Sunday, 5 June 2016

Should and will Britain vote for Brexit?

Inability to adapt has often spelt extinction and so could it be said that the European Union (EU) faces such a risk, if not fate, by dint of its inflexibility to adapt to pressing, changing circumstances? What began out of the ashes of post-war Europe as an experiment at economic union, with ultimate political union a far-off goal of its founders, but not, evidently, the common man, to save Europe from any more disastrous wars now appears to have foundered on that oldest barrier to political integration -- self interest taking precedence. The economic experiment was a laudable one that has promoted internal growth and arguably helped keep the peace among Europe's club members, though as a customs union it was to the disadvantage of the developing world and EU consumers who pay higher food prices. But the experiment came at a price -- uncontrolled immigration on a hitherto unprecedented scale, an issue that is likely to be decisive on June 23, when Britain votes to stay or leave. An integral part of that immigration issue is the economic issue, the facts of which, in weighing up the pros and cons of immigration, have been prostituted by the most beguiling of effective lies -- deception by omission, to which I shall return.

If ever an election campaign was fought so crassly and deceptively, Britain's EU referendum on stay or leave must surely be it. Both sides have gone over the top in their wild claims but they have guardedly hedged their fear-mongering and alarmism with words like 'could', 'might' and 'likely', with the most favourite choice being Britain's Prime Minister, David Cameron, and his Chancellor of the Exchequer, George Osborne, frequent warnings about "a leap in the dark" if Britain leaves. George Osborne's latest scare is his claim that leaving the EU could add £1,500 a year to the cost of an average mortgage, based on figures that in turn are based on assumptions, and as most of us know economists are past masters at getting their forecasts hopelessly wrong because their assumptions underlying their forecasts proved false. And in any event could not a leap in the dark turn out to be a leap in prosperity? When Drake's ships steered to glory was that not a great leap into the dark which redounded to the whole world's benefit by creating the greatest empire that spawned the industrial revolution and its effusion of inventions and discoveries that changed the world for the better?

To return to the immigration issue, let it not be thought that Britain's past immigration was anything other than of immense value at enriching the national gene pool and subsequent economic progress. The problem is not immigration per se, it is the need to limit the numbers to sensible levels that do not overwhelm the social services and give rise to simmering resentment, and worse down the line, which under current EU rules is not possible. There are already ugly signs developing in Europe over the high numbers entering from war-torn regions and even higher numbers of illegal economic migrants taking advantage of the political refugees' plight. Germany, France, Sweden, Austria and Denmark are lurching to the hard right and that would be tragic if the trend continued to the detriment of recently-arrived immigrants contributing to the economy.

Earlier I said that the economic cost and benefits of immigration were subject to that most beguiling  and effective of lies ---deception by omission, but what did I mean by that? Immigrants generate costs in ways which are not factored into any cost/benefit exercise for public consumption. One good example is the administration of justice, where the legal aid bill is about £2 billion a year. Why is this relevant? The answer is that Muslims account for 1 in 7 of all Britain's jailed population while accounting for only 4.5% of the total population. That is not part of the administration of the justice bill but is nevertheless a huge annual expense. Then there is the cost of running the immigration courts, where there is a backlog of  500,000 cases. The taxpayer picks up 75% of the cost of immigration asylum proceedings. Then there is the well over £100 million a year spent on interpreters to help people who cannot speak English, something that 50 years ago hardly existed. All of these legal-related issues are never included in any cost-benefit analysis of immigration, so it is a clear case of deception by omission, the most plausible of all lies, and something all newspapers wallow in. People cannot make the best decisions if they are not in possession of all the facts.

The expansion of the EU from its original five members to include over 25 members today, with more waiting in the wings, was bound to founder on the very different levels of economic development of its new members and differences over moral/cultural mores. Greece, for example, has been a recidivist debt welcher since ancient classical times and its populace thinks it is their God-given right to evade taxes come what may. This, combined with Greece's notorious corruption and cronyism, was bound to lead to ever-more Government borrowing to pay for what it could not afford to placate the people. The huge sums lent to Greece and other member countries exposes the economics of the madhouse and has seriously threatened the stability of Europe's banking system.

Nobody knows for certain that leaving the EU poses Britain significant economic risks. Fundamentally there is no reason to believe it should if both parties think and act sensibly. The risks are much higher for Europe in the political arena, mainly because politics has been allowed to trump sound economics, and the belated attempts by France to reform its labour laws in the face of fierce, lawless union opposition is stark testimony to this disturbing fact. Politics is like a harlot. The harlot can be beguiling but there is always a bill at the end to pay, and it could be far worse than one thinks.

So should Britain leave the EU and will it happen? For the present it seems the wiser course for Britain is to concentrate more on distant shores, as once did Drake, and leave open the option of a return when EU obduracy over badly-needed reforms has been removed. The chances are the Brexiters will win.

Saturday, 16 April 2016

Why low interest rates pose growth and pensions risks

In business there is nothing so unsettling as uncertainty when it comes to new investment but what is it that ultimately drives the greatest of uncertainties  -- projected consumer spending habits?

Since the credit crunch of 2008 central banks have struggled with deflation and the stunting effect it has had on global growth. Their only two responses have been to lower interest rates to near and sub zero levels and quantitative easing (QE) of money supply, a form of electronic money printing. The theory was that making money much cheaper and more plentiful to borrow it would encourage new investment in capital equipment and boost consumer spending. The reality, however, is painfully different and it is not hard to see why.

Central bankers have been feted as masters of the Universe but like emperors with no clothes they are fallible. It is not so much, as some aver, that these institutions lack both the tools and the power to have any meaningful effect but rather that central bankers have relied far too long on economic theory instead of reacting to the real causes of consumer reluctance to spend. So what are these forces ostensibly holding back consumer spending and thus desirable, moderate inflation and are we entering uncharted territory brought on by  paradigm shift?

There are various causes but Larry Fink, chief executive of BlackRock, the world's largest asset management group, put his finger on one key issue that stems from a paradigm shift in post-war economics -- negative interest rates, which he warns risks hitting consumer spending and undermining the economic growth they are intended to encourage. He warned that not enough attention had been given to the effects of negative rates on spending habits, and a big concern here is the diminishing worth of pension schemes badly hit by prolonged, ultra low interest rates. If interest rates do not return to their long-term trend of 5% soon, instead of the current 2%, then consumers will have no choice but to save much harder to realize their ambitions of an adequate retirement income. As an example, Larry Fink says a typical 35-year old has to save three times as much to make the same retirement income when long-term interest rates are at 2% as when they are at 5%. When it becomes plain that adequate pensions can only be expected through much higher savings then cutbacks in day-to-day consumer spending for the long term are inevitable.

This alarming scenario is reflected perhaps, even more seriously in America. It appears that the US public pension shortfall of $3.4 trillion is three times larger than official figures suggested, and still growing, and that will pile pressure on cities and states to cut spending or raise taxes. If these pension funds go insolvent "they will create problems so disastrous that the fund officials assume the Federal government will have to bail them out," warned David Nunes, A US Congressman. But American pension savers should not hold their breath . In the British private sector pension industry when private companies go bust their pension liabilities are placed in a Government-backed pensions lifeboat but would-be pensioners are still expected to take a hit. Such a fate could easily hit future American pensioners. In order just to stop the $3.4 trillion deficit ballooning any more states and local governments would have to raise their current contributions rate of 7.3% of revenues to 17.5% of, warns Olivia Mitchell, a professor at the Wharton School, University of Pennsylvania.

What history undoubtedly makes clears since the credit crunch of 2008 is that no amount of zero or negative interest rates and QE have make any significant difference to galvanise the global economy into real recovery. Already countries like America and Britain are scaling back their optimistic global growth estimates from last year and yet countries like Japan are still wedded to the surely now bankrupt notion that monetary easing and dangerously low interest rates are the only solution. Japan's experience over the last 20 years surely proves that their monetary easing and derisory interest rates have failed lamentably, and the European Central Bank has failed to learn from Japan. This has profound implications for logisticians planning long-term investments in, for example, ports because their plans are based on endless, steady growth . Such optimistic growth projections are looking more dubious unless the wherewithal for consumers to spend more is provided by higher interest rates.

This crass attitude to near zero and negative interest rates has not only failed to galvanize global growth but also to lead to asset bubbles in property and stocks and dangerously high consumer indebtedness and this, in turn, could be dissuading the financial authorities from raising interest rates quickly and significantly to more normal long-term trends. In Britain, there is much concern that a sharp rise in interest rates would wreck the housing market, especially buy-to-let, but house buyers, if they have any sense, would organise their finances so that they could tolerate a much higher interest rate. Behind every mortgagee are five investors and given that these investors are earning derisory returns the cumulative effect of that, in terms of damping down consumer spending, is likely to far outweigh any cutbacks the mortgagees would have to make to counter higher interest rates.

Lawmakers and economists fear that the use of negative interest rates in Japan and Europe will damage consumer sentiment and the heath of banks, as if the banks were not unhealthy enough. There is now a serious risk that people will start to hoard cash. Already there is evidence of this in Switzerland, where the central bank introduced negative rates in December 2014, as the demand for bank notes has risen above normal levels. If financial Armageddon is to be prevented then surely interest rates must be raised now and sharply to return to the long-term trend of 5%.

Monday, 4 January 2016

Shipping's parlous plight heralds economic storms

The critical point to ponder about soothsayers is that they are often overly paid, unashamed practitioners of charlatanry, no matter how often their predictions are wrong, usually otherwise known as economists. With that caveat in mind, here is my take on the global economy this year and the threats to logistics.

The consensus appears to be that the outlook for global economic growth is modestly bullish, but like a harlot GDP figures can be deceptive. America's 2016 GDP growth is being touted at 2.5% and Britain's 2% plus but GDP figures have an irritating habit of being subsequently revised downwards, and being more divorced from reality. When, for example, Chinese premier, Li Kequiang, was a regional official he examined the real figures that mattered, like electricity consumption, rail cargo volumes and loan disbursements to gauge the economy, telling the US ambassador in 2007 that such data captured the reality of growth better than "man-made" GDP. India, another fast-growth economy, is now taking a leaf out of China's book by paying more attention to data from various industries instead of relying on the official GDP figure. The result is that the private estimate of India's year-on-year GDP growth for the latest quarter is 6%, palpably less than the 7.4% official calculation. So the prudent decision would be to regard national GDP figures with caution.

Is there, however, one index that comes close to being an accurate bellwether of the global economy this year and if so what does it herald? Yes, there is, and it's called the Baltic Dry Shipping index, which when allied to other 'wether' vanes, like developments of a financial and political nature, paint a disturbing picture.

The Baltic Exchange's main sea freight index tracks cargo rates for ships carrying dry bulk commodities like coal, iron-ore and grains, and as such is regarded as a forward-looking indicator, because about 90% of the world's traded goods by volume is transported by sea. Investors look to this index for any signs of changes in sentiment for industrial demand. Given that this index plunged to an all-time low last month, more than 95% down from a record high hit in 2008, it is hardly surprising that Basil Karatzas, head of New York Consultancy Brokerage, Karatzas Marine Advisers, opined: "The state of the dry bulk market especially indicates that economies worldwide are likely to stay weak, much to the disappointment of Central banks....foreign exchange traders, miners, steel makers, trading houses and commodity economies." Commercial banks, in particular, have good cause for concern owing to their heavy exposure to non-performing shipping loans, even though they have already written off billions of pounds from such loans. In the first nine months of 2015 the cumulative loss from revenues of 13 shipping companies publicly listed in New York reached over $3.36 billion. Having lent on generous, often lax terms in a market awash with cash since 2008, the banks are now left with loans worth less than the underlying value of the ships.

                             Perfect storm ahead                           

The flood of new ship builds coming onto the market is likely to depress it for at least two more years, especially as China's slowing economy is stifling demand for dry bulkers, leading to a perfect storm. The situation in the oil market is hardly less fraught, as oil producers and their production rig suppliers face huge cutbacks in new developments, closures, bankruptcies and many tens of thousands of job losses, not to mention straightened circumstances for oil-producing nations who now are going to have to impose taxes on their citizens for the first time --- a potential cause for civil unrest.  

On a wider financial front there is little to inspire confidence. The completion of the European Central Bank's comprehensive assessment asset quality review stress test in October 2014 revealed an additional Euro135.9 billion non-performing loans in Euro zone bank balance sheets, bringing the total held by 130 banks examined to Euro879.1 billion, hardly small change. 

The economic global outlook can expect little relief from the hitherto burgeoning BRIC nations. Brazil's tragic comic corruption opera, alas, has left the country a busted flush, an affliction that routinely affects Argentina, the two biggest South American economies. Brazil's economy, according to Goldman Sachs, is sliding into a full blown recession. Events in Russia, another key BRIC nation, are equally disturbing, driven by plunging oil prices, trade sanctions, soaring inflation and private consumer financial delinquency. Matters are so parlous that many citizens are sharing taxis to save money and pay down their credit card debts. The growth rate in overdue credit debt has been a staggering 45% in 2015, and as double digit inflation erodes Russians' disposable income, some are desperate enough to turn to loosely regulated microfinance outfits that charge macro rates up to 880% p.a. In such a climate it is hardly surprising that retail sales have plunged. 

I see global economic growth being much weaker than currently touted by pundits, with some countries slipping into recession. Unemployment in the developed world is likely to rise significantly, when part-time jobs are factored out. There will be more shocks to the financial system as some banks are forced to close or merge. The bloodletting in the shipping and mineral industries will worsen and shipbuilders face dire straits. New York and London's DJ and FTSE indices respectively are likely to end the year significantly lower, i.e. at least 10%. 

On the political front, there is some cause for good news. Putin will strive for a rapprochement with the West to relieve the economic pressures on the nation, leading to defrosting relations. China, on the other hand, will ratchet up the tension over its insouciant behaviour in the South China Sea through creation of military bases on artificially-created islands from reefs in the Spratlys, islands claimed by several other, much nearer nations and in an area where 40% of global trade sails through. Logisticians should take note of that threat accordingly and be prepared.   

Friday, 30 October 2015

Brussels' diesel decision condemns many to death and illness

Brussels' move to water down diesel vehicle emission rules condemns many to an early grave and far more to pulmonary illness unless the European Parliament votes to reject the approach by unelected EU officials seemingly deferring to the diesel lobby. Air pollution from all sources is estimated to kill about 60,000 persons in Britain alone every year, with 80% of the pollutants affecting health coming from transport, according to Britain's environment ministry. Across the whole of Europe the death toll is put at 500,000. The cost to Britain's national health service and the economy is incalculable, though a recent estimate puts the cost of the VW scandal alone at £300 million in health and social costs annually. Road transport is by far the biggest cause of nitrogen dioxide (NO2), a known killer for decades, and despite the diesel engine industry's advances in cleaner engines none can yet cope with sub 2.5 micron oily particulates which lodge permanently in the body.

VW's rigging of emission standards based on defeat software to give favourable readings only on rolling road tests will cause over 60 early deaths and maybe even up to 200 every year in Britain alone if VW drags its feet, according to a study by Harvard University and Massachusetts Institute of Technology, specifically examining the VW diesel car impact. VW's criminal act has led to recalls of 482,000 cars in America and 1.2 million in Britain, leaving the company facing an investigation by the Serious Fraud Office for "corporate criminality." Britain's Transport Minister, Robert Goodwill, says the option of pursuing a prosecution of corporate manslaughter is also "open."

So how has the EU-wide legislative 'green' environment come to this ugly pass? When it came to global warming issues an EU official said that the block was carbon neutral but because petrol emits more carbon than diesel the latter was favoured with lower fuel duties and other incentives. This soon led to half of all cars sold in Britain being diesel-powered. Unlike petrol, however, diesel emits lethal sub 2.5 micron oily particulates which soot filters and other emission controls cannot eradicate, so they lurk permanently lodged in the body as silent, insidious killers.

What Brussels' unelected officials want from their watering down of emission rules is that diesel engine manufacturers be allowed to exceed legal levels of nitrogen oxides (NOx) by 110% between September 2017 and the start of 2020. After that, the industry will be permitted to exceed the limit by 50% indefinitely, a time frame that would apply to new models. To their credit, Denmark's and Holland's officials voted against such watering down. Clearly, the EU policy makers are out to protect diesel technology, the mainstay of the European motor industry, irrespective of health concerns. That does not, however, mean that the public cannot fight back against an industry that has callously put profit before lives.

In Britain, for example, the Government plans to improve air quality in city centres, with diesel vehicle owners facing pollution surcharges, extra parking charges and even a ban on entering towns and cities at certain times. In the short term these diesel-free zones and punitive surcharges are the best way to tackle the problem of law-breaking, diesel vehicle producers but there is much the public can do to break the arrogant spirit of not just VW but other suspected diesel car producers. They could stop buying diesel cars forever.

In the logistics industry the problem of eschewing diesel forklifts is less in that the alternative motive power sources like electric and the oncoming hydrogen fuel cells and bio-gas are more than just feasible alternatives. At one time diesel was favoured over electric because of its superior performance. That is no longer the case cite the electric forklift lobby owing to advances in battery technology, in particular.

The need for strong, determined action now is imperative. Dr Penny Woods, chief executive of the British Lung Foundation, said: "Every year in the UK there are tens of thousands of premature deaths linked to air pollution...The VW emissions scandal is only the tip of the iceberg."

Wednesday, 23 September 2015

More woe for British food retail suppliers?

The tribulations of the food and drinks suppliers seem only to be getting worse at the hands of their large retail taskmasters. Not content with extending payments to quarterly intervals, or worse, the world's biggest food retailer, Walmart (sales $486 billion p.a.) now proposes to charge its suppliers for storing goods in its own warehouses and shelf space in new shops. For some years, of course, other food retailers have levied multiple charges like rental for favourable shop shelf positions but Walmart has been reluctant to be so proactive. However, for added chutzpah, to help suppliers adjust to prolonged payment schedules, Walmart is encouraging them to seek low-interest loans through one of its financing programmes.Understandably, many of its 10,000 suppliers are discommoded, with some reaching for their lawyers, and one wonders how long it may be before Walmart's British subsidiary, ASDA, one of the four dominant UK grocers, will follow suit.

Some see Walmart's move as an attempt to fatten its margins and offset raises it recently gave store workers but Walmart says its new fees are part of a strategy to revive its US business through moves like keeping its often chilly stores warmer.

This strategy of business revival may have disturbing implications for all of Britain's grocery retail suppliers because the big four grocers are struggling to stem market share losses to the smaller, largely foreign-owned, retailers who offer so much better value, based on their business model that gives them logistics advantages the big retailers cannot enjoy with their current business models.

These no-frills, low-cost, recent UK start-up retailers like Aldi, Netto and Lidl have one enormous logistics advantage over the giants. Their small, fast-moving SKU range of typically 1,600 products, means that no vast sums of money are tied up in huge stocks for long periods, a cost that can dwarf all other warehouse costs combined. Some 25 years ago I visited the Danish food discounter, Netto, where just one centralised distribution centre (DC) replenished all of its 120 EPOS-connected shops overnight so that 90% of the DC's stocks passed through it every 24 hours. SKUs that became slow movers were quickly replaced for new, hoped-for fast movers.

However much Walmart may argue that driving everyday low cost gets to everyday low price increases sales for them and suppliers, the inescapable fact remains that without a fundamental change in their business model to meet the new paradigm shift in shoppers' habits, where good value is paramount, it is unlikely to succeed against the arrivistes tilting at the giants.

Tuesday, 25 August 2015

Profiting from risky global supply chains

It is a certainty that world trade will continue to expand, albeit with hiccups, but to what extent will global businesses realize that the growing key role of effective supply chain management will be the prime battleground to keep ahead of the competition in an ever-more competitive and risky world? How should they prepare to meet the new challenges and sidestep the growing complexity of risks? Does it call for a new generation of logisticians more skilled in future proofing than the mundane tasks of managing supply chain flows at every level? And what are the exciting new supply chain investment opportunities looming on the world stage and how best to exploit them?

In a jargon-free 263 pages Mark Millar's new book: "Global Supply Chain Ecosystems --Strategies for competitive advantage in a complex world* admirably deals with these interdependent issues, though in certain areas there is some room for improvement he could consider for any revised edition he may plan.

Based in Hong Kong as a visiting lecturer at Hong Kong Polytechnic University, he has completed over 350 speaking engagements at corporate events and industry conferences across 23 countries so he has an inside track on the crucible of momentous logistics changes based in the Far East, which comes through strongly in his book, being regarded as one of Asia's top 50 influencers in supply chain and logistics. He has no doubts that Asia, for example, will not suffer from the trend beyond globalization to more regional supply chains. He says that re-shoring or near-shoring formerly outsourced manufacturing to Asia back to Europe and America for a host of good reasons will not lead to a mass exodus from manufacturing in Asia largely because of a well-established, finely tuned and highly efficient and global supply chain ecosystems that service the Asia-Europe and Asia-America trades, but also because the potential of the domestic consumer markets in the economies is so enormous. One can only hope that will be true but there are significant risks that could upset the apple cart. A more immediate problem, however, that exists for multi-national brands who are following the expansion of Asian consumer markets closely is which means they need to review and reconfigure how their supply chain ecosystems operate to reach and service these markets.

What companies often do not know is what is happening throughout their supply chain ecosystems, which includes information on trends, costs, performance metrics and other measurements essential for continuous improvement and development, says Mark. "In order to sense a problem it must be visible," but I would aver that it is also important to sense the as yet invisible problems by observing much more than the trends. A 2014 Economist Intelligence Unit/KPMG international report said 49% of global manufacturing executives admitted that their companies do not have visibility of their supply chains beyond their tier 1 suppliers. Only 9% said they had complete supplier visibility and visibility is probably the biggest challenge to their businesses and it will almost certainly worsen in the near term.

The author agreed with this writer that boardrooms are seriously lacking in their assessment of moral hazards and political risks to the global supply chains, and he gives a warning note on this. "More so than ever before is a need for detailed due diligence in the evaluation and selection of supply chain partners, processes that involve not just assessment of their capabilities but also scrutinizes their reputations, track record and background, including their finances. Since the world's consumers became netizens the power of social media can destroy in seconds the diligently developed and carefully nurtured reputations of companies, brands and products." Yet in my view global corporations seem little fazed by these threats, hoping they will blow over and be soon forgotten. But a seemingly new threat is looming on the horizon that could be a game changer. A Californian woman is suing Costco for selling farmed shrimp from Thailand, where slave labour and human trafficking in the fishing industry are widespread, and allegedly misleading US consumers. The degree of slavery, torture and murder among the migrant workers on board Thai-owned trawlers can be seen by Googling my blog: "Thailand's trawlers of terror shame food supply chains." If the law suit succeeds it could open the floodgates for an ocean of similar actions.

One area where the book seems to be lightweight is the problem of JIT-oriented global supplies and how to acquire robust disaster recovery plans before a disaster hits. A case study offers some limited advice on spreading contract awards among several suppliers, which provides flexibility of supplier choice and enables one to switch to another supplier who already knows your product. There is no mention how global companies with manufacturing plants spread around the world, like General Motors, have bred flexibility through commonality by replicating their factories and standardising manufacturing processes. None of GM's flexible plants has fixed conveyor lines and each plant can be reconfigured over a weekend. Such capabilities, however, will require flexible supply contracts and flexible distribution capabilities. Standardising manufacturing processes is not the only way to create flexibility through interchangeability. One can redesign products to use standardised parts so that several factories within one corporate group can contribute when problems loom.

The degree of global exposure to JIT-oriented parts supplies was eminently highlighted by the 2011 Japanese sub-sea quake and resulting tsunami, which led to multi-billion dollar losses around the world, with the auto industry particularly hard hit. It prompted one US logistics company chief executive to proclaim: "In many cases tightly stretched global supply chains do not make sense anymore." The degree of dependence on Japan for electronic components at the time was alarming, and Japan was home to nearly 100 manufacturing choke points that could affect business worldwide. But how well prepared is global business post 2011? Not much, it seems. As Mark Millar points out, some 50% of the world's laptop chips and 65% of iPads are produced in the capital of Chengdu, Sichuan province, a known high risk earthquake zone.

There is one risk that is still being largely ignored, says Millar, and it is like a ticking time bomb, but one amenable to prevention -- management of human capital. As the author rightly points out, managing a vast, varied pool of human capital is probably the most important topic in the book. This is because every other aspect of operating a productive supply chain is "utterly dependent on how well staff carry out their tasks." In Vietnam as in many other countries there are not enough young people choosing logistics as their career. An ageing population within the logistics sector could undermine long-term economic growth. There are tips on how to attract and retain the right form of talent. Not least of the problems, it seems, is the low salaries offered.

The final chapter on supply chain innovation devotes only one page to warehouse robotics while giving no mention to the power of WMS to cut storage costs drastically. A good stock forecasting program, for example, that can react in real time to, say, daily weather forecasts can trim inventories by up to 30% while leaving customer service levels unharmed. Given that the cost of holding inventories can dwarf all other warehouse running costs combined, these programs can deliver a 2-week payback.

Despite these few lightly touched areas that deserve more prominence the book presents a well-rounded view of the problems, solutions and opportunities that lie ahead in the fast-changing, global supply chains and deserves to be on every logistician's bookshelf.

*Published by Kogan Page.

                                                         Mark Millar


Monday, 10 August 2015

British justice's darkest hour looms?

More cuts to Britain's legal aid budget due to come into force next January paint a bleak picture for the principle of affordable access to justice for all, which has been the envy of the world, so what can and should be done to meet the challenge effectively to prevent what Lord Justice Neuberger fears could lead to defendants "taking the law into their own hands," and is the legal profession partly to blame for its parlous prospects?

The Government's additional cut of 8.75% to the amount paid to litigators in legal aid services, as well as a cut in advocacy fees of £10 million per year will mean that over the past two years legal aid solicitors representing people accused of crimes have seen their fees cut by 17.5%. According, however, to solicitors specialising in criminal legal aid cases, in some areas fees will fall a further 25-30% next year, with rates for some categories dropping by more than half. The Government also intends to press ahead with the new duty solicitor contracts due to begin on January 11, 2016 which will see a reduction in the number of law firms providing 24-hr cover at police stations from 1,600 to 527. By any measure these are draconian cuts. It will also mean that accused defenders would lose the right t choose the solicitors they want to represent them in legal aid cases.

The apparent perception among much of the public that lawyers do protest too much because, like insurance companies, there are no poor ones, has undoubtedly been fanned by a sensationalist Press highlighting the very costly, but relatively few, cases where fees for solicitors and advocates have been seemingly astronomic. Such recent cases include the collapsed trial of a vicar and six co-defendants accused of conveyor belt sham marriages that left the taxpayer with an immediate £600,000 bill that is likely to run into millions and the child killers, Mick and Mairead Philpott, racking up a £350,000 legal aid bill. In the former case prosecution barristers netted £76,834 and lead counsel £44,469, while in the latter each of the lead barristers earned over £55,000. In short, it could be said that the few notoriously costly cases give the whole legal profession an odious name in the public's eye.

                                           Fat Cat myths

The reality for most lawyers and advocates, however, is far from the image of widespread fat catery. To give a recent example take the case of young Mr X who pleaded guilty at his first court appearance on advice from his lawyers which meant the offender had to sign the Sex Offender's Register. The case involved a young couple in an online, consensual relationship that turned sour after several years, in which there were explicit pictures of his ex-girlfriend found on his mobile phone. He was charged with possession of indecent images of a child because she was under 18 at the time the pictures were sent. Worried at the prospect of listing on the Register he than approached the law firm of Bindmans, who engaged Sara Williams from Doughty Street Chambers. She returned to the magistrates' court, arguing that the guilty plea should be withdrawn and a not guilty plea entered. She succeeded and the trial date was set in the Crown Court. Bindmans quickly requested that the Crown Prosecution Service (CPS) review their decision to prosecute but it was six months after taking on the case and almost 11 months since the charge before the CPS finally did so, citing that it was not in the public interest to continue. Now here is a clear case where the defendant's lawyers saved the taxpayers relatively considerable sums because no 'trial fee' was incurred, and Bindman's earnings for all this? A derisory £4.66 per hour and the barrister only £1.50 per hour, hardly fat cat earnings.

Now it is true that Britain's legal aid bill dwarfs that of every other country in Europe -- or is it? At £2 billion a year it is 20 times the European average and more than seven times the amount spent by France and Germany, yet in the National Audit Office Report of 2012 the UK was exactly average in comparison with world-wide spend on the criminal justice system (0.33%). But to what extent does this apparent great disparity in UK and European spend on criminal legal aid reflect a difference in legal systems? The British legal system is an adversarial one in which the State must prove the accused's guilt beyond all reasonable doubt but most other criminal justice systems work on an investigative basis where investigating magistrates do not limit themselves to deciding upon the evidence presented to them. They go forth and seek as much information about the case as they can. It is this that leads to the UK having a higher legal aid bill. It is not so much that defence in a criminal trial costs more in the UK system but rather it is that these costs are differently apportioned. Far more of crimes in the UK system turn up on a specific citizen's account for his defence rather than in the general running costs of the courts as a whole.

Rather crassly, it appears, "asylum" seekers are to be excluded from the proposed cuts of £350 million, despite the legal aid bill for asylum seekers between 2003 and 2010 totalling £824 million, and that does not include the cost of manning the immigration courts. In the light of the current European migrant crisis that bill could soar unless firm measures are taken, like refusing any appeals after appellants have failed a fair immigration hearing. This could be part of a wider approach to the problems of legal aid cutbacks, which risks throwing the baby (justice) out with the bath water. What is needed is an honest debate about legal aid. One option would be to develop a system where legal aid is given as a loan payable only on conviction of the guilty and recovered through existing tax and benefit systems. Another mooted solution is to ask the City to pay for the cost of fraud trials that result from negligence on its watch because fraud trials consume a large amount of the legal aid bill.

Time is running out for many lawyers and public justice because any more cuts will force lawyers to abandon worthy cases as they become financially worthless causes. The legal profession must now show stiffened, united, national and sustained resolve by withdrawing their services until the Government has been persuaded to change tack.