Sunday, 31 January 2021

 South China Sea tension rises

Any plan Bs international logisticians may have for dealing with disruptive political events in the South China Sea should be re-examined for their resilience as events in that sea took a turn for the worse in late January. 

Having spent considerable sums illegally developing and militarising shoals, reefs and atolls in the Spratly and Paracel islands since 2013 China has just passed a new law that for the first time explicitly allows its coastguard to fire on foreign vessels around these islands, said to be rich in oil an gas reserves. It has also sent its coastguard to chase away fishing vessels from other countries, sometimes sinking them. The law allows the coastguard to use "all necessary means" to stop or prevent threats from foreign vessels. The law also allows coastguard personnel to demolish other countries' structures built on Chinese-claimed reefs and to board and inspect foreign vessels in waters claimed by China. 

Responding to international concerns, the Chinese foreign spokeswoman, Hua Chunying, said the law is in line with international practices and needed to guard China's sovereignty, security and maritime rights, despite the Permanent Court at the Hague ruling against China's so-called Nine Dash Line claiming about 90% of the South China Sea, through which about two thirds of world trade passes, worth over US5 trillion each year. China has indicated that it has no intention of respecting the Court's ruling.

Brinkmanship rises 

On January 23 China cranked up the tempo when it sent a large group of bomber and fighter jets into Taiwan's air defence zone near the Pratas Islands. On the same day, America sent a carrier group headed by the USS Theodore Roosevelt into the South China Sea to conduct routine operations "to ensure freedom of the seas, build partnerships and foster maritime security," said the fleet's rear admiral Verissimo, adding "it is vital that we maintain our presence and continue to promote the rules-based order which has allowed us to prosper."

Losing face in the Chinese psyche is akin to committing hara-kiri, a mindset that like a fever in the blood can ignore powerful economic reasons to steady the boat in the interests of all parties. China will continue to probe with its military might, testing the resolve of others, and its recent history of success, as when it bayonetted its way to Lhasa when the international community just indignantly huffed and puffed in response, leaves no cause to be unworried. Yet, the matter may be resolved without man's proposes, for just as man proposes Nature disposes. 

China's illegal artificial islands are badly exposed to the frequent threat from regular typhoons and tsunamis, with the latter deriving from megathrust earthquakes generated by the Manila Trench. These could easily overwhelm such low-lying islands. Longer term, global warming's cause of rising sea levels combined with huge wave surges will leave much of China's densely-populated coastal cities at grave risks. China's wealth would be better spent here than in military threats, but when politics clashes with economics the former usually wins to the harm of the people.   


                                                     USS Theodore Roosevelt exercising

                                                     its "rights of passage" in the South

                                                     China Sea.

Friday, 29 January 2021

Container ship insurers ignoring the warning signs?

Since my last blog in December on the growing problem of container ship sizes chasing the economies of scale ("Container ship sizes need rethink") the problem has been emphasised by more worrying container losses at sea, which now far exceed the average annual loss of 778 over the three-year period 2017-2019. On January 16 the 13,100 TEU-capacity Maersk Essen, on route from China to Los Angeles, lost 720 containers in severe weather. This comes only one month after the ONE Apus lost 1,816 containers overboard, also after hitting stormy weather on a similar Pacific voyage.

Evidently insurance companies have become complacent over containers lost at sea because they represent less than 1,000th of 1% of the roughly 226 million sea-borne containers transported in 2019. While it is true that such losses can be diminished by toughening up on cargo securing equipment and practices, et al, marine insurers are now worried that more action is needed to reduce container stack heights but are they oblivious to the signs blowing in the wind? If growing container ship sizes of 20,000+ TEU containers combine with climate changes' taste for more and greater storms abetted by rogue monster waves, believed to be the major cause in many such mysterious losses with all hands, then the marine insurance market must expect much diminished reserves to come.

About two thirds of the world container ship trade passes through the South China Sea, an area highly prone to typhoons and earthquake-generated tsunamis. The latter can generate waves over 100ft high, leaving container ships at high risk of capsize. Such waves are also quite able to punch a hole through both sides of the hull. The total loss of a 20,000 TEU container ship with, perhaps, many smart mobile 'phones on board could easily run to well over £10 billion losses.

If the marine insurance industry does not call time soon on the unwise pursuit of ever-bigger container ships chasing the economies of scale then they will have only themselves to blame for the inevitable mega losses to come, especially as they should have the same concerns for mega cruise ships also drunk on the lure of economies of scale


The Maersk Essen loses 720 containers to Davy Jones' bosom


Monday, 28 December 2020

Air pollution legal landmark pressures forklift users

In a new study* of forklift users by Calor some 38% of those surveyed said they were coming under increasing pressure to reduce carbon from their forklift (FLT) fleets. That pressure will now likely rise following a landmark legal ruling over the death of a nine-year old asthmatic London girl who is the first UK person, and possibly the world, to have "air pollution" listed on her death certificate as the cause of death. Such a ruling will undoubtedly galvanise insurance companies to pressure warehouse operators of diesel trucks who are already under a legal obligation to make the warehouse a safe place but what are the problems and remedies for users of all diesel and LPG forklifts, whether used inside or outside premises?

Although at 54% of those surveyed recognised that carbon reduction was a very important consideration when choosing how their FLT fleet should be fuelled, regardless they have to juggle with other operational and commercial priorities. Above carbon concerns were cost (65%), fuel efficiency (64%), machinery downtime (63%), security of supply (59%) and level of customer service from the fuel provider (57%) when it comes to FLT fuel selection. Surprisingly, only 51% of respondents rated cleanliness as a very important issue and only 8% of those surveyed in the retail, leisure and catering industries have said that their business had been very effective in lowering its carbon emissions over the last 12 months. 

The report shows that there are wide regional and industry differences over fuel choice which reflect tougher technological barriers to carbon reduction. In manufacturing and utilities, for example, they felt restrained over dumping diesel because of the energy required for their processes, the limitation of electric and battery technology and the grid's current inability to satisfy demand fully at peak times. 

Companies in manufacturing, utilities, retailing, catering and leisure need vehicles with enough torque to lift and shift heavier products which dissuades them from using electric trucks which they claim underperform in such circumstances. Users of outdoor fleets also find that electrics are not suitable for their needs as the damp conditions can case issues with wiring circuitry and electrical components. Another dissuader is that 62% of respondents felt that they don't have enough charging points for their electric forklift fleets, which have to be recharged daily and left to cool for hours before use. 

The great strides in electric chargers and batteries, however, have diminished these concerns, with claims by manufacturers of electric forklifts, particularly those powered by lithium-ion and iron-phosphate batteries, that recharging times are no longer a challenge and that they can equal the performance punch of diesel and LPG and perform well in outdoor conditions. 

There are, of course, other forklift fuels, like LPG, which though cleaner than diesel (no benzene) are still not squeaky clean at point of use, but they have made a big improvement lowering carbon emissions by offering a bio LPG fuel that cuts 20-32% of carbon compared with conventional LPG. 

Encouragingly, some 94% of respondents agree that more can be done to cut carbon emissions and this is one area where Government help can make a big difference, especially as it would be unfair to expect industry players, many struggling on wafer thin profit margins, to bear the entire cost burden of switching to electric. Government financial incentives can change end user behaviour. Cash grants could be made to companies which prove how much they have cut their carbon footprint. Financial help for UK companies has long been available through the Carbon Trust scheme. There are also operational methods companies could consider which would not only improve their efficiency but also their 'green' credentials. For example, the amount of truck distance travelled, including lifting and lowering, governs the amount of fuel consumed. Depending on one's operational set-up, there may be scope to reduce truck travel times by switching to articulated forklifts# which save up to 50% of warehouse space against conventional counterbalanced trucks and 30% compared with reach trucks. Adding RDTs to these artics could also save much time, which boosts productivity. 



Monday, 7 December 2020

Rethink on container ship sizes?

Economies of scale are one thing when it comes to ever-rising container ship sizes but should that outweigh the expected soaring rise in insurance costs and disruption to JIT deliveries if ship sizes continue ever upwards?

Already, 20,000 teu ship sizes are in the pipeline but container losses at sea show no signs of moderating. The latest disastrous loss is the ONE Apus, which lost 1,816 containers after hitting rough weather on November 30th, 1,600 nautical miles north-west of Hawaii on a voyage from China to Long Beach, California. The ship is a 14,000 teu vessel built only last year and operating under the Japanese flag. It looks like the worst loss in container ship history and comes only one month after another ONE Line-operated ship of 14,000 teu capacity, the ONE Aquila, also suffered collapsed containers in severe weather on a similar voyage. 

There are many reasons that contribute towards such losses at sea, namely poor internal packaging and load distribution and deliberate under declaring of cargo weights to save costs and freight duties, among others. When, for example, the MSC Napoli container ship was beached on the English Devon coast in 2007 MAIB found that one of the contributory causes for the total hull write-off was overloading of 20% of the containers, including one by as much as three tonnes. There is also the ever-present risk from rogue killer waves over 100ft high which can slice through both sides of a ship's hull and sink the largest of ships in  just a few minutes, with the loss of all hands. 

The IMO has toughened weighment rules since then to reduce such nefarious misdeclarations but there are still supply chain gaps and loopholes in weighing containers. If insurance companies don't call a halt on behemoth ships soon they will only have themselves to blame for the inevitable multi-billion pound losses ahead. Nature is a hard act to beat.


Tuesday, 24 November 2020

Britain sees reshoring boost 

from Covid and Brexit

If global logistics teaches anything it teaches us to expect the unexpected but can the unexpected consequences be pre-empted? Those logisticians who must deal with global risks should be familiar with the fact that lean operations are structured to create vulnerability owing to JIT practices that affect most of world trade. The numerous vulnerability risks were, nevertheless, deemed acceptable because of the wide production costs gap between those in developed countries and those in the Far East, in particular. In 2000, for example, costs in China were estimated at 31% cheaper than in the West. By 2012 that gap had closed to about 16%. Add in between 5% and 10% to account for distribution costs and the gap becomes much narrower to convince western importers that the outsourced lower production costs no longer justify the vulnerability and inflexibility of global supply chains, especially in view of the paradigm shift in consumer expectations detonated by online shopping. Seemingly, it took Covid 19 and pending Brexit to ram home that lesson.

The reshoring of production away from the Far East back to the West began falteringly about 10 years ago, fired by concerns over staggering intellectual property theft, poor quality, demands for large orders which imposed higher costs on importers and long delivery times, thus negating JIT principles. It is hardly surprising, therefore, that British importers, with retailers in the van, are moving to save up to £4.5 billion a year initially as the Corona virus and Brexit prompt businesses to bring home production. This figure has been mooted by Alvarez and Marsal and research group, Retail Economics, in a report which they believe will see UK-sourced rising orders largely in food and fashion clothes, but potentially including DIY products and homewares. Signs of the trend have already emerged with online fashion site Asos which will be making its new, lower-priced brand at approved factories in Leicester, and Ted Baker announcing its Made-in-Britain range this month. 

Why EU suppliers face "interesting times"

The reasons have a familiar ring. Retail businesses are making changes after the Corona pandemic highlighted structural weaknesses in global supply chains, which can be slow to adapt to sudden increases or drops in demand caused by shock events or rapidly-changing consumer tastes. But there is a new worrying development for them ---the possibility of a no-deal Brexit which would see tariffs as high as 80% on some UK meat and dairy imports, 12% on clothing and 16% on footwear. Retailers, unsurprisingly, are now considering alternative options, something that ought to concentrate EU negotiators' minds because in the 2-way trade between the EU and the UK they have far more to lose in specific industries. 

A good example of unilateral retailer action is the multi-billion pound pub group, J D Wetherspoon, which has banned French champagne from all its taverns and hotels. It also became clear that as the biggest consumer of Swedish-made cider, the producer felt it prudent to build a production factory in Britain. What all this means is that UK retailers call the most powerful shots, for they will not risk overpriced EU imports hitting their profits.  

There is, however, more to the reshoring trend than overseas production costs. Seven in 10 of the retailers surveyed for the report said they had already started changing the way they sourced goods to meet green and ethical targets. Shipping goods half way around the world is a huge pollution concern, though the carbon neutral ships, particularly sail-powered, will diminish future pollution levels. The appalling human rights abuses in foreign countries have also heaped odium and embarrassment on UK fashion retailers, in particular. 

At the grass roots level there are many encouraging reshoring moves. Jennifer Holloway, chief executive of Fashion Enter, said business was up over one third this year, citing retailers were looking for more responsible suppliers close to home after the pandemic uncertainties highlighted the inflexibility of shipping clothes from Asia. "It's commercial suicide to back long lead times stock at the moment. Retailers are cutting closer and closer to the season. There is no way I would have opened a factory in Wales unless I was certain there was a long-term trend in coming back to the UK. It's exciting. 

Pollution is unacceptable

Meanwhile, Over Fifties fashion brand, David Nieper, is hiring 30 new dress makers and investing £4.5 million in a textile factory. The company's chief executive, Christopher Nieper, said: "Manufacturing in Britain makes business accountable and allows control over each step of the production process. Offshoring manufacturing is essentially offshoring responsibility and, indeed, pollution. Currently two thirds of emissions from UK clothing occur overseas. It's not acceptable to shift the problem overseas where it is out of sight and out of mind."

In Wales 71 former Laura Ashley sewers have returned to the clothing industry at a new factory in Powys where ethical supplier, Fashion Enter, is making clothes for Asos and has just landed a contract for online clothing specialist, N Brown, the owner of Simply Be.

The shift by retailers is only part of wider supply chain changes prompted by Covid and Brexit. Tony Haig, chief executive of PP Control and Automation, is part of the UK Manufacturing Unite Group* which offers a "dating service" for manufacturers to work together to bring production home. Started in response to the Covid ventilator challenge, the group now has 300 members. "It's not a short-term thing," he said. "It takes a lot of time and effort to move a supply chain back to the UK. You don't just do it for a few months."




Tuesday, 14 July 2020

UK retailer bullying of suppliers ramps up

For may years the consequences of intensifying competition among the UK's grocery retailers have been visited on their hapless, bullied suppliers through up to 60 odious ploys designed to squeeze the last drop from suppliers. Matters had seemingly improved in 2013 when the code of conduct was enforced by the Groceries Code Adjudicator but now that is all out the window following Tesco's resurgent, macho stance as it prepares a price war with the leading discounters, Aldi and Lidl.

Past apologies by Tesco's chief executive, Dave Lewis, for his company's "naked pursuit of growth" that led to an investigation into its bullying of suppliers account for nothing as Tesco delivers an ultimatum for draconian price cuts of up to 50% within a few weeks' deadline. But what is behind this move, which can only be expected to be followed by other big grocery retailers, could it have been foreseen and who are likely to be the winners?

David Sables, chief executive of Sentinel Management Consultants which trains suppliers to negotiate with supermarkets, put his finger on the pulse when he claimed that suppliers were being asked to fund deficiencies in Tesco's business model relative to the discounters, but without going into reported specifics. So what are those specifics and can and should Tesco win and if so what would be the consequences for the consumers?

Part of Tesco's problem is its refusal to cut its relatively high profit margins of 4%+ compared with the 2% the discounters are happy with so how can these upstart Continental challengers continue their remorseless rise in market share at the expense of the big four supermarkets?

Stock control is paramount

The recent paradigm shift in retailing sees value for money as the new mantra pursued by consumers which the discounters have delivered in spades, typically undercutting the big four's prices by 30% on a typical shopping basket. They have partly achieved this through a no-frills approach to shop openings which are much cheaper and quicker to commission than the big superstores but far more important has been its approach to inventory control. Warehouses put money to sleep so much so that inventory holding costs can dwarf all other logistics costs combined. A typical Tesco superstore could house about 40,000 SKUs compared with around 1,600 for the discounters, most all of which would be fast movers. Any that became slow movers would be promptly dropped and replaced with anticipated fast movers. This puts the big grocers at a serious disadvantage because most of their stock would be slow and medium movers.

The big retailers must now see their superstores as albatrosses but their online side of the business could bring relief if and when they decide to trim down their costly, giant property portfolio. But internet shopping could also be a threat if many of the big food, etc suppliers band together to build huge shared order picking warehouses for direct deliveries to consumers, thus disintermediating the traditional retailer. Amazon has shown success in this by acting as a wholesaler, but it still represents a cost layer that could be eradicated if suppliers banded together. Meanwhile, sole traders with a slick website working from home can already place orders with manufacturers for direct home deliveries to their customers. 

There is a risk that yet more attempts may be made by the grocery giants to beat the discounters through mergers, like the recent Sainsbury overture to Asda, a move that undoubtedly would have harmed consumers' best interests had it been allowed to go through. There are risks, too, that many of the smaller suppliers will fail over what has been described by one of Tesco's suppliers as a straightforward money grab. If Tesco succeeds and reverses the discounters' fortunes then the ultimate losers could also be the consumers because they would once more be in the grip of the big four who will have more leeway to raise their prices while keeping the suppliers squeezed.

Could all this have been foreseen? Nearly 40 years ago I warned of trouble ahead for the big UK grocers following my visit to Netto in Denmark, a food discount retailer with 120 shops supplied by just one national distribution centre (RDC). Their slick business model, supported by EPOS and EDI, saw all sales replaced at each store every 24 hours. This meant that the NDC, equipped with fast sortation conveyors, saw 90% of all its stock pass through it every day, partly because Netto stocked only 600 SKUs, nearly all fast movers. In my report to Materials Handling News I warned that if this business model crossed the North Sea to Britain it would give Britain's big supermarkets "nightmares." The rest, as they say, is history.

Friday, 3 April 2020

Pallet rack netting demands safety look

How safe are your pallet racking safety devices? Not safe enough, it seems. No matter how well designed, installed, regularly maintained and correctly aligned with the most appropriate MHE, accidents will always happen and one of the five key causes of warehouse accidents involves moving or falling objects.

Protecting the storage medium has long been the poor relation in terms of warehouse safety priorities but such is the risk to business survival from the worse kind of racking collapse, namely domino- style, it almost beggars belief that this aspect of racking safety attracts such relative insouciance. Next to the risk of racking collapse itself is falling objects on personnel.

For many years the only defence against pallet collapses from collisions with MHE has been the upright post protectors and various truck guidance measures but these were restricted to heights of no more than about 4 ft. Then, three years ago, RCP Ltd* patented its Rhino system that connects the upright racking posts to a ceiling structure via steel ropes. This addressed the problem of domino-style racking collapses that could be so serious as to jeopardise the future of companies, especially those geared to e-fulfilment functions when failure to make timely deliveries could see permanent loss of future business. In some domino-style collapses it is worrying how little contact there is between a forklift and a horizontal beam which causes virtually all of the racking to collapse. But what of the more confined peril from falling objects from the racking?

There have been two main measures to protect from this peril, namely racking safety netting and steel mesh containment panels. Of the two, netting creates a safer working environment and risk reduction solution when used as part of a suitably safe system of work, says Chris Hopkirk, sales director of Warehouse Partners, a trading division of Westbrook Industrial.** Available in various sizes and strengths, RackNets are strong and lightweight and easy to install (up to 2 to 3 times quicker than steel mesh). They are made to measure so there is no cutting down or edge working on site. Unlike steel mesh, RackNets will not dent or corrode and life ownership cost is much reduced. Retrieval of goods/pallets is made easier and they are designed to contain and restrain 1 tonne loads within the net envelope. Easy net removal enables beams to be adjusted and rack repairs to be carried out quickly.

The nets are normally used where there is pedestrian access to the rear of a single run of racking and is particularly important where employees are picking off the rear of the rack. The risk of pallets being inadvertently pushed through the rack are greatly increased where a support system such as timber or mesh decks are used. In-flue netting, therefore, provides increased protection from product or pallets being pushed through from one rack to another.

So why is so little netting sold in relation to steel mesh panels? Chris Hopkirk suggests the racking industry could be educating the industry more about the inherent risks of falling objects from pallet racking and that as a minimum a risk assessment and safe system of work should be carried out to ascertain their requirements. The fact is that steel mesh is designed to retain only boxes of up 50 kg and no more.


RackNet in place