Friday, 22 March 2019

Have China's global trade ambitions had a bum Press?

China has received much adverse comment in the western Press lately over its global trade ambitions but has it been overdone and are the newspapers overly partial, dancing to the political tunes of their owners.

All newspapers are tainted with that most plausible and effective of lies, namely deception by omission, leaving their readers with only some of the facts and therefore unable to strike a fair and balanced view of events, and unlikely to look to other countervailing views. This means that there is a risk of world trade disruptions, or worse, if readers with a meaningful free vote in the West confine and shape their conclusions based only on facts that their newspapers want to reveal. Among the British China-bashing newspapers is the Right-leaning Daily Telegraph whose excoriating, fatuous style has led to remarks like: "Italy is selling itself lock, stock and barrel to the Chinese communist party, flouting the EU's tough new line on Beijing and openly taunting the Franco-German axis." But more on that later.

International trade is the handmaiden of prosperity and prosperity, when fairly shared, is the surest guarantor of peace. China's big drive to develop overseas assets, particularly ports, is a lynchpin in that developmental goal. Its meteoric growth in GDP over the last 25 years has done much to stabilize global trade equilibrium, especially since the global credit crunch begun in 2008, an entirely Western-created malaise. In terms of buying American government IOUs, China has been by far the biggest overseas buyer, which has helped keep American interest rates down and asset value from collapsing.

Now none of this is to say that China has not unsettled some of its near neighbours by making ill-advised moves, as in the South China Sea, where it has violated maritime law by illegally developing artificial islands and subsequently militarising them. Nor should it be forgotten that when it comes to intellectual property theft China is a master at it. But when countries acquire much economic wealth through overseas trade they naturally enough want to protect their overseas assets. This is what Britain and America did in earlier centuries and have done in living memory when, for example, Britain shamefully allowed America to develop the Chagos Islands as a bomber and spying air base, forcibly expelling all of its 2,000 islanders, an act that has just been declared illegal by the World Court at the Hague, with the recommendation that Britain return the Chagos Islands to Mauritius and allow its islanders to return. And as regards intellectual property theft, America, too, was a dab hand at it when it stole British textile inventions in the 19th century.

Ports investments make good sense

The Western media suggests that China's port investments around the world, numbering 42 in 34 countries so far, can be used to build political influence and create 'strategic support states' while also being potential strategic support points enabling developments of logistics hubs that support an expanded military presence. They include ownership of the Port of Piraeus, a container terminal in Zeebrugge and a foothold in Europe's three largest ports, Rotterdam, Antwerp and Hamburg. The Press portrays this as raising fears in the EU that China may use its involvement in European ports to exert political influence on individual member states. The reality is that it makes good business sense for Chinese players to acquire overseas port assets. European countries don't need to feel threatened because in almost all cases the landlord function remains in the hands of local countries.

So far China has signed 38 bilateral and regional maritime agreements covering 47 countries along the Belt and Road Initiative (BRI) routes, an unprecedented logistics scheme that will cost over $1 trillion, and has been likened to a modern-day Silk Road route. Fifty more deals are in negotiation, covering customs, engineering, telecoms, banking, infrastructure projects and above all ports, with Genoa and Trieste first in line.

Back to the Daily Telegraph's China-bashing stance, the paper casts doubt on the economic value of the Silk Road and claims "it has proved to be a Faustian pact for African and Asian states. Try telling that to the Ukraine's citizens, where China has been honoured with the title of "Year of China". The paper also claims that many schemes are white elephants and refers to Brussels warning Europe that it must close ranks or let China pick of states one by one.

All these Xenophobic tones seem to be overlooking one vital fact. Like it or not, the West, particularly America, must get used to the notion that the future is Asian. Europe and Asia are the two most significant regions in global trade, and their trade with each other comprises a greater trade volume than in any other pair of regions. As infrastructural linkages and trade agreements expand, Eurasian trade is accelerating and far outstripping either regions' trade with North America. Far from being the Trojan horse a hostile Press likes to make of China, it is only doing what America did with its European and Asian partners during the Cold War. The BRI will reveal just how crass this colonial logic is.

 If one redefines Asia as stretching from the Eastern Mediterranean to the Pacific, taking in all of Australasia, it includes five billion people, of which China has only 1.5 billion. Despite splurging $50 billion between 2000 and 2016 on infrastructure and humanitarian projects across the region, China has leveraged little, meaningful loyalty, and so the phrase "China-led Asia" would be no more acceptable to most Asians than the notion of a "US-led West" to Europeans. At most, China will be an eastern anchor of the Asian and Eurasian mega-system. And unlike America, China is deeply cautious about foreign entanglements. Foreign markets are what China wants, not foreign colonies, and it is a pity the hostile elements of the Western Press have failed to grasp that and are too purblind to see where world trade is going.


Friday, 25 January 2019

Climate change sends logistics costs soaring

Logistics seriously impacts climate change (28% of US green house gas emissions came from transport in 2016) but relatively little is said on how climate change will adversely affect logistics operations, even though it will be seismic, leading to much higher costs to be passed onto the consumer. Arguably, the most recent example of this is the river Rhine, Europe's most important commercial waterway.

The Rhine gets its water from rain and glaciers but alpine ice flows shrank by 28% between 1973 and 2010 and that decline may be as much as 35% now as the Alps are warming up at an even faster rate. This has led to very low Rhine water levels but the drought last year and shrinking glaciers have brought home the stark reality of accelerating climate change. For example, at one of the shallower points in the Rhine the bustling river traffic ground to a halt for nearly a month late last year, choking off a critical transport artery. The impact depressed German industry, slowing economic growth in the third and fourth quarters. When low water halted shipping last summer, steel maker Thyssen was forced to delay shipments to customers, like car makers Volkswagen because it could not get raw materials to a mill in Duisburg. Such constraints on the Rhine cost BASF about $285 million, pushing the chemical maker to more costly options.

Water depths, which hit 12-year lows at Kaub for most of the second half of 2018, hobbled barges for months, which can each haul 18,000 barrels of oil, because they were prevented loading at full capacity until late December, and such fluctuating water levels are continuing in January to affect cargo activity. Fuel pumps at some petrol stations in Baden-Wurttemberg ran dry last summer because of supply problems. Natural gas prices in Europe jumped 13% in November when utilities boosted output at gas-fired generators as they struggled to get supplies to coal plants. The Rhine, it should be remembered, is a climate change friend because it takes some beating when compared with alternative road and rail options. Barges can carry five times their own weight, making them cheaper to operate and less polluting. Shipping from Rotterdam to Basel costs around 40% less than rail transport.

More negatives than positives

There is no doubt that continuing warming will have some positive sides as well as the negative but all the pointers suggest that the latter will far outweigh the former when it comes to the likely hits that transport infrastructure will have to take. Moreover, cost-saving JIT deliveries may be hit as logistics providers build up safety stocks against climate change supply disruption, possibly leading to more warehouse demand. Coastal roads, railways, ports, tunnels and airports are all vulnerable to sea level rises, which could lead to delays and permanent closures. Being a key element of logistics, transport costs, if infrastructure costs are factored in, are bound to soar. 

In recent years America has been much in the news owing to damaging natural disasters but how did it affect logistics and how vulnerable is the country's transport infrastructure? As regards road networks, high temperatures can cause pavements to soften and expand, creating rutting and potholes in high traffic areas and place stress on bridge points. Such warming would make roadway building and maintenance more costly. Warming up would also concentrate rainfall in more intense storms, leading to heavy flooding to disrupt traffic through damaged infrastructure. About 60,000 miles of coastal roads in America are exposed to coastal flooding from storms and high waves. Drought, especially in the south-western States, could increase the likelihood of wild fires that reduce road visibility and threaten roads and infrastructure, as last year's California wild fires, costing $400 billion, a record, make clear.    

There is also the impact on vehicles themselves. As temperatures rise, many types of vehicles can overheat, and tyres deteriorate more quickly, though milder winters will have some offsetting benefits. High temperatures also cause railway tracks to buckle, leading to more track repairs and speed restrictions to avoid derailments. Add to that the potential of heavy rain storms to disrupt road and rail traffic through washed away soil foundations. A good example here is the June 2008 mid-west closure of the major east-west rail lines for several days. 

Coastal roads and railways are also subject to inundation from rising sea levels combined with storm surges. After hurricane Sandy hit New York and New Jersey subways, the commuter rail system was hit by a 14ft high storm surge, leaving millions of commuters without a subway service for over a week. 

Air transport cannot expect to remain unscathed either. High temperatures could cause them to impose cargo restrictions, flight delays and cancellations, but storms can force entire airports to close. Marine transport is also in the firing line because ships are affected by many factors, like the depth of channels and waterways, as typified by the Rhine. Any water level rises could pose problems for vessels going under bridges. Inland waterways, however, like the Great Lakes, will see falling water levels, so ships could face weight restrictions as channels become too shallow. The solution of dredging would likely be hugely costly. Rainfall changes could also adversely affect shipping in many other ways. For example, marine installations, like ports, dockyards and bridges may have to be raised and fortified to accommodate higher tides and storm surges as sea levels rise. A particularly vulnerable area is America's Gulf Coast which is home to seven of the country's largest ports, importing 56% of America's oil imports in 2011.

Hard decisions needed

There are some solutions to these problems but will they be too little, too late? Roads can be treated to cope with higher temperatures and railway tracks could have cooling substances to prevent buckling. Leading logistics companies like DHL are taking a pro-active role, given that they are committed to zero emissions by 2050 and have set out a series of 2025 targets, including raising carbon efficiency by 50% compared with 2007 and using clean delivery systems such as bicycles and electric vehicles for first and last-mile deliveries. Other companies are looking at drone deliveries. Logistics companies are also encouraging tree planting and their own suppliers to go greener. All-electric cargo ships are already with us and automated sail with auxiliary power is now feasible for short sea journeys. But beyond the responsible activities of logistics companies there are other likely benefits from advancing technology. The advent of 4D printing, for example, expected to be up and running by 2022, would make it cheaper and more climate-friendly to produce products in home markets for home consumption, thus dampening demand for long-haul container shipping, something that should concentrate port operators' minds considering costly port upgrades and expansion. 

All these improvements, however, will take years, and it is impossible to say at the time they are fully implemented if they will stabilize the global warming momentum now building up. On the principle of better safe than sorry, hard decisions should be made now to shorten these targets, especially as the world's growing population and per capita consumption only adds to the problem. 


Friday, 2 November 2018

Debt crisis imperils humanity

Debt per se is not a bad thing. Over centuries it has been the necessary lubricant to promote increased global trade and thus global living standards. But rapid debt expansion throughout history has clearly led from one financial disaster to another. Do we now see ourselves at the dawn of another global financial debacle? Arguably, all the auguries point to a disturbingly high risk of such a scenario unfolding and this time Government debt-subsidising policies stand in the dock along with all the other usual suspects.

Debt bubbles, like Stock Markets, are driven by three potent forces: greed, fear and ignorance, sometimes ably supported by corruption, which on this occasion is very much at work, even where you might least expect it. When the credit spree on 2008 finally hit the buffers it was at the end of a benign world of cheap and easy credit fuelled by new financial instruments like CDOs, diced and repackaged for selling on to many financial global investors. Ten years on, and we seem to face a re-run, with the difference that this time it is huge corporate borrowings, often to finance acquisitions.

In America, research shows that of the 50 largest corporate acquisitions over the last five years more than half ended up with debt levels that flirted with junk debt status, and only escaped that ignominy by optimistic assumptions by ratings companies. But some of us here will remember that in the cavalier times debt ratings companies were incestuous, to say the least, and thus highly suspect. If those corporate debt ratings again prove overly optimistic, forcing $1 trillion in debt to be junk labelled, a potential result could cause a freeze, denying many companies their ability to refinance their debts. The US Government's hands in this disturbing scenario are not clean so it seems that they should change tack to withdraw corporate and individual incentives in the form of tax breaks that only worsen the debt problems down the road.

Beyond American shores the picture looks no less bleak. Much alarmism has been spread about the presumed economics Armageddon facing Britain if it fails to secure a mutually acceptable deal. But the fact is that Brussels should be more concerned about its own financial problems which makes Britain's look far more than manageable. Much of the EU's financial travails reflects lack of good governance. Greece has been a recidivist debt welcher of the first magnitude since ancient classical times. This is hardly surprising given that Greeks regard it as their God-given right to evade taxes come hell or high water, forcing Greek Governments to borrow heavily just to pay their huge payroll bills. Much of the multi-billion Euro Greek debts will never be repaid and so investors should prepare themselves for a severe scalping.

Italy, in the tax evasion stakes, is not far behind Greece and one can only look on in dismay over how the Rome-Brussels conflict over Italy's proposed budget expansion will play out. Behind Italy, France and Spain leave much to be desired over sound financial governance.

Even in Germany, the thrifty Germans are not immune to the combination of lousy governance and the corrosive hand of corruption. Many German economists claim that there are overly cosy ties between politicians and the country's 385 public-sector savings banks, known as Sparkhassan, predominantly controlled by people of questionable financial expertise. These banks control Euro 1.2 trillion in assets, making them Germany's second biggest lender after Deutsche Bank, who along with Commerz Bank are themselves struggling. Any rapid rise in interest rates could jeopardize all of these Sparkhassan banks.  

Some readers will also be aware of gathering debt storms elsewhere in the world but spare a thought for poor China. This country's peer-to-peer lending (P2P), also known as lightly regulated shadow banking, has attracted 50 million savers who sought returns of 10% or more, double what they would get from a bank, seemingly overlooking the universal adage: "the higher the yield the greater the risk." The total sum outstanding in these P2P banks is put at $200 billion, and a Chinese banking regulatory body has warned investors to be prepared to lose all their money, much of it through corruption and fraud involving Ponzi schemes. One 31-year old woman from Zhejiang province wrote to her parents after losing $40,000 to an online P2P fraudster, saying she could not see any hope. "Don't be sad," she wrote in a note to her parents. "I am leaving but your lives need to continue. I just lost confidence in life in this society. I am not afraid of death, but I am afraid of living." She then hanged herself.

There could be more investor hangings but this time in the logistics sectors of container shipping and ports handling if the real threat of 4D printing flexes its muscles of disruptive technology. The problem here is that the container shipping lines (bulkers are not affected) are ordering huge, 24,000 TEU container ships to be financed by massive loans, which will sharply boost the container supply side in several years time. This could coincide with the potentially hugely disruptive 4D printing technology, which will allow far more manufacturing in countries of consumption, making it cheaper to do so and thus cut down on long container ship voyages, leading to a perfect storm. Container shipping ports may also rue their expansion plans. Only recently much of the container shipping world forced many banks to write off their shipping loans.


Friday, 10 August 2018

Time to kill warehouse diesel forklifts

 Only recently it has been made clear that warehouse operators using diesel forklifts could be sued by their former employees over a variety of cancers, especially lung and bladder cancers, which were reclassified by the World Health Organisation as Class 1 carcinogens, meaning that there is no doubt that exposure to diesel fumes at the workplace, like warehouses, is a killer. But now more alarming news has emerged from a study by Queen Mary University of London,* which shows that people living near busy main roads have dangerously swollen hearts, similar to those seen in the early stages of heart failure. While people with such enlargement may not feel ill they are, nevertheless, at greater risk of heart attacks and other problems caused by airborne pollution in the bloodstream.

The biggest source of air pollution is traffic and of particular concern are the sub 2.5 micron oily particulates emitted by diesel engines, which lodge permanently in the bloodstream and whose anti- pollution devices like soot filters cannot eradicate. Operators of warehouse diesel forklifts have long known the risk from diesel engines and are under a legal obligation to make the workplace safe. Internally, air extractors help and over recent years the diesel engine makers have made great strides to clean up their emissions but the problem of PM 2.5 particulates remains and may well be insoluble.

All responsible warehouse operators now considering renewals of their forklift fleets have an effective, safe alternative, namely electric forklifts. One of the main reasons why diesel was preferred over electric, i.e. greater performance in all weathers, no longer applies, thanks to big advances in  battery and charger technologies that can deliver a performance the equal of diesel in all weathers. Add to that their other advantages, like low noise levels and compliance with hygiene levels in sensitive environments like food and pharma, and the motive power choice becomes a no brainer.

 Michael Gove, Britain's Secretary of State for the Environment, has announced a target of banning all new petrol and diesel vehicles by 2040, while other EU countries are setting more ambitious targets. The question is can users of warehouse diesel forklifts afford to wait that long, given the potential threat of lawsuits. That, too, is a no brainer. Insurance companies might also like to concentrate their minds with pre-emptive action, like hiking premiums for diesel trucks or withdrawing cover entirely.
*The study shows that diesels are the biggest sources of the two main pollutants measured in the study of heart structures and air quality. One of their key findings is that heart enlargement correlates closely with NO2 and particulate pollution levels, even when those levels are well within British guidelines, part of which, dealing with particulates, are more than twice as high as those set by the WHO.

Monday, 30 April 2018

Why Sainsbury and Asda grocery merger should be blocked

Dark prospects for supply chain partners

The proposed £12 billion merger between Britain's Sainsbury and Asda grocery chains is not only a sign of competition desperation but poses undeniably bad news for both the public, in terms of diminished competition, and the hapless supply chains who have suffered years of unfair bullying practices at the hands of the four grocery behemoths, which will be cut to three unless the Competition and Markets Authority (CMA) blocks the deal. But can the CMA, now seemingly a toothless tiger following its approval of the Tesco-Booker merger, be trusted to put the consumers' interests first and why should the deal be blocked?

For many years the four big UK grocery chains, Tesco, Sainsbury, Asda and Morrison, have controlled over 70% of the UK grocery market which offered little by way of meaningful price competition, and a hard time for their suppliers grappling with up to 60 different, odious ploys to squeeze the last drop from them. Some of these ploys were sheer chutzpah while others were downright fraud, like the "Drop and drive" deliveries, whereby the retailers claimed goods never arrived and refused to pay for them, setting back 20 suppliers alone with £15 million in losses. Yet other wheezes bordered on blackmail. But then came two disrupters to give the big retailers nightmares, something I warned about in print 30 years ago, the rise of foreign, deep discounters and the disintermediating effect of online shopping.

In just a few short years the German discounters, Aldi and Lidl, have seen their share of the UK market soar from near nowhere to 12.6% of the total market, which has come at the expense of the big four. The big four know why the discounters can undercut them on price, typically up to 30%, but their big problem is that they cannot emulate the discounters' business model without huge disruptions to their own business models. The real reasons, therefore, behind this proposed Sainsbury-Asda merger are to buy market share through mergers and then make efficiency gains to slash costs, since they cannot easily buy the discounters as they are family owned. If the proposed merger goes through it will have nearly a third of the entire market, pushing Tesco's 27% market share into second place. But the synergy savings from the merger cannot be said to be anywhere near enough to lower prices enough to compete with the discounters.

The big four grocers are in a bind now that price is king in a cash-strapped market. The Albatross around their necks is their legacy of huge superstores trying to sell anything and everything under one roof, which carries a huge inventory cost. A typical Tesco superstore would stock up to 40,000 SKUs compared with only 1,600 for a discounter, which means much of Tesco's stocks are slow movers, whereas for the discounters they are all fast, and if they become slow they are mercilessly dropped. The cost of holding inventory can dwarf all other warehouse costs combined. When Tesco's founder, Sir Jack Cohen, proclaimed "Pile 'em high and flog 'em cheap" it was a workable business model but in those days SKUs were far fewer. Today, a more accurate mantra would be: "Pile 'em high, flog 'em cheap and flog 'em FAST."

So, then, if there is nothing in it for the consumers to benefit from the merger what will it be like for suppliers? Perhaps ASDA itself shows the way. Struggling as Britain's third largest food retailer, it was named last year as the worst of the UK's major supermarkets in the treatment of its suppliers. About 12% of the suppliers said ASDA rarely or never complied with the Grocery Supplier Code of Practice. With behaviour like that it is hardly surprising that Britain's Shadow Business Secretary, Rebecca Long-Bailey, called for the CMA to examine the combination of Sainsbury and Asda "as a matter of urgency" because of its potential impact on suppliers. There is no reason to expect that shabby supplier treatment will get any better and every reason to suppose it will worsen. Adverse competition and supplier consequences, therefore, should make it imperative to block this merger bid. Failure to do so would show the MCA as unfit for purpose and worthy of dissolution.


Sunday, 29 April 2018

Warehouse LEDs may pose higher cancer risks

Nowhere in industry, perhaps, has the adoption of LED lighting been more dramatic over a few years than in warehouses, which now accounts for most of the new light fittings in them, but is there a health peril that could come back to haunt warehouse operators unless remedial action is taken soon?

The cause behind the remarkable switch away from earlier lighting technologies like fluorescents and metal halide to LEDs is a no brainer. Although initially more costly than other lighting sources, LEDs are up to 30% more energy efficient, have a far longer life, mean much lower maintenance costs, offer a better colour rendition, and are eminently suited to smart sensors. All this means that ROIs are remarkably short, less than two years.

The latest, potentially disturbing health news, however, came in respect of research into street LED lighting in Spain, where scientists believe that they have found evidence of a "strong link" between Britain's new generation of street lighting and two common forms of cancer --- breast and prostate. In regards to prostate cancer the belief is that heavy exposure to LEDs doubles the risk, while raising it 1.5 times for breast cancer. There is, as yet, no proof of a causal link, but the scientists believe that the "blue light" emitted by LEDs may disrupt the body's circadian rhythm, which in turn affects hormone levels, and both prostate and breast cancers are hormone-related.  

For some years the medical profession has expressed concern that white LEDs may be emitting too much blue light which may affect vision and sleep owing to blue light suppressing melatonin, a chemical that controls the body clock. The advice from the American Medical Association recommends reducing the blue wave lengths.

 Blue light is a range of the visible light spectrum emitted by most white LEDs and so warehouse operators should check on this aspect to see if any remedial action can be taken. It is a problem that also affects mobile 'phones, tablets and TV screens. Research into the problem so far has been limited, because LEDs are a relatively new technology, at least in terms of its recent, widespread adoption. If it can be proved soon that the blue light exposure is carcinogenic but no action was taken afterwards to remedy the problem then long-term warehouse workers affected by those common cancers or damaged eyesight would be able to bring legal actions for high damages.

This kind of threat has already emerged in respect of long-term exposure to diesel fumes inside warehouses, following the WHO reclassification of diesel fumes in the workplace as a class 1 carcinogen, meaning that it definitely causes lung and bladder cancer. Given that there is now no longer an excuse for using diesel forklifts inside warehouses, even if they are fitted with cats and soot filters, their future indoor use could lead to future law suits from stricken warehouse workers.

Thursday, 4 January 2018

New summit to tackle urban logistics crises

The United Kingdom Warehousing Association (UKWA) is sponsoring a new, one-day summit: "Feeding Cities Summit," to be held at London's British Museum on February 6th as a direct response to the new National Infrastructure Commission (NIC) study on the future of the UK freight industry, announced in the last Chancellor of the Exchequer's budget. Britain's cities, particularly London, face serious urban logistics challenges that if not addressed soon could lead to a shortage of essential food supplies on shelves. Given that other cities around the world are finding urban logistics a growing challenge, this summit's findings would be of interest to them.

At the summit will be key industry stakeholders to review the challenges of urban logistics, gather all the documented evidence and, most importantly, to develop a coherent plan going forward to present to the NIC. All attendees will receive access to key research and organisations, including a free copy of UKWA's report: "Feeding London 2030 -- facing the logistical challenge." UKWA will use feedback collected from delegates at the event to develop a series of recommendations to present to the NIC ahead of the NIC's in-depth study on the future of freight, announced recently by the Chancellor, Philip Hammond.

Delegates at the summit will consider what is best practice in urban food service and local convenience grocery logistics, discuss the challenges of current infrastructure and get an insight as to how the warehouses of the future might look, while exploring the role of technology, such as artificial intelligence, driverless vehicles and drones in shaping the urban supply chain models of tomorrow.

In the UKWA report, "Feeding London 2030," there were stark warnings about the looming urban logistics crises brought on by a variety of factors like the trends in the way food and drinks are bought and consumed, which added to the capital's changing population profile and the transport infrastructure that is already creaking, are bringing significant challenges to food and drinks manufacturers, wholesalers, retailers, caterers and transport logistics companies.

To give readers an idea of the pressing need for change, the report focussed on 125 food outlets in London's Greenwich, where one restaurant could typically have 13 deliveries a day. Such a distribution pattern has repercussions far beyond food and drinks supply logistics. One of the major irritants, for example, is the daily exceeding of London's air pollution legal limits by an alarming margin, sometimes by as much as 13 times, and given that 80% of such pollution is ascribed to road transport it is the leading culprit sending an estimated 9,000 Londoners to an early grave every year and leaving many thousands more with serious, costly pulmonary diseases which is putting the National Health Service under serious strain.

Tickets for the summit cost £395 plus VAT and further details can be had from: