Friday 2 July 2021

Amazon scrapping stuff by the million: a free-market conundrum

Let's elevate our gaze from Batley & Spen, excellent result as this is (as Elby pointed out in the comments on yesterday's piece below), and before the footie starts up again.  Back to proper C@W stuff: and for those who missed it in all the excitement, an Amazon warehouse has been bubbled for sending hundreds of thousands of perfectly serviceable items for scrap every month - indeed, with a target of 130,000 items per week, no less!   The knee-jerk reaction to this is obvious enough and, being someone who abhors inefficiency & waste, I felt it myself.

But that's it, isn't it?  Knee-jerk.  What's the analysis? 

"Analysts suggested goods might be being destroyed in this way because it is cheaper to dispose of them than to continue storing the stock.  Similar investigations in France and Germany have found evidence of the practice in other Amazon warehouse."  (Well of course.  And anywhere else in the world, we may be sure.)

 Here's the analysis I'd want to see.  What if any is the role of the following factors?

  • retail price maintenance? (i.e. not wanting to cannibalise prices by offloading at deep discount instead of scrapping).  If so, at whose behest - Amazon or the manufacturers / importers?
  • contract terms imposed on suppliers by Amazon? (e.g. £xx per month warehouse charges if a single item is left unsold).  If so, do such charges bear any relationship to cost?  At whose cost of capital?
  • industry practice elsewhere?  Maybe every bulk distributor/retailer is doing the same, but mostly flying under the radar because they are much smaller & less high-profile than Amazon
  • are all laws & regulations on recycling / waste disposal / landfill charges etc being observed?
  • are other relevant externalities being priced correctly?  (can't think of any at the moment, retail / logistics not being my specialist subject; but I bet there are some: over to Mr BQ ...)

I'm also willing to bet that, on a given set of 'reasonable' assumptions on each of the above, there could be a hard-nosed, wholly-logical economic rationale for the practice we've glimpsed here.  The hard fact - often deeply counter-intuitive to the layman - is that sometimes the marginal value of hard tangible commodities is zero, or even negative.  Happens in the energy business (my sphere) all the time, exemplified by (e.g.) wholesale electricity / gas / oil prices going negative (respectively: frequent / rare / only once ever).  Like the concept of a negative inventory in storage which, again, happens in my game all the time.**   By the lights of whatever calculation this would be, scrapping wouldn't be "inefficient" or "wasteful" at all.

But it's still intuitively abhorent, and if I were a policy maker, I'd be saying two things.

1. Show me small tweaks on the pricing of the externalities that gives a different economic outcome; and if that turns out to be easy, we'll regulate accordingly.  There are strong parallels with our perennial debate over what's the "optimum" degree of self-sufficiency: it depends upon your assumptions, of course.  PS, I'm particularly interested in things that have Amazon as their principle economic 'victim', because it's pretty damned obvious that right now Amazon is under-taxed by a big margin, i.e. effectively subsidsed already. 

Or else:

2.  We're going to ban it, period.  And before the free-marketers rise up and howl "traitor", well I'm a free-marketeer too; so let me give you precedents.  Many years ago, the largest UK North Sea oilfield (Forties / BP) had no gas gathering system.  Oil production almost always yields associated gas, generally captured and piped away as a perfectly valuable by-product, or used locally as fuel.  But in its permitting application BP made the case that in this particular instance, the field was so far offshore, and the amounts of gas relatively small, that no economic gas recovery was possible: pipeline would cost too much don'tya know, old boy.  But the nation wanted the oil production to go ahead - so the gas (which in absolute terms was actually rather a lot) 'had to be flared'.  And so it was, for many years.++

Well, BP's 'economics' were there to be audited alright.  We may be sure the numbers added up, down and sideways: spreadsheets are like that.  But one day the government had had enough, and told BP to sort itself out.  Lo and behold, BP had another look, and found a way.  Like so many things, you don't know what you can do until you must (see the Piper Alpha story we've recounted before: one of the most powerful economic lessons I know).

Waste on that scale is an abomination.  If the 'numbers' show it's the right thing to do, well the inputs are wrong and they need to be changed.  That can be arranged.



**These are the real-world phenomena which completely screw the minds of econometricists, those 'academic' astrologer-charlatans who leech off unconfident and gullible managements and governments.  I was once told that negative power prices couldn't exist because the mathematical representation that was used to model them couldn't accommodate a negative.  Pfft.  By the standards of the physics of the day, Watt's steam engine was also impossible.  A good job us practical types are allowed to just get on with things.  Oh, and by the way, there is a perfectly good way of modelling it - just need to work a bit harder, that's all.

++ The entire Russian oil industry used to work like this, BTW, flaring its associated gas: and the Russian gas industry flared its NGLs!  Could be seen from space at night.


Matt said...

I'm looking forward to the politicians dictating to me what I do with my private property as you're suggesting they do with Amazon.

Some part of this will be volume based - 130,000 items is likely a miniscule percentage of relevant sales for Amazon. It just sounds large in absolute terms.

Existing government interference will account for a large element as well. Interaction of various policies including taxation, environmental etc will combined to lead to this outcome. One might suggest this was entirely predictable unless you have a degree in PPE and prance about Westminster like a cock.

Thud said...

I'm with Matt, I don't see the problem here and more Govt intervention is just going to cost the consumer.

Don Cox said...

I'm thinking of thousands of copies of the memoirs of some politician, published ten years ago.

Don Cox

lilith said...

A publisher once told me of shiploads of books exported to USA then returned and pulped. A regular thing the big publishers did back in the eighties.

Bill Quango MP said...

Can’t think of anything that would contradict the fees vs return costs. Store in an Amazon warehouse I suspect is mainly imports. Uk sellers can ship from their own warehouses, storage, bedroom.

In fashion, clothing had a high margin, short life. Had to be heavily discounted to clear.’ Up to 75% off’, was a real thing. 25% of sale price being cost plus vat price. So break even st 75% off.

Some retail held onto their dead stock. Never reducing it. Keeping it on the spreadsheets as stock on hand. So inflating their bank borrowing vs assets held. A poor policy, but some did. Could lump all the damaged returns as full price. I recall seeing coats at Harrods, ‘ on sale 20% off’ that I knew were ten or fifteen seasons out of date.

On high streets, the internet has had the opposite Amazon effect. Stock holding is as low as possible. A store holding £1,000,000 in the millennium years, probably has only £250,000 today. Primark, as ever, being the likely exception.

Ladies will have noticed over the years, M&S no longer having a big sale. Or rather, having a big sale advertised, with very little actually in it.
Their stock levels plummeting due to smarter logistics and needing the cash for losses.

GAP was always high stock level, high margins. Possibly the very dullness of their range will ensure their internet only success. People know what a GAP hoodie, chinos, jeans are like.

As for Amazon, new VAT rules, Eu wide, in force from 1st July, will force many smaller competitors out of any international business.

E-K said...
This comment has been removed by the author.
E-K said...

Move on from Batley and Spen ?

Football ?

The Boris Wall is starting to crumble. And Taking the Knee is being seen as a good omen.

We are fucked.

Fortune and Hancock's half hour (or thirty seconds, more like !) has truly fucked us.


It is quite clear that Communist slavery feeding Capitalst/Credit/Wefarism = a surfeit in produce. Credit is the greatest threat to the environment there has ever been.

It creates consumption way beyond the levels ever earned (or ever likely to be earned) It is another way of printing money and accounts for the trillions of debt in the West which was never authorised by the central banks.

We have uneducated people in the UK living in well appointed three bed semis having never worked and on benefits while doctors and research chemists have to bunk six to a rented house (my kids.)

This example can be found in my own family circle.

All are buying a surfeit of disposable junk to make themselves happy and production has mismatched demand.

Elby the Beserk said...

Having been SO appalled by what I learnt about Amazon from Shoshona Zuboff's excellent work, "Surveillance Capitalism", I immediately deleted my account. Not missing it at all, and it's saved me a fortune!

Mandatory reading for all who fear Big Tech (with good reason). And another excellent article by Matthew Crawford, on this very matter

Despite being a peaceful old hippy, occasionally I get the urge to punch some folk in the face.



At the moment.

Anonymous said...

Credit is the greatest threat to the environment there has ever been.

An understatement, if there ever was one.

Luckily due to COVID, the actual amount of personal debt has decreased due to the large amounts of government debt being hosed at anything that moved. This has been a lifesaver (literal in some mental health cases) for those whose debts (credit!) were spiralling out of control.

Just like the drug user reported in today's BBC who got themselves off drugs during lockdown, perhaps we'll develop a healthier view of credit/debt in the future.

Some businesses as BQ has pointed out have grasped solutions and perhaps the withdrawal of the furlough scheme will remove [a few] zombie companies. But one banking historian claims there hasn't been the real capitalism since WWII governments de-risking economies by constant intervention.

Nick Drew said...

Great link, Elby: I will reciprocate with this essay on "platform capitalism" (inter alia)

Kev on "waste" above is a good read too - and shorter!

BQ - As for Amazon, new VAT rules, Eu wide, in force from 1st July, will force many smaller competitors out of any international business - I'd missed the significance of this

lilith said...

Lockdown has been a great opportunity to change lifestyle and come off prescription drugs. "Save the NHS" by never visiting a doctor again! It has been an opportunity wasted by Government to revise healthy living advice, sack the Fairness and Belonging Assistant Managers on £70k, sack the housing staff (20 years after the NHS sold off it's property portfolio). As you can have almost 3 newly qualified doctors for the price of one fairness and belonging manager it seems to be a no brainer. NHS frontline staff are SICK to DEATH of being told by the BBC that they are on their knees. I expect they are also sick of training for 10 years only to be talked down to by a Fairness and Belonging Assistant Manager and having to rely on Mum and Dad to guarantee their rent.

lilith said...

I really don't want to pay the pensions of all the Assistant Fairness and Belonging Managers.....

jim said...


A nuisance to hold, muck up the market if let go. A nuisance even as scrap - costs money. Silly Season now, nothing to laugh at except Govey, B&S and Amazon, not much of a laugh at that.

We can get all moralistic, but the labourers who made them have had their bowl of rice and probably the shippers their groat. Some will cry over the scrappage, but we are not talking little boys/girls melting boards over a camp fire. Are we? Amazon over ordered or whatever - tough. Makes work for pen pushers.

Nature's resources are wasted every day - it's called humanity.

Jan said...

@Elby I never use Amazon either as a matter of principle.

Making people pay to dispose of waste itself doesn't work. We've tried that experiment by charging when people take their waste to the dump which just leads to a vast increase in fly tipping.

Instead maybe incorporate a waste disposal/recycling fee into the purchase price. If I buy anything bulky now I always decide how I will get rid of it when the time comes. PLaces like Currys take your old washing machine/fridge freezer when you buy a new one. By law(?) they must dispose of the old one safely and recycle when possible.

I don't know what the stock Amazon hold is or where it comes from or whether it's theirs or they're holding it for sellers on their site. Either way the disposal of excess should have some cost. With so many people on the earth we can't afford to just chuck stuff away any more and will have to learn to use less and recycle more. If we have to pay a bit more to buy stuff then so be it.

More jobs too maybe when the whole life cycle of stuff has to be taken into account.

Don Cox said...

This BBC news story is interesting:

Online shopping boom drives rush for warehouse space
By Emma Simpson
Business correspondent, BBC News

Don Cox

Nick Drew said...

Here's something else on waste

Matt said...

Can someone explain what the problem with the waste is?

Perhaps some philosophical objection to things being made and then disposed of before they are used?
If so, you'll probably want to get rid of make-job roles in central and local government because it's the same thing - economic activity for the sake of it with no useful outcome.

Perhaps its the thought of putting nasty metal and plastic into a gaping wound cut into Gaia?
Of course, we didn't get the raw materials from space so they came from there already. Yes, concentration may matter but these things are not exactly toxic nuclear waste.

If it's because the human race is growing too large and consuming all of natures resources?
Perhaps you'll be first to volunteer for Logan's Run or be made into Solent Green to help get the population down? A bit like David Attenborough who would love people not like him to not exist.
Resources are not constrained in the way they are articulated by the ill-informed &ignorant press and the eco-nutjobs (probably adding wilfully lying to the list). There might be finite known (surveyed) resources but there is more that is potentially available. You only have to look at oil sands and fracking to see huge new sources that weren't available in past decades.

So is there something other than touchy feely that is a problem?

Elby the Beserk said...

That many who have insufficient spare to save for a personal pension, having to help fund the pensions of public servants on eye-watering salaries is to my mind profoundly offensive and morally wrong.

Just saying.

Nick - thanks for that link' printing it off to consume later

Matt said...

@ ND

The William Davies link is a tragic (and simultaneously hilarious) example of naval gazing.

The chattering classes are upset because spouting off on Twatter is unrewarding and doesn't provide them with sufficient recognition of their piety and virtue.

It's nothing to do with neo-liberal capitalism and everything to do with that fact they are twats who no one with any sense (the plebs) take any notice of.

Nick Drew said...

Matt - Like I said, waste is a conundrum

I know what Keynes said about digging holes; and you can argue a lot of people are doing wasteful stuff rather than productive stuff, but are better being employed that way than not at all

but that's Lump of Labour fallacy

one central aspect of capitalism is new businesses getting traction with new ideas for doing things BETTER (and the freedom so to do), which sometimes means superior quality or just plain different, but frequently means more efficient / less waste - generally applauded (though not always by those who make their living doing things MORE STUPIDLY - hence the importance of Freedom to innovate, as a capitalist would see it, against conservative / labourist reactionary instincts)

then ... miracle ... not just reduced waste / cost, but often EVEN BETTER THINGS become possible! - qualitative breakthough consequent upon quantitative improvement.

Example: before steam engines, pumping water from mines was done by donkey-power etc: v inefficient and in fact ineffective in many cases. Steam engines reduced opcosts by over 90% in some cases and allowed deeper mining also. Greater availablity of minerals at low cost meant all sorts of other advances were possible.

You can dispute these were "advances" but most folk would say they mostly were

as a capitalist-innovator, rather than a capitalist-rentier / status-quo merchant, I think waste is a useful economic concept, not least as a target / spur for beneficial improvement

I also know that dumb capital investments (which will always happen when the freedom to innovate is allowed) coupled with slowness to recognise sunk costs, are what make the world go around! Yup, waste again ... it's a dynamic conundrum

lilith said...

I suspect the extended public mask mandate only came about because destroying the panic bought face masks would be too, too embarrassing.

BlokeInBrum said...

ND, I like your point about incremental quantitative gains leading to qualitative breakthroughs.
Isn't this a massive long term problem for the West though?
Having offshored an awful lot of energy and manufacturing production to China etc. haven't we ceded many future technology breakthroughs, patents and new industries to the East?

Nick Drew said...

BiB - oh yes, a big concern - someone around these parts posted some great links to a writer who said that the biggest strategic gains China will make will be via dominance of basic, medium-tech industries rather than hi-tech: because it's the ability to mass-produce loads of really good middle-engineering stuff that really builds the strength of a nation (he argued), in material AND educational ways. No country ever suffered from having competent engineers in abundance: but we may well suffer from our growing weakness in that regard

that said, though, the outright creativity of the Anglo west, born of genuine freedom, is still formidable when it comes to out-and-out novelty & innovation.

It's so easy for people in the Anglosphere to have an unfettered crack with something new: whereas in 'controlled' societies - including the mulish, Civil-Code-based EU - novelty is intriniscally suspect, awaiting official approval which never comes until they're panicking about having let the nasty Anglos steal a massive march on them

(I believe that most of the epic quantities of Chinese patents are for small improvements in stuff; ditto most of the epic quantity of published Chinese scientific research: it's derivative, not original. Well, enough small improvements can certainly add up ... (though my steam-engine example wasn't just a small incremental gain). I wonder why they can't match the Taiwanese for microchip engineering..?)

BlokeInBrum said...

I agree with you that western (and anglo-saxon especially) culture is miles ahead of anywhere else in terms of innovation and creativity.

Chinese technology has been based on ripping off the wests know-how for a long time, but what about the 'fake it till you make it' effect?

Eventually some of that creative magic dust is going to rub off. China is turning out huge numbers of engineers and scientists, and yes, Cambridge alone has won more nobel prizes than most countries, but our education system seems to be rapidly descending into clown-world at the moment, including all the STEM departments.

Were it only the students being bolshy then it wouldn't concern me so much, but it seems to me like the faculty is leading the charge.

You only need to look at the global mobile phone industry to see that the lions share of innovation is coming from Chinese companies, with the Brits involvement confined to designing the curvy bits on the outside.

See also the furore concerning the rollout of 5g in the west, and the penetration of Chinese companies into our telecommunications infrastructure.

E-K said...

O/T Batley and Spen... how the Left have won despite the Tory Government.

George Cross for the NHS ??? That badly run organisation which is the Political Wing of the Labour Party ?

(I have nothing against individuals within the NHS being awarded the GC for the undoubtedly brave things they did during the pandemic)

This has made the NHS untouchable and Boris did it.

And how long before the Leftists call the next general strike ? AKA "lockdown to save the NHS."

I expect they have one planned for Autumn. And they'll do it again.. and again.

Oh. And the NHS DID collapse. We did not save patients who had illnesses other than Covid. We killed them. Pray that you or a loved one doesn't get cancer now.

Don Cox said...

"This has made the NHS untouchable and Boris did it."

For decades, a constant cry from the Labour Party has been that the NHS is not safe with a Tory government. Boris is making a big point out of disproving that claim.

Don Cox

E-K said...

And he's adopting lots of other Left wing policies to make his big points.

Anonymous said...

before steam engines, pumping water from mines was done by donkey-power etc: v inefficient and in fact ineffective in many cases. Steam engines reduced opcosts by over 90% in some cases and allowed deeper mining also.

Extract from "The history of donkeys in pre-Industrial Great Britain" Author - Nick Drew. ISBN 978-0-7334-2609-4. Price: £9.99

lilith said...

EK Best way to "avoid cancer" is to avoid all sugars...(cancer feeds off it) and to fast regularly so that your body can recycle, clear debris and repair. Oh, and exercise. This works for heart disease too. Most of us are pre diabetic.

The NHS is great in an emergency if you've set yourself on fire or thrown yourself off a ladder, or need orthopedics, but not so good if you have something chronic. Then, it is better to do your own research and fix yourself.

Jason Fung, a nephrologist, is helpful on this subject.

lilith said...

3% of patients use 50% of NHS resource. Something is going wrong ie. the NHS is doing a poor job of "curing" disease.

lilith said...

You only have to look at the staff to see how terribly unwell most of them are. I'd be buggering off to Australia if I was a newly qualified doctor/nurse. It must be terribly galling to study for 10 years and find yourself worth only a fraction of the value of an assistant fairness and belonging manager.

lilith said...

If you are concerned about your health and wondering what to do about it, here's a capitalist pharmacist who set up a business renting out continuous glucose monitors with pharmacist mentors to help you get your diet where it needs to be for optimum health.

BlokeInBrum said...

Despite my utter loathing of sweeteners, and the governments insistence on dictating what I ought to eat, I have to think that on balance, not having a generation growing up slurping fizzy pop is a good thing.

E-K said...

Fizzy pop is the hidden killer. The healthiest thing you can drink is also the cheapest... tap water.

So the 'deprived' estates up the road from me are full of obese people and their bins stuffed with empty Fanta bottles.

Obesity is not due to poverty.

Lilith, you are correct... and I noted on my visit to A&E some HUGE nurses. Old grannies keep taking them cake and boxes of Roses.

lilith said...

Kev, my observation and experience is that the Health Care Assistants (on minimum wage and often qualified nurses from unrecognised jurisdictions) do the nursing and the graduate nurses administrate, so the HCA's are mobile and slim and the Nurses are at computers/desks about to enter a diabetic coma.