Tuesday, 16 December 2014

Should the West soften stance on Russia?

Economics, it seems, is rarely top politicians' forte, evidently as much for what they do and don't do to promote  their countries, and arguably nowhere is this more obvious when politics is allowed to trump economics as in the current case of unpleasantness no afflicting the Ukraine. It is a sine qua non, or at least desirable, that the majority of people's wishes should take priority over the minority, provided the minority is not unduly disadvantaged, which is what happened when the Crimea overwhelmingly voted to prefer Russian enosis to closer EU relationships. The West voted the armed Russian help in this split as unlawful, apparently overlooking the illegal putsch in the Ukraine that sparked the brouhaha, but one wonders what they would have thought had, for example, the peoples of the Falklands and Gibraltar overwhelmingly voted for union with Argentina and Spain respectively without deference to Whitehall. Moreover, had Scotland decided to vote for independence without the UK's blessing and won would the West have viewed Britain's subsequent armed intervention as unlawful? To its credit Britain has agreed that if there were a majority vote in the Falklands and Gibraltar to join their former territorial owners Britain would not stand in their way, which is as it should be.

The West has now resigned itself to Crimea's secession from the Ukraine but could its resistance to any further secession from the Ukraine by the small, largely Russian-speaking eastern provinces be dangerously over reacting, given the obvious economic and political risks it poses to Russia, the EU and the wider world? It seems so.

It is to be hoped that the Ukraine will not see more lost territory from the east, because together they will be stronger and more prosperous but to achieve that desirable outcome both Russia and the West much be more accommodating. Russia, for its part, should withdraw all its overt and covert forces from the Russian-speaking eastern provinces in return for the Ukraine guaranteeing, with the UN, that there will be no reprisals and oppression of the ethnic Russians that could leave them oppressed. Both sides should also contribute to reconstruction costs with adequate outside loan help. The EU must also be wary over allowing closer ties with the Ukraine before that country has cleaned out its Augean stables of corruption, cronyism, debt welching and colossal economic mismanagement, which now sees the country in an unholy economic mess. It would also be sensible for the Ukraine to maintain good relations with both Russia and the EU and purge itself of fascist tendencies that are still evident in parts of the Ukraine's political establishment, in particular.

Russia, too, needs some stable cleaning in economic affairs. The West's sanctions are now beginning to bite seriously as Russia's economy moves into recession, prices rise, the Rouble plunges and unemployment worsens.Opinion polls may show that President Putin is still popular but rumbling bellies could soon change that. The falling oil price, however, will do even more harm than sanctions. About half of Russia's revenues derive from oil and gas and for every dollar fall in the global oil price Russia loses US$2 billion  a year if the fall is sustained. Now languishing at $60 a barrel from a multi-year average of $100, estimated oil revenue losses are $90 billion to $100 billion compared with only $40 billion from sanctions so far. It is not too fanciful to believe that oil will fall to below $50. What this exposes is the inherent weakness in Russia's economic management. Other than armaments, it produces very little manufactured goods and not enough agricultural output and the billions of dollars it earned when oil prices were high have been unwisely spent on multi-billion dollar fripperies like the Sochi Winter Olympics, instead of diversifying the economy.

Mickhail Fradkov, head of Russia's foreign intelligence service, has accused America of introducing sanctions and attacking the Rouble through manipulation of oil prices in order to oust Putin. On sanctions he has a point, but the oil price has always been volatile, despite the best efforts of the OPEC cartel. "No one wants to see a strong and independent Russia," he said. This, of course, is patent garbage, for anyone with the most basic grasp of elementary economics would know that the world has a strong interest in seeing Russia prosper, because the wider world would also benefit through more trade and trade is the handmaiden of prosperity and prosperity the surest guarantor of peace.

Fradkov's remarks may go down well with ordinary Russians but they are, nevertheless, potentially inflammatory and dangerous because a populace not grounded in elementary economics is unlikely to see through the crass vapourings of political mountebanks and toadies. This is just one, but critical example, why economics should be taught at all schools.

For Russia the pain can only get worse as the oil price continues to tumble, ramping up the risks of political instability. Reforming and rebalancing its economy to favour much more manufacturing is an urgent necessity to give the people what they really want, which is not, as in the days of ancient Rome, more costly games like the World Football cup matches in 2018. NATO and the West, for their part, should not make provocative moves on Russia's borders and the EU and global lenders of last resort should realize the economic lessons from the 1930s. When economies are placed under extreme pressure through sanctions and other circumstances events like the unrealistic war reparations imposed by the victors of Versailles on Germany, leading to the collapse of the Wiemar Republic and its hellish aftermath, could resurface in another devilish form.

The Western democracies have long cherished their desire to see democracy planted in Russia, just as at one time Russia tried to export its political ideologies to the World, almost to the point of sparking World War 3. Russia has given up on that path and the West should follow suite. Democracy will come to Russia as sure as day follows night but it must never be by outside interference.

Saturday, 22 November 2014

World's first "truly green" forklift unveiled

A collaboration between Honda and Briggs Equipment, Britain's largest forklift dealer, with Government financial backing, has produced the world's first "truly green" engine emissions that will not only save lives and misery from pulmonary and other killer diseases caused by NOx and other toxins but help the world to achieve its targets on global warming. The motive power project is unique for two reasons; a converted Yale forklift uses lithium-ion battery technology (80v) charged by a hydrogen fuel cell and secondly it uses hydrogen generated from solar power via an on site electrolyser rather than a conventional natural gas process. The project, developed at Honda's UK Swindon plant, is also innovative in that all this technology fits in a standard DIN size battery compartment.

Hydrogen fuel cells have been powering forklifts for a few years now and are especially finding favour among American big forklift fleet users. Their key advantage over lead-acid batteries is the longevity of the fuel cell, typically 10 years, their quick charging over a few minutes, compared with eight hours or more for lead-acid, the abolition of costly batteries and storage/changeover facilities in multi-shift operations, and no drop off with truck performance towards the end of shift as there is no voltage droop. Maintenance is also 1.5 times lower and the performance more or less on a par with other motive power fuels. One big drawback, however, was the pollution aspect, because while clean at the point of use it was not clean at the point of hydrogen production owing to the use of fossil fuels to make the hydrogen.

A Briggs spokesperson confirmed to this writer that this remarkable project is aimed at replacing lead-acid batteries, though diesel engines can be converted but the technology is only suitable for delivery vans owing to space constraints. Richard Close, Briggs Equipment CEO, said: "The project has proved what can be achieved. The challenge is now to extend this as widely as possible."

Although rightly hailed as a breakthrough as a proving ground for future development in emission-free forklift technology it is recognized that in its current form this process would not be viable for small fleets and would need the benefit of scale and further efficiencies to make it universally realistic. So what size forklift fleet is required to make this technology viable, this writer asked Briggs. The response was non committal on size but a spokesperson said: "If high purity hydrogen is available then all that is required is a suitable compressor to make the gas available for the fuel cell. We think that the first large scale commercial use will be at a big distribution centre, probably with some government grant assistance to get the project going." Nevertheless, said Briggs, "cost reduction will come with volume and that is linked to the availability of fuel."

This development may not be confined to industrial trucks. So far the project consortium has focused on creating a whole system from solar as its source to hydrogen as the output fuel to run vehicles -- converted vans running normal duty patterns -- as well as forklifts operating on site. The consortium intends to investigate hydrogen as a means to provide power to Honda's manufacturing plant in the future. If that process were extended to factories world-wide it would be one giant step for mankind in the struggle to clean up the planet. Meanwhile, Honda, Briggs and the British Government have earned a small but well-deserved bow.

Monday, 3 November 2014

Europe pays price for Ukraine's lousy governance

Getting others to pay for one's own sins has long and commonly been part of human nature but succeeding in palming off the sinful bill at national level is much more difficult and rarer. The latest example of a successful master stroke in financial chutzpah is the Ukraine's long-running refusal to pay Russia for gas that goes back over 18 months. It now owes Russia about $3 billion for unpaid gas that it says it has no money to pay owing to the money spent on the war against secessionists in the south-east. It may not have the money but the country owed $1.5 billion up to March this year before any hostilities broke out and so one must look for the real reasons for such insouciance. As explained in my blog, How to Contain Crimea's logistics threats, the Ukraine's economy is an unholy mess deeply mired in corruption and largely in the thrall of plutocratic oligarchs.That is the real reason for non payment and unless the Ukraine takes good governance to heart at all levels the canker within its society will continue to fester.

Russia, to its credit, has offered a new gas deal by cutting the gas price by $100 per thousand cubic metres to $378 by the end of this year and $365 in the first quarter of 2015, provided the $3 billion has been paid off first and that there should be an element of future payments in advance. The $100 price cut is according to a formula contained in the gas supply agreement dating back several years. The Ukraine reportedly said that at first it could not pay and would, if necessary, steal the gas from the pipeline that runs through its territory on its way to Europe. The Russian response, understandably, was a threat to cut off all supplies. Given that such action would seriously affect European consumers of Russian gas, sending prices soaring at a time when Europe is flirting with deflation, the EU felt over a barrel and so has now agreed to pay for the Ukraine's financial delinquency with some help from the IMF. The crisis has been averted, the Ukrainians will no longer risk death from the cold and in the circumstances Russia's deal has been generous and shown much forbearance towards a serious debt welcher.

But what are the bail out figures and implications for the rest of the EU struggling with sputtering economies burdened with dangerously high youth unemployment and a banking system under great strain? The EU will act as guarantor for Ukraine's gas purchases and helping to meet outstanding debts. The total package is worth $4.6 billion, with money coming from both the EU and the IMF. "Unprecedented levels of EU aid will be disbursed in a timely manner and the IMF has reassured the Ukraine that it can use all their financial means at its disposal to pay for gas," the European Commission said. The EU is also considering a further loan of 2 billion Euro. Doubtless much more will be needed to pay for the huge war damage costs.

The trouble with blackmail is that the blackmailer often comes back for more but if the victim (Europe) can reverse the role by resorting to its own threats then the unpleasantness is likely to come to an abrupt end. The EU should now impose its own conditions by pledging not to allow any moves to advance the Ukraine's interests in closer union with Europe until after the Ukraine has drastically overhauled its economy primarily through dint of good governance in politics and economics, and paid off any debts it may owe.

Much of the tragic trouble the Ukraine now faces in its south-eastern provinces, where there has been an overwhelming vote in favour of independence at local referendums in May, could have been avoided if there had been good governance in politics and economics that benefited all. It is to be hoped that the Ukraine will remain one united country rather than lose a region said to be worth one third of the country's GDP. Together they would be stronger and more prosperous. The Ukraine should also seek to improve trade relations with Russia. Trade, after all, is the handmaiden of prosperity and prosperity is the surest guarantor of peace.    

Thursday, 16 October 2014

Is outsourcing logistics worth it?

Time was when outsourcing one's logistics operations to a third party logistics (3PL) contractor was thought to be more costly than an efficiently run in-house operation. After all, there is the contractor's profit margin to add to all the usual running costs which did not exist before outsourcing. So why, then, did outsourcing catch on or was even tried in the fist place? In Britain, one key driver was the turbulent record in transport labour relations which left companies a hostage to fortune and so they were only too willing to break that mould by outsourcing. It worked in the sense that labour relations became much calmer. It caught on because most companies using their own in-house logistics solutions were not particularly super efficient in that function partly, perhaps, because they saw it as a side show distraction from their main function of manufacturing products.

Most 3PL contracts are for a minimum of five years and it is possible that costs within the first year could be higher than when the operation was run in-house. But as when choosing or renting new forklifts, the focus of attention should be on the life cycle costs over the five years, not the initial cost, but how does one know what those costs may be four or five years hence and how flexible will the 3PL be to meet wide fluctuations in demand for the clients' products?

The problems of costs and uncertain product demands can be eased at the contract negotiating stage, which admittedly is a highly complex business that demands great care. A key element in success is the degree of trust -- in the form of confidential information -- that customers must extend towards the contractor, which is immense. Without that gesture the contractor will not be able to provide an effective service. Secondly, the partnership should involve pro-active suggestions, agreeing and implementing efficiency savings which are tracked throughout the contract's life and the monetary benefits shared with the client on a fair basis. This is where probing of potential 3PL contractors is critically important. The winner of the contract should have a long-term track record of not only reliability but also be able to prove how good they are at making big savings for their existing clients. It would also be comforting to the client to know if the 3PL has a wide spread of warehouses strategically located nationwide as this would enhance the flexibility it could offer, partly through shared user facilities, which is so important to cope with seasonal fluctuations in demand or long-term changes caused by adverse moves in the economy.

A third caution which every outsourcer must never neglect is the financial stability of the potential 3PL contractor. Size is no guarantee of solidity. Back in the 1980s, the high-flying logistics operator, Rockwood Distribution, collapsed, leaving its clients with embarrassingly empty shop shelves and frantically having to find alternatives. Financial investigations into prospective 3PLs should never be left to just bankers' references. There are various formulae which can predict bankruptcy up to two years ahead, one of which, the Lis formula, named after its creator, Roman Lis of the Manchester Business School, is said to be 90% accurate, and that is close enough for Government work. It takes four key ratios from a company's annual accounts, each of which is multiplied by a certain coefficient and the sum of their products is then compared with a cut off point of 0.037. The more a company's result is above that cut-off point the sounder it is. Below, the amber lights start flashing.

If the choice of 3PL has been wise just what benefits can be expected? A good example among many is how the 60-year old British, family-owned business of Howard Tenens (HT) transformed the logistics of Costa Proud, which supplies its entire ingredients supply chain. During the initial 12 months of a five-year contract HT achieved a smooth implementation of both a new IT system and 3PL provider with no loss of service. Stock was centralised from nine locations to one. Stock availability reached 99.9% and there was a 50% cut in stock holding at partner sites. Delivery refusals fell by half and annual logistics costs by 30%. There were also considerable CO2 savings which is a key attraction to blue chip clients keen to establish their 'green' credentials. HT, in fact, leads the 3PL industry in having 88% of its heavy goods fleet over 18 tonnes with dual fuel capacity. It has invested in re-fuelling stations for both CNG and biomethane which are all open to third parties.

So, to the question is outsourcing worth it? the answer is a resounding yes, provided the partnership is truly pro-active and the choice has not been made on price alone as the dominant factor in an industry where competition has always been intense and so likely to see a 3PL's margins under extreme pressure.

Monday, 13 October 2014

Britain's food supply chains face grim times over price wars

Missing a favourite food item from one's usual UK supermarket is now more likely than ever to leave shoppers victims of an even harsher squeeze on food suppliers brought on by the intensifying price war between the food discounters and the four dominant supermarket chains. Losing market share to discount arrivistes like Aldi and Lidl, Tesco, with around 28% of the UK food market, are fighting back by squeezing suppliers not only on prices but also by numerous charges, including even for barcode changes and prominent display of products, along with the odious favourite of deliberate late payments that could easily bankrupt small supplier companies. Reportedly, there are almost 60 ways that supermarkets extract money from suppliers.

It has been a bullying practice long exercised by the big retailers and is symptomatic of a laissez-faire attitude of the Competition and Marketing Authority which took over responsibility from the Monopolies and Mergers Commission. In the past, any merger that would have meant control of 25% or more of the market would trigger a referral to competition authorities, yet Tesco currently has around 28% of the UK market, admittedly acquired through organic growth rather than by takeovers, but it nevertheless shows the unhealthy status quo where just four market leaders, Tesco, Asda, Sainsbury and Morrison control 76% of the British market. Such dominant control by a few retailers is also typical in mainland Europe.

For far too long the big four have exercised unhealthy control over Britain's food basket, leading to lack of competition and what at times must have seemed like a cosy cartel where price differences for identical products were derisory and special offers limited to only a handful of products for a very short period. Treating their customers as though they were addle-headed, supermarkets would uniformly push through steep price rises by significantly cutting the product weight but still maintaining the previous prices and the packaging size so as to disguise any real price rises.

In the past, the big four have sometimes acted in the shoppers' interests by resisting suppliers' price increases, ostensibly caused by commodity price rises, a practice that might have encouraged suppliers to introduce efficiencies. But it is clear that only if larger suppliers routinely stand against retailer demands for price cuts and charges will they succeed (albeit at the expense of smaller suppliers too weak to stand up for themselves) but at a risk of losing business through product delisting. Premier Foods reportedly lost £10 million in three months when Tesco delisted its Hovis, Mr Kipling and Oxo products three years ago. Tesco also, reported the Sunday Times, suspended 75 Princes' products, including baked beans and Cross & Blackwell soups. In denying their customers their favourite foods Tesco is insouciantly breaking the first law of marketing -- give the consumers what the consumers wants and not what Tesco thinks is best for them.

This is where consumer power, helped by social networks, can change the unhealthy status quo between oppressed food suppliers and the big four retailers. When shoppers cannot find their favourite foods at their usual supermarket they should put them under notice that they risk irretrievably losing their business to competitors. Better still, if they have not already done so, they should switch to the discounters like Aldi and Lidl who have no pressing interest in squeezing their suppliers and where prices are permanently lower than the big four by around 30%. This is important in one other sense. The big four will fight back and the only way to do so in a shopping environment that has seen a paradigm shift where price is king is by sharp, prolonged price cuts. That could hurt the discounters but they have one impressive weapon in their armoury that their rivals lack -- a smart logistics/business model. This model took Jack Cohen's (Tesco's founder) slogan of 'Pile them high and sell them cheap' one step further -- and sell them fast. The discounters' no frills shop displays and small car parks not only mean lower start up costs but crucially their limited 1,600 or so SKUs (stock keeping units) compared with the big four's 40,000 SKUs, are concentrated heavily on fast movers whereas much of the big four's stocks are slow movers, and money tied up in stock puts money to sleep, to the extent it could dwarf all other warehouse costs combined. It is a model that the big four may have to emulate to survive in reasonable shape and already there are signs of such a move. Sainsbury, for example, are joining forces with the Danish discounter, Netto, the first of the Continental discounters to set up in Britain some 20 or so years ago. Others are looking to cut back on their big store developments and concentrate instead on much smaller convenience stores.

The old Chinese curse of "May you live through interesting times" is about to fall on Britain's food retailing, but the risk is collateral damage to food supply chains, where pressures may lead to worse scandals over false food labelling, less consumer choice, and even human trafficking, oppression and slavery in the supply chains.

Thursday, 18 September 2014

Forklift training could save billions of pounds

It is well known that adequate forklift training brings quick returns through lower accident and damage costs to racking, trucks, stored goods and less business disruption/losses but how many operators know that good training can prevent sting-in-the-tail cost shocks when long-term contract hire agreements end? In Britain the issue is particularly important because contract hire accounts for about 65-70% of all trucks supplied.

The disturbing fact remains that despite stringent safety legislation and all efforts by truck makers to improve their truck safety and ergonomics, accidents remain woefully high along with ignorance among supervisors tasked with the job of enforcing best safety practice. According to one of Britain's leading forklift training outfits, Mentor, more than half of managers they meet have never driven a forklift or received any kind of truck training and up to 90% are woefully ignorant of their legal responsibilities for safe truck operation and the consequences of an accident that results in prosecution. Little wonder, then, that there is still much room for safety improvement.

There are, of course, many causes of forklift accidents, which in Britain is the largest, single combined cause of major and over 3-day injuries regarding workplace transport. Disturbingly, many are related to a company's perception of a trade-off between safe practice and the need to meet delivery schedules, compounded by fear-fuelled, staff reluctance over whistle blowing. Even among blue chip companies there is a resignation that accidents are part of doing business. One such British company, for example, routinely forks out £3 million a year for pallet racking damage. Others often tolerate high loading bay door damage caused by truck collisions, typically running in to the high thousands of pounds every year.

A clue to the sting-in-the-tail costs at hire contract expiry is the lax attitude to good housekeeping practices. Poorly maintained and cleaned floors riddled with potholes and crumbling joints raise truck maintenance costs, and in very narrow aisle (VNA) operations even incur racking damage costs, in particular. Poor lighting also features significantly in the accident toll. Such costs are normally budgeted for but the sting-in-the-tail costs are not. When a truck is returned to its supplier at the end of a hire contract a detailed inspection will normally be carried out. Provided a truck needs no more than a lick of paint and a normal service to make it suitable for onward hire there should be no contract termination costs. The one exception could be the exceeding of hours used clause in the hire contract. This issue can be avoided if care is taken to define 'hours of usage' and extra agreed cost for such excess at the beginning of contract negotiations.

It is estimated that these contract expiry costs of this nature are equal to 5% of the total hire cost for a 5-year contract, though not all forklift suppliers levy them. In one sense it is easy to see why. A nick in a driver's seat would mean a new seat costing at least £400. A damaged overhead guard could run into thousands. There is doubtless an element of cost padding in these charges, too, partly because truck suppliers are anxious to encourage customers to renew their hire contracts and for this they will promise to forgo these remedial costs entirely if the client renews the contract. Succumbing to this thinly disguised form of blackmail by renewing on these terms could be a far costlier mistake because it may be possible to get a much better deal with a different truck supplier, especially if switching from counterbalance and reach trucks to articulated forklifts.

A back-of-the-envelope exercise, based on a UK national truck population of 350,000, with 65% under hire, shows if that 5% sting-in-tail cost could be entirely avoided the annual UK savings would run into hundreds of millions of pounds. Add in the many millions more from accidental damage, injuries and business disruption/losses then the need and urgency for a robust truck training regime is blindingly obvious. Perhaps just one example will suffice to convince the doubters and chancers. One UK retail company paid Mentor £50,000 for a training scheme. The result was savings of £130,000 every year. Blindingly obvious or not, there seems to be too many purblind safety enforcers.

Tuesday, 16 September 2014

Can Mediterranean's tragic migrant harvest be stemmed?

Scarcely a day passes in the Mediterranean's calm season without illegal migrants landing on Italy's shores, having trekked from far-flung African countries and, latterly, the Middle East, exacerbated  by the political upheavals in that much vexed region. This human tide has now reached crisis levels on several fronts, including the tragic loss of life at sea and the implications throughout Europe for harmonious development and relations.

The latest migrant tragedy occurred on September 15th when more than 160 African illegal migrants bound for Italy perished when their overloaded vessel capsized off Libya's coast, but details are emerging of a far greater tragedy a few days earlier where the death toll could be 500. According to a few survivors the indications are that it was mass murder at the hands of traffickers who wanted to move some migrants to a smaller boat while at sea. Incensed by the migrants' refusal to comply, the traffickers deliberately rammed and sunk the overcrowded vessel.

                                                 Broken heart

One of the hundreds of migrants who drowned was a young Egyptian boy who had hoped to earn enough money in Europe to pay for his father's heart operation, said one Palestinian survivor, who watched the boy finally slip beneath the waves from a life buoy, overcome by exposure and hypothermia. Now his father will have two broken hearts. If confirmed, this will mean total migrant fatalities at sea will have reached about 3,000 so far this year, up from 1,500 in 2011. The total tally since 1988 is over 20,000 adults and children, according to Fortress Europe, which tracks the Mediterranean fatalities.

In the long march of everyman mass migration has been a recurring theme and, on the whole, a necessary precursor for benign development. European countries, in particular, have benefited enormously over the centuries from immigration waves that enriched the gene pool and hastened economic development but can it be legitimately claimed today, when circumstances are dramatically different, that further substantial waves are in Europe's best long-term interests and if not what, if anything, can be done to deny the Mediterranean its growing graveyard status?

On the remedial front, Italy's foreign minister, Emma Bonino, is not sanguine for a solution. She reportedly said: "There is no miraculous solution to the migrant exodus issue. If there were we would have found it and put it into action." To give Italy its due the country has borne the brunt of the exodus from North Africa, with scant help from elsewhere for what is a Euro-wide problem, and has tried various attempts at repatriation, having saved more than 100,000 boat people since last October when it launched a humanitarian effort called Mare Nostrum to intercept and rescue the migrants trying to reach the islands of Lampedusa and Sicily, the nearest landfall to North Africa. Italy has been criticised by the human rights body, Council for Europe, for being ill-prepared for a new surge of mixed migration on its coasts, claiming that its system for receiving and processing migrants and asylum seekers was not fit for purpose. All would argue, however, that the best place to deal with the problem would be at the migrant's last point of departure, and today that largely means Libya.

                                             Target the traffickers

Between 2008 and 2010 Libya received 60 million Euro for sending over Italian police to Tripoli to link up with their local counterparts, which also included six patrol boats, vehicles and training. This meant that migrants intercepted at sea by Italian and Libyan patrol boats were immediately landed back in Libya but it turned into a public relations disaster as Libyan security forces began beating vociferous migrants and herded them into containers for transport to one of 20 detention centres scattered around the country before being sent back to their original countries. Given that since Gadaffi's overthrow Libya has sunk into lawlessness, any such cooperation would be impossible under current conditions. However, serious consideration should be given to funding covert operations to infiltrate trafficking gangs operating along the entire North African coast and perhaps elsewhere to alert authorities when illegal operations are about to begin. While it is possible that solo migrants could make it to Europe and thus avoid the ruthless gangs, the vast majority of migrants would prefer to spend thousands of pounds with the traffickers. If their operations could be destroyed, with draconian sentences for the guilty, it could go a significant way to stemming the tide. Such a scheme would have to be funded by all EU nations.

Other possible solutions are of a long-term nature. If the EU wants to reduce the migratory pressure it will have to provide more development aid, debt relief and fair trade that would see non European agricultural produce, in particular, less discriminated against. There are signs, at last, that Africa's economic development is gathering pace from a position where it was long considered an economic basket case held back by ubiquitous corruption at all levels of society, not to mention fratricidal tribal hatreds. Such growing GDP, in theory, should relieve the desire to migrate to Europe but is unlikely to have much impact unless effective population control measures are in place. If a a nation's GDP rises by, say, 5% per year while population growth is higher than that then incomes per capita will fall and so the temptation for families to encourage their children to emigrate to Europe will remain as strong as ever.

                                     A distasteful trade off?

There is a body of opinion that suggest Europe should take in far more immigrants than it does presently because indigenous European populations, particularly in France, Italy, Holland and Germany are declining to a level that will see too few working people burdened with supporting an ageing population. According to one estimate, Europe is expected to lose 28% of its population by 2050. Such purblind beliefs, however, betray faulty elements of Malthusian doctrine. Like many economists his analysis was correct but the assumptions on which it was based were flawed. Malthus could not foresee the impact on food production that improving agricultural techniques would have and the opening up of vast agricultural lands in the New World to support a growing European population. Could it not be equally said that the population 'experts' forecasts will prove equally unsound because science does not stand still. Robots and other forms of automation will dramatically raise productivity and release labour for rechannelling into social care occupations to support a growing, ageing population. The next 50 years will also likely see stupendous medical science breakthroughs that through a combination of eliminating debilitating ailments that come with ageing and the arresting of the ageing process itself will allow workers to work much longer.

Distasteful though it may seem to maintain, if not strengthen border controls against illegal immigrants, most of whom are unskilled, economic migrants, it is a question of a trade off between the lower level of misery from migrants still pushing on Europe's doors and the potential for much greater misery within Europe that most assuredly would arise if immigration controls were relaxed substantially. The signs are already blowing in the wind. Country after country within Europe is moving ominously to the right, fuelled largely by people's concerns over immigration issues that are now clearly showing signs of harming social services and raising social costs. Even legal immigrants now settled in Europe and contributing a net benefit to society express fears over the potential of immigration issues to destabilise their countries' social harmony. If that tragic scenario unfolded would it not dwarf qualms over maintaining robust border controls?

Saturday, 30 August 2014

Will Alibaba steal the retail prize?

In the race to win the world's first, truly online marketplace, Chinese e-commerce giant, Alibaba, promises a boon to consumers around the globe who for the first time will be able to buy anything from anywhere in the world in a frictionless, cross border commerce, a development which should depress and standardise prices around the globe. It will mean, for example, that consumers will no longer have to tolerate paying the widely different prices for the same item, such as Apple products. They can effortlessly source from the cheapest, national market and their payments are 100% secure through Alipay. But what will it mean for bricks and mortar shops and what, if any, are the major, long-term risks to the supply chains and meeting consumers' desires?

Alibaba may not be as well known in the West as other e-commerce outfits like Amazon and EBay but all that is about to change as it seeks a US$20 billion IPO on New York's Stock Exchange. In some ways the Chinese parvenu already outranks its western rivals like, for example, in the volume of merchandise sold through its various properties which hit $248 billion in 2013 compared with only abut one half and one third of that from Amazon and EBay respectively. At facilitating 5 billion package deliveries from transactions on its retail web sites it surpassed UPS's 4.3 billion packages and documents. The scope of product offering through Alibaba's tailored sites also leaves it competitors looking highly vulnerable. Apart from all the usual everyday household items like food, clothing and furniture, some of the more bizarre products include an animatronic dinosaur, MRI scanners, rental boyfriends and, for those overawed by political panjandrums, a life-size Vladimir Putin wax figure.

The implications from all this are that once people know just what is effortlessly available out there from anywhere in the world it will likely boost international trade, leave more money in buyers' pockets through cheaper products, which can then be spent on even more goods, but at the same time it sounds the death knell for all those manufacturers and suppliers who are relatively uncompetitive or for whatever reasons do not have the law of comparative costs working in their favour. As reported by this writer 30 years ago it will also hasten the disappearance of high street shops as online shopping takes the retail market by storm. In Britain, for example, forecasts suggest that within five years some 40% of all shops will disappear and many have already done so. In theory, traditional bricks and mortar shops could also face disintermediation by major manufacturers of food, clothing and common household items joining forces to build huge order picking centres to supply buyers' homes directly, thus cutting out all the costs incurred by retailers, but such collaboration would be difficult to achieve if past experience is any guide. Yet if they could overcome their suspicions of shared resources it would the return of pricing control to the manufacturers and end the bullying retailers place on them.

For Alibaba, the key concern will be to get its logistics right, for a lousy delivery regime resulting in many mispicks and returns will not only cost them dearly but risk permanent loss of business from irate customers. To this end, Alibaba is investing heavily in getting the logistics right. The whole issue of online shopping is also already beginning to affect how loading bays are designed and equipped to handle smaller delivery vans for home deliveries. In Britain, van sales are now booming. But what of the longer term risks over which Alibaba has no control?

These risks are both natural and human and perhaps exacerbated by the concentration of manufacturing in China which is Alibaba's most important market. China is highly susceptible to risks from earthquakes, flooding and internal political turmoil which could wreck delivery promises. There is also the global risks to communications from huge solar storms. The most obvious human risk in the Far East is martial in nature. The growing military build-up and frictions in the Far East could lead to trade boycotts, or worse, of the kind already discommoding consumers throughout Europe and Russia over the Ukraine crisis. Such risks, however, have often been part of the business scene but they are unlikely to deter Alibaba from transforming the online retail landscape for the better.

Sunday, 27 July 2014

How logistics undermines big UK retailers

Many moons ago this writer warned in the logistics press how Continental, no-frills, food retailers would give Britain's retail giants nightmares if their business models ever crossed the North Sea. The occasion was my visit to Denmark's food discounter, Netto, but what has changed since then to upset the British retail model that seemingly served the market so well for so long? In summary, three events now favour the Continental model where small is beautiful but also nimble at giving the shoppers what they now favour most of all -- permanently low prices. These are a changing economic climate, the rise of online shopping and the public's attitude to the cynical pricing ploys used by all the big food retailers. But by far the greatest of these is economic pressure brought on by the credit crunch that sees many shoppers putting value for money at the top of their shopping list, without compromising on quality.

One might well ask how is it that the British retail giants like Tesco (world's number 4), Asda, Sainsbury and Morrison with their huge buying power and long experience could not easily see off the much smaller, but nimbler Continental arrivistes like Lidl, Aldi and a re-appearing Netto. The answer can be given in one word --logistics. This is not to say that Britain's retailers are logistics slouches, far from it. Many years ago, for example, Tesco created its own stock forecasting program geared to changes in the daily weather forecasts. This gave them a crucial advantage because a pending heatwave, for example, could send demand for drinks soaring four-fold in a few days, as well as spiking demand for certain kinds of clothing and food. Before such stock forecasting programs, taverns ran out of beer in heat waves, surely a most pitiable site.

What is it, however, that sees the Continental newcomers seizing market share from the big boys that sends shudders up their spines? The obvious reason, of course, is the permanently, much lower prices, typically by up to one third, but how is this achieved? There are common features to all the foreign-owned discounters which cannot be easily and quickly replicated by the big British retailers because of the latter's legacy investments. What this means is that a big British retailer like Tesco would stock up to 40,000 SKUs (stock keeping units) as against up to 1,600 for Lidl or Aldi. Such a huge difference gives the smaller discounters a great logistics advantage. Another common feature for the discounters is their no-frills food displays, with much food simply stacked on pallets and very little individual shelf pricing. Store start up costs, therefore, are much lower, especially as they have much smaller car parks. Not lost on the shoppers is also the knowledge that all prices will be permanently low, which is a potent marketing tool. But where does logistics fit into the equation that so favours the Teutonic invaders?

To return to my Netto Danish experience over 20 years ago, this writer was impressed by their slick storage and handling. Netto then had about 125 shops throughout Denmark but only one NDC (national distribution centre) to supply all their needs. All shops were EPOS*-connected to the NDC so that at the end of each trading day all details of items sold would be electronically sent to the NDC to initiate replenishment picking. A fast sortation conveyor played a key role in despatching all replenished items to all 125 shops before opening the next day. Netto's business model then was to have no more than 600 SKUs, over 90% of which were fast movers. Any fast mover that became slow was quickly dropped and replaced by another, expected fast mover. The effect of all this was that 90% of all stock at the NDC passed through it every 24 hours, thus drastically cutting the high cost of holding inventory, which can dwarf all other warehouse costs combined. Such a high throughput rate also has implications for construction costs of big NDCs since there are no large areas given over to slow movers. Obsolete stock losses would also be smaller.

The business models the big British retailers are now stuck with have been made obsolete because of the shoppers' change in habits. The retailers tried to become all things to all men by selling far more than food and regular household consumables all under one roof so as to enhance customer convenience. That model held good for many years when incomes were steadily rising but when the recession hit six years ago a sea-change in consumer sentiment saw price become king as the convenience factor flew out the window with the remorseless rise of online shopping. Arguably, that business model of relatively high prices, wide product range and convenience is now broken.

Lumbered with the legacy costs of huge stores, the British retailers have obliquely admitted that the Continental upstarts have a better business model for a changed shopping climate. They will not, of course, take matters lying down. Sainsbury, for example, have got into bed with Denmark's Netto to open small shops with permanently low prices. Tesco are pushing ahead with openings of convenience stores but so far their prices remain uncompetitive with Lidl and Aldi. It is also possible that the big retailers will enter an unholy cabal to lower all of their food prices for long enough to drive the invaders back across the North Sea. It would mean taking a hit on their profits but it could be a price worth paying to restore the status quo of comfortably high margins that they have enjoyed for so long at shoppers' expense. Such an event would be a bleak day for consumers who have been held in the grip of just four retailers controlling around 80% of the UK food market for far too long.

*Electronic point of sale

Tuesday, 22 July 2014

Food supply chain professionals admit 'slavery' complicity

In what is, perhaps, the most damning indictment of food supply chain 'slavery' complicity, the respected British Chartered Institute of Purchasing and Supply's latest survey found that nearly three-quarters of supply chain professionals admitted they had "zero visibility" on the earlier stages of their supply chains. Eleven per cent said this meant it was "likely" slave labour was used at some point in the supply chain. Turning the screw, the Institute's chief executive, David Noble, claimed "Consumers and business leaders have entered into a 'don't ask, don't tell' pact and that they "are content to remain ignorant of the malpractice that could be operating throughout their supply chains." Company leaders were also twice as likely as purchasing managers to say their supply chains are transparent.

David Noble did not include in "consumers" the end consumer, i.e. the public who buy their food mainly from big retailers, for they are totally ignorant of each bought product's supply chain pedigree and while they may know the food manufacturer's name from the packaging they would be unaware as to whether or not the manufacturer has subsidiaries operating in countries where food production slavery is rife and the company is part of it. Yet the public has shown its concerns over such issues and even mobilised public opinion to boycott certain companies profiting from 'sweatshops', as they were euphemistically known, operating in emerging countries where regulations of all kinds are lax or routinely ignored. It is a pity that culpable corporations do not share the public's concerns on a meaningful scale.

The stench of the Atlantic slave ships before abolition may have long gone along with the shackles, and all countries have outlawed the institution but slavery's stench remains in more subtle, less public forms but where the shackles of fear are just as binding. The most common form of slavery today is called collateral debt bondage, which involves people who have borrowed money pledging themselves and their family as bonded labourers to the loan sharks or slave holders, which can carry on for generations until the debt is paid.

According to the 2012 International Labour Organisation report on slavery, the world's forced labour total is 20.9 million, with Asia having the most at 11.7 million. Another measurement of global slavery, however, the The Global Slavery Index, puts the total at 29.8 million, half of which are in India. The Index, which ranks 162 countries, puts China, Pakistan and Nigeria along with India as the four countries with the largest number of slaves. But even the most developed of western countries, like America, have tainted hands, where the slave population estimate is 60,000, among them temporary visa holders and domestic servants. In Britain, where a modern slavery bill is before parliament, the figure is put at a more modest 4,426. There may well be an element of double counting and other flaws in the various surveys' methodologies but any amended figures would still be grotesquely alarming.

While Britain is to be commended for proposing a modern slavery law, the only country in Europe to do so, Britain's Home Secretary, Teresa May, warned that its proposed slavery bill could not solve the slavery issue by legislation alone, and its remit would not extend effectively beyond the country's shores. John Manners-Bell, of the consultancy, Transport Intelligence, said that "many manufacturers and retailers believe that when they outsource the production of their goods to remote suppliers, often based in emerging markets where there are fewer regulations, they outsource the moral responsibility for the conditions in which their goods are manufactured."

Such cynical buck passing is unforgivable and food retailers, in particular, have consistently shown that their own feeble attempts to clean up their supply chains have failed miserably. Like the UK police forces, they cannot be trusted to self regulate. For proof of that one need look no further than the horse meat scandal 18 months ago where horse meat was found in many products labelled as beef. Half of the supply chain professionals say that the scandal has not led to the risks being taken more seriously.

David Noble believes that if the slavery bill passing through Britain's parliament is "to have a chance of eliminating slavery from the British supply chain and we are to avoid repetition of the horse meat scandal then we must empower supply chain procurement professionals. " Such action would be better than nothing, one supposes, but to whom would the procurement professionals be answerable? If it is to the boards of companies with dubious links to slavery then the suggestion is touchingly naive. Perhaps more effective would be partly government/business financed, independent watchdogs with the resources to research areas of suspected supply chain slavery and then effectively publishing the results nationwide so that the public would have the ammunition to invoke the ultimate weapon all company boards fear and cannot withstand --- sustained, concerted boycotts. There are many precedents where such consumer action has been efficacious in many industries. Retailer Primark reportedly paid $9 million in compensation to try to salvage its reputation, Samsung Electronics recently said it halted business with a supplier in China over suspected use of child workers and Starbucks, pilloried over its insouciant tax avoidance schemes, caved in temporarily to public condemnation.

Slavery has never gone away because greed has never gone away. It may have changed its tactics and cloaks but so long as greed remains so, too, its handmaiden of corruption will flourish, and it is in emerging countries where corruption is worst. If concerned countries unite to make life much more difficult through naming and shaming, as well as boycotts of miscreant or unconcerned corporations, then the prayers of the oppressed women, children and men may at last be heard and their tears wiped away.
Google my blog headlines:
Thailand's trawlers of terror shame food supply chains
Slavery shames British food supply chains

Sunday, 15 June 2014

Thailand's trawlers of terror shame food supply chains

Logisticians have to cope with many variables in their global supply chains but how many realise how intractable, ubiquitous corruption has the potential to wreck their best laid plans, or appreciate that their purblind directors' acceptance of corruption issues perpetuates unimaginable misery involving people trafficking, slavery and murder? The reaction of an outraged public to the results of such corruption and crime can quickly lead to global boycotts of JIT-supplied goods and so without a robust plan B already in place to source elsewhere, logisticians will have nightmares. That is why corruption in their supply chains should concern them deeply.

It is a true axiom that for evil men to triumph it only takes good men to look the other way, and there is far too much of looking the other way in the global food supply chain, in particular. Just such a scenario is being played out in the seas around Thailand where many thousands of trafficked migrants face brutality and murder on trawlers serving the vast Thai prawn farming industry while simply trying to earn a higher standard of living to support their families in relatively poorer countries like Burma and Cambodia. But it is not a new phenomenon, nor is it confined to Thai waters. Such trawler slavery also extends its brutal, corrosive grip to New Zealand's fishing grounds, where cooperation between New Zealand-based fish processors and foreign-owned trawlers crewed by exploited migrants has allowed the trade to flourish for years. Britain and Ireland's trawlers have also tainted hands in this tide of misery.* 

The household name retailers at the end of this odious supply chain have often extolled their roles as responsible citizens eschewing all forms of slavery and exploitation in their supply chains yet the problem remains and worsens, indicating that consumers can no longer rely on such ineffectual protestations. Just how bad the Thai prawn industry is for criminal behaviour can be gauged by the UK Guardian newspaper's revelation based on its own, just released, six-month undercover investigation. It is a damning indictment of supply chain apathy, and Thai Government corruption, without which this vile trade could not survive. 

Torn apart by the limbs
The investigation found that slaves were forced to work for no pay on trawlers for years at a time under extreme threats of violence. Large numbers of poor migrants told by their hired brokers that they would be found jobs in manufacturing or on building sites ended up being sold to trawler captains by the brokers for as little as £250 each. This ruse has also been used for British and Irish trawlers. Shifts could be grindingly-long, 20-hour stints, helped by frequently-offered energy-boosting drugs. Beatings are regular and there is torture and execution-style killings. Some trawler escapees reported seeing fellow slaves murdered in front of them. One trafficking victim claimed he had witnessed as many as 20 slaves killed, including one who was tied limb by limb to the bows of four boats and pulled apart at sea. "We were beaten even if we worked hard", said another. 

Farmed prawns are big business for Thailand, with exports of 500,000 tons, of which Britain and America take about 10%. Overall fish exports are worth about $7.3 billion a year. The largest Thai-based prawn farmer is CP Foods, with reported annual sales of £20 billion. They buy fish meal made from 'trash fish' (too small and inedible) which is caught in huge amounts during pursuit of tuna. Ground into meal, the trash fish is then fed to the farmed prawns, and the company also supplies the feed to other prawn farms. Their products end up on British and American shop shelves as frozen and cooked prawns and ready-made meals like prawn stir fry. Apart from the big four food retailers, Walmart, Carrefour, Costco and Tesco, the Guardian also identified the Co-op, Aldi, Morrison and Iceland as stocking CP Foods' products. 

CP Foods makes no pretence about not knowing that slave labour is part of its supply chains. "We are not here to defend what is going on," reportedly said Bob Miller, CP Foods' UK managing director. "We know there are issues with regard to raw materials that come in but to what extent we just don't have the visibility," he added. 

Thailand a slavery node point 

The brutal fact is, however, that alarm over Thailand's fishing slavery has been sounded before by NGOs and in UN reports. Thailand is considered a major source, transit and destination country for slavery and nearly 0.5 million are enslaved within the country. There is no official record of how many men are enslaved on fishing boats but the Thai Government believes that up to 300,000 work in its fishing industry, 90% of whom are migrants vulnerable to being duped, trafficked or sold to the sea. Rights groups have long pointed to Thailand's big labour shortage in its fishing sector, which along with increased demand from America and Europe for cheap prawns, has driven the need for cheap labour. "We would like to solve the problem of Thailand because there is no doubt commercial interests have created much of this problem," admits CP Foods' Miller. 

A key culprit in preventing any meaningful progress in this vile trade is the Thai Government, long known for its endemic corruption. In the global corruption rankings for 150 countries Thailand is a poor 81st and 97th in democracy rank. One high ranking Thai official who did not want to be identified said: "The Thai authorities could get rid of the brokers and arrange legal employment but the Government does not want to do that. It does not want to take action, and as long as boat owners still depend on brokers and not the Government to supply workers then the problem will never go away."

Others, however, disagree. Two international union federations, the International Transport & Workers Federation (ITF) and the International Union of Food, Agricultural and Hospitality Workers (IUF) are working in Thailand to fight the slavery there. Liz Blackshaw, programme leader for the joint ITF/IUF From Catcher to Counter initiative, says the Guardian's findings show the need to audit the entire supply chain to ensure that all products are sourced ethically and responsibly. "Consumers deserve and demand rigorous checking and transparency. There is a dramatic need for action in Thailand also," she said. 

At a Bangkok meeting last month in a multi-stakeholder forum on labour conditions in the Thai fishery sector, the ITF informed the Government and all stakeholders that it is irresponsible to refuse to ratify the ILO Work in Fishing Convention No 188. "It is shocking that Thailand's new military government was this week the only one to vote against a new ILO protocol to fight forced labour. We would expect the USA to put the country in the worst category of its human trafficking blacklist." 

Many dark secrets

The ITF and IUF claim that the fishing sector has many dark secrets, not just in Thailand, and that there are improvements that could drastically change it for the better. Some of them include:
  • All ILO member states should ratify the new protocol to the ILO "forced labour convention."
  • Full audits by retailers of fishery products supply chains to ensure ethical and responsible sourcing. (Some leading food retailers admit that their audits lack depth)
  • Transparency and comprehensive information on where fish was harvested and the whole chain of processing to enable consumers to make ethical and socially responsible decisions.
  • Aggressive programme of international criminal investigations into criminal activity and criminal failure to act.
  • Company registration of fishing vessels over 20 mt long or 100 GMT.
  • In regional fisheries management organisations and governments the leveraging of licencing allocations and catch quotas against compliance with human rights obligations and labour standards.
  • Fishing vessels to have collective agreements on board to protect crews.
  • Processing plants to have genuine union recognition and the rights to collective bargaining. 
The Thai Governments have already been warned on four consecutive occasions that it was not doing enough to tackle slavery, which belies their claims that great progress has been made in tackling the slavery issue. The latest Guardian investigation further undermines the Government's claims. Its undercover investigators unearthed a lawless and unregulated industry run by criminals and the Thai mafia, facilitated by Thai officials and sustained by the brokers who supply cheap migrant labour to boat owners. 

Human rights activists believe that Thailand's sea food export industry will probably collapse without slavery. This is highly unlikely. Paying agreed wages on time and respecting the rights of migrant crews would at most only add a few pence or cents to a prawn stir fry meal. Yet it is clear that in the light of the Thai Government's refusal to act then more screw tightening should be applied by retailers and consumers. Norway has led the way with one leading retailer, ICA, announcing that it is removing scampi related to CP Foods from its shelves, a move actively backed by ITF and the Norwegian seafarers union. Surely now the time has come for all UK retailers to follow suit by banning all Thai-sourced prawns.

A threat to incomes is the greatest incentive to concentrate business minds to counter the threat with righteous action. If businesses take no action then they should remember that the ultimate weapon lies in the hands of consumers -- concerted, indefinitely-sustained product boycotts. Hopefully it will not come to that and spread beyond fishing slavery issues to other industries, like tourism which accounts for over 7% of Thailand's economy. It would be tragic if many of Thailand's jobs disappeared, for trade is the hand maiden of prosperity and prosperity the surest guarantor of peace. Ultimately, however, trade must rest on the pillars of honesty, decency and respect for the rule of law. If any proof were needed of that then just consider what lack of good governance did for the global banking sector in 2008, the repercussions of which are still being sorely felt. 

* Google my blogs: 
New Zealand's commercial fishing 'slavery' shames the nation
Britain's trawler fishing shame intensifies
Ireland's shameful role in migrant fishermen exposed

Tuesday, 10 June 2014

Time to eschew diesel forklifts?

Thanks largely to EU directives, forklift diesel engines have drastically cut their toxic emissions since the first European legislation got underway in 1996 with Stage I, designed to regulate emissions of nitrogen oxides (NOx), particulate matter (PM), carbon monoxide and hydrocarbons from non road diesel engines. This year sees the latest EU regulation, Stage IV, come into force, which will cut non-road NOx exhaust emissions by 80% compared with Stage IIIB standards they replace. Engines will also be required to use ultra low sulphur diesel, and in the struggle to meet ever-challenging targets engine makers use two main technology options -- selective catalytic reduction (SCR) and EGR, which dilutes the amount of oxygen in the combustion chamber. Both options, however, have their drawbacks and the fact is that the new legislation is not retrospective, so dirtier diesel forklifts, even when fitted with catalytic converters and soot filters, will continue to expose workers within their premises to serious health risks for years to come.

Should we, however, be concerned by air pollution from diesel powered vehicles in general, and is there still an economic case for supporting diesel forklifts over electric, leaving aside, for the moment, the health issues? Yes, we should and the economic case for diesel no longer holds as true as it once did.

In the pursuit of less carbon dioxide (CO2) emissions to ease the perceived threat of climate warming, the European Union favoured diesel over petrol because diesel engines burn fuel more efficiently and emit less CO2. But a by-product of burning diesel is nitrogen dioxide (NO2) and for more than 10 years governments knew that diesel was producing such harmful pollutants. "It's been a catastrophe for air pollution," said Simon Burkett, founder of Clean Air in London. The WHO says that NOx is linked to asthma, now affecting around 6 million people in Britain and killing 1,200 a year, with huge medical costs, and other pulmonary diseases, especially in children. Diesel combustion also generates easily-inhaled fine particulate matter, which probably killed 3,389 people in London during 2010, according to the Government agency, Public Health England. This kill rate equates with some of the worst smogs back in the 1950s, which belatedly ushered in the Clean Air law in 1956. Researchers also think that NO2 has harmful effects independent of particulate matter.

Deadly deal

In 2012, the EU's NO2 limit -- a maximum of 40 micrograms per cubic metre of air -- was breached at 301 sites in the EU, including 7 in London, which is the most NO2-polluted of all the sites and greater even than in Beijing, where smog alerts are common. Owing to a deal between car makers and the EU in 1998 to lower the average CO2 emissions in new vehicles, car companies chose to make more diesel -powered cars, now accounting for about half of all cars against under 10% 10-15 years ago, and diesel fuel was also made cheaper than petrol for some years. So what began as a well-meant EU policy to curb carbon emissions has proved a serious health failure.

Diesel forklifts would or should not be seen operating inside food and pharma premises, including their warehouses, and the same should apply to LPG, despite being cleaner than diesel, but their favourable performance level against electric trucks, and other economic factors, mean they are still found working inside premises, particularly warehouses. But technical advances in batteries and chargers mean that electric trucks are at the same performance levels as diesel, says Matthias Fischer, President of Toyota Material Handling Europe. Hitherto used mainly for loads up to 2 tonnes, electric forklifts and/or AGVs can now be used in ports, for example, moving 60 tonne loads. Electrics were also disfavoured because of the need to recharge batteries over long periods, have costly standby batteries for multi-shift work and the need to set aside charging areas, adversely impacting the total cost of ownership. Recent technology advances, however, have diminished those disadvantages, while the latest EU Stage IV regulation will only raise the cost bar for diesel engines, thus weakening their economic case.

A good example of this is BYD's battery that uses lithium-iron phosphate technology. BYD is a Chinese company that also makes forklifts and its claims for its batteries are impressive. According to Javier Contijoch, forklift director at BYD Europe, users will enjoy 25-30%savings on operating costs. The battery chemistry requires less time and energy than lead-acid batteries for recharging and it can extend total battery life to the point where users never have to replace their truck's original battery. It also eliminates battery maintenance, avoids the emissions associated with traditional battery charging and removes the expense of buying and maintaining spare batteries, a hugely significant cost factor. Charging is also fast (one to two hours) and energy consumption during charging up to 40% less. The battery can be charged incrementally rather than all in one go, so they allow drivers to extend driving times by recharging during break times. The battery is said to be cleaner and safer than alternative lithium-ion solutions.

These and other advances in forklift motive power alternatives should concentrate the minds of all diesel truck users, whether used internally or outside. The question uppermost in their minds should be: "Can we continue to justify diesel forklift usage at the risk to our employees' health and even lives?"

Saturday, 7 June 2014

Beware odious forklift dealer practices

Acquiring forklifts through contact rental/lease, the most popular way in Britain, is a minefield for the unwary but how many truck users realise another minefield lies ahead when the contract period, typically five years, reaches the end? There is no issue if the trucks are bought outright, easily the cheapest form of acquisition, provided in-house maintenance is top notch, and the problem is also much reduced if the rental contract includes full maintenance. But for those users who rent without full maintenance included in the contract they are at risk of odious dealer practices that in some cases border on blackmail.

This is not to suggest that most forklift dealers are sharpers, far from it. The majority work hard to give their clients a good service but the fact remains that the industry is intensely competitive, many of the dealers (typically 20%-30%) are financially weak and so not only are they incentivised to shuffle the pack (deception by omission) at the beginning of a contract period, they may resort to thinly-disguised threats at the end of a contract because they desperately need the contract to be renewed.

Typical underhand examples just before contract renewal time include presenting truck users with unexpected bills for excessive truck use or damage. On the former, the best defence is to examine any new contracts' small print to discover how many hours truck usage per year the contract is based on. If no figure is provided, then customers should hammer that out with the supplier and define what the extra costs would be if those hours are exceeded. To be fair to the supplier, they will want to sell on or hire out their trucks after each five-year contract ends and the truck's rentability will be influenced by its condition and so it may need costly refurbishment.

Even if the designated hours usage has been exceeded and the consequent extra costs agreed at the start of a contract there is still the long-festering problem of paying for truck damage when it is returned to the supplier. A small nick to the driver's seat would mean paying for a new seat which would cost many hundreds of pounds. It is not so much the principle of having to pay for truck damage on return but the very inflated prices charged for the spares/repairs. All truck users should bear in mind that owing to the competitive nature of the forklift industry profit margins on sold counterbalance trucks are wafer thin and so they try to make up for that by charging high prices for spares. After all, they must make an adequate return somewhere. Even so, at times the matter has been highly contentious, with court action threatened, so to clear the air somewhat, the Forklift Truck Association (FLTA)* in Britain has issued a useful guide on what constitutes fair wear and tear issues.

So desperate, however, are some truck dealers to get a contract renewal that after presenting a hefty, unexpected bill at the close of the old contract they will offer to 'write off' those bills provided the customer renews the contract for another five years. This comes close to blackmail and should be strongly resisted because continuing with a new contract could be extremely costly if the nature of the user's business has changed. The user, for example, may wish to change from counterbalanced and reach trucks to articulated trucks to cope with an expanding business or, indeed, use different, more productive trucks not offered by the current supplier.

Another potentially more serious truck supplier ploy, when it realises it will not be getting a contract renewal, is to threaten to remove its trucks from a client's site, leaving the client with no means of shifting goods around the warehouse/factory. This would not be a problem if the renter had lined up a deal with another supplier so that the new trucks arrive at or just before the old contract expires. Alternatively, any truck user should seek greater assurance that their supplier has an ethical exit strategy when the end of the contract is reached.

In theory, truck users are likely to obtain more ethical deals from the large forklift manufacturers or dealers like Briggs Equipment because they have a reputation to maintain and will not risk that through adverse trade press publicity. Moreover, an extra comfort is the greater financial stability compared with small/medium -sized dealers. Smaller dealers should have their financial strength assessed because if one leases a truck from them the contract is with the lease company, not the dealer. If, therefore, the dealer goes bust and therefore can no longer provide a contracted maintenance regime the payments will still have to be made to the lessor on time. Finding an alternative truck maintenance company will almost always be more costly. Some extra comfort may also be gained by dealing only with companies belonging to one of the leading trade associations like the British Industrial Truck Association (BITA) and the FLTA.

If the problem persists or worsens a case could be made for an industry-independent 'watchdog' or ombudsman body to be created to whom one can register complaints of alleged odious dealer practices and where such complaints are upheld the dealers in question are placed on a widely published blacklist.


Monday, 2 June 2014

China's military posturing raises supply chain risks

"When might is right," the adage goes, "money takes flight." In the Far East one could add that foreign trade, too, could also take flight and the world is moving closer to just such a scenario as China begins to make preposterous territorial claims to much of the South China Sea, reportedly rich in oil reserves. But are the posturing spats over the South China Sea worrying enough for foreign investors in that region to consider re-arranging their global supply chains to avoid another 'pants down' exposure like that caused by the Japanese tsunami in 2011 and its consequent mayhem for JIT-oriented global supply chains? Alas, this time around the auguries support the yes camp. I say this time around because China has been through a boy-who-cried-wolf scenario for 30 years when American predictions that China one day would try to dominate its region by force have proven wrong. What is different this time, however, is China's new, highly nationalistic leadership epitomised by President Xi Jinping, egged on by the hawks in the Communist Party who have pressured the top leaders to take more forceful policies.

In an incredible show of chutzpah, President Xi Jinping declared that "in Chinese blood there is no DNA for aggression or hegemony." Hmmm. One wonders if Xi is weak on Chinese history, from the Divine Wind upset of the Mongol fleets, largely comprising ethnic Chinese, against Japan to the bayonets to Lhasa in living memory. Yet Xi probably approved the recent decision to move an oil rig into waters claimed by both China and Vietnam, and shows no signs of backing down. This has led to enmity against Chinese people living in Vietnam, thousands of whom have been forced to return to China. A Vietnamese fishing vessel has also been rammed and sunk by a Chinese vessel.

China also probably senses that Asian nations who could be territorial rivals in the South China Sea cannot over the long run afford to fight back. In pursuit of that strategy it has already defanged the Association of Southeast Asian Nations (Asean), which operates by consensus and unanimity, through buying the votes of one or two members like Cambodia. China also feels that the military capability of its neighbours is not up to their own and, sensing this, countries like Indonesia, Malaysia, the Philippines, Singapore and Vietnam have begun an arms race.

China should think again about its military posturing. It depends heavily on imports of raw materials and its exports to western countries to maintain its growing prosperity. Already, however, there are forces at work undermining its export achievements, not least of which is the move towards re-shoring of outsourced manufacturing back from China to Europe and other countries nearer to their main markets. This has been brought on by strongly rising wage rates in China, where hitherto low wages were the main case for outsourcing to China. But there are a host of other reasons which underpin the case for re-shoring. These include the long production runs demanded by Chinese suppliers, poor quality issues, intellectual property theft, ethical concerns over sweat shops, higher freight charges, long delivery times, and other costs concerning communications when problems arise. If there is any doubt about this one should consider, for example, one of the least likely industries where this is taking place --textiles. According to the head of retail at Britain's management consultants, KPMG, the UK is poised for a revolution in textiles. "The trilogy of brilliant British textile manufacturing, stable wage rates, and shorter lead times needed at retail level have made the UK a compelling proposition once again," he says. So to all these reasons for re-shoring cited above one must now surely add the growing political risk which, of course, would not only affect China but also its neighbours which have relied heavily on cheap labour rates to attract foreign investment.

If, as newspaper reports claim, President Xi came into office vowing to restore the greatness China enjoyed for centuries, then Xi should reflect that true greatness does not spring from the barrel of a gun. Instead, it comes from raising all of the people's well-being through the peaceful pursuit of trade. In any serious shooting war with its neighbours those aspirations would be seriously compromised. The Chinese leadership should also reflect that the country has serious internal weaknesses and threats. Its banking sector is in an unholy mess, which could bring on an internal credit crunch to rival the western eruption in 2008. Denied their aspirations, the people themselves could become China's biggest internal political headache for the Party. And then, as always, there is the natural threat from floods and earthquakes, which is reason enough for the Chinese Government to spend sparingly rather than wantonly on building up its armed forces. The nation's hard-won resources should be husbanded to meet the inevitable threats from Nature's fury. It is no less than the long-suffering Chinese people deserve.

Friday, 2 May 2014

Korean ferry loss exposes maritime greed culture

The Western Pacific from Indonesia to Korea is a peacetime ships' graveyard, especially around the Philippines where the world's worst peacetime maritime loss cost over 4,000 lives in 1987. In many cases the causes are primarily driven by incompetence and greed, and the latest example is the tragic loss of the 6,825-ton ferry, Sewol, in South Korean waters last month involving 302 fatalities, many of them young students. But does this ferry loss have lessons for cargo ships, particularly container vessels, even in seas considered safer where safety standards and oversight are higher? Yes, it does, and the worry is that thanks partly to the IMO's compromise over the container weighing amendments last year such tragedies will almost certainly recur repeatedly.

According to reports, the tragedy was "the result of endemic disregard for safety regulations, bad judgement and botched rescue efforts," said The Chosan Ilbo (Seoul). Reportedly, the Sewol was breathtakingly overloaded with cargo, carrying 3,608 tons of apparently improperly secured trucks, cars, trailers and machinery when the legal limit was 987 tons. The first mate reportedly testified that the ballast water, used for stabilising a ship, was reduced to make room for more freight. "It appears that such a practice was not uncommon," said a prosecutor on the investigation team. Police also suspect that the reported weight was understated.

While under the control of the inexperienced, 25-year old, third mate steering through one of the most treacherous waterways in the country, the ship seems to have made a sharp turn, shifting the cargo to one side (hence the loud noise reported by passengers), causing the ship to capsize. Allegedly the crew seem not to have been trained in lifeboat handling and told passengers to stay where they were for nearly an hour after the accident, a period that would have been more than ample to disembark all passengers safely in lifeboats, provided the ship's list was not too great and almost immediate. As an ignominious finale, the captain and crew were reportedly the first to jump ship once rescue boasts arrived. Fifteen crew members now face charges but they cannot be blamed for the underlying, greed-inspired motives of the ship's owners and/or company officers, who in pursuit of profit allowed the gross overloading of the vessel. They reportedly paid the lowest wages in the industry and converted the ship to boost its capacity. The owners, too, should be in the dock.

The problem of deliberately miss declared cargo weights has plagued shipping for decades. In 2008 I reported in Shipping Times* that deliberate under declaring of shipping container weights costs shipping lines and governments billions of pounds in lost revenue every year and places ships and their crews at risk. The financial incentive for freight shippers to break the law is huge. Governments impose import duties on the declared tonnage inside containers so if the payload is significantly under declared then big savings on import duties can be made. The shipping lines are also defrauded because they charge by the container, and although there are maximum container cargo weight limits, if these limits are seriously exceeded then fewer containers need to be hired and shipped.

Payload scams beggar belief

The size of the payload scams can, perhaps, be gauged by the loss of the container ship MSC Napoli, beached in Devon in 2008. The subsequent investigation by Britain's Maritime Accident Investigation Branch (MAIB) found that no less than 20% of all the on-deck containers were over three tonnes heavier than their declared weights and in one case the difference was 20 tonnes. MAIB reported that such discrepancies were "widespread in the container ship industry and is due to many packers and shippers not having the facilities to weigh containers on their premises."

The cargo shippers have been able to get away with such payload scams because the container shipping industry is the only sector of the industry in which the weight of the cargo is not always accurately known and there is no mandatory requirement for containers to be weighed at a European port before loading a ship. Without such accurate data a safe cargo arrangement plan cannot be guaranteed and so stability issues, especially in rough seas, become a major safety hazard.

After years of lobbying for mandatory weighing of container cargoes by the International Transport Workers Federation (ITF) and other bodies a golden opportunity was missed last year when the IMO watered down an amendment to make container weighing mandatory at all ports. But for compromise read bastardise, for the watering down of the amendment castrates it so much as to render it of dubious, disturbing value. The IMO settled for a decision by its sub committee on dangerous goods, solid cargoes and containers to accept an alternative mode of verification to the mandatory weighing of container payloads, much to the chagrin of the ITF. This serious watering down means that governments will be allowed to either choose the gold standard of mandatory weighing or the lesser method of certifying containers on an unformulated process of verifying the weight by adding together the constituent parts of a container load at unspecified times and places along the transport route.

The result of this feeble alternative choice will inevitably see more container ship losses and fatalities, especially as there are also widespread practices over lax cargo lashing inside the boxes. The Korean ferry disaster sends a clear message on maritime safety. Until international maritime safety law is upgraded and rigorously enforced, many more lives will be sacrificed on the altar of mammon.

*Google my headline: Container payload scams cost billions and risk lives

Tuesday, 8 April 2014

Britain's trade deficits risk economic collapse

Investor sentiment is like a scared cat. It is easily spooked and does not care who gets clawed during any frights. It is just such sentiment which is keeping the British economy calm, for now, but can it last much longer? The reason for concern is Britain's alarmingly high Current Account deficits on foreign trade. Unless corrected soon, there will be serious consequences for the nation, and Britain's global supply chain logistics in particular, which should pay more attention to re-shoring outsourced manufacturing back to Britain.

Given, however, that Britain's total earnings from tangible exports (visibles) and intangibles (invisibles), like services income from banking, insurance, shipping and overseas investment income, have not exceeded import costs for decades, why should now be a cause for concern? One reason is the alarmingly high deficit last year of £108 billion on visibles, which reduced to a £27 billion deficit when invisible earnings were included. Last year's awful trade performance, however, was not an aberration. According to Britain's Office of National Statistics (ONS), the combined current and capital account has been in deficit since 1983 and the trend is getting worse. Another is that the capital inflows that have financed these deficits, such as investment in industry and real estate, plus hot money, reflect the scared cat side of the equation. What were once healthy capital inflows could very quickly become unhealthy capital outflows.

For three decades the country has relied on the financial account (direct and portfolio investments) of the Balance of Payments to keep the nation's head above water. This is potentially dangerous because these capital inflows that have come to dominate the Balance of Payments are volatile and intractable and, equally disturbing, such foreign investment in Britain has proved a mixed blessing because of the financial contrivances global corporations use to minimise their taxes and so deprive Britain of billions of pounds in lost corporation and VAT taxes. Such tax avoiders also place indigenous UK corporations, who pay their taxes in full, at an unfair trading disadvantage.

Why manufacturing matters

It has long been touted by purblind political and economic commentators that British manufacturing does not matter much any more because the services side of the economy accounts for the lion's share of Gross Domestic Product. The current deterioration in Britain's invisible exports show just how asinine that view is and the price that Britain must now pay for neglect of its goods-producing sector. The fact is, Britain's investment income for operations abroad showed a £10.3 billion deficit in the final quarter of last year and £17 billion for 2013 as a whole, up from £3.7 billion in 2012. Back in 2008 there was a surplus of £33.2 billion from this source and £22.7 billion as recently as 2011. This has happened because of losses abroad by British banks, at the root of which was British banking's lack of good governance. There has also been a drop in income on overseas investment by British firms. This partly reflects deteriorating returns from British investment in a depressed Euro zone. It was fortunate for Britain that the Euro zone countries with big trade surpluses were prepared to pour money into Britain to fund the country's current account deficit. It is, however, a risky scenario because such financial flows could be vulnerable to political and economic uncertainty.

Britain's long post war history of current account deficits, punctuated by several devaluations and sudden brake slamming on policy, is symptomatic of a serious imbalance in the economy, the cures for which are both short and long term. In the short term, Britain must wean itself off reliance on cheap money which is now stoking up another housing boom that can only end in tears unless the Bank of England acts now to signal careful rises in the base rate. That may not go down well with manufacturers thinking of new investment, which Britain badly needs, but it is far more preferable to huge interest rate spikes down the line forced by soaring inflation rates owing to a de facto devaluation caused by rising import costs and consumer binge spending, financed partly by saving less. Such a scenario partially unfolded in America back in 2007 when for a straight 21 months of negative domestic savings, adopted so that people could pursue their have-it-all-now culture, often based on taking out second mortgages and liar loans, meant that much higher interest rates than three years before (2004), left buyers at the end of their rope. Then, on January 12th, 2007, eight months before Britain's first major retail bank failure in over 100 years, I warned in Warehouse & Logistics News: "The Bank of England's rate policy since being spooked by the dot com crash six years ago, aided by overly eager banks to lend irresponsibly, is a major cause of dangerously high national indebtedness. The banks and credit card companies may well pay a high price for their rapacious stupidity through record numbers of consumers seeking voluntary insolvency deals."*

Another short-term move must be for all British governments to eschew foreign military entanglements because these have a direct bearing on the foreign trade current account. According to one estimate, the Afghanistan war has cost Britain £38 billion so far, with many more years of costs to support the maimed forces personnel and widowed families, with almost nothing to show for it. The Iraq war would have cost much more, again with little to show for it. This is what happens when economically naive governments, egged on by even more benighted military top brass, bestride the saddles.

Moving to solutions of a medium term nature, the British Government, in concert with other governments, must take united action to reform international taxation regimes so that all global corporations pay their righteous taxes, instead of hiding their low-taxed profits in overseas tax havens, and competing unfairly with native companies.

The long-term solution will be harder to achieve but there are signs that desirable moves are already under way. One is the nascent trickle of re-shoring outsourced manufacturing back to Britain for a host of reasons, not least the soaring labour rates in countries like China, where hitherto low labour rates were the main attraction. British companies which have yet to re-shore back to Britain may also like to consider that if Britain's import costs rise owing to a falling Sterling exchange rate then they will be disadvantaged against indigenous producers. Another encouraging sign is that more investment is going into apprenticeships. If Britain is to boost manufacturing it needs a larger pool of suitably qualified labour. In this respect it would be helpful to overhaul a failing education system, which shamefully sees around four in five adults have a low level of numeracy which has been declining since 2003. This has led to the realisation that 17 million adults in England are working at a numeracy level roughly equivalent to that expected at primary school. There could hardly be a more damning indictment of Britain's current educational establishment. There should be more emphasis on occupations like engineering rather than on non productive vocations in the arts. Manufacturers, however, may need more Government incentives to invest so as to counter any adverse impact of rising interest rates that chronic Balance of Payments crises could impose.

On the social front, the Government must bear down even harder on the social security budget to eradicate fraud and waste. Money wasted in this way from undeserving, non contributors to society manifests itself in a deteriorating Balance of Payments. If nothing is done to at least balance Britain's foreign trade accounts then it is the markets that will ultimately decide the issue, and the markets can be merciless. If that happens, then the sparks will fly upwards.

* Google my headline: Good governance must prevail

Sunday, 30 March 2014

New Zealand's commercial fishing 'slavery' shames the nation

New Zealand ranks high in the decency stakes, especially for minimal corruption, transparency and the rule of law upholding human rights, but in one area it is shamefully deficient - the treatment of overseas fishing crews on foreign-flagged vessels operating in its territorial fishing grounds and partnered with some of the country's biggest fishing corporations. Ongoing for years, the scandal is so huge that a US State Department report released in 2012 scathingly labelled it "21st century slavery." It cited conditions of forced labour, including debt bondage, imposition of significant debts, physical violence, mental abuse and excessive working hours on board.

To be fair to the New Zealand government, it has proposed legislation to implement recommendations, including the requirement that all foreign fishing vessels working in the country's waters must be new Zealand flagged by 2016, but it is yet to be passed and now seems unlikely to be until after the next election because it has been pushed back to number 27 on the Parliamentary Bills list. Such foot-dragging "is outrageous," said Joe Fleetwood, secretary of the Maritime Union of New Zealand. "The New Zealand government is missing in action when it comes to protecting the rights and welfare of fishers in our region," he adds.

The accusation of tardiness is valid. It is almost 10 years since the government concluded a ministerial enquiry into the use of foreign charter vessels after national and international accusations of slave labour in New Zealand waters. The risks of further procrastination, moreover, pose significant threats to the New Zealand economy, not to mention the sullying of the country's reputation abroad. Various international condemnatory campaigns spurred and spooked big foreign fish buyers like America to pressure the land-based fishing industry to clean up its act. New Zealand's sea food exports consistently rank as the country's fourth or fifth biggest export earner, valuing the harvest at between NZ$1.5 billion to $1.2 billion a year, of which the aquaculture industry contributed about $200 million, so there is much at stake.

To ratchet up the pressure and seek justice for the exploited foreign crews, the International Transport Workers Federation (ITF) president, Paddy Crumlin, recently met with key stakeholders in Auckland about its ongoing campaign to secure NZ$ 30 million in unpaid wages for fishers in New Zealand's waters through recourse to the the courts. He said it was imperative that the fishing workers get better wages and conditions in an industry where 24,000 are killed globally every year. "We are trying to break apart the industrial model upon which commercial fishing is built, because it is akin to modern day slavery," he said.

That model may be fairly said to reflect the dark side of globalisation, not that globalisation per se has been generally bad, far from it. New Zealand's biggest fishing companies engage in joint ventures which exploit quotas under the country's fishing regime by bringing in foreign chartered vessels with overseas crews. Given that crews wages, when paid, on often poorly maintained and unsafe trawlers, are very cheap, the country's fish processors profit enormously and take the view that what goes on a few miles over the seas' horizons  is of little concern to them. It is an 'out-of-sight, out-of-mind' attitude from the industry and regulators because overseas crews are not New Zealand citizens and not in a position to advocate for their own interests, and their rights are overlooked. When conditions become so bad on board and unpaid wages so delayed many foreign crews abscond in the country's ports, only to be humiliated by notices of $1,000 rewards for their capture, somewhat reminiscent of the 19th century American reward notices for capture of runaway slaves.

The problem of fishery slavery is not confined to New Zealand's waters by any means. Greed, theft and oppression of many kinds extend back to the abused crews' homelands, where usually they are hired by local, disreputable employment agencies. The problem is endemic throughout south-east Asian waters and many of the abuses suffered by fishers around New Zealand waters are reflected on board some of Britain's and Ireland's trawlers of terror* which use migrant crews, particularly from the Philippines.

The damage to New Zealand's reputation is hard to quantify, said Joe Fleetwood. "The blame must be put at the feet of the cowboy operators in the industry and successive governments who soft-pedalled the issue and only took belated action when forced to, the lesson being they can't afford to sweep these dirty issues under the carpet any more."

The New Zealand government would be foolish to delay any longer to rectify a festering sore under its nose that would shame any country trying to maintain its hitherto high regard for human rights.

*Google my blogs: 
Britain's trawler fishing shame intensifies
Ireland's shameful role in migrant fishermen exposed