Friday, 30 October 2015

Brussels' diesel decision condemns many to death and illness

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

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

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

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

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

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

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

Wednesday, 23 September 2015

More woe for British food retail suppliers?

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

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

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

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

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

Tuesday, 25 August 2015

Profiting from risky global supply chains

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

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

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

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

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

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

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

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

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

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

*Published by Kogan Page.

                                                         Mark Millar


Monday, 10 August 2015

British justice's darkest hour looms?

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

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

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

                                           Fat Cat myths

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

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

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

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


Tuesday, 9 June 2015

Should China's South China Sea ambitions be thwarted?

If absolute power corrupts absolutely then it surely follows that absolutely strong, big economies can bully absolutely. That now seems to be the scenario unfolding in the South China Sea where China is claiming sovereignty over 90% of the region even though its mainland is about 650 miles from the disputed Spratly islands, while Vietnam and the Philippines are only about 350 miles away, both of whom also lay claim to these islands and reefs, thought to be rich in oil and gas.

The Philippines has submitted evidence to a UN tribunal hearing its case against China's territorial claims but China has refused to take part in the arbitration and warned that the case would damage bilateral ties and is already doing so in artful ways. The Philippines claims that China's claims are illegal under the UN Convention on the Law of the Sea but it is unlikely that there will be any ruling until the end of this year. Meanwhile, China has militarised Mischief Reef by building an artificial island with an airstrip and installed mobile artillery. Not content with that, China is building another runway on Subi reef and has built a substantial port on Fiery Cross reef. Subi, Mischief and Fiery Cross reefs are three of at least seven reefs in the Spratlys that have been filled in by China and are being fitted out for what can only be military purposes.

The Philippines has challenged its Asean (Association of South-East Asian Nations) members "to finally stand up" to China and demand an end to China's reclamation works. Asean, however, has a history of failing to respond vigorously to Beijing owing to China's immense trade and diplomatic leverage and because not all 10 Asean members have a stake in the maritime disputes. This means that the likelihood of US intervention following more Chinese provocation is stronger.

International relations between south-east Asia and China are reportedly lower than at anytime since the 1960s and the Japanese Prime Minister, Shinzo Abe, has compared the situation to 1914 just before the outbreak of World War One. The potential of this rising tension has huge implications for global logistics that stretches far beyond the costs of higher insurance and the re-routing of ships to avoid the South China Sea, through which passes about US$5.5 trillion of trade every year, should it come to a shooting war.

It is an irony of history that the best of intentions regarding foreign trade can midwife the law of unintended consequences, and its sometimes baleful outcome. In the bid for liberalizing US trade with China back in the 1990s advocates said economic interdependence would inevitably lead to peaceful co-existence. Well, yes, but that is more likely in open, transparent, democratic societies rather than autocracies like China. What Washington has failed to do in recent years is to keep a careful watch over what goods are made where, especially when it comes to vital items like electronics and drugs, which means America now depends far more on China than vice versa, and that can only weaken America's political leverage.

The asininity of western corporations' over reliance on Japan in 2011 for a host of key electronic and vehicle components, a choke point for nearly 100 products, left them nursing billions of pounds in losses following the 2011 Japanese tsunami which severely disrupted JIT-supplied components because alternative sources could not be quickly mobilised. That lesson should not be lost on logisticians who should now be ensuring that they have robust alternative supply sources for all their needs, or else build up their reserve stocks, given now the potential for political disruption spreading from the South China Sea.

This is not to argue that globalization of trade has been wrong-headed. On the contrary, it has pulled China up by its boot straps, kept western inflation down, and enriched its nearby trading partners. But the fact remains that one-sided dependencies invite military adventurism, as China's growing belligerence today proves. What America must now do is address the fundamental flaws in the international trade system that give China such a big advantage.

The most likely outcome of China's latest developments on the Spratlys is that it will repeat its actions of 2013 when China unilaterally imposed an "air defence declarization zone" covering portions of the East China Sea and claim territorial waters around its man-made islands in the Spratlys. Such chutzpah should be vigourously resisted by all nations who depend on unhindered navigation through these seas. America, reportedly, is considering conducting "freedom of navigation" exercises where it would send warships into the waters around the reclaimed Chinese man-made islands. This would show that it does not recognize the sandbanks as islands with their own territorial waters, but all other nations using these waters should be at one with America in this.

China is a land with a sorrowful past but history can have valuable lessons for avoiding a repetition of past mistakes. The likelihood, however, is that China's leaders will ignore the Spanish philosopher Santayana's warning: "Those who cannot remember the past are condemned to repeat it." In becoming much wealthier over the last two decades through foreign trade expansion, China had a great opportunity to show the world that true greatness does not spring from the barrel of a gun, but through friendly, honourable cooperation with its global trade partners in which there is no place for bullying smaller neighbours and intimidating military strutting like cockerels on a dunghill. But human nature does not change so easily, despite the benefit of hindsight that history offers.

What concerns Chinese people most is rising living standards but it only takes a handful of politicians in an autocracy like China to risk all that. Maintaining face is deeply rooted in the Chinese psyche and they will only act soberly when they are resolutely faced down. China's top leaders should be paying far more attention to their internal problems where its greatest political risks lurk. Nature can be cruel to China through its immensely costly floods, typhoons and earthquakes, from which there will be no respite. The people rightly deserve to see their hard-earned wealth channelled to where it is most needed, rather than frittered away on risky, foreign adventurism. Its very low-lying sandbank islands in the Spratlys could easily succumb to a tsunami washing away everything at huge cost, and it may come sooner than expected.

For bullies to triumph all it takes is for good men to look the other way. Recent history shows how dreadful the consequences can be for such insouciance.

Wednesday, 27 May 2015

Logisticians must reassess Asian supply chain threats

Global logisticians now have two reasons to dust down their contingency plans to cope with heightened supply chain risks in the Far East -- financial and now political. As mentioned in my last blog: "Heightened global supply chain risks herald gathering storms?" the Chartered Institute of Purchasing and Supply's latest quarterly risk index shows that the risk of disruption to corporate supply chains is running at an almost record high, and in particular highlights China's slowdown and its manufacturing sectors at serious risk of defaulting on state-backed loans. So much for the financial risks but now comes the political, which if realized will have far greater adverse, global economic consequences.

The problem is the potential flashpoint over China's development of artificial islands in the South China Sea, around the largely uninhabited Paracel and Spratly islands, a region potentially rich in oil and gas but contested by geographically much closer countries like Vietnam, the Philippines and Malaysia. China says its right to the area goes back centuries to when the Paracels and Spratly island chains were regarded as integral parts of the Chinese nation, and in 1947 it issued a map detailing its claims. Vietnam says it has actually ruled over both the Paracels and the Spratlys since the 17th century and has the documents to prove it. The other major claimant is the Philippines, which invokes its geographical proximity to the Spratlys as the main basis of its claim for part of the islands' grouping.

China's fatuous claim lacks merit and is akin to Britain, say, reclaiming the Hawaiian Islands, previously called the Sandwich Islands after the Earl of Sandwich and whose flag today contains a Union Jack. Geographical proximity must surely be a more valid claim, which does not favour China.

The fear is that, natural resources apart, China's moves are politically motivated, and America's President Barack Obama said that his county is concerned that China is "flexing its muscles and power" to dominate smaller countries in the region. According to American estimates, China has expanded the artificial islands in the Spratly chain to 2,000 acres, up from only 500 last year. It has already built an airstrip capable of taking jet fighters. If China' activity continues apace it would give them defacto control of the maritime territory they claim, said Admiral Samuel Locklear, head of the US Pacific Command, speaking to the US Senate. That means China could base warships and 'planes on the islands, and install long range detection radars, potentially giving them the ability to enforce an air defence identification zone.

China has embarked on a substantial modernization of its maritime and paramilitary forces, as well as naval capabilities to enforce its sovereignty and jurisdiction claims, if necessary. At the same time it is developing capabilities that could put US forces in the region at risk in a conflict. The flip side of this development is a significant rearmament programme by China's smaller neighbours who feel threatened by China's posturings. They are prioritizing their spending on their navies amid the rising tensions in the South China Sea, with annual defence spending in South East Asia projected to reach $52 billion by 2020, up from the expected $42 billion this year, and submarines will feature prominently in that.

Peter Dutton, professor of Strategic Studies and Director of the China Maritime Studies Institute at the American Naval War College, said: "Tensions in the South China Sea pose an economic security risk to the entire globe." He went on the say that: "If a flare up were to arise between China and one of its smaller neighbours those global trade routes could be affected, hurting the world economy." It is not difficult to see why. Each year an estimated $5.3 trillion of trade passes through the South China Sea, with US trade accounting for $1.2 trillion of the total. In 2013 the US exported $79 billion of goods to countries around the South China Sea and imported $127 billion from that region. Should a crisis occur the diversion of cargo ships to other routes would harm regional economies as a result of increased insurance rates and longer transits. Even if shipping companies still attempted to pass through the area during a conflict, whether to access resources there or to cut transit times, "the insurance costs would be prohibitive," said Peter Dutton.

There are some who feel that the trade routes and the concern over freedom of navigation will never become a point of contention in the region because, as the argument goes, everyone needs the shipping lanes to function, most of all China. But if recent history is any guide politicians pay scant regard to economics.

Sensible global logisticians, therefore, should reassess their vulnerability to any disruption to trade passing through the South China Sea, especially if they are reliant on JIT deliveries of component supplies that are only sourced from that region, and so avoid a repeat of the upheaval caused by the Japanese tsunami of 2011, which cost global corporations around the world billions of dollars.


Saturday, 16 May 2015

Heightened global supply chain risks herald gathering storms?

In the logistics firmament it is often said that demand for forklifts is an accurate bellwether for any economy, in that it is usually the first into a recession and the last out but that observation tends to apply to individual economies. For a global take on economic prospects perhaps the best bellwether is shipping, particularly the dry bulk vessels, and the bells from that quarter are not ringing joyously.

As if to highlight the gathering storm, the Chartered Institute of Purchasing and Supply's latest quarterly risk index, backdated to 1995, shows that the risk of disruption to corporate supply chains is running at an almost record high, helped by a drop in commodity prices and a slowdown in China. Admittedly, the risk rise is not universal. In North America and western Europe the supply chain risk fell last year but that does not mean these areas will escape unscathed if current trends in global commodity trade and deflation persist much longer.

What we are seeing in the global supply chain is essentially a financial risk that began with the global financial crisis in 2008. In the Far East, particularly China, the manufacturing sectors are at serious risks of defaulting on state-backed loans, while in South America collapses in soya bean, copper and oil prices are affecting much of that Continent. In Australia the collapse in mineral prices, particularly iron-ore and coal, have left the country with the highest unemployment for 13 years, with apparently worse to come as investment continues to fall. In Japan, once the world's second largest economy, manufacturers are reluctant to spend on machinery upgrades, where the average age of their facilities and equipment is now 15 years, the highest in 30 years, and the antithesis for any efforts to boost economic recovery. Japan's lost decades of stagnation and deflation have prompted companies to restrain investment and now those same fears over deflation threaten the rest of the global economy.

Nowhere, perhaps, is the problem most acute and obvious than in shipping, and by extension the banking industry, which by some estimates has about half a trillion dollars worth of outstanding loans to shipping companies, much of which is at significant risk of default. The current market state for shipping commodities across the world's oceans is dire, which even an expected record of over 100 ship scrappings this year will not improve. Daily earnings for the industry will still tumble, though it must be said that prediction is not the shipping industry's forte. As recently as February this year it forecast that shipping rates would jump but now forecasts are turning bearish as China's imports of coal plunge and its iron-ore imports expand at its lowest pace on record. As the world's second largest economy, China will expand the least in a generation this year, according to estimates compiled by Bloomberg. Despite an expected demolition of 6% of Cape-size vessels, earnings per vessel will still slump about 20% this year, based on a survey of 10 shipping analysts. Freight rates have been pushed to historic lows, thanks to a perfect storm of collapsing commodity shipments, particularly in coal and iron-ore, combining with a market glutted  with vessels ordered as long as a decade ago. Ships competing for spot cargoes today are earning about $4,200 a day this year so far, the worst start since 2000. Cape-size average earnings are now expected to drop to $11,000 a day this year, having been predicted only in February this year to rise to $18,750 a day.

China is the world's top iron-ore and coal consumer, importing almost 60% of the world's sea-borne iron-ore and about a quarter of the global coal shipments. It is worrying, therefore, when China's Iron and Steel Association sees overcapacity for sea-borne iron persisting until at least 2019, as the world's largest suppliers expand production even more. The risk to coal shipments, however, has more permanent forces at work --- pollution. China's biggest coal company, China Shenhua Energy Co, which supplies about 16% of the country's coal, cut its sales 10% last year and forecasts another 10% cut this year. This reflects China's attempts to reduce its energy intensity in coal dependence so as to cut pollution, understandable in a country where air pollution from all sources kills an estimated 1.2 million a year. Part of China's strategy is to develop alternative sources of electricity generation, such as hydro, wind, nuclear, gas, and solar PV. Cuts to China's demand for fossil fuels are so great that its imports will be heavily affected. The sea-borne market in coal cannot expect any comfort elsewhere from fast-developing countries. India's Energy Minister has made it clear that India's thermal coal imports could potentially go to zero within two to three years.

China's imports of copper in February 2015 tumbled the most in four years, while oil and iron-ore imports slowed to the weakest rate in 3 months. China is now already building the world's largest renewable energy system, for which it deserves a bow, and which in 2013 stood at just over one trillion kw/hrs, almost as much as the combined electricity generated by France and Germany. All this bodes ill for the shipping industry and shipyards, where orders for new ships have plunged to about 400,000 dwt a month for this year, according to Clarkson, the world's biggest ship broker, the smallest since the early 1990s, and about 98% below the peak commissioning rate set in 2007, when 23 million dwt were ordered in a single month.

Now is not a good time to be in shipping, without a long purse, and never, perhaps, have global logisticians faced such uncertain times. Let us hope that uncertain times do not mean living through "interesting times" as the old Chinese curse goes.  

Saturday, 9 May 2015

Will the Tories save Britain's economy?

Unsurprising to this writer, the Tory party won an overall majority in the British general election but was its greatest recruiting sergeant, a recovering economy, worthy of its achievements and if not what now needs to be done? In response to the first part, the answer looks negative. It's true that the previous coalition Government presided over a fall in unemployment to 5.6%, among the lowest in Europe, and that economic growth last year was impressive for a mature, developed economy but that is only a small part of the picture, outweighed, it seems, by the dark side of the economy.

Britain has two persistent economic problems: falling, inflation-adjusted pay and poor productivity. On the former, inflation-adjusted pay is down by about one tenth since the start of the financial crisis in 2007, a fall not exceeded since the 1920s. This means that by early 2014 the nation's buying power was still almost 6% below its pre-recession 2007 peak, and it will not recover quickly anytime soon, according to research by the independent National Institute Economic Review. This publication predicted that the drop in inflation-adjusted wages is so steep that "it will not be until early 2020 that this previous peak is regained."

The picture for poor productivity looks even direr. After Gross Domestic Product (GDP) fell sharply in 2008-09 there was a brief rebound in 2010-11 but its growth rate since has scarcely budged above zero. According to the Bank of England, output per hour of work has not been so sluggish since Queen Victoria's time, excluding two exceptional times in the immediate aftermath of two world wars.

The weak productivity growth, said the BoE's governor, Mark Carney, is not the result of a lazy workforce, bu rather that companies have not been buying new machines and software workers to raise their performance. While there may be an element of stricter bank loan conditions and uncertainty over the economic prospects holding back such necessary investment, it seems companies have found it cheaper and easier to add people rather than buy equipment, said Carney, (and easier to release people --Ed). This parlous problem is reflected in Japan today, where the average age of the country's machinery is the highest in years because manufacturers are reluctant to spend on upgrades. At an average age of 15 years for facilities and equipment, it is the highest in 30 years. This means that Japanese companies, like Britain's, could fall behind their foreign rivals. Behind Japan's dangerous strategy of using near clapped out, low productivity machines was the country's lost decades of stagnation and deflation, which prompted companies to restrain investment. Just such a scenario could now face Britain if prompt action is not taken.

It is to be hoped that any pre-election nerves that may have held back British investment will now be dispelled, especially now that horse trading between the two former coalition partners, so emasculating for firm policies desperately needed in the country's best interests, is over. But it will need much more than a more conducive political climate.

Just as businesses have their qualms over making new investments so, too, do individuals take a more frugal view of their spending habits when the devil drives, a point that might also crimp business investment. The current labour market does not instill much confidence in that regard. Job creation, for example, between 2008 and 2014 has been dominated by rising self employment and part-time work, with the latter now accounting for 27% of the total workforce, the highest since records began and which includes many professions. The Trades Union Congress (TUC) claims that the number of part-time workers who say they want to work full-time is still almost double the number before the recession at 1.3 million and that at the moment the economy is still not creating enough full-time employee jobs to meet demand. Zero hours contracts, while suiting some, also create uncertainty over employees' future spending plans.

To avoid a long, Japanese-style situation, the British Government must take firm action over the economy, education and its social programme, all of which impact each other. Job vacancies in skilled areas run into hundreds of thousands and they do so because many school leavers' literacy and numeracy levels are lamentable. UK school leavers are among the least literate and numerate in the developed world, with 80% of 16-24 year-olds' standards no better than primary school leavers' achievements. It is the most damning indictment of British school education, admittedly influenced by social problems like single-parent families. This brings us to how social problems impact education and the economy. The Government's spending on social benefits by far and away absorbs the lion's share of total Government spending and so it is here where the scalpel must be wielded more but with expert precision. If taxpayers' largess is showered on single parent families, for example, in a way that encourages more, then not only does that increase the likelihood of children achieving poor academic standards it also diminishes the potential pool of apprentices so desperately needed in certain manufacturing industries.

The UK Government could cut billions of pounds from its budgets, with the savings partly going into measures to boost economic productivity as well as paying down its high debt. Much of industry encouragement should focus on manufacturing, particularly the export market because here the country's disturbing, chronic and worsening balance of payments crisis is a serious threat. This problem has been ignored for far too long and time is running out on both the balance of payments and poor productivity.

Thursday, 26 March 2015

Thailand's filthy human trafficking remains untrammelled

A four-strong delegation from the International Transport Workers Federation (ITF) investigating labour rights abuses in Thailand this week have found that little has changed in that country's fishing industry, so notorious for its trafficking in migrant workers, slavery, torture, brutality and murder, despite media exposure last year and the laudable lead by America to downgrade Thailand to Tier 3 in its annual report on human trafficking. Tier 3 is the worst level for nations that fail to meet the minimum standards to protect workers as laid out in the Victims of Trafficking and Violence Protection Act of 2000.

The ITF team found that the fishers on board vessels it investigated were subject to poor working conditions, cramped accommodation and long contracts, some of them with no hope of returning home with any pay. ITF inspector, Keith McCoriston, commented on conditions aboard one vessel he inspected. "The crew was scared to talk to us. They had no contracts, no toilet, no shower and no mattresses. Cooking facilities consisted of an open flame and basic utensils. The 24-crew slept in cramped accommodation. We spoke to one fisher who had been on board for 10 months although we expect this is a gross understatement."

Apinja Tajit from the Stella Maris seafarer centre in Sriracha remarked: "We are dealing in many cases with abandoned fishers in Thailand and of the abandoned fishers outside of Thailand. We know of one fisher who was abandoned in hospital with no pay for breaking his leg while on board a vessel. Another fisher was so traumatized by his experience of abuse that he needs trauma counselling. He struggled to explain to us that he was chained like a dog for trying to escape the vessel he was on."

The fishing industry is big business in Thailand. Overall fish exports are said to be worth US$7.5 billion a year, of which canned tuna accounts for $2.3 billion or a 20% share of the world market. The farmed prawn export market is also huge, itself the offspring of the tuna industry. In the pursuit of tuna vast amounts of 'trash fish', too small to be edible, are scooped up and ground into meal for sale to the Thai prawn farmers, where it often ends up on shop shelves around the world as part of dishes like prawn stir fry. According to the Thai government 300,000 work in the fishing industry, while in the canneries they rely on foreign migrants for 80% of their labour needs. In all there are reportedly four million migrants working in Thailand's factories, fishing fleets and brothels. Most migrants in Thailand are undocumented. The ITF states that there are 40,000 Thai fishing vessels operating with only 10,000 registered, many with fake licences, and crewed by unregistered migrant workers. This "cloak of invisibility," says the ITF, "allows the boat captains to treat workers like modern day slaves."

Supporting these captains is a network of odious brokers who for extortionate fees promise migrants, many from poorer countries like Myanmar and Cambodia, jobs in factories and construction, while all the time planning to sell them to trawler captains for as little as £250 each. Helped by energy-boosting drugs, these duped, hapless fishers work 20 hours a day. Beatings are regular and there is torture and execution-style killings. One trafficking victim claimed he saw 20 slaves killed, including one whose limbs were tied to four trawler bows and torn apart at sea.

Thailand's fish worth more than fishers

Mark Davis, ITF deputy regional secretary for the Asia Pacific region, added: "The industry is facing huge challenges throughout the region but is is the workers who are suffering because of this. Neglect and abuse are rife for migrant workers and Thai nationals, too. How have we got to a position where a fish has more value than the worker who catches it?"

In my blog headed: "Thailand's trawlers of terror shame food supply chains," I implied that western buyers of Thailand's prawn-based exports, namely the big food retailers like Walmart, Carrefour, Costco and Tesco, often extolled their roles as responsible citizens shunning all forms of slavery and exploitation in their supply chains yet the problem remains almost untrammelled, indicating that consumers can no longer rely on such ineffectual protestations. Since then it would be fair to say that leading retailers like the UK's Tesco, a wholesale buyer of Thai canned tuna, are under pressure to improve worker protection following America's downgrading of Thailand to Tier 3, but what are they really doing to hit the insouciant, mega Thai industries who are still wanting in cleaning out their Augean stables of worker abuse in their supply chains? Certainly not, it seems, as much as Norway which, for example, has led the way in applying pressure, with one leading Norwegian retailer removing CP Foods' scampi-related products from its shelves, a move actively backed by the ITF and the Norwegian Seafarers' Union. CP Foods is a giant straddling the Thai fishing industry, with annual sales reportedly in the tens of billions of dollars.

It may seem blinkered and irresponsible to urge foreign consumers to boycott Thailand's seafood exports indefinitely, given that such action could hit the workers harder than their employers but there is a good chance that when faced with looming collapse these mega corporations, and the corrupt military government supporting them, will back down quickly, for nothing concentrates business minds better and so quickly than the power of the purse.

There are signs that Thailand's downgrade to Tier 3 has damaged its reputation, increasing pressure on big food retailers to improve worker protections in their supply chains, says Max Tunon, senior programme officer in Bangkok with the ILO, which monitors worker conditions worldwide. There are claims from the Thai tuna industry association that Tier 3 status has prompted improvements in the working conditions. The canneries have cut down on child labour and papers are being provided to workers which makes arbitrary detention more difficult. But critics say that the Thais have not addressed the crushing debt loads that workers take on to pay the brokers who land them jobs. The Government remains as corrupt as ever while the corrosive hand of the Thai mafia is ubiquitous. Until all this changes Thailand should remain firmly in Tier 3. Concerned consumers, meanwhile, could help by encouraging food retailers to source sea food products outside Thailand by boycotting all Thai-labelled products.

Sunday, 15 March 2015

Britain's new "Google Tax" threatens Irish recovery

A new British "Google tax" could threaten Ireland's impressive economic recovery, with unimaginably adverse consequences for both countries, so should Britain think again and wait for the OECD's reforms, know as the "base erosion and profit sharing (BEPS) project? The risks of Britain's unilateral approach suggests that it would be safer to adopt the OECD joint approach, even if that process would take years compared with the British "diverted profits tax" that will be levied next month on foreign companies that use "contrived arrangements" to avoid having a taxable presence in the UK and route profits to a foreign tax haven. The tax will be 25%, some 5% more than Britain's corporation tax. It is designed to sidestep Britain's treaty obligations by introducing a charge that would fall outside the corporate tax system.

The UK Treasury has denied that its new "Google tax", described as "a highly aggressive piece of legislation" by the Association of Chartered Certified Accountants, conflicts with the OECD's reforms and says that its diverted profits tax is complementary to BEPS and is consistent with the principle of aligning taxing rights to economic activity. Australia has indicated that it may follow Britain's lead.

                            Mine's a double Irish

The  UK Treasury cited the "Double Irish" as an example of the tax dodging arrangements in its cross hairs. This legal tax avoidance ploy, used mainly by American technology and pharma companies, routes profits to tax havens like Bermuda, where they hold intellectual property rights. The Double Irish (DI) exploits the different definitions of corporate residency in Ireland and America. Ireland taxes companies if they are controlled and managed in Ireland, while America's definition of tax residency is based on where a corporation is registered.

Companies exploiting the DI put their intellectual property into an Irish-registered company that is controlled from a tax haven such as Bermuda. Ireland considers the company to be tax resident in Bermuda while the US considers it to be tax resident in Ireland. The result is that when "royalties" go to the company they go untaxed, and these royalties can be so substantial and manipulable that they sharply reduce or eliminate profits in a relatively higher taxing country like Ireland, even though Ireland has the EU's lowest corporation tax rate of 12.5%. Ireland, too, therefore, does not reap much corporate tax revenue from global corporations. In 2013, for example, Facebook, who employ about 425 in Ireland, saw its revenues there rise from Euro1.798 bn to Euro2.997 bn, but its corporate tax bill fell to a derisory Euro5.2 million. 

Ireland does, however, benefit substantially from the tens of thousands of jobs created by US multi-nationals, which generates employee and VAT taxes and excise duties, which has a trickle down effect that boosts the many dependent industries. It also strongly boosts tangible exports provided by the likes of Apple and Pfizer. Foreign-owned firms, mainly American, are responsible for about 90% of Irish tradeable exports, and this rises to the mid 90s in respect of services exports. Much of that, however, could be put at risk, even though the foreign technology companies have invested heavily in Ireland and therefore, according to some, unlikely to move. Facebook's customers in Ireland, however, are dwarfed by those in Britain so it might find that paying 25% rather than 20% UK corporation tax if registered in Britain would be incentive enough to up sticks from Dublin to Britain, followed by others if the law of comparative costs, including tax, are in Britain's favour. 

Well on the road to economic health, Ireland has done well, having suffered years of austerity, albeit brought on largely by themselves through their naivety over an unsustainable property boom. In 2014, for example, Irish tax payers paid Euro 3.5 bn more than in 2013, thanks to rising employment. But it is not out of the woods yet, and there is a real chance of a second Irish banking crisis related to high, non-performing mortgage loans. Now is not the time for Britain to risk harming that recovery, given the billions of pounds it stumped up to tide Ireland over its economic crisis and the importance of the Irish market for its exports. 

The Institute of Chartered Accountants in England and Wales was right to say that the rush to push the legislation through ahead of the General Election meant it was unlikely to be "afforded the scrutiny it needs." Sod's law may always be at work but the law of unintended consequences, though far less common, can be far more ruinous.

Friday, 13 March 2015

Was Afghanistan's war worth the cost?

Rarely, if ever, in the annals of military logistics have operations in Afghanistan cost so much and achieved so little. Underlying much of this tragic waste was the arrogant belief that concerns about the logistics problems of supplying a land-locked country, ideally suited to guerrilla warfare, with highly vulnerable supply lines stretching thousands of miles, could be tossed aside, given the overwhelming fire power and manpower of the invading allies.

Figures just released by Britain's Ministry of Defence (MOD) on the cost of the Afghan war for their financial year 2013-2014 show that supporting the 5,200 military personnel cost £232,225 per head, or £1.212 billion overall. That, however, was a year when operations in the 13-year war were beginning to be wound down. In the year 2012-2013 the comparable cost of supporting 9,000 military personnel at £297,025 per head was £2.673 billion. To these figures must be added the additional cost of new equipment, described as urgent operational requirements, which were £57.5 million in 2013-2014 and £333.3 million in 2012-2013.

Those figures are far from the end of the tally. Supporting the British military personnel in Afghanistan were 8,529 and 11,476 civilians for the years 2013-2014 and 2012-2013 respectively. And finally, one must not forget the high, tragic cost of supporting the permanently maimed personnel and the wives and children of the 450-plus killed in action, a figure that will inevitably grow given the expected suicides to come over years which, if previous recent military entanglements are any guide, will exceed the numbers killed in battle. At one stage the total costs of all the allied involvement was estimated to be US$2 billion a week, with the Taliban support costs calculated to be less than one tenth of the coalition forces.

Leaving aside the ignored historical lessons from previous super power invasions of Afghanistan over the last 200 years or so, any logistician worth his salt could see just how nightmarish and difficult the costs would be in supplying the allies in Afghanistan, surrounded by potentially hostile or ambivalent countries like Iran and Pakistan who lent succour willingly or otherwise to the Taliban. This meant that most of the supplies had to be airlifted from western Europe at a cost of US$14,000 a tonne compared with only $500 a tonne if Russia had allowed rail-borne supplies through its territory. The alternative to airborne supplies was the dangerous land supply line up from Karachi and through the mountainous passes. In just one attack in these passes, however, 40 oil tankers were destroyed by the Taliban.

So now that the last battle flags are being furled as the coalition forces depart, leaving only a small advisory contingent, could it be said that the allies' costs were worth it and what are the lessons for military logistics?
As far as the British financial cost goes, estimates will vary, the only certainty being a rising cost over years to come to support the wounded and their families. Sir Sherard Cowper-Coles, Britain's former ambassador to Afghanistan, who believed that there could never be a military victory, estimated the British cost running at £6 billion a year, while the MOD claimed that between 2001-2010 the cost was only £11.6 billion, but it subsequently admitted that the Afghan war was absorbing about 30% of the £35 billion UK annual defence budget. The true total British costs may never be known, especially as much depends on how the costs are calculated. But based on the MOD's last two accounting years, a total cost to date of the 13-year war of over £30 billion looks decidedly conservative.

The mooted positive effects of the Afghan war are broadly political and economic. On the political side, one of the reasons for the Afghan invasion was to prevent Afghanistan from becoming a safe haven for Al-Qaeda to prosecute its mischief abroad. In that regard, at the best this goal has been only partly successful. Al-Qaeda still has a presence in the country and the Taliban, estimated at 20,000 strong, are a long way from being defeated. Many question how the much bigger Afghan army would fare against the Taliban insurgents without the help of a departed NATO force.

On the socio-economic front, there seem to be more positives. Various polls show many Afghans in a positive mood about their future. Education for both sexes is now available and women are allowed to play a much fuller role in all branches of the economy. But even on this front nothing is certain, because the cause of their oppression remains in the wings. Meanwhile, the wealthy Afghans are taking no chances. They are quietly moving their wealth abroad.

In the wider scheme of things the economic ramifications of debt-fuelled war are like the sins of the fathers being visited on future generations. Soaring government debt means soaring interest costs, and that means two things: money diverted from pressing social needs and possible cuts in Government social security budgets. Back in the 6th century BC, the Chinese sage, Sun Tzu, summed up the economic problem of war succinctly: "Where the army is prices are high. When prices rise the wealth of the people is exhausted." Trying to put a price on such repercussions is incalculable but the outcome unarguably very pernicious.

Military logistics is not just about controlling the supply chain effectively to deliver all that is required to the war theatre at the right time. It is also about how the chosen battlefield can be used to degrade an enemy's military ambitions. In this respect, the Taliban had the country's geographical and climatic conditions working in their favour. That, perhaps, more than any other factor ensured the allies could not win a military victory. It is to be hoped that in future before nations consider going to war in distant lands they will think of all the costs against the perceived benefits and leave arrogance at the door.

Tuesday, 24 February 2015

Ireland facing second mortgage-related banking crisis?

A showdown is brewing up in Ireland between bank lenders and mortgage debt defaulters which if not properly handled could lead to far more than ugly scenes between the public and law enforcement agencies. It could threaten the fragile Irish banking system and even undermine Ireland's return to economic health, so the stakes are disturbingly high. The defaulters' movement draws its oxygen from historical precedent in the late 19th century when Ireland's Land League was formed to resist British landlords seeking to evict cottagers behind with their rents.

The land League movement won a major victory in restricting the rights of landlords in Ireland but a change to the law in 2013, at the behest of the EU, means that the Government has closed a loophole that had made foreclosures on certain mortgages almost impossible. The legal change now makes it much easier for lenders to recover their loans and is designed to cut the troubled banks' debt loads.

Home repossession is a highly charged, emotive subject and perhaps nowhere more so than in Ireland, given its long-standing culture vehemently opposed to evictions and repossessions. "Irish culture is opposed to evictions and repossessions for good historical reasons and that will not change," opined Brian Lucey, a finance professor at Trinity College Dublin. "Culture will always trump strategy," he added but the professor should remember that like God economics will not be mocked indefinitely and when abused too much can destroy empires. So what are the chances of delinquent home owners besting the bankers and ushering in a second banking crisis?

The sums involved are disturbingly high. According to Ireland's Central Bank the mortgages in arrears totalled 117,889, or 15.5% of all outstanding loans at the end of September 2014. While this was a 6.4% decline on the second quarter the number of accounts over 90 days in arrears was 84,995, while those over two years behind, valued at Eur 8 billion, continued to rise and was 7.6% of total outstanding balances on primary dwelling home properties. In addition, at the same time the buy-to-let delinquent mortgages over two years in arrears were 15,435, with an outstanding balance of Eur 4.8 billion, equivalent to 16.6% of total outstanding balances on all buy-to-let accounts. Moreover, the Central Bank's figures do not include the sale of mortgage loans to non-regulated entities, who like sharks smelling blood are now circling to profit from the misery of mortgage defaulters.

The modern Land League of resisters is, as part of its strategy, aligning with politicians to target those industries that have grown up around the mortgage crisis, including hedge funds, private equity, auctioneers and carpet baggers. One such example was when 60 Land League activists were prevented by police from reaching the home of a Dublin accountant said to be working for banks so that they could present him with a wreath commemorating the suicides of people weighed down by debt. The activists are well organized, harnessing cyberspace to interpose their bodies when beleagured home owners text them for help to prevent bailiffs entering their homes. "Our slogan is that we'll be there faster than an ambulance," said Jerry Beades, a former real estate developer who helped found the National Irish Land League last year. The activists' negative publicity is clearly adversely impacting those agencies helping in debt recovery, including disruption of real estate auctions. "From what we hear , they have a problem. They can't get sheriffs to repossess properties and they can't get get auctioneers to sell them," says Beades.

Just how effective the legal loophole was before closure in 2013 can be seen by the fact that despite the six figure number of serious mortgage arrears in the last three months of 2012 there were only 38 foreclosures. Now, however, banks have lodged 10,000 applications to foreclose on homes in the year through to September, four times as many as in the preceding year.

It is natural for aggrieved mortgage defaulters to blame others for their predicament and while there is some merit in taking this stance against lenders who acted imprudently in their exhuberance to lend the borrowers themselves cannot escape some blame for their naivety in financial matters and so should share some of the pain with the banks. That naivety would have been less if economics had been made mandatory in all schools from secondary level and should certainly be made so to prevent history repeating itself. It is an immutable law of economics that every boom precedes a bust.

There may be trouble ahead

It could be argued that already some of the banks involved in the Irish domestic real estate debacle, especially some British banks, have already taken their fair share of haircuts. The Royal Bank of Scotland, for example, while deciding to keep its Ulster Bank going has lost £15 billion since the financial crisis, while Lloyds' latest deal to sell its Irish mortgage portfolio to Goldman Sachs and the private equity group, CarVal, for £1.6 billion has reportedly led to a purchase price of less than half the face value of the underlying assets. Lloyds still has £1 billion of net exposure to Irish non performing loans but just six of Ireland's leading banks represent 90% of the total mortgage market.

Clearly, borrowers should share the pain, especially as, according to one leading Irish bank, up to 20% of the arrears are so-called "strategic defaults" because the borrowers are unwilling rather than unable to make repayments. In a land famed for its chancers such a percentage is not implausible. Both sides are talking tough. AIB, Ireland's second biggest bank by assets, said that their market was preparing to step up enforcement action. "For someone just not paying their mortgage we will take a robust line," said the bank's chief executive. "There is no rent-free option any more." Karl Deeter, of Irish Mortgage Brokers, said the banks need to reconsider repossession of homes in long-term difficulties. "Once people get into long-term arrears it tends to be a one-way journey," he said. Economists have warned that any escalation in the mortgage crisis could force Ireland's fragile banks to raise more capital and delay the country's recovery. Ellen McQuaid, economist at Merrion Stockbrokers, warned: "As things currently stand banks are probably OK but if things continue to worsen on the arrears front then the banks could be in trouble."

It is impossible to calculate how much money is at risk but given the size and longevity of loan arrears the sums could easily run to many billions of Euros if a solution attempt is bungled. It is clearly not an option to allow reckless, naive borrowers to continue their debt welching unscathed. To do so would simply add to the burden of taxpayers and those at risk of more social security cuts.

Wednesday, 4 February 2015

Does Greece deserve more debt relief?

The growing consensus in parts of the British Press and global business media is that Greece should be released from much of its US$272 billion sovereign debt in the interests of ending the country's obvious social pains and restoring its economy to health, and by extension preserve the economic equanimity of Europe but is it a wise course of action, given the risks of contagion down the line and the likelihood that Greece will not take on board the absolute necessity for good political and economic governance?

The country's record of financial governance does not inspire optimism. Over the last 200 years Greece has defaulted on its sovereign debt obligations at least five times and the first recorded debt default goes back to the 4th century BC when 13 Greek city states borrowed money from the Temple of Delos, which ended with the temple nursing an 80% loss of principal. Clearly, Greece is a recidivist debt welcher of the first magnitude. Much of this malfeasance derives from the Greek psyche that drives the population to think it is their God-given right to evade taxes at all cost, thus forcing the Government to borrow ever-more huge amounts, which is not then spent honestly and wisely.

In terms of Government spending, for example, pensions are a good case in point. Although the official Greek retirement age is 65 early retirement is widespread and the average age of labour market exit is 62.4 years for men and 60.9 years for women. An OECD 2009 report discusses the early retirement problem in Greece by asserting: "The comparatively lax conditions to qualify for a minimum pension tend to increase incentives for early retirement. Despite their low level minimum pensions they are relatively generous in relation to the contributions paid by their beneficiaries which creates perverse incentives for certain workers to retire early without any reduction in benefits." These perverse incentives for workers to access early retirement schemes even included bizarre cases. For instance, pensions were given by the Greek State to daughters of military officers and various civil servants if they were not married!

The ubiquitous tax dodging problem is even more disturbing. Greece has suffered serious weakness in tax collection because of its large shadow economy and the real loss from tax evasion can hardly be calculated. One analysis, however, based on prestigious American institutions, suggests Euro28 billion in lost tax revenue in 2009 just from the self employed.  The highest tax evaders are doctors, lawyers, accountants, engineers, private tutors, artists and journalists.

There is no denying the enormity of the unprecedented shrinkage of the Greek economy, which has shrunk 25%, perhaps the worst in modern times, but neither is there any gainsaying of Greece's colossal economic mismanagement, corruption, cronyism, damaging labour restrictions and ineffectiveness at righting these parlous proclivities, which has brought it to its current parlous state. It is true that Greece has cut bloated pensions and raised taxes but their attempts to institute the bailout conditions from foreign creditors are evidently failing, though it seems that the Greek economy has started to grow again, albeit very feebly.

The public sector suffers substantial integrity gaps in both law and practice. A 2010 report, for instance, showed that only 2% of misbehaved civil servants were subjected to disciplinary procedures. A poor system of tax collection, helped by an opaque tax code, allows individuals and companies to bribe tax inspectors and evade taxes. According to a 2011 survey the cost of bribing tax inspectors to "arrange" tax audit activities is reported to range from Euro 100 to Euro 20,000. In such a climate as this it is hardly surprising that Greece is the lowest scored country in Europe for corruption in 2013. A global corruption index of 176 countries placed Greece at 94th position, with one being the cleanest and the 176th the foulest.

In support for the case to forgive a significant slice of Greek sovereign debt, perhaps one third to a half, the point is made that there are plenty of historical precedents for relief on such a scale. Most notably, Germany is cited after World War 2, when in 1953 Germany's creditors recognized that full payment of the country's debts would make revival harder and could destabilize all Europe. Consequently the creditors wrote off half of Germany's debts and made the rest contingent on economic performance. Such debt relief was in all parties' best interests but the comparison of Greece today with Germany after World War 2 is a crass one. The fact is, Germany's industries were shattered, its cities laid waste by war, and given its pre-war position in Europe as an economic power house it was absolutely essential to help Germany back to health. Germany's post war recovery proved an economic miracle, not least because of its business drive from a people imbued with an industrious spirit and respect for clean government and economic good governance. Those key attributes are still lacking in Greece, and without them any more debt relief on top of the billions of Euros already written off by private creditors and banks, would almost certainly be throwing more good money after bad.

Ireland and Finland have already voiced their concerns that Greece should not receive any more debt write-offs and it is plain to see why. Ireland received a bail out and endured much austerity for years as a pre-condition for loans. By following those conditions Ireland is now well on the road to economic recovery. Spain, too, has taken its medicine and is showing good signs of recovery. If Greece were let off scores of billions it would set a dangerous precedent. Other countries in the Mediterranean sphere, like Spain, Italy Portugal and even France whose economic integrity has left much to be desired, could clamour for similar relief, and that could herald the irremediable collapse of the Eurozone currency, and much worse.

This is not to argue that Greece should no longer he helped. There is a good case for extending the loan repayment periods and even, perhaps, suspend interest payments for a few years. But Greece should also help itself, but how? Greece has many islands in a balmy, desirable location. It could, for example, let these islands on 99-year leases, with favourable tax incentives, which alone would bring in billions of Euros in the short term. Longer term, Greece could make better use of its inexhaustible free sunshine by harnessing solar energy to supply the energy-hungry countries to the north. The infrastructure could be paid for by the energy importing countries like Germany provided the energy charges were low enough long term to justify the investment. It would also provide a much-needed boost to employment.

All efforts to help Greece back to prosperity and growth will, however, fail unless Greece is prepared to burn the canker of lousy governance from its soul forever. Perhaps the country would do well to learn a lesson from British history concerning the need to pay their taxes in full. From the late 17th century Britain had two key assets in its empire-building clashes with much larger empires: its system of Government credit, rested on confidence, and a fair tax burden, leading to a remarkably high level of compliance -- a situation that did not exist among England's enemies and so led to their downfall.

Sunday, 1 February 2015

Changing how history is taught could change its course benignly

History, quipped Henry Ford, is more or less bunk, meaning not that it is garbage but rather that one should make history today by living in the present and ignoring tradition. "The only history that is worth a tinker's damn is the history that we make today," he said. Yet if humanity is to progress righteously by making history today it is manifestly clear that history's lessons must be learned if its mistakes are not to be repeated. As the Spanish philosopher, Santyana, remarked: "Those who cannot remember the past are condemned to repeat it." Tragically, such ignorance of the past leads to continuation of modern and ancient ills like extremism, intolerance, pogroms, oppression, discrimination and xenophobia -- proving that history's valuable lessons are routinely ignored. Yet could a difference be made if history were taught differently in schools from secondary level and made mandatory?

The perceived problem with history teaching, it seems, is that it tends to confine students to study only their own country's history and only then for a very short history period. Moreover, there is always a risk that in closed, undemocratic societies the subject will be distorted and perverted for political and religious ends. The subject could also be viewed by many students as boring and dry. If, however, much more emphasis was placed on how history was fundamentally changed over the long term, ultimately for the better, embracing many nationalities and groups that mixed to cause and enrich such changes it would surely give students a less prejudiced view of other nationalities, religions and cultures -- cutting the risks from xenophobia, religious bigotry and racism. It would also make history more interesting.

Even today, invasions and wars begin which show why, if history's lessons had been given due cognizance, they could have been avoided and arguably no better current example of that, in logistics terms particularly, is the Afghan war. This harsh, arid, unforgiving, landlocked country, perfectly designed to confound invaders, made the logistics of supply not only breathtakingly costly but a nightmare. Twice before over the last 200 years the Afghans have humbled two world powers, Britain and Russia, whose arrogance seemingly ignored appalling logistical problems, and again, today, a coalition of world powers has been humbled as they leave with little to show for the blood and gold shed and an uncertain future for the Afghans.  

The teaching of world history spanning millennia does, of course, present its own kind of logistical problems for students, like finding the time and teachers, who themselves may lack understanding of the vast scope of historicity. The problem could be eased, however, if national history was downplayed in favour of global, human and natural events that fundamentally changed the course of history far more than emperors, monarchs and other panjandrums.

Henry Ford himself could have done with such history lessons that might have tempered his well-known anti-Semitic views and their odious connexion involving use of slave labour in Nazi Germany's Ford factories, even before America entered the war. Great men also make great mistakes and the greatest of these often stem from ignorance of history and its disturbing infant of arrogance.

Friday, 30 January 2015

New combi-style articulated forklift transforms warehouse economics

The world's leading developer of articulated forklifts, the UK-based Translift Bendi,* has perfected a unique, man-up, combi-style forklift that delivers substantial cost savings when compared with conventional, dedicated, very narrow aisle (VNA) trucks. The label unique is well deserved because no other truck in the world can handle both order picking and pallet stacking functions concurrently.

This articulated, stand-on truck with working aisle width capability of only 1.6 mt has a separate, independent set of forks at the back which allows the driver to pick and stack concurrently without having to drop a pallet down to floor level to change from picking to stacking mode or vice versa. The standing position allows the driver when facing forwards to use the truck as a normal Bendi with a 1.2 tonne lift to 8 mt and the rear forks can be folded up out of the way if required. Turning round to face the back, the operator can place loads onto the pick pallet and raise or lower the forks as required to keep a comfortable and safe working height. Maximum lift for the order picking function is 6 mt.

This dual functionality on the go is the main unique selling point. The problem with conventional, man-up, combi-style trucks is that in order to change between order picking and full pallet load stacking functions the driver must return forks to ground level to change pallets. With the Bendi, however, the driver could be half way through an order picking list when he reaches an empty pallet location, which he can refill with the Bendi forks facing the forward direction of travel even though it already has a load on the order picking forks. Moreover, when leaving the racking aisles the driver can deposit two loads on the warehouse floor, thus doubling productivity.

Translift Bendi has made it clear that this unique development is not designed to replace ordinary, man-up order picking trucks, but rather to give warehouse operators the chance to gain big cash savings through space-saving gains, lower wage bills and fewer trucks over their current operations using order pickers and reach trucks in the same aisle. Where that happens the aisle must be at least 2.6 mt wide but the new Bendi man-up truck needs only 1.6 mt when carrying two pallet loads. Only at the aisle ends when changing aisles is more transfer space needed than a conventional, one-load Bendi.

The cost implications of this truck are remarkable. If, for example, a warehouse can reduce aisle widths from 2.6 mt to 1.6 mt it can gain up to 30% more pallet locations. It can also dispense with having two different types of truck -- Bendi and reach truck, and save £20,000 per reach truck driver. The Bendi asking price is £45,000 whereas similar spec VNA combi-style trucks would cost 60% more. Translift Bendi claims that in comparison their order picker is also 60% faster but in certain circumstances it could double, and not only for internal work. If, for example, when leaving a racking aisle with two pallet loads, one for picked goods and one with a full pallet load, it could deposit the order-picked load on the warehouse floor and then proceed straight out into the yard to load a lorry. Very few reach trucks have yard work capability and VNA trucks none at all. Productivity, therefore, could be doubled in such circumstances.

There is also an important safety issue. Many warehouses use both pedestrian order picking machines and reach trucks operating in the same aisle at the same time. This can never be an entirely safe scenario. The new Bendi picker, however, dispenses with that risk entirely.

Every now and then there is a major step change in forklift capabilities and cost effectiveness. This must surely be one of them.
                                             Translift Bendi's unique order picker could transform warehouse economics

Sunday, 25 January 2015

Will robots destabilize society?

Whenever leading British clerics make remarks of a political/economic nature they are often chastised by politicians, particularly of the right, for not sticking to theology, the implication being that they are ignoramuses on non-religious matters. The latest example is the Archbishop of Canterbury, Justin Welby's remarks to an audience on New York's Wall Street, warning that the rise of robots and gene therapy could allow a tiny elite of the super rich to amass more power while almost everyone else grows poorer. But as a former City of London oil executive Justin Welby could hardly be described as an ignoramus on economic issues and would probably shame many politicians on that score, whose profession is often seen as far below a theologian's calling.

To some extent, the Archbishop's fears have already been realized. In real terms American incomes for the vast majority have declined while the top 10% saw a real income rise in recent years, and such disparity is worsening as a tiny majority now control much of America's wealth, a shift helped by legal but morally repugnant tax avoidance schemes whose architects' great wealth give them disproportionately great power to influence tax changes in their favour at the expense of the lower and middle income groups.

There are two key economic aspects to Justin Welby's claim: the rise of inequality of incomes and its implied threat to society and the second, perhaps more serious threat, arising from societal upheavals caused by automation and gene therapy which could reinforce the economic divide. But are his views on robots wrong, reflecting Luddite thinking? It is a difficult one to call but it is clearly a potentially destabilizing issue that will need very sensitive handling to prevent unwholesome consequences in the near future.

Inequality does, of course, matter, at least potentially because in democratic societies, in particular, great wealth brings great power and history shows that such power is often exercised against the public's best interests. But there is one key difference when comparing politics in democratic societies today against those of the past. Properly advised and motivated, electorates can curb the trend towards closet plutocracy, though arguably they have not shown much puissance in that respect so far. So that suggests the greater threat ostensibly is automation, but is there some woolly thinking here?

There is no doubt that futurologists from Thomas Malthus onwards often get it wrong because while their analyses of  problems were seemingly correct the assumptions on which they based their analyses were flawed, which is often why economists' forecasts are wrong. There can be no argument, however, that more repetitive, unskilled jobs will be taken by robots as their price tags slump and they become smarter and more versatile.

A good example of robot cheapening is the mobile Baxter robot endowed with assembly task abilities and costing only $25,000, about one tenth of a typical welding and paint-spraying robot. Even in low wage economies like China the lure of low-cost robots is irresistible. Apple supplier Foxconn, for example, has plans for investing in one million robots in China. As robot prices continue to fall demand will rise and it will by no means be confined to manufacturing tasks. For over 30 years, for example, supply chain functions like storage have seen steady inroads from automation, including both horizontal and vertical load movements, palletising and high speed sortation conveyors. Sometimes, however, the progress seemed a pace too fast, as in Britain 35 years ago when the Japanese forklift manufacturer, Komatsu, trialed a wire-guided driverless forklift that could handle horizontal movements and stacking tasks within racking aisles at what was then Britain's biggest brewer operating over 1,000 forklifts. Labour union alarm and pressure ensured that the revolutionary trucks were dropped. Today there is less union power and so employers will be more likely to embrace robotics.

A controlled, responsible move towards more automation should be desirable but there is a need to maintain a watching brief. New industries will arise to take up the slack in unemployment that may arise through more automation, provided the workforce is adequately educated  to take on the challenges. That is a big aspiration, and unfortunately societal breakdown in family values (one parent families, etc) stymies its realization.  

Sunday, 18 January 2015

UK retailers are crippling suppliers

UK food and drink retailers now face a perfect storm from the price wars raging among the big four grocers and with the surging discounter arrivistes like Lidl, Aldi and Poundland but it is their supply chain partners, and to a lesser extent their 3PLs (third party logistics providers) who face a hellish consequence from the squeeze imposed on them by the big four that account for over 75% of Britain's grocery market. It seems that over 100 food and drink producers are at risk of collapse over this price war and new research shows that the number of UK food manufacturers in "significant" risk soared by 92% to 1,410 businesses in the final quarter of last year. According to recent research, more than 100 of these companies will collapse into administration unless supermarkets treat their suppliers more fairly and trading improves. Neither is likely any time soon.

There have been retail "price wars" before but not of the kind now facing the industry, and certainly not on the same scale, brought on by years of declining consumer real incomes, a paradigm shift in shoppers' habits and the IT revolution that now allows shoppers to buy online the same product in different countries at the best price, so threatening the traditional bricks and mortar model of retailing. Price is now king, and the new heroes are the online facilitators and the discounters giving permanently low prices across all their SKUs, thanks to their business model that the big four cannot yet emulate without going through unprecedented, painful downsizing.

Even before the latest price wars broke out the big four had been squeezing their suppliers for years by using up to 60 different ploys, most notably extending payment periods from 30 days to three months and the ever-present threat of delisting if suppliers refused to come to heel. This attitude has cascaded all the way down the supply chain to the smallest suppliers. Given the most intense pressures yet on the supermarkets they are hardly likely to soften their attitudes to suppliers and that includes the 3PLs who themselves are struggling in difficult markets, even if the majority have five-year contracts with the big retailers. Woe betide them when their contracts come up for renewal.

It is difficult to see through the battle smoke how all the players will react to what seems like a permanent sea-change in shopper's habits. What seems in little doubt, however, is that the big supermarkets will have to cease being all things to all buyers by selling the widest range of goods possible, typically 40,000 SKUs in a large superstore. This is their Achilles' heel when dealing with the nimbler discounters whose stock lines would be less than 1,600 and nearly all popular, fast movers, a key requisite for minimising the most costly of warehouse functions -- huge inventory holding costs.

What must now seem reasonably clear, however, is that the big supermarkets will slash their stock lines to ease their cash flow problems and that means many suppliers facing widespread product delisting and charges for those who are lucky enough to see their products remain displayed on shelves. If the number of food retailers in significant distress, up 58% year-on-year, according to one report, to 4,552 in the final quarter of 2014 is bad enough the picture is even worse for the troubled food and beverage makers who saw a 92% rise. In desperation, the larger manufacturers are easing their plight by shifting the burden onto their smaller suppliers, as Heinz, the baked bean maker, has reportedly done by extending the term suppliers must wait for repayment from 45 days to 97 days. The climate in the milk industry is even direr, which over the last 10 years has seen the number of dairy farmers halve to under 10,000, though this industry's problems have more to do with supply and demand issues rather than retail wars. Yet more trouble is brewing in the poultry business, Britain's biggest selling meat, where price cutting threatens a profit collapse.

The extent of the problem, both political and economic, is potentially huge, given the 3.6 million people employed in UK food supply chains alone but there is much more potential pain on the horizon for traditional retailers and even online sellers like Amazon, Ebay and Alibaba, and it will come from further cyberspace innovations. The traditional retailers who want to survive the coming tsunami from the ether will have to offer an online service and be flexible with their pricing strategy and delivery times.

A good example of a potential game-changer is a new American online start-up called, founded my Marc Lore, a veteran of website shopping and former employee of Amazon. He wants to re-invent the wholesale shopping club for customers who will find just about everything they need in return for an annual fee of US$49.99 after a 90-day free trial period. Lore claims that Jet's prices will be 10-15% lower than anywhere else online partly because, unlike other online competitors, there is no money being made on the transaction. All income derives from the annual fee. Shoppers will also be able to extract more savings if they are prepared to let Jet discover how to deliver goods as economically as possible. Prices, for example, can drop if a shopper combines multiple orders with a single shipment or is willing to wait for a seller offering a more economical shipping option.

Birth and progress are rarely painless and never entirely beautiful. The problem for politicians will be to manage the inevitable upheavals that will affect so many in retailing as sensibly as possible but it could well prove beyond their capabilities.