[FoRK] The World Is Not Flat
J. Andrew Rogers
andrew at ceruleansystems.com
Tue Jan 19 15:28:25 PST 2010
On Jan 19, 2010, at 1:00 PM, Bill Stoddard wrote:
> On 1/19/10 3:32 PM, J. Andrew Rogers wrote:
>> On Jan 19, 2010, at 12:11 PM, Stephen Williams wrote:
>>> Actual distance is a red herring now because of hyper-efficient shipping. Intermediaries in many cases are only there when they are more efficient than the alternatives. Commercial distance is a metric of time and money which is only loosely connected to actual distance.
>> There are "quant" logistics companies that do not own any shipping assets. They make vast quantities of money by finding and exploiting inefficiencies in the global supply chains operated by "real" logistics companies and reshuffling the assets to (hopefully) create a profit. Bloody speculators...
> That is fascinating. Who are the clients of these 'quant' logistics companies? Were I interested in becoming a client, where would I start?
Customers choose which companies they want to work with, and many of the bigger logistics firms have groups that play both ends of that game. If the customer's requirements fit very well within the asset inventory of a single supplier, they will likely get a better price than if they go through a middle man. Quant suppliers with smart, adaptive algorithms can create efficiencies in the global asset networks that exceed their overhead as middle men. The quants piece together a net profit from contracts with physical asset providers by using their assets in ways that are locally less efficient and globally more efficient. They take their cut on the cost savings to the customer.
There are a lot of markets that are like this, I am intimately familiar with the inner workings of a couple though not logistics. Pricing, availability, and contract obligations are not in a stable equilibrium and the efficient modes of resource allocation may vary wildly in time. It is a terribly complex adaptive optimization problem but even small improvements in efficiency can generate huge profits and cost savings. It is not as though the logistics speculators are just collecting money, they are predicting the future requirements of the market and speculatively shuffle other people's resources around so that they can meet those requirements at the lowest possible cost to themselves. If they guess wrong, someone else wins a contract and they eat the cost.
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