Sunday, 27 October 2013

New container packing code enfeebled without training

A new, official code of practice for packing shipping containers should be available after next May but will it make much difference to the annual toll of carnage at sea, on roads and railways and appallingly high material losses? History suggests not unless it is combined with adequate, essential training for all operators engaged in stuffing containers.

Since 1997 there has been an ILO/IMO code of practice for packing of cargo transport units (CTUs) but, astoundingly, only about 1,000 copies were disseminated. It must come as no surprise, therefore, that despite being quoted in numerous other documents produced by relevant bodies, there was breath-taking, global ignorance of the code. An ILO research project, for example, published in 2011, found that only 15% of packers used the guidelines while most were unaware of the CTUs' packing guidelines. What little awareness prevailed was often fuzzy as packers thought they applied only to the shipping lines.

The ILO thought, therefore, that the 1997 guidelines should be updated and revised, but as a non-mandatory, though enforceable code of practice. How successful such enforcement would be is a moot point and would vary from country to country. In the UK if, following an incident, the investigation found that the container packers failed to follow the new code they would be at risk of a successful prosecution. But there is a big problem here -- the often impossible task of attributing blame to one container. The problem is less pernicious when, for example, a container lorry has overturned but even here the container may have been loaded by more than one packing firm. At sea it is a much more intractable problem. It takes just one poorly packed shipping container alongside many others to cause mayhem out of all proportion to the value of its contents. One destabilised container could take dozens more with it into Davy Jones' bosom, making it impossible to attribute blame. Some inside industry observers even suggest cynically that there is a sinister incentive for container dispatchers to be deliberately lax over sound container packing techniques. If one of their container loads is lost or damaged at sea they can claim the insurance and hopefully look forward to a replacement order.

The new code, which should be accessible online and published in at least six languages, including Mandarin Chinese, is much more comprehensive than the original guidelines, giving all supply chain partners details on their responsibilities and how to pack and secure contents, taking account of transport forces, load distribution and the CTUs' anchor and lashing point strengths. It also places a responsibility on the shipper to declare the cargo's composition correctly as well as the gross mass of the packed CTU.

So just how serious is the container packing problem and will an updated code really make much difference, especially in the light of the recent IMO watering down of the proposed amendment to Safety of Life at Sea (SOLAS) regulations to make weighing of containers mandatory at all ports?* At a recent one-day London seminar hosted by the International Cargo Handling Coordination Association (ICHCA) it was suggested that accurate weighing of containerised cargo is only a small part of safety in the supply chain and that the way in which cargo was packed is arguably more dangerous in leading to load shifts and cargo spillages. The operative word  here is arguably because there is a clear, commercial incentive to misdeclare cargo weights in order to save on shipping costs and import duties. If a shipping line has many containers with fictional payloads declared it is impossible to distribute loads evenly without port weighing and that could lead to the entire loss of ship and cargo when rough weather hits. Even so, it is clear that poor packing is a major issue. How great is impossible to say as no reliable, global figures seemingly exist which definitely prove losses caused by lax packing, but there is plenty of unaggregated evidence.

The insurers group,  the TT Club, found that its own experience shows that 65% of all incidents involve loss or damage to cargo and of these analysis suggests over one third result from poor packing. It also found that 28% of cargoes were misdeclared . The Cargo Information Notification System's statistics found that 35% of incidents investigated were found to have been caused by poorly or incorrectly packed containers. In Britain, spot roadside checks on one day found that where vehicles were defective 49% of them related to inadequate load securing, 24% had no secured load and 15% an unstable load. On American roads, in just one year, there were 18,000 'straight line' container lorry incidents but without identifying causes.

The reasons for container packing laxity are many and no amount of beefed-up codes of practice will make a tremendous difference. For supportive evidence of that one need look no further than the SOLAS regulation 5 which covers the legal and therefore mandatory need for safe cargo securing, seemingly with inadequate effect. This is not to decry the ILO's move to improve the 1997 code but rather to explain that without other supportive issues there is unlikely to be much improvement on the tragic losses. A key supportive issue must be training, something the ICHCA conference speaker from the TT Club, Peregrine Storrs-Fox, admitted: "There is a long way to go on training." A problem here, particularly in Britain, is the lack of knowledge and experience in packing containers caused by cutbacks on logistics staff over recent years to save money who would have overseen safe packing.

The issue of warning labelling and full description of loads, especially where hazardous cargo is involved, must also be addressed in languages of load recipient countries because a big problem with containers is that they may carry almost anything, including coal and fumigated logs. Not for the first time have fumigated logs or timber overcome container dischargers when entering. At a final, end-user level, the fallout can be truly tragic. The World Health Organisation estimated that acute pesticide poisoning affects 3 million people globally, with 20,000 unintended deaths a year. Much of this can be attributed to poor storage practices and product labelling in languages not understood by its users.

If the new code of practice is to be efficacious there must be a major culture/behavioural change through education and training and in this it is hoped that the ILO will do a better job than last time at getting the message across. Supply chain partners must be prepared to incur more costs by ensuring container packers are adequately trained and even paid more because if one issue is certain it is that not any fool can stuff a container safely.
*See my report: IMO's container weighing compromise shames shipping

Friday, 11 October 2013

Slavery shames Britain's food supply chain

Logistics is the art of controlling supply chains cost effectively but how are costs measured and are they all- inclusive enough to reflect the true total costs for humanity? Obviously, costs are measured to reflect only those costs affecting a business's accounts and so they will not be all-inclusive. Environmental costs, therefore, will not be fully factored in because there is no legal requirement and they would be incalculable anyway. That is not to say that responsible corporations are not addressing environmental cost issues but it must be said that some of their actions are goaded by legal pressures rather than altruistic sentiments. But there is another, hidden, sinister and blatantly illegal cost -- slavery -- and nowhere is this more evident than in Britain's food supply chain. It is all the more disturbing because it could not flourish without the tacit connivance or disinterest of leading food retailers and their suppliers.

United Nations figures suggest 800,000 people are trafficked every year in one form or another, with more people in slavery today than in the entire 350-year history of the Transatlantic slave trade and one in eight are in Europe. It is now considered the second most organised criminal activity worldwide, generating an estimated US$32 billion a year.

Modern day human trafficking for the UK's food supply chain employers does not just mean paying labour rates far below the minimum wage to mainly East European workers entitled to live and work in Britain. It includes regular beatings, often sexual exploitation and threats to harm their families in their homeland countries should they complain to the UK authorities. The scale of the problem is staggering, even though the full extent of the ill-treatment across Britain's entire food and drink industry, which employs 400,000, is unknown. In an enquiry conducted three years ago by the Equality and Human Rights Commission, one fifth of workers interviewed in the meat and poultry processing industry in England and Wales reported suffering physical abuse in a sector employing 90,000 workers.

These victims are hidden within the supermarkets' supply chains and they are usually brought in through employment agencies or gangmasters, a euphemism for slavemasters in many cases. Many of the latter are acting illegally, targeting and controlling non-English speaking, uneducated, vulnerable workers, using violence and intimidation. One egregious case involved supermarket eggs in which workers could toil in 17-hr shifts often completely unpaid. Dissent was allegedly crushed by their Lithuanian enforcers with beatings and the threat of unleashing fighting dogs.

On a general level, when not working employees are often locked in their squalid accommodation and allowed out only when chaperoned. The mainly East European labourers are enticed to the UK with promises of much higher pay and better conditions. Given that the alternative may be homeless unemployment on freezing Polish streets on winter nights it is hardly surprising they accept the lure, whatever suspicions they may have.

The crime that dares not speak its name

So what can the food supply industry and the public do to eradicate this shameful scourge of untold misery at a time when budget cuts have decimated police numbers, consigning human trafficking to a non-priority status? Britain is probably Europe's most logistically efficient country but there is still much room for improvement. In the food industry there is certainly a serious lack of transparency from the retailers about their supply chain  partners, and the ease with which they can be hoodwinked was made plain enough by the horse meat scandal, an event, alas, that seems to have produced little change. While outfits like the Gangmasters Licensing Authority believe the supermarkets are not complicit in the abuse it is difficult to dismiss entirely the notion that supermarkets' cost-cutting practices placed on suppliers and their gangmasters do not harm the workers who ultimately bear the brunt. The Joseph Rowntree Foundation charity believes that these cost-cutting exercises could lead to exploitation. A co-author of its recent report on the issue believes there are at least 4,000 workers in forced labour in Britain. "It's the crime that dares not mention its name," he says, explaining that the pressure for competitive prices are passed all the way down the supply chain to the workers.

Supermarkets and their third party logistics providers, however, can be obtuse in other ways. Supply chain collaboration has been a hot topic for years and those companies that have collaborated effectively across the supply chain have seen dramatic cuts in inventories and therefore costs. In many cases, stock-holding costs dwarf all other warehouse costs combined. Why, then, have not many more interested parties followed suit?

Many retailers, it seems, still regard collaboration as a threat rather than an opportunity and are reluctant to reveal the kind of business critical information to their logistics partners that will enable strategies to be developed to deliver the best outcomes for all parties. During a recent United Kingdom Warehouse Association networking lunch, the supply chain director of a leading retailer commented: "In our company we see no advantage in developing a personal relationship with suppliers. We just talk through the numbers and details of the contract." It is a commonplace attitude, and one that encourages practices like ringing up to demand thousands of lettuces over the next few days, thus putting huge pressure on suppliers. Leading retailers undoubtedly bully their suppliers so could it be honestly said that their hands are spotless over slavery in the food supply chain?

Left to itself the food industry will never clean up its act. Government action is needed and if that proves inadequate then consumers could use their ultimate weapon -- shame and boycott. Fortunately, Britain's Home Secretary, Theresa May, has made a good start with plans for a new anti-slavery bill and one MP is calling on Parliament to pass the Transparency in Supply Chain bill. This would compel companies with revenues over £100 million to disclose their efforts to eradicate slavery, including audits of suppliers, training for staff and help for victims. To their shame, Conservative MPs talked down the bill, concerned it would saddle businesses with more red tape. The cost of such measures, however, would be relatively insignificant.

The strength of public concern over this issue is encouraging, with seemingly 82% supporting such legislation, but there is more that they could do. The public could become the eyes and ears of the authorities, reporting any suspected, overcrowded properties housing exploited immigrants to bodies like the Salvation Army* and the Gangmasters Licensing Authority.* They could write to their supermarkets urging them to back the industry-funded Stronger Together initiative. Write also to the Home Secretary, urging her to compel large retailers to report publicly on their work to expunge slavery from their suppliers. Finally, for those retailers who ignore such calls there is always the final solution -- concerted, sustained boycott -- every company's worst nightmare. Boycotts have been shown to work, as with Starbucks, and they will work again. When sitting at home enjoying free-range eggs for breakfast consumers would find that their actions would give their eggs a less tainted taste.

*Salvation Army: Tel: 020 7367 4500
 Gangmasters Licensing Authority: Tel: 0800 432 0804

Thursday, 3 October 2013

Corporate tax avoidance threatens your children's future

Death and taxes are life's two certitudes but global corporations have done remarkably well at minimising taxes, especially corporation tax. The scale of avoidance is incalculable, insidious and threatening to society's composure and therefore your children's future.

The recent furore over such tax avoidance, however, overlooks other, more sinister aspects which if not addressed comprehensively soon risks social breakdown and anarchy on the streets. Is that a gross exaggeration? Well, let's look at some of the facts. In 2010/2011 the UK government's total tax revenues of £551 billion included £163 billion in business taxes, of which £42.1 billion was corporation tax, or only 7-8% of the total tax take. One might think should such a low percentage be a cause for concern, especially as corporation tax rates are steadily declining and may one day be replaced by other business taxes. The answer is YES because the current uproar over corporate tax avoidance is not just about one tax; it involves others, it involves employment levels, an even playing field for all businesses and the insidious threat from emerging monopoly power. Worst of all, perhaps, is a possible future dominated by plutocracies.

The UK government is under pressure to slash the social security budget, along with its EU counterparts, and what do we see are the consequences? We are treated to an almost daily diet of TV news showing huge protests, violence and incendiarism, the last typified by London's 2011 summer riots in which looting suggests an economic connection. This is not to argue that there is no abuse and colossal waste in Britain's social security budget. Far from it and so the Government must act accordingly to expunge it but there can be no doubt that if all global corporations doing business in Britain had paid their fair share of UK corporation and other taxes the Government's coffers would have swollen by billions of pounds every year and so relieve the pressure to slash the social security budget.

CBI condemns abusive tax avoidance

What is it, however, that allows global corporations to avoid taxes on a staggering scale and what should be done to excise this canker from society? The facilitator is a complex, global web of disparate tax regimes first set down by the League of Nations nearly 100 years ago and now badly in need of root and branch reform. First, however, some definitions. There are three aspects to tax minimisation schemes: 1) Tax evasion through ploys like under declaring taxable income, which is clearly illegal, 2) Abusive tax avoidance which is legal but considered unacceptable even by the Confederation of British Industry (CBI), 3) Responsible tax management which is both sensible and necessary. There is no suggestion that largely American-owned businesses generating significant sales in Britain, like Starbucks, Amazon, Google and Microsoft, are operating illegally but it is clear that their tax planning, based on highly artificial devices with no commercial purpose, falls within unacceptable abuse. Here are a few examples of how the irresponsible schemes work.

1) Starbucks sources UK coffee from a wholesale subsidiary in Switzerland, which is commercially sensible because it is cheaper to have one team responsible for sourcing all of its coffee and Switzerland seems to be the centre of the world coffee trading business. But there can be little doubt that Switzerland would not be such a world centre if it did not charge a low 12% tax rate on the trading profits. The issue becomes even murkier still when global corporations use "transfer payments", an issue first tabled for cleansing before World War 2. Transfer pricing and payments have great scope for tax reduction because they mean global companies like Starbucks can decide how much its UK business pays to non UK companies within the Starbucks' empire for access to the US firm's brand, coffee making technology, engineering support and so on. Unsurprisingly, the overseas companies are based in low tax regimes so there is a strong temptation for a multi-national to overprice the goods and services provided. to reduce or eliminate profits, and therefore tax, in a relatively high tax country. This odious transfer charging has been used to devastating effect over many years in developing countries least able to afford multi-billion pound losses through tax avoidance by wealthy, global businesses. The benefits from these financial artifices mean that Starbucks, for example, paid only £8.6 million in UK corporation tax over the last 14 years and nothing at all in the last three years, despite clocking up nearly £400 million in sales during 2011.

2) E-commerce also eases the path for creative tax avoidance schemes and Amazon is a good example. When buying a book from Amazon, UK purchasers enter into a legal contract with and pay their money to Amazon Luxembourg where the VAT rate is only 3% -- an example of how more than just corporation tax avoidance is involved. Despite booking multi-billion pound sales in Britain last year Amazon reportedly paid no tax on the profits from these sales because they were funnelled through Luxembourg. Experts claim that if Amazon did not route sales' profits through Luxembourg it would be paying as much as £100 million a year in UK corporation tax.

3) Microsoft sells its software from Ireland or, in the case of electronic downloads, through Luxembourg, so most of the money the company makes from British customers is earned in Ireland, where corporation tax is only 12.5%, about half the UK rate. This is part of an elaborate structure that the US Senate committee described as designed "to shift and keep profits offshore."

Overly concentrated wealth threatens democracy

There are no accurate figures on how much has been lost to tax havens but the figures are undeniably staggering, one estimate being $20 trillion. Another estimate indicates that the 70 plus "business friendly jurisdictions" are sheltering between $21 trillion and $32 trillion, up from only $11.5 trillion in 2005. This, of course, includes a large element of individual tax avoidance, and along with company tax avoidance should be tackled to prevent future social disharmony. Britain' HMRC (formerly the Inland Revenue) estimates that the country is losing £5 billion every year through corporate and individual tax avoidance.

As remarked earlier, tax loss does not just harm government revenues. Aggressive tax avoidance schemes also create an uneven playing field for competitors. Whitbread, a British company for example, owns Costa Coffee and pays its fair share of UK corporation tax, unlike Starbucks and Caffe Nero, the latter reportedly having paid no corporation tax on a $40 million profit in just one year. This puts Costa Coffee at a serious disadvantage and could even lead to market domination (monopoly) as fair tax payers are driven to the wall. One could argue that Amazon's unfair tax advantage over bricks and mortar book retailers is helping to drive them out of business. Reportedly, Amazon already has a 25% share of the UK book market. What then for the future prices of books? No monopoly can ever be trusted to work in the public interest. But potentially far worse than all these is the threat to democracy from plutocracy.

Ever since World War 2 the disparity between income groups has widened, first slowly but now rapidly. A key component behind this is the growth in global tax havens. As Angel Curria, head of the OECD warned, big corporation tax avoiders  "will undermine democracy. This is about the survival of democracy." If civilization is to work harmoniously then those who enjoy its benefits must also be prepared to pay their fair share of the costs. The warning signs of failure to do so are plainly evident. Greece came close to anarchy over austerity measures brought on by rife tax evasion, corruption and crass economics. Spain is flirting with political dismemberment while the wealthier, economically more responsible EU members are tiring of subsidising fiscal delinquents. Most of their citizens believe that their governments will renege on the their debts.* If nothing is done to reform rich-world financial centres as well as island tax havens then anarchy on the streets is not a fanciful notion.

Fortunately, the right noises are now being made by governments. France has slapped Amazon with a $252 million contested demand for back taxes, interest and penalties. It has been rumoured that Google may also receive a French tax demand for one billion Euro. The UK Government is suggesting that the public sector should tie their contracts only to companies that pay their fair share of tax. This shows the huge importance of concerted power because such spending accounts for £1 in every £7 spent in Britain. It signpost the way consumers should go. Consumers hold the ultimate weapon but for it to be effective it must be concerted and sustained. No global corporation, no matter how big and wealthy, can withstand consumer action through boycott. It is every company's worst nightmare and it has already been proved against Starbucks, who have now agreed to pay £20 million in corporation tax over the next two years. But be not deceived. It is a short- term sop akin the the Roman emperors throwing bread to appease the Roman mob. Such boycotts also worked against multi-nationals using child slave labour in the clothing industry.

The likelihood, however, is that consumer protest will wane and the matter soon forgotten. That would be risky because although a global initiative is under way to clean out the Augean stables of tax avoidance it will take years to reach consensus, if ever. That is why pressure must be kept up. The public should pressure their MPs and MEPs about what, if anything, they are doing to make the tax regime fairer for all. They should themselves learn more about the main tax exploiters and be prepared to engage in peaceful, lawful protest. Apathy is not an affordable luxury. The next time you sip your Starbucks or Caffe Nero coffee ask yourself if you are sipping to your health or toasting to your descendants' angst. Is that the kind of future you wish to bequeath to your children?
*Google my blog headline: "Good governance must prevail"