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

Friday, 21 March 2014

How to contain Crimea's logistics threats

It might seem incredulous that Crimea's unpleasant brouhaha should pose a significant threat to Europe's logistics or that the obvious solution to the problem is not being pursued. Yet it does pose a significant threat, albeit of a knock-on kind, if allowed to get out of hand, but the solution is dependent on goodwill from all parties.

Imposing trade sanctions without prior moves to defuse the problem through political compromise with honour upheld for all invites enormous upheaval for Europe and Russia, in which everybody loses. Russia, for example, supplies up to 40% of Germany's gas needs and 1% of Britain's, while the figure for the whole of Europe is between 25% and 30%. Despite healthier European gas stocks than usual, any total cut in supplies would send European gas supply costs soaring at a time when Europe is still struggling to recover from the banking crisis. This would not only affect national output in many countries in various ways, it would also mean more consumer belt tightening. In Britain, as explained in my last blog,* cash-strapped consumers are migrating to deep, cut-price food retailers, forcing the leaders to make price cuts as they lose market share. That, in turn, will adversely impact Britain's global food supply chain through further squeezing of suppliers, as if they were not squeezed enough already. This is an example of the knock-on effect referred to earlier.

The hit Russia would take from any gas supply interruption would be massive, too. Its gas supplies to Europe are worth about US$100 million a day and around half of Russia's total budget revenues comes from oil and gas. Any gas cut off would send a potent message to European buyers that alternative, less politically endangered supplies must be sought as soon as possible, and they are already, in fact, being developed. That development could prove a body blow for Russia's skewed economy so overwhelmingly dependent on natural resource exports. That is one good reason why Russian should refrain from further military moves.

It  seems that the most desirable solution to the Crimea problem would be a return to the former status quo, but with certain changes. Crimea already has a level of autonomy with its own Parliament but subject to Ukrainian law. Its people are predominantly Russian-speaking and prefer closer ties to Russia than Europe. The western half of the Ukraine, predominantly non Russian speaking, prefer closer ties with Europe, while the eastern half is more ambivalent. It was the former Ukrainian president's act to initiate closer ties with Russia instead of Europe, and apparently against the western half's majority wishes, that sparked the civil unrest and overthrow of the President and his government, technically an illegal putsch, which Western leaders should remember before casting stones about Russia's illegal invasion of the Crimea.

                                                   Russian motives

Russia' avowed motive for invading the Crimea was to protect the interests of the majority, Russian-speaking and leaning inhabitants. It is, of course, about more than that, but at least Russia has been accommodating enough to allow a referendum on what the majority want by way of future external relationships, however unrecognised that may be by certain Western nations. The situation is not so dissimilar from Britain hanging on to Gibraltar and the Falklands Islands because the overwhelming majority of their citizens prefer closer union with Britain rather than elsewhere.

Russia's other motives for Crimean action are probably just as much to do with access to a year-round, ice-free naval port for its Black Sea fleet and access to reportedly rich oil and gas reserves. Certain elements of the West's gutter Press also demonize President Putin as a vainglorious demagogue bent on a posthumous,
glorious legacy in Russian eyes, a free Press price any democracy must pay however odious its opinionated writers may be. What is disturbing, however, is certain members of the Russian Parliament reportedly agitating for a recapture of former Russian-annexed states like Kazakhstan, and if  Putin truly wishes a glorious epitaph he would do well to scotch such military madness.

A return to Crimea's former status as part of the Ukraine should involve certain conditions to help ensure a just and lasting accommodation. First of all, there should be cast-iron guarantees that the rights of the Russian-speaking inhabitants are in no way oppressed or otherwise disadvantaged. Secondly, there should be international recognition of Russia's legitimate right to have unfettered access to its Black Sea naval port for so long as it wishes. This, after all, would not be much different from America's occupation of the military base on Guantanamo, Cuba. Thirdly, the Ukraine must play its part by cleaning out its Augean stables of intractable corruption and start to adopt good governance. The fact is, the Ukrainian economy has been in a mess well before the Crimean crisis erupted, and many of its politicians are in the unwholesome thrall of billionaire oligarchs. Some Russians are rightly incensed that certain Ukrainian politicians evince a hard-right (fascist) interest and we have the recent televised incident of just such a disgraceful example when a group of far-right politicians broke into the Ukrainian state TV company to assault the head of the station, Olexandr Pantelymanov. Under a group battering he was forced to resign because the bullying intruders took offence after a ceremony was broadcast from the Kremlin showing Putin signing a bill to make Ukraine's Crimea region part of Russia. It is shameful incidents like that which the Ukraine cannot afford if it wants to earn the respect of the outside world.

An example of the Ukrainian financial delinquency is Kiev's outstanding debt of $1.5 billion for gas supplies in 2013 and so far in this year, and it shows little evidence of paying up. A whole Ukraine, including the Crimea, should also try harder to court closer economic ties with both the West and Russia. Meanwhile, Russia bashing by the West's gutter Press and even its more respected media does not help. Europeans should never forget that they enjoy much of their freedom today thanks to Russia's heroic and appallingly high human sacrifice in World War 2 to rid the world of the 20th century's greatest political scourge -- Nazi tyranny.
*Google my blog: "Food retail price wars threaten supply chains"

Tuesday, 18 March 2014

Food retail price wars threaten supply chains

It is ironic that smart logistics can be both a business game changer for the better and for the worse. This is particularly so in Britain's food retail sector, where looming price wars threaten to unleash hell on every part of the global supply chain, from farmers to third party logistics providers (3PLs), as if they were not abused enough already by the dominant buying power of big retailers. The catalyst is the cash-strapped consumer joining forces with the deep discounters like Aldi, Lidl and Poundland, whose remorseless rise in a few short years is rattling the leaders like Tesco, Sainsbury, Asda and Morrison, who jointly control 76% of Britain's food retail market. The chief enabler is the discounters' harnessing of smart logistics with an effective business model that has inventory control at its core. The result is that these deep discounters are seizing market share from the big four, prompting a price war reaction initiated by Tesco and Morrison. This may sound good news for consumers initially but the way in which the market leaders will pressure their suppliers to cut their costs and take on even more risks will have undeniably adverse, long-term effects for consumers.

For many years the abuse of buyer power has been widely and routinely practised against suppliers, and competition authorities have largely failed to deal with this problem in Britain. Big retailer abuse of suppliers takes many forms, including:

  • Listing fees to be on a list of suppliers, thus raising suppliers' costs
  • Delisting/threat of delisting. This occurs when suppliers refuse to cut prices or make other payments concessions.
  • Slotting fees to gain access to shelf space
  • Demanding retrospective payments like extra discounts and after-sales rebates
  • Return of unsold goods to supplier, which means at the suppliers' expense because fresh food cannot be readily resold, and so the retailers' forecasting errors are passed back to the supplier
  • Late payments, pushing up supplier finance costs. 
  • Retrospective change to agreed terms putting limitations on suppliers' ability to supply competing retailers.

All of these odious forms of payment, and more, are reported to reduce suppliers' revenues by up to 50-70%. The adverse effects of all these downward pressures on supply prices mean that there is 1) a threat to supplier viability and supply, 2) it may raise prices and reduce choice, 3) downgrading of quality by cheapening of ingredients, leading to events like the recent horse meat scandal, 4) squeezed working conditions that could amount to gross abuse of human rights and people trafficking. Invariably, throughout the food supply chain it is the large retailers who take the lion's share of the retail price of any product they sell. With pineapples, for example, it has been shown to be 41% and with bananas 29%. The farm labourers take only 4%.

Best practice inventory control is key

Mr Zen Yaworsky, director of Britain's Supply Chain Academy, says: "We are not very good at inventory control." There is plenty of evidence to support that claim as poor inventory control has seen off many British household-name retailers, while embarrassing many more through empty shop shelves. Good inventory control, therefore, is at the heart of a successful supply chain, and a lesson the foreign-owned deep discounters have taken on board. Their business model relies heavily on stocking a much smaller range of items than the retail leaders, but which are commonly and frequently in demand. Lidl, for example, would typically stock only 1,600 SKUs while Tesco stocks 40,000. But almost all of Lidl's SKUs are fast movers, and when fast items become slow they are quickly dropped. What this means for the leaders is that a large percentage of their stock is relatively slow-moving and that in turn pushes up stock-holding costs, which can dwarf all other warehouse costs combined. In short, the large retailers are disadvantaged in this respect compared with the discounters because their higher stock holding costs are reflected in their higher item costs.

Over 20 years ago this writer went to Denmark to see the food retailer Netto's national distribution centre (NDC) in action and how the company was able to offer cheaper prices. The company subsequently became the first of the foreign-owned, deep discounters to set up in Britain, shortly to be followed by Lidl and Aldi with similar business models. Netto fully exploited the latest IT systems and automated materials handling equipment, particularly very fast sortation conveyors, to fulfil its key objective of fast stock replenishment to shops. All 125 shops were EPOS-equipped so that at the end of each day all information on items sold was transmitted electronically to the NDC, to initiate the replenishment process. Overnight all the replenishment items were picked and delivered to the shops before opening times the next day, thus ensuring no stock-outs. In effect, it was the consumer that did the stock forecasting for Netto whenever they bought an item, and stock forecasting is a potent weapon the the war to control inventory costs, but a weapon that is often dulled through complexity based on assumptions.

Squeezing suppliers is wrong-headed

The result of all this smart logistics was that 90% of all the inventory in the NDC passed through it every 24 hours, thus avoiding huge costs of financing slow-moving stocks. Britain's big food retailers cannot hope to compete with the discounters' business model centred around fast stock movement unless they adopt similar business models. Pressuring their suppliers to cut prices is not the way and would only ultimately harm consumer interests. One area, however, where the leading retailers could improve their supply chain costs without resort to abusive measures is to do more than lip service to supply chain collaboration, a hot topic for many years. Those companies that have initiated supply chain collaboration agreements have seen dramatic cuts in inventories and, therefore, costs. Why, then, have many more interested parties not followed suit? Many retailers still see collaboration with the supply chain as a threat rather than an opportunity and are reluctant to reveal the kind of business critical information to their logistics partners. Perhaps the threat from the discounters will concentrate their purblind minds.

Britain's rise of the supermarkets over the last 50 years has done much to improve the shopping experience and keep prices from rising too fast. Shoppers liked the idea and convenience of being able to fulfil all their weekly shopping needs under one roof, but technology moves on, and so do shoppers' habits. Today, one need not step outside one's home to buy anything, thanks to the Internet. The old habits are breaking down and buyers in a cost-conscious age want value for money in their food, every-day consumables and clothing more than ever. One estimate suggest that within five years 40% of all Britain's bricks and mortar shops will close permanently under the merciless hammering from on-line shopping. The big food and consumable retailers need to remember and implement the first law of marketing -- give the consumer what the consumer wants and not what retailers think is best for them.