the circumstances change, there are no signs he intends to alter his course.

José Miguel Vivanco is Americas director at Human Rights Watch. Tyler Mattiace is a researcher at Human Rights Watch.

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Photos: As Roe Vs. Wade Challenged, Demonstrators Gather Outside Supreme Court



Juanito Estevez, of Freeport, N.Y., holds a cross as he and abortion rights advocates and anti-abortion protesters demonstrate in front of the Supreme Court in Washington, D.C.

(Kent Nishimura/Los Angeles Times)

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