Thursday, 18 August 2011

MoD's logistics shambles hides Afghan war's true costs

In what must be the most damning indictment yet of Britain's Ministry of Defence (the Department), the Committee of Public Accounts, chaired by Margaret Hodge, MP, has exposed the utter shambles of the Department's logistics operations, which have defied resolution for 25 years. In its 43rd report of this session, issued on August 19, the Committee explained that the Department had promised over the last 25 years to resolve the long-standing problems associated with its supply chain: late deliveries, missed targets and inadequate cost information. Yet the problems persist.

If all that were not enough in terms of hiding the true cost of the Afghan war, for example, and the colossal waste of hard-pressed taxpayers' money, there are also serious potential perils for the front line British troops serving n Afghanistan. The MoD accepts that historic under investment has meant that its management information systems and the underlying IT systems are not up to the task. This means that "the risk of failure of these warehouse inventory systems is extremely high and was recently rated as 'critical' by the Defence Logistics Board. If these systems fail then the result would be shortages at the front line within as little as 30 days," says the report.

In any military theatre logistics can decide the outcome of battles and even wars. As Erwin Rommel remarked: "Before the fighting proper the battle is won or lost by quartermasters." He could usefully have added: "provided the quartermasters know their art." That art cannot be efficacious without timely, accurate data on all logistics aspects and that has been lacking for all of the 10-year Afghan war. So what does this logistics shambles mean in terms of costs and were the reasons for Britain's entry into the Afghan war soundly thought through?

Lamentably, military minds, alas, are rarely original, knowing little of history and even less of logistics in a geographically challenging terrain. Sir Sherard Cooper-Coles, Britain's former ambassador to Afghanistan, remarked that the then Chief of General Staff, Sir Richard Dannatt, told him in the summer of 2007 that if he did not use in Afghanistan the battle groups then starting to come free from Iraq he would lose them in a future defence review. "It's use them or lose them," he said. Such a curios, if not crass, reason for justifying an Afghan combat beggars belief and ignores the potency of the Afghan terrain's impact on foreign invaders' logistics.

Sir Sherard believes that the Afghan war is costing Britain £6 billion a year. The true cost is much more than that and may well never be known because the MoD "does not know the full costs of its current activities or the cost of alternative supply options," says the report. Moreover, the £6 billion does not include the cost of supporting maimed military personnel, war widows and their children and the suicides following any wars.

The failure to collect basic data about where supplies are stored has directly contributed to the Department's accounting being qualified for three consecutive years. These qualifications are likely to continue because the MoD's promise to resolve the issues, through a major initiative called the "Future logistics information services project" is not expected to be implemented until 2014.

If an efficient supply chain can be established it would release resources for the front line. The Committee believes that the MoD must place greater emphasis on securing value for money and that there is room for it to find efficiencies in the supply chain without jeopardising operational effectiveness. This could see an end to the practice of having to cannibalize Typhoon jets and military vehicles owing to lack of supplies often caused by late deliveries. In the six months to November 2010, for example, over 40% of supplies were 30 days or more overdue.

Such efficiency improvements are worthwhile but will they make any significant impact on Britain's hemorrhaging of resources at a critical time when the Government is struggling to cut its deficit? Alas, no. To give but one example, consider the costs of prosecuting a war in a far off land where the terrain is ideally suited to guerrilla warfare and so works in the Taliban's logistics favour. The MoD spent at least £347 million in 2010-2011 on transporting supplies overseas but this does not include the cost of military supply flights. In 2010 there were 130,300 individual deliveries made to Afghanistan and 31%, in tonnage terms, went by air. The Committee's 43rd report does not give details of that tonnage nor the air freight costs but some idea, perhaps, can be obtained from what it has cost America to transport an entire brigade of 3,900 men and 15,000 tonnes of supplies by air. The cost was $14,00o a tonne, making a total of $210 million. Had the supplies gone by rail through Russia, which currently forbids munitions passing through its country, the cost would have been only $500 a tonne, a prime example of how logistics thwarts the coalition forces. If the Taliban were more effective at sealing the land routes through Pakistan then the logistics costs would soar to unacceptable levels.

Any logistician can see that the war in Afghanistan is unwinnable for the coalition forces, militarily speaking, and that to remain there for several more years is just throwing more good money after bad and shamefully wasting lives, leaving a sorrowful legacy for their loved ones.
War has not always been entirely negative. People living today could not enjoy their current living standards, helped by many scientific discoveries, without the prior, painful emergence of large political groups like nation states.

Given the nature of man, such a political process could only have been forged on the anvil of war. But the world is moving into uncharted, dangerous waters in which technological progress has far outstripped man's moral progress, little changed since Stone Age times. This serious mismatch is surely the greatest challenge and threat facing mankind today. If the reptile within cannot be tamed permanently then the outlook for mankind is grim at best, if not terminal. As a famous general warned at the dawn of the Atomic Age: "It must be of the spirit if the flesh is to survive."

Tuesday, 16 August 2011

Windjammers promise logistics boons

Commercially viable windjammer cargo ships, augmented by methane-powered engines, could be the answer to all green logisticians' prayers -- predictability on long-term freight costs. It would also deliver huge environmental benefits. The development is the brainchild of Northern Ireland-based B9 Shipping* who claim that their ships will derive 60% of their thrust from wind and the remainder from Rolls Royce spark injection engines powered by methane gas extracted from thousands of tons of food waste.

Compared with oil-burning ships, the B9 gasjammers will deliver competitive, predictable freight rates and equal performance, needing no bigger crews and ensuring optimal health and safety compliance. All sail control will be from the bridge and the masts will be over-engineered. But there are other financial inducements. B9 ships will accrue huge savings from fuel offsets and stand to generate significant income from the carbon trading opportunities. Shipping lines, however, should not break out too many champagne bottles because the technology, although proven and in use, is severely limited by ship sizes.

B9's market research has focused initially on developing a 3,000 dwt short-sea coastal vessel, small beer compared with the majority of much larger ships. Even so, there are 10,000 similar-sized vessels operating world wide so the potential for greener logistics is significant. A 3,000 dwt vessel, the Maltese Falcon, fitted with the Dyna-rig system, has been operating successfully for some time so the company is satisfied that this is the optimum size for immediate development. The initial primary market is dry bulk, particularly wood pellets for the production of carbon neutral heat and power. "This cargo," says director, Diane Gilpin, "runs on a liner route and enables us to demonstrate our technology whilst we have a chance to work with the logistics sector to develop ways of integrating workable, fossil fuel-free propulsion in the existing logistics systems." Their designers, however, already have 5,000 dwt versions on the drawing board.

Climate change concerns could also boost the company's case. Manufacturers are abandoning global supply chains for regional ones. Companies are increasingly looking closer to home for their components. This means that US or European operations are more likely to source from Mexico and Eastern Europe respectively than China, partly because energy is more costly and less plentifully available. Perhaps as much as 70% of a manufacturing company's carbon footprint can come from transport and other costs in the supply chain. But it is not only climate change that poses serious threats to the global supply chain. As the the Japanese tsunami in March showed, it is unwise to concentrate component sources in one, earthquake-prone country while relying on JIT deliveries. A similar, potential risk exists in the heavily industrialised province of Guangdong in south-east China, the home of much of the world's electrical sub assemblies and components. This region is prone to heavy flooding, as the recent June floods, the worst in 55 years, tragically showed and about which this column warned on April 25.

B9 Shipping is currently working with two separate global enterprises developing gasjammers specifically to meet their commercial needs in the immediate future. The first is a chemical tanker where existing oil burners have been forced to slow steam. This obviously slows up JIT delivery and so negatively impacts production costs. By adding a B9 ship the company effectively hastens the supply chain throughput by providing more tonnage whilst not adding any significant emission burden. The client is also comforted, knowing that the cargo price will remain far more stable than fossil-fuel powered ships.

The second client is a cruise company seeking to build relatively small, high-value cruise ships for their existing customers. The smaller, more intimate cruise offerings are hit harder on a per head basis by escalating fuel prices and since their offering is about 'intimacy' they cannot employ the economies of scale solution being used by much of the cruise shipping sector. By cutting their reliance on fossil fuels they can maintain their current prices and offer an enhanced product by promoting a truly 'green' cruise, for which the company sees significant future demand.

Healthier cruising promised

Cruise lines and the shipping industry in general, however, have another incentive to go 'green'. What, perhaps, few cruise passengers and seafarers realise is the risk to their health that diesel particulates, especially, pose not only to those on board but millions of people living close to busy coastal shipping lanes. Only recently have scientists been able to calculate the specific impact of ships' toxic emissions because their known carcinogenic emissions, like particulates and compounds of sulphur and oxygen, are also emitted by factories, motor vehicles and power plants.

The findings of the latest European research are disturbing. One European Commission study suggests that shipping pollutants are cutting several months off the life span of every European. The study lead author said the growth in international trade and cargo ships, many of which originate in China, would make that far worse. He predicts that by 2020 Britain's west coast will be so badly affected by shipping pollution that average life expectancy for people living in or near coastal towns would be cut by 20-30 months.

The current situation, which sees shipping spewing out more than 3% of global carbon, has been allowed to develop because shipping's international nature excludes it from most national laws controlling pollution. This means that 289 million tonnes of fuel burnt by the world's 100,000 cargo ships each year can be sourced from the cheapest, most contaminated sources. These may contain 2,000 times the levels of sulphur allowed in diesel fuels sold for cars, plus many heavy metals and other contaminants, a thought that should disturb cruise passengers when they are showered by soot particles and detect the stench of diesel inside and on deck, an experience this writer has had on several cruise ships. The fact is, very large engines in some ships can spew out the same levels of toxins as 50 million cars in a year and spread them for hundreds of miles on winds.

Renaissance for British shipbuilding?

B9 Shipping's efforts deserve support but not just from the shipping industry. Currently, the Renewable Transport Fuel Obligation is confined to land so that a UK-UK cargo moving by road using some biofuel attracts an incentive payment This does not apply to sea transport on a similar UK-UK route. The Department for Transport agrees with B9 Shipping's logic that encouraging a modal shift from road to sea, reducing road congestion, makes good sense but thinking is one thing, doing is another. Now is the time for Whitehall mandarins to get their fingers out by changing the legislation.

Such a sensible move would also deliver a palpable boost to British jobs, heralding, perhaps, a renaissance in British ship building in Belfast and northern England. The company anticipates a need for 50 ships by 2020 to give the biomass industry compliance with the 10% energy in transport target of the Renewable Energy Directive. Other uses for the ships are emerging in the rapidly-developing low carbon economy, including bio-fuels, recyclate and captured carbon destined for sequestration.

Over time, B9 Shipping anticipates further opportunities will arise to replace the 10,000 similar-sized coastal vessels operational across the world. The company will build its ships in the UK, thus helping to regenerate former shipbuilding cities. Sailors in these gasjammers will also be incentivised by being allowed to share in the returns of the company. "The more they work under sail, the less fuel we will need to use, and we would pass this saving on to them," explained Diane Gilpin. The romance of sail could return in the form of races in the fleet to outperform each other, redolent of the tea clipper days but without the fatalities.

Thursday, 4 August 2011

China must shun high military spending

Those who forget history are doomed to repeat it, warned the Spanish philosopher, George Santayana, and China looks perilously close to falling into that vipers' pit. China's rapid economic development over the last 15 years has been phenomenal, based on growing global trade and the abandonment of business based on collectivist lines in favour of capitalism. It has made many Chinese millionaires and raised the living standards of millions. All that, however, could be jeopardised if China pursues a policy of penal military spending when pressing issues at home demand addressing.

The latest example of China's military ambitions is the finishing touches being put to its first aircraft carrier, a 60,000 tonne unfinished vessel bought from Russia ostensibly to be used as a casino at Macao. This may have proved a cheap buy but analysts believe China has ambitions for building four more, which would burden hard-working Chinese taxpayers with a multi-billion pound price tag. Much money has already been spent on submarines and much more will be spent on stealth aircraft and developing a long-range aircraft carrier killer missile.

Given China's interests in energy supplies and trade that now span the globe is it unreasonable for China to have a much larger naval presence? Retired general Xu Guangju, of the People's Liberation Army, thinks not. "An aircraft carrier is the symbol of the power of your navy," he says, and "China should at least be on the same level as other permanent members of the UN Security Council who have carriers." He adds: "the development of our armed forces is connected with the development of our economy."

In an earlier age this would have been an understandable sentiment. The British Empire, for example, grew rich on overseas trade but it was trade with a military fist ready for use if need be. This was tenable so long as Britain could exact cheap victories with superior weapons like the maxim gun against spear-equipped natives, and stay ahead with a science-based industrial military complex. China itself was a victim of this mismatch during the Opium Wars of the mid 19th century. Britain's steam-powered gunboats annihilated China's sail-based war junks and so imposed its will to dope millions of Chinese in the pursuit of trade, one of the darkest episodes in British imperial history. But when Britain came up against a modern, industrial-based economy like Germany, the cost of two world wars bankrupted the country, saddling it with debt that took about 50 years to repay.

Military ambitions lack merit

History is littered with examples of how high military spending brings nations low. The fall of the Roman Empire is a prime example. There were many reasons behind Rome's fall but perhaps top of the list was inflation connected with huge military spending. This led to frequent debasing of the silver denarius from over 95% pure to 0.2% silver by the reign of Claudius 2 in 268-278 AD. During the reign of Augustus the army's strength was put at 250,000 troops. By the time of Diocletian it had reached 600,000 and often they had to be paid in gold. Numerous wars simply added significantly to inflation, and as one of the Christian Fathers, St Gregory Naziamuz, said: "War is the mother of taxes." He could also have added that war was the mother of inflation.

For another example China need look no further than how it came to acquire the rusting hulk of a Russian aircraft carrier. Russia, quite simply, was busted by huge military spending. America, too, is groaning under the burden of a huge military budget at a time when the country's grey population are fearful of cuts to social spending and medicare. The Pentagon's budget for 2012 is $553 billion and US military spending has doubled in real terms since 2001. The Obama administration has vowed to cut military spending over the next five years but it may be too little, too late to avoid social tensions erupting at home when the middle class and the poor view with rising hostility the tax breaks for millionaires and billionaires and oil companies making record profits. Selfishness is a great disturber of the peace.

China's defence spending will rise 12.7% this year to £56 billion but many analysts believe the country spends more than it states publicly. This spending binge is having deleterious effects elsewhere as India, for example, has recently announced an 11.6% rise in military spending to £22.4 billion, apparently to counter China's growing strength.

History and more recent economic and scientific developments suggest that China's military ambitions lack merit and are fraught with economic and social risks at home. China has nothing to fear abroad, militarily speaking, for the world needs China as China needs the world but it has much to fear from Nature's fury and so should be conserving its hard-earned revenues to cope with the inevitable natural calamities to come, rather than squander them on vainglorious military designs which can only alarm their neighbours.

At home, China has more to worry about on the economic front. Chinese state-owned banks' loans to local governments may be under estimated by $0.5 trillion and one ratings agency, Fitch, believes the country's total non-performing loans portfolio could reach 30%, while a Credit Suisse analyst thinks many local governments will have to default.

China's inflation, currently at 6.4%, is also rising, despite various interest rate hikes, a trend that will be worsened by high military spending. That can only undermine China's competitive abilities. Further economic pressures will be added by demographic changes as China's one-child family policy starts to unravel.

If all this is not enough to convince the Chinese Government of its folly in pursuing high military spending then perhaps the words from one of the country's own sages will convince them from across the centuries. Sun Tzu warned in 400 BC: "Where the army is, prices are high, when prices rise the wealth of the people is exhausted." Hard-working Chinese people deserve better than that.