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July 22, 2013

How Goldman-Sachs rigs warehousing to raise the price of your soda and cause huge shipment delays.

[UPDATE] Too many people are missing the crux of this NYT piece and getting hung up on various conspiracy theories or fixating on the NYT's inconsistent math.

The scam, and that's all it really is, is quite simple. Before GS took over, delivery times on a customer orders for delivery of warehoused product were measured in weeks (somewhat reasonable), after they took over, delivery times are measured in years (wholly unreasonable).

Suppose you parked your car in one of those automated parking garages that racks'em and charges by the hour. You park your car come back for it, and they say "come back in 3 weeks and we'll have it ready for you". OK its irritating that you have to pay 3 weeks rent + however long you were off running errands, but at least you'll get the car back sometime this month or next. Now GS buys the parking garage and the wait time to get your car back jumps from a few weeks to over a year. Oh, BTW, your rental fee tab keeps running during that year+ delay. That's the scam in a nutshell -- run out the clock to increase rental fees.

How those increased rental fees and egregious delivery delays ripple through the system and what their net effect is people will argue about forever, but all that is irrelevant to the scam GS is running.

Some have asked why GS would get involved in such a seemingly petty warehousing hustle, there's no big scores in the warehouse business, its usually kinda mundane. Its not mundane if you can buy a mundane business and increase fees from (X storage days+(3 weeks)) to (X storage days+(70+ weeks)).

Know this -- there is ALWAYS an effect from institutionalized inefficiency. It WILL be non-zero. It WILL raise prices. Increased costs ALWAYS raise prices.

Focus on THE SCAM, not the extraneous details that have derailed others looking at this story.

Apparently, its all perfectly legal.
...a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars...
...a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again...
...The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal...
a tenth of a cent or so of an aluminum cans purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year and add the tons of aluminum used in things like cars, electronics and house siding and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years

Maybe we need to stop using this word "capitalist", and start using "oligarchy"? Egregious parasitic inefficiency like this can't exist in a genuinely capitalist system for too long without a market response.

This scheme apparently hasn't been in operation for too many years now, so maybe there is a capitalist response in the works. A co-op storage facility run collectively by all the GS victims would work, freezing out the GS scammers. That would also allow for participants to execute their own localized material swaps/substitutions and reduce reliance on spot markets when shortages happen as well. Some things need to be very specific alloys for technical reasons, others don't.

Such a facility could also coordinate scrap re-utilization to maximum effect. Perhaps the physical format and metallurgical aspects of Company A's scrap is usable by Company B as raw material? Perhaps Company A could alter their stamping dies a bit and stamp parts for Company B as a freebie side effect of stamping their own parts? Without someone hawking over the incoming scrap bins looking for commonality, that sort of synergistic production doesn't happen.

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posted by Purp at 10:35 AM

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