In the once vibrant fishing port of Lowestoft, England, a small forklift company has changed its procurement model that reflects the start of a logistics trend that could have seismic implications for emerging Far East economies, particularly China. The driving force behind this nascent trend is supply chain fears and unprecedented intellectual property theft.
In a country where nearly all forklift production and sales is foreign owned, Britain was once a leading forklift producer. Today, a handful of niche specialist producers, mainly of articulated forklifts, is almost all that remains. But the Lowestoft company is not yet a specialist producer. Rather, it is selling main stream counterbalanced forklifts and is winning sales overseas. That company, Nexen Lift Truck Technology, took the bold decision to move the production of its X-range of forklifts and its entire R&D programme back from Taiwan to the UK.
The company, says MD, Tim Mason, "had been frustrated by progress at getting its X-range models in production at its Taiwan plant." Curiously, perhaps, it cited one reason as the shortage of a skilled workforce. "To overcome these delays and in response to several component suppliers reluctant to release specialised development items to Taiwan for fear that they may be copied in China we have taken the very big decision to move all our R&D activities to our European head quarters in the UK."
Nexen believes that the move will enable it to expand its forklift range at a significantly faster rate and also meet increased demand from the North American market. But how justified is concern over China's counterfeiting proclivities?
Counterfeiting could hammer China
There is no surprise that an emerging economy like China should avidly take to massive counterfeiting, partly as a quick-fix boost to its burgeoning economy. After all, other countries in their early development days did the same thing, like Japan in the 1950s and subsequently Hong Kong and India. That does not, of course, excuse their behaviour, but the scale of copyright infringement is breathtaking. From only about US$5.5 billion in 1982, the economic value in global counterfeiting had soared to an estimated US$500 billion in 2003. It is the fastest growing criminal enterprise worldwide and China is by far the worst offender.
The theft does not only deprive owners of intellectual property rights of huge revenues. It also means that such perpetrators have a huge advantage in bringing new products to market. Unlike their honest competitors, they can simply copy designs and so avoid huge sums invested in research and development. This subtle "pick off", as the scam is called, is a form of intellectual property theft that occurs at the high end of counterfeit sophistication and so poses a significant risk to established manufacturers. Is it any wonder, then, that copiers are able to offer cars, for example, under another brand name, at a fraction of the cost of the genuine article.
To their credit, the Chinese government has moved to remedy the situation through legislation and destruction of pirated goods but corrupt local officials fail to enforce the new laws. Aggrieved, genuine product producers, therefore, cannot expect any resolution some time soon. Only last year it was claimed that in China 78% of all software sold was pirated, according to the Business Software Alliance's 2011 Global Piracy Report. The global average rate is only 42%.
The extent of counterfeiting is far from confined to the end products, like autos and consumer electronics. There are now hundreds of foreign auto parts suppliers in China, for example, and this movement of the auto supply chain to China means intellectual property piracy is not only a risk facing other OEMs but also the supply base. Nexen's component suppliers to Taiwan, therefore, have every reason to be fearful.
Mini renaissance for UK manufacturers?
The concerns over copyright infringement, however, are now being augmented by bigger concerns over stretched supply chains becoming ever-more costly and unreliable. Labour rates in those Far East countries are rising fast, along with commodity prices. In Britain, a weak pound is adding to cost pressures. Consequently, UK retailers are sourcing more locally in Britain. One of Britain's biggest home shopping companies, N Brown, has more than doubled its base of UK suppliers, which boosted a handful of small textile manufacturers in Leicester and Manchester, though the company still sources less than 5% of its textiles from the UK. But according to a recent survey by the Economist Intelligence Unit, more than half of UK manufacturers expect to increase domestic sourcing over the next few years.
The attraction of overseas sourcing has always been low cost, which outweighed irritants like unreliable delivery, long supply chains and often unpredictable quality. But the recession has highlighted the risks of a complex global supplier network and long lead times. One UK company, for example, had a warehouse full of aluminium castings from an emerging markets supplier, for which the group had no orders. Renegotiating the contract proved impossible.
Businesses are now becoming more aware of the risks and volatility involved in a geographically large supply chain. There are signs that mid-ranged parts supply from the east are now shifting back to the UK supply sources, especially for products where labour accounts for a relatively low proportion of the total costs.
There is one risk, however, that took an earthquake and tsunami to bring home to the world the folly of JIT supply chains originating in natural calamity-prone regions. As a principle, there is nothing wrong with JIT supply and production provided certain ground rules are rigorously obeyed. One of those rules is to avoid putting all one's supply chain eggs in one basket. Japan was and remains a choke point for around 100 products essential the the electronics and auto industries. The destruction wrought by the earthquake and tsunami last March cost the global economy billions of pounds in lost production, and still continues, as JIT components quickly dried up and could not be supplied from elsewhere. Guangdong province in China is another serious choke point for many electronic products, in particular, and rare earths elsewhere. Thailand is yet another example of a hostage to nature. The continuing flooding there, the worst in 50 years, is the latest example of how nature's fury can disrupt a too tightly stretched global supply chain. Computer prices are set to rise because Thailand is home to about a quarter of the global hard drive assembly facilities. But other industries, like cars and cameras, are also seriously disrupted.
These regions will continue to be exposed to the inevitable natural calamities to come so western manufacturers must secure several other supply sources, preferably insulated from natural calamities, even if, initially, that raises procurement costs.
Saturday, 29 October 2011
Monday, 3 October 2011
ITF launches humanitarian response to piracy
With piracy at sea hitting an all-time high in the first three months of 2011, the ITF Seafarers' Trust charity* and the TK Foundation launched a new initiative on September 29, the Maritime Piracy Humanitarian Response Programme (MPHRH) to help all those seafarers and their families cope with the traumas of piracy. "Until now, there has been little coordinated help for those who are suffering," said Roy Paul of the Seafarers' Trust. All that will now change as the comprehensive programme attempts to build up a network of first responders and get psychological help for affected crews and their loved ones. The programme will be a continuum of care functioning before, during and after piratical attacks.
Given the shameful attitudes of some ship owners towards their traumatised crews, the ITF initiative is desperately needed and the task ahead dauntingly huge and complex. Dr Peter Swift, MPHRP Chair, praised those shipping companies for implementing the industry's best management practices and sound practices to address the humanitarian needs of their crews and their family members but "regrettably many have not," he said. It is reminiscent of those dark early days of World War 2 when captured British merchant seamen were not compensated for their loss of personal possessions or even paid while in captivity, leaving them stressed over how their families would cope at home.
Laudable though this imitative is, it deals only with the symptoms of piracy, growing steadily stronger over the last seven years. Nearly 4,000 seafarers have been taken hostage in the past five years and detained for months in appalling conditions. Tens of thousands of others have been the victims of attacks. Today, nearly 300 seafarers are being held hostage on ships off the Somali coast -- all of them under increasingly violent conditions. Having "crossed the line from savagery into torture," said Dr Swift, often drug-crazed pirates leave crews stripped naked in cold stores for hours, tie crew's genitals with cable ties and subject them to mock executions and even keel hauling.
The annual cost of piracy is now put at $12 billion, but that probably does not include the cost of holding higher stocks as ships take longer to reach their destinations via the Cape of Good Hope. In terms of human costs, Dr Marion Gibson, psychosocial consultant to MPHRH, told this writer that the families of returned hostages felt aggrieved that in many cases pirates were not being punished for their crimes. This is one of the most abject, shameful aspects of the pirate scourge. Some hundreds of Somali pirates were released this year, many of whom were on their third arrest. Some countries are reluctant to try pirates, partly on cost grounds, and countries like Kenya and the Seychelles are already overloaded by pirates.
Anti piracy barriers must be eased
Pirates are doubtless grateful for many other obstacles put in the way of their capture and condign punishment. Some countries have laws against merchant ships entering their countries with arms on board and there are insurance obstacles. ITF itself is opposed to arming seafarers and advocates offering no resistance when attacked. The various navies on station in the Indian Ocean are doing their best with limited resources but as one NATO admiral said: "You could put a World War 2 navy out there and it still would not be enough."
Given the inability of the navies to eradicate the scourge, I asked Rear Admiral Ort, Chief of Staff of NATO's HQ in London, if the international community should not go one step further, once all hijacked crews and their ships had been released, by preventing further hijackings and attacks through the arming of crews or placing armed private contractors and trained, seconded naval personnel on board. After all, one American NATO admiral admitted that merchantmen should be armed.
"First of all," replied Admiral Ort, "I would say it is more complicated because whatever we do at sea is actually only fighting symptoms. The real cause of the problem lies ashore. It is directly related to the fact that Somalia is a failed state without the necessary institutions. So the longer term structural solution involves building Somalia as a nation state to deal with this. Obviously this is longer term but shorter term we are stuck with fighting the symptoms." The admiral also voiced concerns over armed private contractors on board. "Some are really very good but obviously some of them are less so," but he did confirm that trained, armed naval personnel are now being supplied to merchantmen but the problem here was one of capacity owing to the thousands of ships transiting the Gulf of Aden every year.
Logic, therefore, inescapably points to the need to offer some seafarers training in weapons handling and anti-boarding tactics in return for financial inducements. The multitude of barriers to this would have to be eased while the emergency lasts. "We as an international community need to get our act together," said Rear Admiral Ort. Failing that, the piracy scourge will worsen unless, perhaps, a final solution is adopted reminiscent of the bombardment of Algiers in 1816 and 1824. That option, however, would tragically involve many innocents and would outrage international opinion. But it should be remembered that even the restoration of national good governance in Somalia may not be the solution. Other countries, after all, which are not failed states, have been emboldened by the Somali pirates' runaway success and are making life particularly difficult off the west coast of Africa.
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*ITF's ability to offer badly needed help is circumscribed by its limited funds. Donations would be welcomed at: www.mphrp.org
Given the shameful attitudes of some ship owners towards their traumatised crews, the ITF initiative is desperately needed and the task ahead dauntingly huge and complex. Dr Peter Swift, MPHRP Chair, praised those shipping companies for implementing the industry's best management practices and sound practices to address the humanitarian needs of their crews and their family members but "regrettably many have not," he said. It is reminiscent of those dark early days of World War 2 when captured British merchant seamen were not compensated for their loss of personal possessions or even paid while in captivity, leaving them stressed over how their families would cope at home.
Laudable though this imitative is, it deals only with the symptoms of piracy, growing steadily stronger over the last seven years. Nearly 4,000 seafarers have been taken hostage in the past five years and detained for months in appalling conditions. Tens of thousands of others have been the victims of attacks. Today, nearly 300 seafarers are being held hostage on ships off the Somali coast -- all of them under increasingly violent conditions. Having "crossed the line from savagery into torture," said Dr Swift, often drug-crazed pirates leave crews stripped naked in cold stores for hours, tie crew's genitals with cable ties and subject them to mock executions and even keel hauling.
The annual cost of piracy is now put at $12 billion, but that probably does not include the cost of holding higher stocks as ships take longer to reach their destinations via the Cape of Good Hope. In terms of human costs, Dr Marion Gibson, psychosocial consultant to MPHRH, told this writer that the families of returned hostages felt aggrieved that in many cases pirates were not being punished for their crimes. This is one of the most abject, shameful aspects of the pirate scourge. Some hundreds of Somali pirates were released this year, many of whom were on their third arrest. Some countries are reluctant to try pirates, partly on cost grounds, and countries like Kenya and the Seychelles are already overloaded by pirates.
Anti piracy barriers must be eased
Pirates are doubtless grateful for many other obstacles put in the way of their capture and condign punishment. Some countries have laws against merchant ships entering their countries with arms on board and there are insurance obstacles. ITF itself is opposed to arming seafarers and advocates offering no resistance when attacked. The various navies on station in the Indian Ocean are doing their best with limited resources but as one NATO admiral said: "You could put a World War 2 navy out there and it still would not be enough."
Given the inability of the navies to eradicate the scourge, I asked Rear Admiral Ort, Chief of Staff of NATO's HQ in London, if the international community should not go one step further, once all hijacked crews and their ships had been released, by preventing further hijackings and attacks through the arming of crews or placing armed private contractors and trained, seconded naval personnel on board. After all, one American NATO admiral admitted that merchantmen should be armed.
"First of all," replied Admiral Ort, "I would say it is more complicated because whatever we do at sea is actually only fighting symptoms. The real cause of the problem lies ashore. It is directly related to the fact that Somalia is a failed state without the necessary institutions. So the longer term structural solution involves building Somalia as a nation state to deal with this. Obviously this is longer term but shorter term we are stuck with fighting the symptoms." The admiral also voiced concerns over armed private contractors on board. "Some are really very good but obviously some of them are less so," but he did confirm that trained, armed naval personnel are now being supplied to merchantmen but the problem here was one of capacity owing to the thousands of ships transiting the Gulf of Aden every year.
Logic, therefore, inescapably points to the need to offer some seafarers training in weapons handling and anti-boarding tactics in return for financial inducements. The multitude of barriers to this would have to be eased while the emergency lasts. "We as an international community need to get our act together," said Rear Admiral Ort. Failing that, the piracy scourge will worsen unless, perhaps, a final solution is adopted reminiscent of the bombardment of Algiers in 1816 and 1824. That option, however, would tragically involve many innocents and would outrage international opinion. But it should be remembered that even the restoration of national good governance in Somalia may not be the solution. Other countries, after all, which are not failed states, have been emboldened by the Somali pirates' runaway success and are making life particularly difficult off the west coast of Africa.
-------------------------------------------------------------------------------------
*ITF's ability to offer badly needed help is circumscribed by its limited funds. Donations would be welcomed at: www.mphrp.org
Thursday, 18 August 2011
MoD's logistics shambles hides Afghan war's true costs
In what must be the most damning indictment yet of Britain's Ministry of Defence (the Department), the Committee of Public Accounts, chaired by Margaret Hodge, MP, has exposed the utter shambles of the Department's logistics operations, which have defied resolution for 25 years. In its 43rd report of this session, issued on August 19, the Committee explained that the Department had promised over the last 25 years to resolve the long-standing problems associated with its supply chain: late deliveries, missed targets and inadequate cost information. Yet the problems persist.
If all that were not enough in terms of hiding the true cost of the Afghan war, for example, and the colossal waste of hard-pressed taxpayers' money, there are also serious potential perils for the front line British troops serving n Afghanistan. The MoD accepts that historic under investment has meant that its management information systems and the underlying IT systems are not up to the task. This means that "the risk of failure of these warehouse inventory systems is extremely high and was recently rated as 'critical' by the Defence Logistics Board. If these systems fail then the result would be shortages at the front line within as little as 30 days," says the report.
In any military theatre logistics can decide the outcome of battles and even wars. As Erwin Rommel remarked: "Before the fighting proper the battle is won or lost by quartermasters." He could usefully have added: "provided the quartermasters know their art." That art cannot be efficacious without timely, accurate data on all logistics aspects and that has been lacking for all of the 10-year Afghan war. So what does this logistics shambles mean in terms of costs and were the reasons for Britain's entry into the Afghan war soundly thought through?
Lamentably, military minds, alas, are rarely original, knowing little of history and even less of logistics in a geographically challenging terrain. Sir Sherard Cooper-Coles, Britain's former ambassador to Afghanistan, remarked that the then Chief of General Staff, Sir Richard Dannatt, told him in the summer of 2007 that if he did not use in Afghanistan the battle groups then starting to come free from Iraq he would lose them in a future defence review. "It's use them or lose them," he said. Such a curios, if not crass, reason for justifying an Afghan combat beggars belief and ignores the potency of the Afghan terrain's impact on foreign invaders' logistics.
Sir Sherard believes that the Afghan war is costing Britain £6 billion a year. The true cost is much more than that and may well never be known because the MoD "does not know the full costs of its current activities or the cost of alternative supply options," says the report. Moreover, the £6 billion does not include the cost of supporting maimed military personnel, war widows and their children and the suicides following any wars.
The failure to collect basic data about where supplies are stored has directly contributed to the Department's accounting being qualified for three consecutive years. These qualifications are likely to continue because the MoD's promise to resolve the issues, through a major initiative called the "Future logistics information services project" is not expected to be implemented until 2014.
If an efficient supply chain can be established it would release resources for the front line. The Committee believes that the MoD must place greater emphasis on securing value for money and that there is room for it to find efficiencies in the supply chain without jeopardising operational effectiveness. This could see an end to the practice of having to cannibalize Typhoon jets and military vehicles owing to lack of supplies often caused by late deliveries. In the six months to November 2010, for example, over 40% of supplies were 30 days or more overdue.
Such efficiency improvements are worthwhile but will they make any significant impact on Britain's hemorrhaging of resources at a critical time when the Government is struggling to cut its deficit? Alas, no. To give but one example, consider the costs of prosecuting a war in a far off land where the terrain is ideally suited to guerrilla warfare and so works in the Taliban's logistics favour. The MoD spent at least £347 million in 2010-2011 on transporting supplies overseas but this does not include the cost of military supply flights. In 2010 there were 130,300 individual deliveries made to Afghanistan and 31%, in tonnage terms, went by air. The Committee's 43rd report does not give details of that tonnage nor the air freight costs but some idea, perhaps, can be obtained from what it has cost America to transport an entire brigade of 3,900 men and 15,000 tonnes of supplies by air. The cost was $14,00o a tonne, making a total of $210 million. Had the supplies gone by rail through Russia, which currently forbids munitions passing through its country, the cost would have been only $500 a tonne, a prime example of how logistics thwarts the coalition forces. If the Taliban were more effective at sealing the land routes through Pakistan then the logistics costs would soar to unacceptable levels.
Any logistician can see that the war in Afghanistan is unwinnable for the coalition forces, militarily speaking, and that to remain there for several more years is just throwing more good money after bad and shamefully wasting lives, leaving a sorrowful legacy for their loved ones.
War has not always been entirely negative. People living today could not enjoy their current living standards, helped by many scientific discoveries, without the prior, painful emergence of large political groups like nation states.
Given the nature of man, such a political process could only have been forged on the anvil of war. But the world is moving into uncharted, dangerous waters in which technological progress has far outstripped man's moral progress, little changed since Stone Age times. This serious mismatch is surely the greatest challenge and threat facing mankind today. If the reptile within cannot be tamed permanently then the outlook for mankind is grim at best, if not terminal. As a famous general warned at the dawn of the Atomic Age: "It must be of the spirit if the flesh is to survive."
--------------------------------------------------------------------------------
If all that were not enough in terms of hiding the true cost of the Afghan war, for example, and the colossal waste of hard-pressed taxpayers' money, there are also serious potential perils for the front line British troops serving n Afghanistan. The MoD accepts that historic under investment has meant that its management information systems and the underlying IT systems are not up to the task. This means that "the risk of failure of these warehouse inventory systems is extremely high and was recently rated as 'critical' by the Defence Logistics Board. If these systems fail then the result would be shortages at the front line within as little as 30 days," says the report.
In any military theatre logistics can decide the outcome of battles and even wars. As Erwin Rommel remarked: "Before the fighting proper the battle is won or lost by quartermasters." He could usefully have added: "provided the quartermasters know their art." That art cannot be efficacious without timely, accurate data on all logistics aspects and that has been lacking for all of the 10-year Afghan war. So what does this logistics shambles mean in terms of costs and were the reasons for Britain's entry into the Afghan war soundly thought through?
Lamentably, military minds, alas, are rarely original, knowing little of history and even less of logistics in a geographically challenging terrain. Sir Sherard Cooper-Coles, Britain's former ambassador to Afghanistan, remarked that the then Chief of General Staff, Sir Richard Dannatt, told him in the summer of 2007 that if he did not use in Afghanistan the battle groups then starting to come free from Iraq he would lose them in a future defence review. "It's use them or lose them," he said. Such a curios, if not crass, reason for justifying an Afghan combat beggars belief and ignores the potency of the Afghan terrain's impact on foreign invaders' logistics.
Sir Sherard believes that the Afghan war is costing Britain £6 billion a year. The true cost is much more than that and may well never be known because the MoD "does not know the full costs of its current activities or the cost of alternative supply options," says the report. Moreover, the £6 billion does not include the cost of supporting maimed military personnel, war widows and their children and the suicides following any wars.
The failure to collect basic data about where supplies are stored has directly contributed to the Department's accounting being qualified for three consecutive years. These qualifications are likely to continue because the MoD's promise to resolve the issues, through a major initiative called the "Future logistics information services project" is not expected to be implemented until 2014.
If an efficient supply chain can be established it would release resources for the front line. The Committee believes that the MoD must place greater emphasis on securing value for money and that there is room for it to find efficiencies in the supply chain without jeopardising operational effectiveness. This could see an end to the practice of having to cannibalize Typhoon jets and military vehicles owing to lack of supplies often caused by late deliveries. In the six months to November 2010, for example, over 40% of supplies were 30 days or more overdue.
Such efficiency improvements are worthwhile but will they make any significant impact on Britain's hemorrhaging of resources at a critical time when the Government is struggling to cut its deficit? Alas, no. To give but one example, consider the costs of prosecuting a war in a far off land where the terrain is ideally suited to guerrilla warfare and so works in the Taliban's logistics favour. The MoD spent at least £347 million in 2010-2011 on transporting supplies overseas but this does not include the cost of military supply flights. In 2010 there were 130,300 individual deliveries made to Afghanistan and 31%, in tonnage terms, went by air. The Committee's 43rd report does not give details of that tonnage nor the air freight costs but some idea, perhaps, can be obtained from what it has cost America to transport an entire brigade of 3,900 men and 15,000 tonnes of supplies by air. The cost was $14,00o a tonne, making a total of $210 million. Had the supplies gone by rail through Russia, which currently forbids munitions passing through its country, the cost would have been only $500 a tonne, a prime example of how logistics thwarts the coalition forces. If the Taliban were more effective at sealing the land routes through Pakistan then the logistics costs would soar to unacceptable levels.
Any logistician can see that the war in Afghanistan is unwinnable for the coalition forces, militarily speaking, and that to remain there for several more years is just throwing more good money after bad and shamefully wasting lives, leaving a sorrowful legacy for their loved ones.
War has not always been entirely negative. People living today could not enjoy their current living standards, helped by many scientific discoveries, without the prior, painful emergence of large political groups like nation states.
Given the nature of man, such a political process could only have been forged on the anvil of war. But the world is moving into uncharted, dangerous waters in which technological progress has far outstripped man's moral progress, little changed since Stone Age times. This serious mismatch is surely the greatest challenge and threat facing mankind today. If the reptile within cannot be tamed permanently then the outlook for mankind is grim at best, if not terminal. As a famous general warned at the dawn of the Atomic Age: "It must be of the spirit if the flesh is to survive."
--------------------------------------------------------------------------------
Tuesday, 16 August 2011
Windjammers promise logistics boons
Commercially viable windjammer cargo ships, augmented by methane-powered engines, could be the answer to all green logisticians' prayers -- predictability on long-term freight costs. It would also deliver huge environmental benefits. The development is the brainchild of Northern Ireland-based B9 Shipping* who claim that their ships will derive 60% of their thrust from wind and the remainder from Rolls Royce spark injection engines powered by methane gas extracted from thousands of tons of food waste.
Compared with oil-burning ships, the B9 gasjammers will deliver competitive, predictable freight rates and equal performance, needing no bigger crews and ensuring optimal health and safety compliance. All sail control will be from the bridge and the masts will be over-engineered. But there are other financial inducements. B9 ships will accrue huge savings from fuel offsets and stand to generate significant income from the carbon trading opportunities. Shipping lines, however, should not break out too many champagne bottles because the technology, although proven and in use, is severely limited by ship sizes.
B9's market research has focused initially on developing a 3,000 dwt short-sea coastal vessel, small beer compared with the majority of much larger ships. Even so, there are 10,000 similar-sized vessels operating world wide so the potential for greener logistics is significant. A 3,000 dwt vessel, the Maltese Falcon, fitted with the Dyna-rig system, has been operating successfully for some time so the company is satisfied that this is the optimum size for immediate development. The initial primary market is dry bulk, particularly wood pellets for the production of carbon neutral heat and power. "This cargo," says director, Diane Gilpin, "runs on a liner route and enables us to demonstrate our technology whilst we have a chance to work with the logistics sector to develop ways of integrating workable, fossil fuel-free propulsion in the existing logistics systems." Their designers, however, already have 5,000 dwt versions on the drawing board.
Climate change concerns could also boost the company's case. Manufacturers are abandoning global supply chains for regional ones. Companies are increasingly looking closer to home for their components. This means that US or European operations are more likely to source from Mexico and Eastern Europe respectively than China, partly because energy is more costly and less plentifully available. Perhaps as much as 70% of a manufacturing company's carbon footprint can come from transport and other costs in the supply chain. But it is not only climate change that poses serious threats to the global supply chain. As the the Japanese tsunami in March showed, it is unwise to concentrate component sources in one, earthquake-prone country while relying on JIT deliveries. A similar, potential risk exists in the heavily industrialised province of Guangdong in south-east China, the home of much of the world's electrical sub assemblies and components. This region is prone to heavy flooding, as the recent June floods, the worst in 55 years, tragically showed and about which this column warned on April 25.
B9 Shipping is currently working with two separate global enterprises developing gasjammers specifically to meet their commercial needs in the immediate future. The first is a chemical tanker where existing oil burners have been forced to slow steam. This obviously slows up JIT delivery and so negatively impacts production costs. By adding a B9 ship the company effectively hastens the supply chain throughput by providing more tonnage whilst not adding any significant emission burden. The client is also comforted, knowing that the cargo price will remain far more stable than fossil-fuel powered ships.
The second client is a cruise company seeking to build relatively small, high-value cruise ships for their existing customers. The smaller, more intimate cruise offerings are hit harder on a per head basis by escalating fuel prices and since their offering is about 'intimacy' they cannot employ the economies of scale solution being used by much of the cruise shipping sector. By cutting their reliance on fossil fuels they can maintain their current prices and offer an enhanced product by promoting a truly 'green' cruise, for which the company sees significant future demand.
Healthier cruising promised
Cruise lines and the shipping industry in general, however, have another incentive to go 'green'. What, perhaps, few cruise passengers and seafarers realise is the risk to their health that diesel particulates, especially, pose not only to those on board but millions of people living close to busy coastal shipping lanes. Only recently have scientists been able to calculate the specific impact of ships' toxic emissions because their known carcinogenic emissions, like particulates and compounds of sulphur and oxygen, are also emitted by factories, motor vehicles and power plants.
The findings of the latest European research are disturbing. One European Commission study suggests that shipping pollutants are cutting several months off the life span of every European. The study lead author said the growth in international trade and cargo ships, many of which originate in China, would make that far worse. He predicts that by 2020 Britain's west coast will be so badly affected by shipping pollution that average life expectancy for people living in or near coastal towns would be cut by 20-30 months.
The current situation, which sees shipping spewing out more than 3% of global carbon, has been allowed to develop because shipping's international nature excludes it from most national laws controlling pollution. This means that 289 million tonnes of fuel burnt by the world's 100,000 cargo ships each year can be sourced from the cheapest, most contaminated sources. These may contain 2,000 times the levels of sulphur allowed in diesel fuels sold for cars, plus many heavy metals and other contaminants, a thought that should disturb cruise passengers when they are showered by soot particles and detect the stench of diesel inside and on deck, an experience this writer has had on several cruise ships. The fact is, very large engines in some ships can spew out the same levels of toxins as 50 million cars in a year and spread them for hundreds of miles on winds.
Renaissance for British shipbuilding?
B9 Shipping's efforts deserve support but not just from the shipping industry. Currently, the Renewable Transport Fuel Obligation is confined to land so that a UK-UK cargo moving by road using some biofuel attracts an incentive payment This does not apply to sea transport on a similar UK-UK route. The Department for Transport agrees with B9 Shipping's logic that encouraging a modal shift from road to sea, reducing road congestion, makes good sense but thinking is one thing, doing is another. Now is the time for Whitehall mandarins to get their fingers out by changing the legislation.
Such a sensible move would also deliver a palpable boost to British jobs, heralding, perhaps, a renaissance in British ship building in Belfast and northern England. The company anticipates a need for 50 ships by 2020 to give the biomass industry compliance with the 10% energy in transport target of the Renewable Energy Directive. Other uses for the ships are emerging in the rapidly-developing low carbon economy, including bio-fuels, recyclate and captured carbon destined for sequestration.
Over time, B9 Shipping anticipates further opportunities will arise to replace the 10,000 similar-sized coastal vessels operational across the world. The company will build its ships in the UK, thus helping to regenerate former shipbuilding cities. Sailors in these gasjammers will also be incentivised by being allowed to share in the returns of the company. "The more they work under sail, the less fuel we will need to use, and we would pass this saving on to them," explained Diane Gilpin. The romance of sail could return in the form of races in the fleet to outperform each other, redolent of the tea clipper days but without the fatalities.
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*www.B9Shipping.com
Compared with oil-burning ships, the B9 gasjammers will deliver competitive, predictable freight rates and equal performance, needing no bigger crews and ensuring optimal health and safety compliance. All sail control will be from the bridge and the masts will be over-engineered. But there are other financial inducements. B9 ships will accrue huge savings from fuel offsets and stand to generate significant income from the carbon trading opportunities. Shipping lines, however, should not break out too many champagne bottles because the technology, although proven and in use, is severely limited by ship sizes.
B9's market research has focused initially on developing a 3,000 dwt short-sea coastal vessel, small beer compared with the majority of much larger ships. Even so, there are 10,000 similar-sized vessels operating world wide so the potential for greener logistics is significant. A 3,000 dwt vessel, the Maltese Falcon, fitted with the Dyna-rig system, has been operating successfully for some time so the company is satisfied that this is the optimum size for immediate development. The initial primary market is dry bulk, particularly wood pellets for the production of carbon neutral heat and power. "This cargo," says director, Diane Gilpin, "runs on a liner route and enables us to demonstrate our technology whilst we have a chance to work with the logistics sector to develop ways of integrating workable, fossil fuel-free propulsion in the existing logistics systems." Their designers, however, already have 5,000 dwt versions on the drawing board.
Climate change concerns could also boost the company's case. Manufacturers are abandoning global supply chains for regional ones. Companies are increasingly looking closer to home for their components. This means that US or European operations are more likely to source from Mexico and Eastern Europe respectively than China, partly because energy is more costly and less plentifully available. Perhaps as much as 70% of a manufacturing company's carbon footprint can come from transport and other costs in the supply chain. But it is not only climate change that poses serious threats to the global supply chain. As the the Japanese tsunami in March showed, it is unwise to concentrate component sources in one, earthquake-prone country while relying on JIT deliveries. A similar, potential risk exists in the heavily industrialised province of Guangdong in south-east China, the home of much of the world's electrical sub assemblies and components. This region is prone to heavy flooding, as the recent June floods, the worst in 55 years, tragically showed and about which this column warned on April 25.
B9 Shipping is currently working with two separate global enterprises developing gasjammers specifically to meet their commercial needs in the immediate future. The first is a chemical tanker where existing oil burners have been forced to slow steam. This obviously slows up JIT delivery and so negatively impacts production costs. By adding a B9 ship the company effectively hastens the supply chain throughput by providing more tonnage whilst not adding any significant emission burden. The client is also comforted, knowing that the cargo price will remain far more stable than fossil-fuel powered ships.
The second client is a cruise company seeking to build relatively small, high-value cruise ships for their existing customers. The smaller, more intimate cruise offerings are hit harder on a per head basis by escalating fuel prices and since their offering is about 'intimacy' they cannot employ the economies of scale solution being used by much of the cruise shipping sector. By cutting their reliance on fossil fuels they can maintain their current prices and offer an enhanced product by promoting a truly 'green' cruise, for which the company sees significant future demand.
Healthier cruising promised
Cruise lines and the shipping industry in general, however, have another incentive to go 'green'. What, perhaps, few cruise passengers and seafarers realise is the risk to their health that diesel particulates, especially, pose not only to those on board but millions of people living close to busy coastal shipping lanes. Only recently have scientists been able to calculate the specific impact of ships' toxic emissions because their known carcinogenic emissions, like particulates and compounds of sulphur and oxygen, are also emitted by factories, motor vehicles and power plants.
The findings of the latest European research are disturbing. One European Commission study suggests that shipping pollutants are cutting several months off the life span of every European. The study lead author said the growth in international trade and cargo ships, many of which originate in China, would make that far worse. He predicts that by 2020 Britain's west coast will be so badly affected by shipping pollution that average life expectancy for people living in or near coastal towns would be cut by 20-30 months.
The current situation, which sees shipping spewing out more than 3% of global carbon, has been allowed to develop because shipping's international nature excludes it from most national laws controlling pollution. This means that 289 million tonnes of fuel burnt by the world's 100,000 cargo ships each year can be sourced from the cheapest, most contaminated sources. These may contain 2,000 times the levels of sulphur allowed in diesel fuels sold for cars, plus many heavy metals and other contaminants, a thought that should disturb cruise passengers when they are showered by soot particles and detect the stench of diesel inside and on deck, an experience this writer has had on several cruise ships. The fact is, very large engines in some ships can spew out the same levels of toxins as 50 million cars in a year and spread them for hundreds of miles on winds.
Renaissance for British shipbuilding?
B9 Shipping's efforts deserve support but not just from the shipping industry. Currently, the Renewable Transport Fuel Obligation is confined to land so that a UK-UK cargo moving by road using some biofuel attracts an incentive payment This does not apply to sea transport on a similar UK-UK route. The Department for Transport agrees with B9 Shipping's logic that encouraging a modal shift from road to sea, reducing road congestion, makes good sense but thinking is one thing, doing is another. Now is the time for Whitehall mandarins to get their fingers out by changing the legislation.
Such a sensible move would also deliver a palpable boost to British jobs, heralding, perhaps, a renaissance in British ship building in Belfast and northern England. The company anticipates a need for 50 ships by 2020 to give the biomass industry compliance with the 10% energy in transport target of the Renewable Energy Directive. Other uses for the ships are emerging in the rapidly-developing low carbon economy, including bio-fuels, recyclate and captured carbon destined for sequestration.
Over time, B9 Shipping anticipates further opportunities will arise to replace the 10,000 similar-sized coastal vessels operational across the world. The company will build its ships in the UK, thus helping to regenerate former shipbuilding cities. Sailors in these gasjammers will also be incentivised by being allowed to share in the returns of the company. "The more they work under sail, the less fuel we will need to use, and we would pass this saving on to them," explained Diane Gilpin. The romance of sail could return in the form of races in the fleet to outperform each other, redolent of the tea clipper days but without the fatalities.
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*www.B9Shipping.com
Thursday, 4 August 2011
China must shun high military spending
Those who forget history are doomed to repeat it, warned the Spanish philosopher, George Santayana, and China looks perilously close to falling into that vipers' pit. China's rapid economic development over the last 15 years has been phenomenal, based on growing global trade and the abandonment of business based on collectivist lines in favour of capitalism. It has made many Chinese millionaires and raised the living standards of millions. All that, however, could be jeopardised if China pursues a policy of penal military spending when pressing issues at home demand addressing.
The latest example of China's military ambitions is the finishing touches being put to its first aircraft carrier, a 60,000 tonne unfinished vessel bought from Russia ostensibly to be used as a casino at Macao. This may have proved a cheap buy but analysts believe China has ambitions for building four more, which would burden hard-working Chinese taxpayers with a multi-billion pound price tag. Much money has already been spent on submarines and much more will be spent on stealth aircraft and developing a long-range aircraft carrier killer missile.
Given China's interests in energy supplies and trade that now span the globe is it unreasonable for China to have a much larger naval presence? Retired general Xu Guangju, of the People's Liberation Army, thinks not. "An aircraft carrier is the symbol of the power of your navy," he says, and "China should at least be on the same level as other permanent members of the UN Security Council who have carriers." He adds: "the development of our armed forces is connected with the development of our economy."
In an earlier age this would have been an understandable sentiment. The British Empire, for example, grew rich on overseas trade but it was trade with a military fist ready for use if need be. This was tenable so long as Britain could exact cheap victories with superior weapons like the maxim gun against spear-equipped natives, and stay ahead with a science-based industrial military complex. China itself was a victim of this mismatch during the Opium Wars of the mid 19th century. Britain's steam-powered gunboats annihilated China's sail-based war junks and so imposed its will to dope millions of Chinese in the pursuit of trade, one of the darkest episodes in British imperial history. But when Britain came up against a modern, industrial-based economy like Germany, the cost of two world wars bankrupted the country, saddling it with debt that took about 50 years to repay.
Military ambitions lack merit
History is littered with examples of how high military spending brings nations low. The fall of the Roman Empire is a prime example. There were many reasons behind Rome's fall but perhaps top of the list was inflation connected with huge military spending. This led to frequent debasing of the silver denarius from over 95% pure to 0.2% silver by the reign of Claudius 2 in 268-278 AD. During the reign of Augustus the army's strength was put at 250,000 troops. By the time of Diocletian it had reached 600,000 and often they had to be paid in gold. Numerous wars simply added significantly to inflation, and as one of the Christian Fathers, St Gregory Naziamuz, said: "War is the mother of taxes." He could also have added that war was the mother of inflation.
For another example China need look no further than how it came to acquire the rusting hulk of a Russian aircraft carrier. Russia, quite simply, was busted by huge military spending. America, too, is groaning under the burden of a huge military budget at a time when the country's grey population are fearful of cuts to social spending and medicare. The Pentagon's budget for 2012 is $553 billion and US military spending has doubled in real terms since 2001. The Obama administration has vowed to cut military spending over the next five years but it may be too little, too late to avoid social tensions erupting at home when the middle class and the poor view with rising hostility the tax breaks for millionaires and billionaires and oil companies making record profits. Selfishness is a great disturber of the peace.
China's defence spending will rise 12.7% this year to £56 billion but many analysts believe the country spends more than it states publicly. This spending binge is having deleterious effects elsewhere as India, for example, has recently announced an 11.6% rise in military spending to £22.4 billion, apparently to counter China's growing strength.
History and more recent economic and scientific developments suggest that China's military ambitions lack merit and are fraught with economic and social risks at home. China has nothing to fear abroad, militarily speaking, for the world needs China as China needs the world but it has much to fear from Nature's fury and so should be conserving its hard-earned revenues to cope with the inevitable natural calamities to come, rather than squander them on vainglorious military designs which can only alarm their neighbours.
At home, China has more to worry about on the economic front. Chinese state-owned banks' loans to local governments may be under estimated by $0.5 trillion and one ratings agency, Fitch, believes the country's total non-performing loans portfolio could reach 30%, while a Credit Suisse analyst thinks many local governments will have to default.
China's inflation, currently at 6.4%, is also rising, despite various interest rate hikes, a trend that will be worsened by high military spending. That can only undermine China's competitive abilities. Further economic pressures will be added by demographic changes as China's one-child family policy starts to unravel.
If all this is not enough to convince the Chinese Government of its folly in pursuing high military spending then perhaps the words from one of the country's own sages will convince them from across the centuries. Sun Tzu warned in 400 BC: "Where the army is, prices are high, when prices rise the wealth of the people is exhausted." Hard-working Chinese people deserve better than that.
----------------------------------------------------------------------------------
The latest example of China's military ambitions is the finishing touches being put to its first aircraft carrier, a 60,000 tonne unfinished vessel bought from Russia ostensibly to be used as a casino at Macao. This may have proved a cheap buy but analysts believe China has ambitions for building four more, which would burden hard-working Chinese taxpayers with a multi-billion pound price tag. Much money has already been spent on submarines and much more will be spent on stealth aircraft and developing a long-range aircraft carrier killer missile.
Given China's interests in energy supplies and trade that now span the globe is it unreasonable for China to have a much larger naval presence? Retired general Xu Guangju, of the People's Liberation Army, thinks not. "An aircraft carrier is the symbol of the power of your navy," he says, and "China should at least be on the same level as other permanent members of the UN Security Council who have carriers." He adds: "the development of our armed forces is connected with the development of our economy."
In an earlier age this would have been an understandable sentiment. The British Empire, for example, grew rich on overseas trade but it was trade with a military fist ready for use if need be. This was tenable so long as Britain could exact cheap victories with superior weapons like the maxim gun against spear-equipped natives, and stay ahead with a science-based industrial military complex. China itself was a victim of this mismatch during the Opium Wars of the mid 19th century. Britain's steam-powered gunboats annihilated China's sail-based war junks and so imposed its will to dope millions of Chinese in the pursuit of trade, one of the darkest episodes in British imperial history. But when Britain came up against a modern, industrial-based economy like Germany, the cost of two world wars bankrupted the country, saddling it with debt that took about 50 years to repay.
Military ambitions lack merit
History is littered with examples of how high military spending brings nations low. The fall of the Roman Empire is a prime example. There were many reasons behind Rome's fall but perhaps top of the list was inflation connected with huge military spending. This led to frequent debasing of the silver denarius from over 95% pure to 0.2% silver by the reign of Claudius 2 in 268-278 AD. During the reign of Augustus the army's strength was put at 250,000 troops. By the time of Diocletian it had reached 600,000 and often they had to be paid in gold. Numerous wars simply added significantly to inflation, and as one of the Christian Fathers, St Gregory Naziamuz, said: "War is the mother of taxes." He could also have added that war was the mother of inflation.
For another example China need look no further than how it came to acquire the rusting hulk of a Russian aircraft carrier. Russia, quite simply, was busted by huge military spending. America, too, is groaning under the burden of a huge military budget at a time when the country's grey population are fearful of cuts to social spending and medicare. The Pentagon's budget for 2012 is $553 billion and US military spending has doubled in real terms since 2001. The Obama administration has vowed to cut military spending over the next five years but it may be too little, too late to avoid social tensions erupting at home when the middle class and the poor view with rising hostility the tax breaks for millionaires and billionaires and oil companies making record profits. Selfishness is a great disturber of the peace.
China's defence spending will rise 12.7% this year to £56 billion but many analysts believe the country spends more than it states publicly. This spending binge is having deleterious effects elsewhere as India, for example, has recently announced an 11.6% rise in military spending to £22.4 billion, apparently to counter China's growing strength.
History and more recent economic and scientific developments suggest that China's military ambitions lack merit and are fraught with economic and social risks at home. China has nothing to fear abroad, militarily speaking, for the world needs China as China needs the world but it has much to fear from Nature's fury and so should be conserving its hard-earned revenues to cope with the inevitable natural calamities to come, rather than squander them on vainglorious military designs which can only alarm their neighbours.
At home, China has more to worry about on the economic front. Chinese state-owned banks' loans to local governments may be under estimated by $0.5 trillion and one ratings agency, Fitch, believes the country's total non-performing loans portfolio could reach 30%, while a Credit Suisse analyst thinks many local governments will have to default.
China's inflation, currently at 6.4%, is also rising, despite various interest rate hikes, a trend that will be worsened by high military spending. That can only undermine China's competitive abilities. Further economic pressures will be added by demographic changes as China's one-child family policy starts to unravel.
If all this is not enough to convince the Chinese Government of its folly in pursuing high military spending then perhaps the words from one of the country's own sages will convince them from across the centuries. Sun Tzu warned in 400 BC: "Where the army is, prices are high, when prices rise the wealth of the people is exhausted." Hard-working Chinese people deserve better than that.
----------------------------------------------------------------------------------
Friday, 15 July 2011
China poses high JIT supply risks
Logistics industry 'experts' are beginning to question the practicality of just-in-time (JIT) manufacturing following natural disasters like Katrina, Iceland's volcanic ash cloud and Japan's costliest earthquake in March but there is nothing wrong with the JIT concept, and its savings will ensure its permanence. It is the need to diversify supply sources which must be addressed, even if that means financing new investment in areas less prone to natural disasters and, perhaps, paying higher prices through less advantageous economies of scale.
Businesses cannot feign ignorance of the natural risks to the global supply chain and their stupidity of putting too many eggs in one basket. Insurance companies have long since developed models of the likelihood of earthquakes, floods, hurricanes and tornadoes for America and other countries. The simple fact is that global corporations were mesmerised by the low production-cost economies of the Far East and so were prepared to brush aside supply chain disruption risks
Japan's March earthquake and tsunami caused over $300 billion in damage, reveal Government estimates, but its broader impact on the global economy may prove even more profound. As I warned last year in my blog: "Has volcanic ash lessons for logistics," the Icelandic eruption was a wake up call to reassess JIT techniques. Japan's tremblor was more of a thunderclap call because Japan is home to nearly 100 manufacturing choke points that would affect businesses worldwide.
Japan, however, is not the only worry about risks to the JIT-oriented global supply chain. A similar crisis in China's heavily industrialized Guangdong province could have even more widespread economic effects. In my April 25 blog: "Japan's earthquake must force JIT supply changes," I mentioned that Guangdong produced many electrical products upon which the world depended for its JIT supplies and which was also exposed to disruption from natural calamities. I even warned that "south-east China will be slammed by a natural calamity, be it seismic or flooding, within months." Just two months later much of south-east China and elsewhere was deluged by the worst floods in 55 years, directly affecting 37 million people, causing over $5 billion of damage, killing over 200 people and destroying or damaging over 500,000 homes. It seems that this time round those export industries in Guangdong were not seriously affected but the lesson is clear. Global industries must now wean themselves from total dependence on China for its purchases.
The risks, however, do not end with natural calamities. There are also political and mercantile risks as the recent spat over China's almost monopoly grip on rare earth elements (REEs) demonstrates. There is nothing rare about the 17 rare earth elements but they are essential for communication devices, weaponry, computers, hybrid cars and flat screen televisions, to name but a few. The disturbing fact is that China has 97% of total world production. It also has the biggest reserves, about 36% of the world's total. China recently announced its export quotas for REEs would remain unchanged for 2011 but the inclusion of rich "ferro alloys" in the quota system means a fall in rare earth exports of 10%. Consequently, some rare earth prices have risen 10-fold this year.
China's reliability must also be questioned following its cuts of REEs to Japan last year after a diplomatic dispute. Mining companies are now rushing to develop new deposits in America, South Africa, Australia and other countries but these supplies will not be available for another year or two and there still needs to be investment in capacity to refine and fabricate them.
If natural disasters are not enough to convince global corporations to reassess their JIT practices then perhaps when both nature and the dark side of mercantilism combine forces to squeeze supplies the lesson will be learnt. Wiser heads, however, will not wait that long.
-------------------------------------------------------------------------------
Businesses cannot feign ignorance of the natural risks to the global supply chain and their stupidity of putting too many eggs in one basket. Insurance companies have long since developed models of the likelihood of earthquakes, floods, hurricanes and tornadoes for America and other countries. The simple fact is that global corporations were mesmerised by the low production-cost economies of the Far East and so were prepared to brush aside supply chain disruption risks
Japan's March earthquake and tsunami caused over $300 billion in damage, reveal Government estimates, but its broader impact on the global economy may prove even more profound. As I warned last year in my blog: "Has volcanic ash lessons for logistics," the Icelandic eruption was a wake up call to reassess JIT techniques. Japan's tremblor was more of a thunderclap call because Japan is home to nearly 100 manufacturing choke points that would affect businesses worldwide.
Japan, however, is not the only worry about risks to the JIT-oriented global supply chain. A similar crisis in China's heavily industrialized Guangdong province could have even more widespread economic effects. In my April 25 blog: "Japan's earthquake must force JIT supply changes," I mentioned that Guangdong produced many electrical products upon which the world depended for its JIT supplies and which was also exposed to disruption from natural calamities. I even warned that "south-east China will be slammed by a natural calamity, be it seismic or flooding, within months." Just two months later much of south-east China and elsewhere was deluged by the worst floods in 55 years, directly affecting 37 million people, causing over $5 billion of damage, killing over 200 people and destroying or damaging over 500,000 homes. It seems that this time round those export industries in Guangdong were not seriously affected but the lesson is clear. Global industries must now wean themselves from total dependence on China for its purchases.
The risks, however, do not end with natural calamities. There are also political and mercantile risks as the recent spat over China's almost monopoly grip on rare earth elements (REEs) demonstrates. There is nothing rare about the 17 rare earth elements but they are essential for communication devices, weaponry, computers, hybrid cars and flat screen televisions, to name but a few. The disturbing fact is that China has 97% of total world production. It also has the biggest reserves, about 36% of the world's total. China recently announced its export quotas for REEs would remain unchanged for 2011 but the inclusion of rich "ferro alloys" in the quota system means a fall in rare earth exports of 10%. Consequently, some rare earth prices have risen 10-fold this year.
China's reliability must also be questioned following its cuts of REEs to Japan last year after a diplomatic dispute. Mining companies are now rushing to develop new deposits in America, South Africa, Australia and other countries but these supplies will not be available for another year or two and there still needs to be investment in capacity to refine and fabricate them.
If natural disasters are not enough to convince global corporations to reassess their JIT practices then perhaps when both nature and the dark side of mercantilism combine forces to squeeze supplies the lesson will be learnt. Wiser heads, however, will not wait that long.
-------------------------------------------------------------------------------
Saturday, 18 June 2011
Raising military spending now would threaten economic stability
It is an axiom that defence is the first duty of government but who or what is the greatest threat now? Traditionally, the enemy has been seen as foreign governments, and latterly terrorist organisations but there is another enemy, insidious, ignored but potentially far more destabilising and it always lurks within -- economic irresponsibility.
When an economy collapses spectacularly then also the social fabric dependent on it is rent asunder, leading to grave social unrest if not revolution and intractable government. Just such a crossroads is dangerously close now but if it is to be averted then military spending must be reined in now, regardless of foreign war commitments.
Robert Gates, the outgoing US Defence Secretary, was right to chasten some NATO member countries for paying nothing at all towards the Libyan fracas, despite all having signed up for the intervention. What was not said, however, was the reason for the wrist slapping. It was not simply that is seems unfair for America to shoulder the lion's share of NATO's costs. It has been doing that for many years and currently contributes 75% of total costs. It is that America can no longer tolerate free loaders because its own economy is stricken by vast military spending over the last decade.
Such spending is remorselessly bleeding the country dry and laying the foundation for serious global economic instability. The US debt is currently stated as 64% of GDP but that does not include off balance sheet items like Medicare and Fannie and Freddie, which if added would see the ratio soar to 500%. With figures like these it is hardly surprising that a recent poll showed that about half of all Americans believe that their country will default. This feeling was doubtless raised by Standard & Poors more recent downgrading of the outlook for the US debt.
Britain is further down the road to economic disruption than America, and labour unrest over necessary Government cutbacks and pension reforms is already set to explode this summer. As in America, a laissez faire attitude to casino-style economics and spendthrift government was combined with high military spending on foreign wars. The 10-year war in Afghanistan has cost Britain at least £6 billion, not including the care costs of maimed service personnel, and widows' pensions. Currently, Afghanistan is estimated to be costing the coalition forces $2 billion a week and in the first nine years of war cost at least $105 billion.
Robert Gates seemed to express surprise that the mightiest military alliance in history (NATO) is only 11 weeks into an operation against a poorly-armed Libyan regime in a sparsely populated country before running short of munitions. Given the Afghanistan experience, where the Taleban are far less well-armed and fewer in number, that is a curious reflection.
The grave risk now is that these wars will generate more strident calls for increased military spending at a time when economic problems at home cannot possibly justify such calls on the public purse. The London Times in a leading article banged the jingoistic drum by calling for more military spending while portraying China as the coming bogeyman for world stability as it raises its defence spending by nearly 13% this year. The Chinese government, for all its faults, deserves better than that odious branding, especially in view of its contribution towards global fiscal stability through purchase of US Treasury assets and keeping inflation rates low. That said, China would do well to rein in such military spending to conserve its resources for the appalling costs of future, inevitable, natural calamities.
It must be indisputably clear that now is not the time to raise military spending by countries tackling serious, home-grown economic problems that, if not solved by debt reductions, will engulf the countries in civil strife or worse. As Paul Ryan, the new Republican Chairman of America's House of Representatives Budget Committee said, if the US did not get its finances in order "We will have a European situation on our hands and possibly worse. The consequences of not tackling the mounting debt burden would be dire. We would have the riots in the streets. We will have the defaults. We will have all those ugliness problems." If nothing changes, investors will grow nervous and refrain from buying Treasuries. Such action would send interest rates soaring and the contagion would spread to Europe, where national debt defaults grow more likely by the day.
Between that and global prosperity is nothing more substantial than the filament of confidence, which if snapped would usher in not disaster but catastrophe. It is the enemy within that can be the most dangerous enemy of all.
----------------------------------------------------------------------------------
When an economy collapses spectacularly then also the social fabric dependent on it is rent asunder, leading to grave social unrest if not revolution and intractable government. Just such a crossroads is dangerously close now but if it is to be averted then military spending must be reined in now, regardless of foreign war commitments.
Robert Gates, the outgoing US Defence Secretary, was right to chasten some NATO member countries for paying nothing at all towards the Libyan fracas, despite all having signed up for the intervention. What was not said, however, was the reason for the wrist slapping. It was not simply that is seems unfair for America to shoulder the lion's share of NATO's costs. It has been doing that for many years and currently contributes 75% of total costs. It is that America can no longer tolerate free loaders because its own economy is stricken by vast military spending over the last decade.
Such spending is remorselessly bleeding the country dry and laying the foundation for serious global economic instability. The US debt is currently stated as 64% of GDP but that does not include off balance sheet items like Medicare and Fannie and Freddie, which if added would see the ratio soar to 500%. With figures like these it is hardly surprising that a recent poll showed that about half of all Americans believe that their country will default. This feeling was doubtless raised by Standard & Poors more recent downgrading of the outlook for the US debt.
Britain is further down the road to economic disruption than America, and labour unrest over necessary Government cutbacks and pension reforms is already set to explode this summer. As in America, a laissez faire attitude to casino-style economics and spendthrift government was combined with high military spending on foreign wars. The 10-year war in Afghanistan has cost Britain at least £6 billion, not including the care costs of maimed service personnel, and widows' pensions. Currently, Afghanistan is estimated to be costing the coalition forces $2 billion a week and in the first nine years of war cost at least $105 billion.
Robert Gates seemed to express surprise that the mightiest military alliance in history (NATO) is only 11 weeks into an operation against a poorly-armed Libyan regime in a sparsely populated country before running short of munitions. Given the Afghanistan experience, where the Taleban are far less well-armed and fewer in number, that is a curious reflection.
The grave risk now is that these wars will generate more strident calls for increased military spending at a time when economic problems at home cannot possibly justify such calls on the public purse. The London Times in a leading article banged the jingoistic drum by calling for more military spending while portraying China as the coming bogeyman for world stability as it raises its defence spending by nearly 13% this year. The Chinese government, for all its faults, deserves better than that odious branding, especially in view of its contribution towards global fiscal stability through purchase of US Treasury assets and keeping inflation rates low. That said, China would do well to rein in such military spending to conserve its resources for the appalling costs of future, inevitable, natural calamities.
It must be indisputably clear that now is not the time to raise military spending by countries tackling serious, home-grown economic problems that, if not solved by debt reductions, will engulf the countries in civil strife or worse. As Paul Ryan, the new Republican Chairman of America's House of Representatives Budget Committee said, if the US did not get its finances in order "We will have a European situation on our hands and possibly worse. The consequences of not tackling the mounting debt burden would be dire. We would have the riots in the streets. We will have the defaults. We will have all those ugliness problems." If nothing changes, investors will grow nervous and refrain from buying Treasuries. Such action would send interest rates soaring and the contagion would spread to Europe, where national debt defaults grow more likely by the day.
Between that and global prosperity is nothing more substantial than the filament of confidence, which if snapped would usher in not disaster but catastrophe. It is the enemy within that can be the most dangerous enemy of all.
----------------------------------------------------------------------------------
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