Poor racking choice harms warehouse economics

It has been said that it is the supply chain that competes, not companies, and while that is a truncated version of the truth it stresses the pivotal role of logistics. Within the supply chain it is also true to say that the warehouse role is paramount, far more so than global transport costs, and therefore the racking/shelving function should receive the respect it deserves.

No longer a static, boring part of warehouses on which goods are stored and retrieved, today's racking comes in many dynamic forms with varying levels of 'intelligence' to deliver accurate throughput rates unheard of 40 years ago. But with so many choices comes complexity and therefore higher risks of making the wrong choice of racking equipment and layouts.

Fortunately, many leading racking and forklift companies have software packages to help prospective clients examine various storage scenarios under all operating conditions. Their 'what if' facility will quickly test specification changes and so hasten the decision process and highlight potential bottlenecks but they are only as good as the information fed into them. But while simulation packages should be seriously considered for large, complex warehouse layouts, a word of caution. Some 'what if' software packages have limited scope. They may not deal with floor factors, for example, which are so important for very narrow aisle (VNA) high bay stores. If a package is offered by a forklift company there is also the temptation to promote their own product range, even though they know that there is a more suitable product on the market outside their own portfolio. Warehouse operators, therefore, need to be aware of all the various truck types on offer or they could be foisted with aisles that are too wide and with too many forklifts. Reach trucks, for example, need aisles at least 2.6 mt wide but there are now articulating forklifts which can work in aisles only 1.6 mt wide and so store 30% more pallets in the same cube. For these reasons it is probably wiser to consult an independent, pure simulation software house with a long service record like Cirrus Logistics.*

Success depends on research

To ensure a successful installation, operators must adequately research the product dynamics of their stored goods. This will look at volume flows by stock keeping unit (SKU), sizes, weights, time sensitivity, seasonal demand variations and packaging (particularly crucial for automated stores). Hazardous goods will also affect racking arrangements. The choice of racking will set the permanent warehouse running costs, which can vary widely depending on the nature of the stored goods' dynamics. Where fast-moving pallet loads need 100% instant accessibility then adjustable pallet racking (APR) will be the usual choice. It is the most commonly used racking form, one of the cheapest and gives good stock rotation. It is, however, space hungry. A variation of APR is double-deep storage accessed by forklifts with pantographs or telescopic forks for loads two pallets deep. This improves storage density by 40% but at the expense of 100% instant selectivity.

Cheaper still than APR is block stacking, based on post or cage pallets. These can be stacked four or five pallet loads high, albeit in a relatively tricky operation, and the storage medium can be hired. Suited to homogeneous loads, this method offers one of the highest storage densities but the poorest, instant stock selectivity.

If 100% instant selectivity is not essential then drive-in and drive-through racking might be the answer. This is where a forklift can drive right down a racking lane because pallets are supported only on rails at the side of the lane. There are no obstructing beams. Cold stores favour them because of the high storage density achievable in what is a high energy cost environment, where energy can account for 20-30% of total warehouse running costs. Instant stock selectivity, however, is only about 30%, which means poor picking rates and stock rotation. This racking type is also notorious for damage from forklift collisions.

Why interface costs matter

A safer racking choice for cold stores is mobile racking, also valued for its high storage density. Unlike drive-in, it allows 100% instant selectivity, albeit at a slower rate than APR because time is spent while selected racking aisles are being powered open. Even so, surprisingly high pallet handling rates of 35 an hour are achievable. On the downside, mobile racking costs about three times as much as APR and is unsuitable for fast-moving goods. As with any equipment buying decision for warehouses, however, it should be the interface costs that matter most of all. Mobile racking, for example, achieves 50% more storage capacity than APR which not only cuts energy costs but also high construction costs when considering a new-build project. Bolted racking rather than welded should be preferred in cold stores because the latter is subject to weld failures.

Racking also becomes dynamic, in part, when live or dynamic storage is chosen. Various live storage forms use gravity or powered systems to index loads forward to the picking faces. Pallets or totes are fed in at the back and roll forwards on wheels or full-width rollers. Storage density is high and stock rotation good because it is a FIFO system. A variation of gravity-based live racking is push-back racking, which has storage lanes four or five pallets deep. Unlike conventional live storage, which is fed from the rear, replenishment and picking are at the same place and so it saves space at the racking's rear end.

The last 10 years have seen many advances in dynamic racking through the application of robotics from companies like Swisslog,* SSI Schaefer,* Knapp* and Redirack.* Their purpose is to maximise storage density while dispensing with slower and more inaccurate methods using labour. A good example is Redirack's recent, automated pallet storage, retrieval and sequencing solution. Unlike any other system, it combines pallet buffer and sequencing system with automated storage and retrieval system (ASRS) technology which can increase the storage density of existing warehouses by 80% when compared with very narrow aisle APR. Pallet throughput is much higher because the system delivers the retrieved pallets to the operator in the order they are required to floor level. One buyer of the system, Fredericks Dairies in north-west England, achieved a 30% cut in the total construction costs for its cold store against creating a building to house a conventional racking system, to say nothing of high energy running costs. Fredericks Dairies confirmed that they achieved 13,500 pallet storage slots with the Redirack solution compared with only 9,500 pallets from its nearest competitor.

There can be no doubt that time compression techniques will come to dominate many warehouse operations as they adjust to multi-channel routes to consumers galvanised by on-line shopping that threatens swathes of high street shops. A key weapon in the adjustment is the right mix of dynamic 'intelligent' racking. To be quick is better than to be dead.

*Redirack: www.redirack.co.uk
*Swisslog: www.Swisslog.com
*SSI Schaefer: www.SSI-shaefer.co.uk
*Knapp: www.knapp.com
*Cirrus: www.Cirruslogistics.com
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How to avoid automated warehouse failures

Lest there be any initial thoughts that automated warehousing is only for the brave, there are now many such centres in the developed world running successfully and fulfilling their payback criteria. However, although now much more reliable than automated warehouses of the 1980s, examples of spectacular failure still occur and the consequences so devastating as to risk bankruptcy.

The reasons for failure are many and can be of an incredibly crass nature, like when a British middle ranking retailer using a third party logistics (3PL) provider as its turnkey partner refused to invest in simulation to expose potential bottlenecks. Both parties agreed on the need for simulation but neither would pay for it. The result was plenty of warehouse bottlenecks leading to empty shop shelves, a fired 3PL and a badly mauled share price. Spoiling the ship for a ha'porth of tar in this way is a potent reason why, despite such very costly investments, price should not be the prime consideration in deciding which scheme to buy and should never be at the expense of flexibility. So what are the main reasons why automated warehouses fail to meet expectations and when should they be considered for investment?

Most "automated" warehouses in Britain are a mixture of automation and manual/mechanical handling and so the payback criteria for such centres will obviously depend on the level of each. These hybrids may even involve only the automation of information technology, as with Amazon, who rely on it for their order picking functions only. Their operation is highly labour intensive, typically involving order pickers walking 7-10 miles per shift, a process some might imagine is highly time-wasting. Yet, Amazon conducts round-the-clock, effective e-fulfilment centres where delivery times to consumer are critical. This shows how careful one must be before going down the warehouse automation route.

Generally speaking, a fully automated warehouse dealing only with full pallet loads is unlikely to achieve a payback in less than five years but payback criteria can be misleading or incomplete. In such exercises, for example, accountants are unlikely to factor in the beneficial impact of warehouse automation on customers, like prompt, damage-free, and correctly picked orders. It's true that figures cannot be placed on that but it has significant value nevertheless. There is also an environmental dividend because 'dark' warehouses need much less heating and lighting.

Points favouring automation

Generally, the case for warehouse automation is strengthened as the scale and demand for speed and efficiency increase. Favouring factors include:

•  24-hr, seven-day week operations
• When repetitive tasks are regularly performed
• When long travel distances are involved
• When lift height rises above 12 mts
• When high land values dictate the need for very high bay warehouses to exploit height
• When a hazardous environment precludes human operations
• When tight inventory control is essential along with security and almost negligible damage levels. 
• When the use of very high storage heights and densities could close scattered distribution centres

The factor most likely to drive businesses to invest more in automation is the need for more speed and efficiency to cope with the seismic change in consumer shopping evinced by the remorseless rise of online shopping (e-tailing). This trend, which some estimates suggest will wipe out 40% of Britain's shops in five years, will place far more importance on single item picking, leading to demand for automated goods to pickers, be they mini load cranes, robots, carousels/paternosters, or whatever. But is automation inventiveness keeping up with these momentous changes?

Yes, they are, and good examples are some of SSI Schaefer's unique solutions. They have, for example, developed a picking and sortation system which offers the additional dimension of sequencing of order items so that different elements, or lines, of an order can be picked over a period in different areas of the warehouse, then held and delivered together to one packing station. This has the obvious advantage of being able to consolidate all items into one package as well as being able to prioritise packing of picked order items. It is based on overhead conveyor system technology, called the Fulfilment Factory, and it was devised primarily for e-commerce operations.

Truly fully automated systems are increasingly using a 'teach in' system which captures physical appearance, weights, dimensions and other statistical product data upon goods receipt and before put-away. This enables pallet delayering and put-away on trays, subsequently allowing automatic picking and multiple case selection, sequenced in order to build mixed SKU pallets using a robotic palletiser and wrapper.

Avoiding the tender traps  

The business of avoiding costly project failures starts with the selection process of a suitable project provider. For the more complex projects, taking the turnkey route makes the best sense when starting with a green-field site but even here great care is needed. At one time in Britain a significant number of projects relied on the builder acting as the turnkey main contractor. Fortunately, that has waned following some bad experiences. The fact is, a builder does not have the expertise on the special problems that can arise with warehouse automation. All automated MHE suppliers agree that an automated warehouse must be designed from the inside outwards and so it is the working equipment that is paramount. The building, after all, is only there to keep the rain off.

Another route to take is the appointment of a 3PL provider to build and run the project. This may be reasonably safe provided the 3PL has plenty of experience building, integrating and running automated stores. A third route is to appoint a systems integrator as the project manager but the downside outweighs the upside of this choice. The safest turnkey choice would be to make the main handling equipment supplier as the turnkey operator for they should have a good track record for successful projects, helped by their own software expertise. They will also have the substance and after-sales technical service support as a comfort if things go wrong.

Once satisfied with the choice of turnkey partner, the client must then watch out for the warning signs at the tender stage. These include:

• Exaggerated claims
• Lack of well-defined quotation for equipment, with too many qualifications and exceptions
• Lack of information on commissioning trials and acceptance tests and how the system will achieve the throughputs
• Sensitivity of the system to single point failure in mechanical, electrical and control areas
• Design life of equipment at specified duty
• Lack of established support services for equipment and software
• Enough potential throughput capability to cope with sudden unexpected peaks

Watch that packaging

Packaging may seem of little consequence but automated warehouse operators cannot afford to ignore it. If there are two lessons that can be learned about the hazards of packaging for automation they are: consult your handling designer as early as possible, and that the automation solution should come before cost. Packaging should heavily influence the design process. Compared with manual handling, warehouse automation requires better quality packaging and pallets, more consistency and more care over palletising and labelling. Poor quality timber pallets are probably the greatest problem for warehouse automation. Pallet damage is a big factor, with broken boards and protruding nails jamming conveyors, especially the roller type. Some operators prefer plastic to timber pallets because of their greater dimensional accuracy and other advantages, though good quality timber pallets like those from pallet pool operators Chep and LPR would be acceptable. Belt conveyors pose fewer problems than roller conveyors when meeting with loose stretchwrap or banding owing to less snagging. Loose wrapping materials can also give incorrect signals to sensors and cause inefficient accumulation or machinery stoppages. 

Finally, the client must examine its role in making the venture a success even more rigorously because it is here that the seeds of failure flourish. Most MHE suppliers would agree that most of the many reasons behind disappointment lie at the clients' doors and topping the list is poor planning with not enough attention paid to functional specification. There is too little effort put in at the front end to the cost of the back end. Clients must realise that their own attitudes can seriously impair efficient working. A system supplier must have accurate information on the business issues underlying the new system. When the project is handed over, the client's operators and system managers must have been adequately trained on how to run the operation before start up, not after. If not, the new system may be unjustly criticised for providing lower than expected performance. In a fast-changing world dominated by multi-channel distribution, future growth prospects should allow for expandability and flexibility through modularity to be designed in for both the mechanical layout and control systems.

If all the preparatory homework has been done diligently the automated warehouse should  deliver all that is expected of it, with one potential exception -- the vicissitudes of future demand that could change so much, for whatever reasons, as to reduce throughput levels to uneconomic rates. Perhaps one day Big Data will reduce that risk.  

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How articulated forklifts transform warehouse economics

Whenever buying or hiring new forklifts, buyers will often hear about the need to consider life cycle costs above initial truck price because over, say, a five-year hire period the truck's running costs will far exceed initial purchase/rental costs and, therefore, the truck's reliability and productivity, in terms of pallet loads moved per hour, is paramount. Productivity is important because some truck designs and quality make them 20% more productive than competing models but getting to the bottom of the veracity of competing claims is difficult and perhaps viewed with suspicion by potential buyers.

 While it is undeniably critical to put life cycle costs before initial truck cost and be assured of consistently excellent after-sales service, there is another type of cost that can dwarf life cycle costs -- the truck's interface costs. These costs may be defined as how a truck affects overall storage costs, like building costs, rents and rates, utilities and all other running costs, including safety issues.

When, by dint of its versatility, a truck's design combines higher productivity with a huge impact on interface costs, then the case for buying such a truck, despite its higher initial cost than conventional, counterbalance (cb) trucks and reach trucks, is unassailable. The only forklift design that qualifies for this accolade is the articulating truck, yet there still seems to be some convincing to do, perhaps because of conservative inertia over step changes in handling techniques. Such inertia was faced by the British pioneer of articulated forklifts back in the mid 1980s when Translift Engineering, as it was called then, launched the game-changing, articulating Bendi forklift to initial derision from purblind truck competitors who likened it to a Heath Robinson contraption. Today, however, there are now three manufacturers* in the British Isles: Translift Bendi, Narrow Aisle Flexi and Aisle Master.

Interface costs can be key

Counterbalance forklifts, reach trucks and dedicated very narrow aisle (VNA) trucks will not always be the wrong choice, of course, because, as with any large investment in materials handling hardware, careful analysis of stock handling must precede any investment. If forklifts are worked non-stop throughout their shifts (often not the case) then the conventional cb truck could be the most productive in terms of pallets shifted per hour, especially if gas or diesel-powered. But productivity, while important, is often not, or should not be, the decisive factor in the truck choice exercise. Productivity must also be combined with interface cost-cutting issues.

The origins of the articulated truck go back as far as the 1940s when a US Company, Baker, produced a machine that articulated to 45 deg with the aim of reducing the stacking aisle width. Pallets were stacked in a chevron style to help in speed and to achieve smaller aisles. In the early 1950s, Towmotor developed a truck to rotate the load a full 90 deg, much like a modern articulated truck. However, the truck retained all the other counterbalanced design traits so it required two rotating hydraulic support legs that were activated when stacking on either side of the truck. For various reasons it did not galvanise the marketplace in the way that modern articulated trucks have done. It fell to Freddy Brown, inventor of the Bendi design, to apply a new, articulated concept. He found that by reversing the triangle of stability and changing the weight distribution he would solve the issue that had long eluded his pioneering forbears.

Today's articulated forklifts come in a wide range of models, including side loaders, cab-equipped cold-store models and, in the case of Bendi, a pedestrian version and man-up model. The gas and electric articulated trucks can rotate their masts through a 220 deg arc, lift loads up to 12.5 mt and work in aisles only 1.6 mt wide but just how good are they at productivity claims and cutting interface costs?

Proving the claims

The Bendi was developed initially to cut the number of trucks a warehouse operator needed. This can be achieved owing to the articulating truck's versatility that allows it to perform well outside on rough yards loading and unloading lorries and transferring loads directly to narrow aisle or VNA racking. This function is often performed by a cb truck unloading yard vehicles and then placing loads inside for a reach or VNA truck to take over for racking tasks -- a time-wasting exercise that involves two truck types, of which the VNA is far more costly to buy and run than an articulated truck. Significant though this cost-saving advantage is, there are far greater rewards to be had and most are related to space savings.

The two main truck types that compete with articulated machines are the cb forklift and the reach truck, both of which need much wider aisle space. A cb truck typically needs 3.5-mt wide aisles and can stack no higher than about 6.5 mt. A reach truck needs at least 2.6 mt of aisle width but can stack to 12 mt. This means that typically an articulated truck can store 50% and 30% more pallets within a given cube than cb and reach trucks respectively.

It is no wonder with advantages like these the articulated trucks have replaced over 20% of Britain's reach truck market. However, even dedicated VNA trucks are also losing market share to the artics. This is because VNA trucks not only cost far more initially they also require the added costs of rail or wire guidance within aisles, possibly floor upgrades, are more costly to maintain and need more space at aisle ends if they need to change aisles. When they are no longer required owing, perhaps, to the loss of a long-term storage contract, they have a very low resale value. Articulated trucks, however, retain their second-hand value far more than any other truck type.

Instant truck payback

One example should serve to show just how great an impact on warehouse economics and the environment an articulated truck can have when the interface costs are factored in. When warehouse expansion or contraction beckons there are circumstances which can deliver instant forklift payback when a switch from one type of forklift to rented or leased artics occurs. When growing business demands more storage space there are only three means to achieve that: enlarge existing store, rent offsite warehousing and, if possible, make better use of existing storage space. The last of these is by far the least costly. When Stateside Foods, of Bolton, England, was forced by growing demand to expand its factory warehouse storage capacity it simply made better use of space by switching from a fleet of cb and reach trucks to renting two Bendi artics. The former trucks had been working in 3.6-mt wide aisles but the switch to artics meant the aisle widths could be narrowed to 2 mt, allowing far more pallet storage positions. The result was that Stateside could close a satellite cold store 30 miles away and save £250,000 per year, which did not include the costs of handling and transport between the two sites. The result of the truck change was instant forklift payback. It is overwhelming advantages like these which now convince many warehouse operators buying new or redesigning existing premises to realize their plans based on the use of artics.

Among the many other advantages from artics is their undeniably greater safety advantage compared with reach trucks and cb machines through better pallet load vision and lack of rear-end truck swing. Thetford-based Century Logistics, for example, not only gained 25% more productivity than reach trucks and 20% more storage space after switching to artics, it also sharply reduced rack, load and truck damage. In an age when environmental factors and rising energy costs make the best use of storage space more urgent there is no other type of forklift that even remotely comes close to matching the ability of artics to slash interface costs and improve productivity and safety. It is a message, however, that swathes of industry still have not taken on board.
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*Translift Bendi: www.Bendi.co.uk
 Narrow Aisle Flexi: www.flexi.co.uk
 Aisle Master: www.aisle-master.com

By switching to articulated forklifts from reach 
and counterbalance trucks Stateside Foods
saved £250,000 a year through closure of its
Satellite cold store 30 miles away from its main
factory and warehouse 

Big Data solves big logistics problems

Big Data has been around for decades in which lie gems that could transform logistics efficiency but those gems cannot be mined while the data remains largely unstructured. This was the main message from John O'Brien, Vice President for Transport and Logistics, at DataArt* during a presentation hosted by DP World at London Gateway, its new container port, and organised by the Logistics Leaders Network#.

Vast amounts of data are generated by people talking to people (Facebook), machines talking to machines (EDI), and the internet of things, involving sensors collecting and sharing data, but ordinary data processing, involving traditional business intelligence using databases, does not work, says Mr O'Brien. But if the information can be structured efficaciously then those who run global supply chains can seriously cut their exposure to supply risks and even improve predicted demand.

By using big data in this way one fuel retailer, for example, employed sensors at its network of service stations and convenience stores so that it would know in almost real time what its fuel/product mix and consumption rates were in each of its geographical territories. Such incoming point-of-sale data also tells it in which mixes of products besides fuel work best by geographical area so it can tailor offers accordingly. The result is faster time to market with offers and better revenue positioning and agility because offers can be instantaneously changed to respond to customer demand shifts.

Market response time is key

This emphasis on time-to-market can be a game-changer for many businesses because it means that their supply chains are their competitive advantage. Zara, the world's leading clothing retailer, built its empire on the unconventional premise that speed and responsiveness are more important than product cost and so it is renowned for its ability to deliver new clothes to stores quickly and in small batches. Another key, successful plus for them is that Zara controls more of its manufacturing than do most retailers and so is less of a hostage to fortune when natural, political and social risks erupt to disrupt far-flung supply sources.

Perhaps mindful of the Japanese tsunami in 2011, one large manufacturer has used big data to minimise exposure to risk in its global supply chain by overlaying its geographical supply chain locations with weather statistics for tornadoes, hurricanes and earthquakes. It also then calculates the probabilities of natural disasters occurring through a predictive analytics program. The result is that the company now has a way to orchestrate its suppliers so that it has back-up plans if a key supplier gets hit by a disaster and the incident takes down production.

In a JIT-dominated supply chain, having a robust, disaster recovery plan is indispensable but global logistics is still exposed by the concentration of too much supply of one key product in one factory. The Japanese tsunami exposed the folly of this because Japan is a choke point for about 95 products key to the auto industry and consumer electronics. When that disaster struck it disrupted just one factory producing 40% of the world's microcontrollers used in cars, leading to idled car plants around the world and multi-billion pound losses in production and profits. Now might be a good time to hold stocks of such small components in higher amounts at point of final assembly, given that the extra costs of holding such inventory would only be a small fraction of, say, a car's cost, if the supplier controls a worrying percentage of world output in a disaster-prone region.  

It would be difficult to single out any business discipline more complex and demanding than logistics. It is not simply a job trying to arrange a supply chain most effectively, or trying to manage production flows in factories and warehouses efficiently. It involves grappling with socio-geopolitical issues that could disrupt global supply chains; in short dealing with numerous what-if scenarios. It could even involve the input of bad corporate governance on consumer sentiment. Many leading global players, for example, use Far Eastern labour by subcontractors where working conditions are often atrocious. One huge Chinese-based supplier to the mobile phone and computer industries became so concerned over staff suicides relating to working conditions and pay that it reportedly asked new employees to sign contracts promising not to commit hara-kiri. But poor corporate governance, like use of child labour and morally repugnant, though legal, tax avoidance schemes has led to effective consumer boycotts. It is every boardroom's worst nightmare and there is no reason why we should not see more of these problems and so logisticians should take note.
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*www.dataart.co.uk
#Info@gyrosgroup.co.uk   

London's new container port will change Britain's logistics

As ambitious civil engineering projects go, DP World's new London Gateway shipping container terminal, officially opened on November 7, is impressive by any standards, not just for its monumental achievements on time but the likely seismic impact on Britain's logistics map. It took the ancient Egyptians an estimated 30,000 men toiling 30 years to build the 5.8-million ton great pyramid at Giza. It took DP World only three years to dredge 28 million mt3 of river silt, lay a concrete base many times that of Giza's pyramid, lay 25 km of new railway track, build roads, offices and engineering facilities and install eight of the world's largest quay cranes, each towering 448 ft and weighing 2,000 tonnes. Other creditable achievements include DP World's environmental concerns, as it involved the relocation of 350,000 animals and reptiles to amenable sites around Britain, the largest exercise of its kind in Europe. Quite what the good burghers of Wiltshire thought of having 2,000 venomous adders as new neighbours, however, is not known. Little wonder that the project, which when fully operational could create 32,000 full-time jobs, cost £1.5 billion so will it deliver a good return and what are the risks that could upset the apple cart?

London Gateway (LG) has its detractors, and not all from competitors who can expect to lose some business to LG. On close examination, however, these criticisms are largely unfounded. But the risks are palpable and what concerns this writer most of all is the natural risk, on which more later. Two risks are of a competitive nature, and include the new deep-sea Peels Ports' container terminal for Liverpool, due to open in 2015, and uncertainty about growth in world trade, particularly between the Far East and Europe on which LG is banking for much of its traffic.

If world trade proves sluggish over the next few years then the result would be a slugging match with Felixstowe, the country's premier container handling port, and in this LG has logistics very much in its favour owing to its advantageous location to London and the South-East where 40% of England and Wales' population live and have the highest disposable income. Its proposed 10 million ft2 logistics park, the largest in Europe, will also leverage LG's competitive potential, offering tenants huge savings in transport, handling, and stock-holding costs, plus quicker time to market and less food waste through longer shelf life. It was remarked that Marks & Spencer (M&S), who will build a 1 million ft2 distribution centre there, will be able to deliver directly from ship to retail store in three days against three weeks. This recalls the days of yore when London opened the West India dock in 1804 and so reduced ship turnaround time from one month to four days and deprived the 11,000 waterfront thieves, classified into groups from relatively harmless mudlarks to murderous scuffle hunters, of their income. Even the customs men, with their pigs' bladders for siphoning off the rum puncheons, were discommoded. Other potential clients see LG as a platform for e-tailing directly from the logistics park to consumers' homes.

Ships rather than ports at risk?

A third risk, though not of a competitive nature, is allied to world trade growth and involves changing trade flow patterns brought on by a desire to re-shore outsourced manufacturing facilities from the Far East back to Britain and Europe. The reasons are many, not least soaring inflation  in China, poor quality, long delivery times, widespread intellectual property theft and natural hazards disrupting JIT deliveries. Although only a trickle so far, if the re-shoring becomes a flood, and it is difficult to see why it should not, would this pose a significant threat to LG? This writer posed that question to LG's chief executive, Simon Moore, who agreed that trade patterns were changing but that it was a problem for shipping lines rather than ports. "I think it is certainly an interesting topic with the shipping lines, who have invested in very large tonnage, the majority of it really applicable to Asia-Europe trade," he said. "As a UK national, to see some of our traditional manufacturing return to this country I personally think is fantastic. Can those companies grow again to become potential exporters to the growing consumer markets in Asia and the Continent? Again, that is fantastic and a very positive trend," added Simon.

He believes that 90% of our international trade will continue to move by sea, and some large UK retailers who import by air transport are thinking of switching to sea owing to LG's strong business case. He also believes that most of that 90% will still come from points east of the UK and that if there is a trend to more cargo to and from the Continent that LG's location is a positive. Concluding, he said: "One of the things M&S will be doing is not just importing but also using this as a base to export. So I think we can say that we can't inhibit, stop or encourage any particular market trend. We will hope to be flexible enough to have the physical capability to grow with them. So whether it's more use by rail, we are ready for that. If it's coastal shipping we are ready for that. It does not have to be big ships."

LG seems to have all the angles covered but is there an unpredictable Achilles heel? As a tri-modal port operating at all tidal stages in wind speeds of up to 60 mph, it promises quick vessel turnaround for the world's largest 18,000 TEU box ships. It's 41-tonne capacity automated stacker cranes, unique in Britain, offer uninterrupted 24-hr working, as straddle carriers from quayside positions feed containers to them. The logistics park is flexible enough to cater for many users with building sizes to match. Some floor plates will be up to 120,000 mt2 and building heights up to 41.5 mt, high enough for automated stacker cranes within clad-rack buildings that makes construction costs so much cheaper. There is a large common user facility which apparently is 2-3 times oversubscribed, so the port is not just for large businesses.

LG claims that it can save £186 on each London round trip and the present practice of sending some goods north to distribution points only to be sent back south again will be eliminated. The rail connection should remove 100,000 TEU round trips a year from the roads, a significant improvement to the environment, in which air pollution, much of it from road traffic, has been shown to be a leading cause of lung cancer and a major factor in soaring asthma rates world-wide. The whole operation should also be a safer one, as LG has fitted its handling equipment with weighers to detect deliberately misdeclared container payloads, a major cause of accidents at sea, on roads and rail and which nets the miscreants billions of pounds a year through lower shipping charges and import duties. There remains, however, the thorny safety problem of lax container packing, which the IMO/ILO/UNECE's new code of practice, available after next May, will not solve unless money is spent on adequate training. It is to be hoped that any container stuffing which may be done in the logistics park will be by properly trained packers.   

DP World, however, appears to have a non-union policy at its ports. This is an issue exercising minds at the International Transport & Workers Federation (ITF) who seem determined to allow workers union representation if they wish it. This could be LG's Achilles heel. The issue, however, that worries this writer most of all is Nature's fury. The port seems to have adequate drainage facilities to cope with heavy downpours but a proposed bund of sorts around the logistics park of only 1.5 mt high seems inadequate should a storm surge occur at the highest of tides. Sea levels are also rising at an accelerating rate. A three-metre high bund would be much more comforting, especially for insurers. Having so many eggs in one basket, which would be the case at LG, need not be a nightmarish risk provided the calculated risks have been realistically assessed and catered for. One only has to look at the disastrous logistics impact of the Japanese tsunami in March 2011 where Japan was a choke point for about 95 products.The result was idled car plants around the world for want of JIT-supplied parts, leading to multi-billion pound losses in production. There is nothing wrong with the concept of JIT principles provided the ground rules are unswervingly obeyed. One of those rules is to have a robust disaster recovery plan in place. A bund of only 1.5 mt around the logistics park seems tempting fate.

With those caveats, DP World must be commended for their vision and tenacity in bringing a project to fruition 10 years in gestation with a care for the environment that is, alas, still uncommon in big projects. And there seems little doubt that LG will change the logistics map of Britain for the better.  

Salient statistics

Container handling capacity: 3.5 million TEUs per year when all 6 berths are operational
Logistics Park: 10 million ft2, including large common user facility.
Quay cranes: Currently 8 with 24 planned, all supplied by Shanghai Zhenhua Heavy Industries Company (ZPMC) capable of handling 25-box wide ships.
Rail Terminal: currenlty equipped with three 400-tonne rail mounted gantry cranes from ZPMC
Automated Stacker Cranes: 20 from Kalmar (Cargotec)
Straddle carriers: 28 from Kalmar

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New container packing code enfeebled without training

A new, official code of practice for packing shipping containers should be available after next May but will it make much difference to the annual toll of carnage at sea, on roads and railways and appallingly high material losses? History suggests not unless it is combined with adequate, essential training for all operators engaged in stuffing containers.

Since 1997 there has been an ILO/IMO code of practice for packing of cargo transport units (CTUs) but, astoundingly, only about 1,000 copies were disseminated. It must come as no surprise, therefore, that despite being quoted in numerous other documents produced by relevant bodies, there was breath-taking, global ignorance of the code. An ILO research project, for example, published in 2011, found that only 15% of packers used the guidelines while most were unaware of the CTUs' packing guidelines. What little awareness prevailed was often fuzzy as packers thought they applied only to the shipping lines.

The ILO thought, therefore, that the 1997 guidelines should be updated and revised, but as a non-mandatory, though enforceable code of practice. How successful such enforcement would be is a moot point and would vary from country to country. In the UK if, following an incident, the investigation found that the container packers failed to follow the new code they would be at risk of a successful prosecution. But there is a big problem here -- the often impossible task of attributing blame to one container. The problem is less pernicious when, for example, a container lorry has overturned but even here the container may have been loaded by more than one packing firm. At sea it is a much more intractable problem. It takes just one poorly packed shipping container alongside many others to cause mayhem out of all proportion to the value of its contents. One destabilised container could take dozens more with it into Davy Jones' bosom, making it impossible to attribute blame. Some inside industry observers even suggest cynically that there is a sinister incentive for container dispatchers to be deliberately lax over sound container packing techniques. If one of their container loads is lost or damaged at sea they can claim the insurance and hopefully look forward to a replacement order.

The new code, which should be accessible online and published in at least six languages, including Mandarin Chinese, is much more comprehensive than the original guidelines, giving all supply chain partners details on their responsibilities and how to pack and secure contents, taking account of transport forces, load distribution and the CTUs' anchor and lashing point strengths. It also places a responsibility on the shipper to declare the cargo's composition correctly as well as the gross mass of the packed CTU.

So just how serious is the container packing problem and will an updated code really make much difference, especially in the light of the recent IMO watering down of the proposed amendment to Safety of Life at Sea (SOLAS) regulations to make weighing of containers mandatory at all ports?* At a recent one-day London seminar hosted by the International Cargo Handling Coordination Association (ICHCA) it was suggested that accurate weighing of containerised cargo is only a small part of safety in the supply chain and that the way in which cargo was packed is arguably more dangerous in leading to load shifts and cargo spillages. The operative word  here is arguably because there is a clear, commercial incentive to misdeclare cargo weights in order to save on shipping costs and import duties. If a shipping line has many containers with fictional payloads declared it is impossible to distribute loads evenly without port weighing and that could lead to the entire loss of ship and cargo when rough weather hits. Even so, it is clear that poor packing is a major issue. How great is impossible to say as no reliable, global figures seemingly exist which definitely prove losses caused by lax packing, but there is plenty of unaggregated evidence.

The insurers group,  the TT Club, found that its own experience shows that 65% of all incidents involve loss or damage to cargo and of these analysis suggests over one third result from poor packing. It also found that 28% of cargoes were misdeclared . The Cargo Information Notification System's statistics found that 35% of incidents investigated were found to have been caused by poorly or incorrectly packed containers. In Britain, spot roadside checks on one day found that where vehicles were defective 49% of them related to inadequate load securing, 24% had no secured load and 15% an unstable load. On American roads, in just one year, there were 18,000 'straight line' container lorry incidents but without identifying causes.

The reasons for container packing laxity are many and no amount of beefed-up codes of practice will make a tremendous difference. For supportive evidence of that one need look no further than the SOLAS regulation 5 which covers the legal and therefore mandatory need for safe cargo securing, seemingly with inadequate effect. This is not to decry the ILO's move to improve the 1997 code but rather to explain that without other supportive issues there is unlikely to be much improvement on the tragic losses. A key supportive issue must be training, something the ICHCA conference speaker from the TT Club, Peregrine Storrs-Fox, admitted: "There is a long way to go on training." A problem here, particularly in Britain, is the lack of knowledge and experience in packing containers caused by cutbacks on logistics staff over recent years to save money who would have overseen safe packing.

The issue of warning labelling and full description of loads, especially where hazardous cargo is involved, must also be addressed in languages of load recipient countries because a big problem with containers is that they may carry almost anything, including coal and fumigated logs. Not for the first time have fumigated logs or timber overcome container dischargers when entering. At a final, end-user level, the fallout can be truly tragic. The World Health Organisation estimated that acute pesticide poisoning affects 3 million people globally, with 20,000 unintended deaths a year. Much of this can be attributed to poor storage practices and product labelling in languages not understood by its users.

If the new code of practice is to be efficacious there must be a major culture/behavioural change through education and training and in this it is hoped that the ILO will do a better job than last time at getting the message across. Supply chain partners must be prepared to incur more costs by ensuring container packers are adequately trained and even paid more because if one issue is certain it is that not any fool can stuff a container safely.
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*See my report: IMO's container weighing compromise shames shipping

Slavery shames Britain's food supply chain

Logistics is the art of controlling supply chains cost effectively but how are costs measured and are they all- inclusive enough to reflect the true total costs for humanity? Obviously, costs are measured to reflect only those costs affecting a business's accounts and so they will not be all-inclusive. Environmental costs, therefore, will not be fully factored in because there is no legal requirement and they would be incalculable anyway. That is not to say that responsible corporations are not addressing environmental cost issues but it must be said that some of their actions are goaded by legal pressures rather than altruistic sentiments. But there is another, hidden, sinister and blatantly illegal cost -- slavery -- and nowhere is this more evident than in Britain's food supply chain. It is all the more disturbing because it could not flourish without the tacit connivance or disinterest of leading food retailers and their suppliers.

United Nations figures suggest 800,000 people are trafficked every year in one form or another, with more people in slavery today than in the entire 350-year history of the Transatlantic slave trade and one in eight are in Europe. It is now considered the second most organised criminal activity worldwide, generating an estimated US$32 billion a year.

Modern day human trafficking for the UK's food supply chain employers does not just mean paying labour rates far below the minimum wage to mainly East European workers entitled to live and work in Britain. It includes regular beatings, often sexual exploitation and threats to harm their families in their homeland countries should they complain to the UK authorities. The scale of the problem is staggering, even though the full extent of the ill-treatment across Britain's entire food and drink industry, which employs 400,000, is unknown. In an enquiry conducted three years ago by the Equality and Human Rights Commission, one fifth of workers interviewed in the meat and poultry processing industry in England and Wales reported suffering physical abuse in a sector employing 90,000 workers.

These victims are hidden within the supermarkets' supply chains and they are usually brought in through employment agencies or gangmasters, a euphemism for slavemasters in many cases. Many of the latter are acting illegally, targeting and controlling non-English speaking, uneducated, vulnerable workers, using violence and intimidation. One egregious case involved supermarket eggs in which workers could toil in 17-hr shifts often completely unpaid. Dissent was allegedly crushed by their Lithuanian enforcers with beatings and the threat of unleashing fighting dogs.

On a general level, when not working employees are often locked in their squalid accommodation and allowed out only when chaperoned. The mainly East European labourers are enticed to the UK with promises of much higher pay and better conditions. Given that the alternative may be homeless unemployment on freezing Polish streets on winter nights it is hardly surprising they accept the lure, whatever suspicions they may have.

The crime that dares not speak its name

So what can the food supply industry and the public do to eradicate this shameful scourge of untold misery at a time when budget cuts have decimated police numbers, consigning human trafficking to a non-priority status? Britain is probably Europe's most logistically efficient country but there is still much room for improvement. In the food industry there is certainly a serious lack of transparency from the retailers about their supply chain  partners, and the ease with which they can be hoodwinked was made plain enough by the horse meat scandal, an event, alas, that seems to have produced little change. While outfits like the Gangmasters Licensing Authority believe the supermarkets are not complicit in the abuse it is difficult to dismiss entirely the notion that supermarkets' cost-cutting practices placed on suppliers and their gangmasters do not harm the workers who ultimately bear the brunt. The Joseph Rowntree Foundation charity believes that these cost-cutting exercises could lead to exploitation. A co-author of its recent report on the issue believes there are at least 4,000 workers in forced labour in Britain. "It's the crime that dares not mention its name," he says, explaining that the pressure for competitive prices are passed all the way down the supply chain to the workers.

Supermarkets and their third party logistics providers, however, can be obtuse in other ways. Supply chain collaboration has been a hot topic for years and those companies that have collaborated effectively across the supply chain have seen dramatic cuts in inventories and therefore costs. In many cases, stock-holding costs dwarf all other warehouse costs combined. Why, then, have not many more interested parties followed suit?

Many retailers, it seems, still regard collaboration as a threat rather than an opportunity and are reluctant to reveal the kind of business critical information to their logistics partners that will enable strategies to be developed to deliver the best outcomes for all parties. During a recent United Kingdom Warehouse Association networking lunch, the supply chain director of a leading retailer commented: "In our company we see no advantage in developing a personal relationship with suppliers. We just talk through the numbers and details of the contract." It is a commonplace attitude, and one that encourages practices like ringing up to demand thousands of lettuces over the next few days, thus putting huge pressure on suppliers. Leading retailers undoubtedly bully their suppliers so could it be honestly said that their hands are spotless over slavery in the food supply chain?

Left to itself the food industry will never clean up its act. Government action is needed and if that proves inadequate then consumers could use their ultimate weapon -- shame and boycott. Fortunately, Britain's Home Secretary, Theresa May, has made a good start with plans for a new anti-slavery bill and one MP is calling on Parliament to pass the Transparency in Supply Chain bill. This would compel companies with revenues over £100 million to disclose their efforts to eradicate slavery, including audits of suppliers, training for staff and help for victims. To their shame, Conservative MPs talked down the bill, concerned it would saddle businesses with more red tape. The cost of such measures, however, would be relatively insignificant.

The strength of public concern over this issue is encouraging, with seemingly 82% supporting such legislation, but there is more that they could do. The public could become the eyes and ears of the authorities, reporting any suspected, overcrowded properties housing exploited immigrants to bodies like the Salvation Army* and the Gangmasters Licensing Authority.* They could write to their supermarkets urging them to back the industry-funded Stronger Together initiative. Write also to the Home Secretary, urging her to compel large retailers to report publicly on their work to expunge slavery from their suppliers. Finally, for those retailers who ignore such calls there is always the final solution -- concerted, sustained boycott -- every company's worst nightmare. Boycotts have been shown to work, as with Starbucks, and they will work again. When sitting at home enjoying free-range eggs for breakfast consumers would find that their actions would give their eggs a less tainted taste.

*Salvation Army: Tel: 020 7367 4500
 Gangmasters Licensing Authority: Tel: 0800 432 0804
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Corporate tax avoidance threatens your children's future

Death and taxes are life's two certitudes but global corporations have done remarkably well at minimising taxes, especially corporation tax. The scale of avoidance is incalculable, insidious and threatening to society's composure and therefore your children's future.

The recent furore over such tax avoidance, however, overlooks other, more sinister aspects which if not addressed comprehensively soon risks social breakdown and anarchy on the streets. Is that a gross exaggeration? Well, let's look at some of the facts. In 2010/2011 the UK government's total tax revenues of £551 billion included £163 billion in business taxes, of which £42.1 billion was corporation tax, or only 7-8% of the total tax take. One might think should such a low percentage be a cause for concern, especially as corporation tax rates are steadily declining and may one day be replaced by other business taxes. The answer is YES because the current uproar over corporate tax avoidance is not just about one tax; it involves others, it involves employment levels, an even playing field for all businesses and the insidious threat from emerging monopoly power. Worst of all, perhaps, is a possible future dominated by plutocracies.

The UK government is under pressure to slash the social security budget, along with its EU counterparts, and what do we see are the consequences? We are treated to an almost daily diet of TV news showing huge protests, violence and incendiarism, the last typified by London's 2011 summer riots in which looting suggests an economic connection. This is not to argue that there is no abuse and colossal waste in Britain's social security budget. Far from it and so the Government must act accordingly to expunge it but there can be no doubt that if all global corporations doing business in Britain had paid their fair share of UK corporation and other taxes the Government's coffers would have swollen by billions of pounds every year and so relieve the pressure to slash the social security budget.

CBI condemns abusive tax avoidance

What is it, however, that allows global corporations to avoid taxes on a staggering scale and what should be done to excise this canker from society? The facilitator is a complex, global web of disparate tax regimes first set down by the League of Nations nearly 100 years ago and now badly in need of root and branch reform. First, however, some definitions. There are three aspects to tax minimisation schemes: 1) Tax evasion through ploys like under declaring taxable income, which is clearly illegal, 2) Abusive tax avoidance which is legal but considered unacceptable even by the Confederation of British Industry (CBI), 3) Responsible tax management which is both sensible and necessary. There is no suggestion that largely American-owned businesses generating significant sales in Britain, like Starbucks, Amazon, Google and Microsoft, are operating illegally but it is clear that their tax planning, based on highly artificial devices with no commercial purpose, falls within unacceptable abuse. Here are a few examples of how the irresponsible schemes work.

1) Starbucks sources UK coffee from a wholesale subsidiary in Switzerland, which is commercially sensible because it is cheaper to have one team responsible for sourcing all of its coffee and Switzerland seems to be the centre of the world coffee trading business. But there can be little doubt that Switzerland would not be such a world centre if it did not charge a low 12% tax rate on the trading profits. The issue becomes even murkier still when global corporations use "transfer payments", an issue first tabled for cleansing before World War 2. Transfer pricing and payments have great scope for tax reduction because they mean global companies like Starbucks can decide how much its UK business pays to non UK companies within the Starbucks' empire for access to the US firm's brand, coffee making technology, engineering support and so on. Unsurprisingly, the overseas companies are based in low tax regimes so there is a strong temptation for a multi-national to overprice the goods and services provided. to reduce or eliminate profits, and therefore tax, in a relatively high tax country. This odious transfer charging has been used to devastating effect over many years in developing countries least able to afford multi-billion pound losses through tax avoidance by wealthy, global businesses. The benefits from these financial artifices mean that Starbucks, for example, paid only £8.6 million in UK corporation tax over the last 14 years and nothing at all in the last three years, despite clocking up nearly £400 million in sales during 2011.

2) E-commerce also eases the path for creative tax avoidance schemes and Amazon is a good example. When buying a book from Amazon, UK purchasers enter into a legal contract with and pay their money to Amazon Luxembourg where the VAT rate is only 3% -- an example of how more than just corporation tax avoidance is involved. Despite booking multi-billion pound sales in Britain last year Amazon reportedly paid no tax on the profits from these sales because they were funnelled through Luxembourg. Experts claim that if Amazon did not route sales' profits through Luxembourg it would be paying as much as £100 million a year in UK corporation tax.

3) Microsoft sells its software from Ireland or, in the case of electronic downloads, through Luxembourg, so most of the money the company makes from British customers is earned in Ireland, where corporation tax is only 12.5%, about half the UK rate. This is part of an elaborate structure that the US Senate committee described as designed "to shift and keep profits offshore."

Overly concentrated wealth threatens democracy

There are no accurate figures on how much has been lost to tax havens but the figures are undeniably staggering, one estimate being $20 trillion. Another estimate indicates that the 70 plus "business friendly jurisdictions" are sheltering between $21 trillion and $32 trillion, up from only $11.5 trillion in 2005. This, of course, includes a large element of individual tax avoidance, and along with company tax avoidance should be tackled to prevent future social disharmony. Britain' HMRC (formerly the Inland Revenue) estimates that the country is losing £5 billion every year through corporate and individual tax avoidance.

As remarked earlier, tax loss does not just harm government revenues. Aggressive tax avoidance schemes also create an uneven playing field for competitors. Whitbread, a British company for example, owns Costa Coffee and pays its fair share of UK corporation tax, unlike Starbucks and Caffe Nero, the latter reportedly having paid no corporation tax on a $40 million profit in just one year. This puts Costa Coffee at a serious disadvantage and could even lead to market domination (monopoly) as fair tax payers are driven to the wall. One could argue that Amazon's unfair tax advantage over bricks and mortar book retailers is helping to drive them out of business. Reportedly, Amazon already has a 25% share of the UK book market. What then for the future prices of books? No monopoly can ever be trusted to work in the public interest. But potentially far worse than all these is the threat to democracy from plutocracy.

Ever since World War 2 the disparity between income groups has widened, first slowly but now rapidly. A key component behind this is the growth in global tax havens. As Angel Curria, head of the OECD warned, big corporation tax avoiders  "will undermine democracy. This is about the survival of democracy." If civilization is to work harmoniously then those who enjoy its benefits must also be prepared to pay their fair share of the costs. The warning signs of failure to do so are plainly evident. Greece came close to anarchy over austerity measures brought on by rife tax evasion, corruption and crass economics. Spain is flirting with political dismemberment while the wealthier, economically more responsible EU members are tiring of subsidising fiscal delinquents. Most of their citizens believe that their governments will renege on the their debts.* If nothing is done to reform rich-world financial centres as well as island tax havens then anarchy on the streets is not a fanciful notion.

Fortunately, the right noises are now being made by governments. France has slapped Amazon with a $252 million contested demand for back taxes, interest and penalties. It has been rumoured that Google may also receive a French tax demand for one billion Euro. The UK Government is suggesting that the public sector should tie their contracts only to companies that pay their fair share of tax. This shows the huge importance of concerted power because such spending accounts for £1 in every £7 spent in Britain. It signpost the way consumers should go. Consumers hold the ultimate weapon but for it to be effective it must be concerted and sustained. No global corporation, no matter how big and wealthy, can withstand consumer action through boycott. It is every company's worst nightmare and it has already been proved against Starbucks, who have now agreed to pay £20 million in corporation tax over the next two years. But be not deceived. It is a short- term sop akin the the Roman emperors throwing bread to appease the Roman mob. Such boycotts also worked against multi-nationals using child slave labour in the clothing industry.

The likelihood, however, is that consumer protest will wane and the matter soon forgotten. That would be risky because although a global initiative is under way to clean out the Augean stables of tax avoidance it will take years to reach consensus, if ever. That is why pressure must be kept up. The public should pressure their MPs and MEPs about what, if anything, they are doing to make the tax regime fairer for all. They should themselves learn more about the main tax exploiters and be prepared to engage in peaceful, lawful protest. Apathy is not an affordable luxury. The next time you sip your Starbucks or Caffe Nero coffee ask yourself if you are sipping to your health or toasting to your descendants' angst. Is that the kind of future you wish to bequeath to your children?
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*Google my blog headline: "Good governance must prevail"

IMO's container weighing compromise shames shipping

In the world of shipping when money and safety issues clash it is money that prevails. That, essentially, is at the root of the IMO's compromise last week to an amendment to make container weighing mandatory for all the world's ports. But for compromise read bastardise for the watering down of the amendment castrates it so much as to render it of dubious, disturbing value. Consequently, more ships and seafarers, road users and port workers will continue to suffer unnecessary loss and injury at the altar of Mammon. The environment, too, can expect deleterious consequences. It is a great missed opportunity, a shameful, shabby compromise and one that will come to haunt the objectors to global, mandatory container weighing as the risks rise with the growing size of container ships.

What the IMO has settled for is the decision by its sub committee on dangerous goods, solid cargoes and containers to accept an alternative mode of verification to the mandatory weighing of packed shipping containers, much to the chagrin of the International Transport Workers Federation (ITF) who since 2007 have been lobbying for a system of mandatory weighing of containers. This serious watering down means that governments will be allowed to either choose the gold standard of mandatory weighing or the lesser measure of certifying containers based on an unformulated process of verifying the weight by adding together the different constituent parts of a container load at unspecified times and places along the transport route.

"Opportunities to implement this compulsory system have been missed and as a result the ITF has launched the container weight campaign," says ITF. What the ITF and transport unions want are: 1) An international law requiring the mandatory weighing of loaded containers, 2) A process in place to address misdeclaration of container weights, 3) The ship's master to have the ability to refuse to load un or misdeclared containers.

Other interested objectors to the compromise include the United Sates and Danish governments, The World Shipping Council, The Baltic International and Maritime Shipping Council, The Institute of Chartered Shipbrokers, the International Association of Ports and Harbours and the International Cargo Handling Coordination Association. This is curiously at odds with bodies like the Global Shippers Forum (GSF) praising the IMO for making the 'right' decision and that the compromise proposal was "the best possible outcome for shippers and the maritime industry". This apparent chutzpah, however, becomes less curious when one considers what the GSF is. It does not represent the carriers (shipping lines)  nor the governments who are routinely defrauded of billions of pounds every year through deliberate under declaration of container payloads. Carriers lose huge sums because they charge by the container not the cargo weight within and there are limits to the maximum weight allowed in them. This means that if shippers and/or their packers were honest about cargo weights they would have to hire many more containers. Governments lose heavily because their import taxes are calculated on cargo weight.

An idea of the scale of the fraud can be adduced by the numbers of TEUs shipped by sea six years ago -- 141 million, or 1,272 million tonnes. The GSF is a body representing shippers' interests, i.e. the owners of the cargoes whichever way they are transported. On their website they crowed that they had "persuaded the ILO/IMO not to introduce new regulations increasing shippers' responsibilities for the safe stowage of containers throughout the whole supply chain in favour of enhanced guidelines in the promotion of training and best practice." It went on to say that it believes the compromise proposed is "the best possible outcome for shippers and the maritime industry as it provides a flexible and workable solution which can be adopted by industry without significant cost or delays in the supply chain.

One could be forgiven for thinking that the reasons they put forward for the need for compromise  are shallow if not disingenuous. They and the IMO argue, for example, that a number of countries and interested parties had made the point that there are many ports in the world where there is not the equipment nor the finance to acquire it to weigh every container and so an alternative method was needed. This seems a shallow, if not baseless, argument because the cost of retrofitting container handling trucks with weighers and linking them with the terminal operating software is tiny when set against the extremely costly port container handling equipment. It is not, therefore, an unrealistic expectation to fit mobile port container handlers like RTGs, reach stackers and straddle carriers with weighers. Weigh bridges would not be feasible as these would be delaying choke points while ship-to-shore cranes so fitted would be too late in the handling process.

To claim it is in the best possible interests of the maritime industry would strike a discordant note with the many bodies who opposed or complained about the compromise deal. Apart from the bodies already mentioned they also include: Asian Shipper' Council, the European Shippers' Council, the European and International Freight Forwarders Association and the European and Maritime Terminals and Stevedores representative who all complained that the compromise proposal was based on insufficient evidence and would make little difference to ship operations. The European Shippers' Council went further, urging that the regulation covers only one aspect of the dangers of working with containers and so ignores others such as stacking and packing of containers and as a result will do little to enhance overall safety standards.

                                                            ITF fights on

Explaining the flaws in the IMO's compromise to the amendment, Paddy Crumlin, ITF President and Dockers' Chair, said: "We have a compromise that some countries will put in place a process that is likely to be bedevilled by the obvious questions: Who will certify, when and how?" They now seek transparency and clarity from the governments that fail to take up the safer method of how they plan to made certification work. "We are not prepared to walk away from this so we are redoubling our campaigning efforts and planning further lobbying," said Mr Crumlin. Concluding, he said: "It must be made a legal requirement that containers are weighed accurately. There must be repercussions for those who misdeclare. That's what we are campaigning for because anything less is just not good enough"

The GSF maintains that the majority of shippers act responsibly and comply with their responsibility to make accurate cargo declarations. That may be so but evidence suggests that the minority of fraudsters is so big as to pose an unacceptable, global risk to seafarers, dockworkers, road users and the environment. ITF has consistently been of the opinion that the incidence of misdeclared and overloaded containers is widespread in the shipping industry and any solution that does not require the container to be weighed before loading will be subject to abuse. They base their view on container ship loss investigations by bodies like the Maritime Accident Investigation Branch (MAIB). When the container ship, MSC Napoli, was beached in 2007, MAIB found that no less than 20% of all the on-deck containers were over 3 tonnes heavier than their declared weights and in one case the difference was 20 tonnes. This was not carelessness on the part of container stuffers; it was deliberate fraud. On this, MAIB was scathing about the marine industry's hypocrisy. "While key industry players will attest that safety is of paramount concern, evidence obtained during this and other MAIB investigations suggests that in reality the safety of ships, crews and the environment is being compromised by the overriding desire to maintain schedules while optimising port turnaround times," it said.

Only two months before the IMO watered down the amendment, the 90,000dwt container ship, MOL Comfort, broke in two, subsequently caught fire and sank, fortunately without loss of life. The insurers for the 5-year old, 8,000 TEU ship reportedly may be in for a US$400 million bill plus the value of cargo lost. Had this loss occurred close to shore its 3,100 tonnes of fuel oil would have posed a serious environmental threat. The causes may never be known but the smart money is on the longitudinal stresses induced by under-declared container weights which shippers routinely refuse to take with any seriousness. There have been plenty of other warnings about excessive container weights leading to dangerous incidents which are not always allied with adverse sea conditions. Feeder container ships have regularly been rolling over, even against quay walls. The MOL Comforts' loss also brings into question whether the construction standards of large container ships are good enough to stand the potential rigours at sea. If this writer were a shareholder in Maersk he would pray nightly that its launch of the world's largest ship, the 18,000 TEU vessel, Maersk McKinney Moller, will never mean accepting containers that have not been weighed at ports. Its loss at sea fully loaded with, say, 182 million ipads would run into billions of pounds, a thought that should also worry insurers.

The MOL Comfort loss, however, failed to concentrate minds at the IMO deliberating the container weighing issue. It is hardly surprising. Shippers' organisations have been defending their flawed position on container weights for over 40 years. It is stark testimony to the industry's overriding will to put money before reasonable safety practices, but it is tainted money that will most assuredly become blood-stained.
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Why 'green' logistics must not be ignored

Environmental issues are moving centre stage in business strategies so it is only logical that 'green' logistics  will dominate corporate thinking because of its huge carbon footprint. Any moves, therefore, to cut conventional electricity, alone responsible for 30% of Britain's carbon emissions, and other toxic fuels, will be welcomed but what are some of Britain's leading logistics companies and retailers doing to achieve that? To find out, readers could attend, or otherwise follow, the second Green Logistics Summit,* part of the Logistics Leaders Network, on September 17 at the B & Q Centre, Worksop, Nottinghamshire.

The theme will be how companies can profit from 'green' logistics strategies by saving money and helping the environment. Jaguar-Land Rover will be talking about their fleet improvement strategy reducing CO2, partly through lower mileage. B & Q will discuss steps it is taking to reduce the environmental impact of the supply chain, while others will be talking about reducing energy in the warehouse, reverse logistics, recycling and re-use of materials and fleet management, trucks, tyres and trailers. The keynote address will be all about the latest EU pronouncements on 50% of journeys within its borders not being eligible for going by road by 2030. Following the conference, there will be a tour of the large B & Q distribution centre, all of which is powered by one 2 megawatt capacity wind turbine, with enough energy left over for some local houses. The turbine reduces annual carbon emissions by 1,599 tonnes.

Whatever misgivings some may have over alternative clean power sources like wind and solar, owing to costs and their taxpayer subsidies which hit the poor much harder than the rich, the long-term cost of relying heavily on fossil fuels should convince most that there should be a hastening of clean, reusable, energy options adoption, as will become clear. However, there are other promising developments less painful to taxpayers' pockets These include dual-fuelled, gas-powered HGVs using a mixture of bio gas from waste food and liquid natural gas.

A leading pioneer in this work is the British company, Gasrec, who claims that an HGV fleet operator who seeks to lower his fuel costs and decarbonise the fleet will discover that Bio-LNG provides the optional solution. By their nature, HGV operations cover the highest mileage and use the most fuel in the logistics sector, accounting for over one third of all costs. Claimed benefits for the Gasrec  fuel are impressive. These include 25% cheaper fuel, up to 70 % cut in CO2 emissions and at least 85% in NOx. There is a 90% cut in particulates which all add up to the company's claim that environmentally speaking it is more advantageous than any other commercially available fuel.

Barriers to its adoption, like availability of vehicles, quality and availability of the fuel, are all being removed. Volvo and Mercedes are the dominant manufacturers, with Cleaner Power and Hardstaff providing conversion technology. Payback calculations for conversion can be difficult but Britain's leading food retailer, Tesco, claims a payback on converted vehicles in just over two years. Other leading Bio-LNG fuel users are B & Q, Coca-Cola, Sainsbury, UPS and DHL. Currently, Gasrec is building the UK's first refuelling network, enabling its customers to access the fuel from multiple locations on the UK road network.

Time, alas, is running out in the race to ameliorate the impact of global warming, and as indicated in my last report: "Nature threatens port centric logistics," even if the burning of all fossil fuels ended tomorrow "future generations have been irreversibly committed to a warmer world and rising seas." The cost of going 'green' may seem high for some but the cost of not doing so on a meaningful and timely scale will be incalculably higher. As hurricane Sandy showed last Winter, a perfect storm left defenceless New York with a US$19 billion damage bill but the legacy costs seem almost certain to be much more. Pity the unfortunate householders from Louisiana to New York (with west coast cities to be added by 2016) asked to raise their homes or suffer huge hikes in insurance premiums thanks to FEMA's redrawing of the country's flood maps in anticipation of future storms. But it is not just about storms. It also encompasses a combination of rising sea levels and storms. The former has risen eight inches over the last 100 years owing to global warming but the rate of rise began to accelerate over the last two decades. The consensus is that by the end of the century it will rise between 27 inches and six feet, provided the Damoclean sword of the huge Thwaites glacier in West Antarctica does not breakaway, a prospect rising sea levels enhances, for that alone would raise sea levels by 10 feet. Then the sparks would fly upwards.
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*Further details from: Peter Acton, Tel: 01737 457002. Email: Info@Gyrosgroup.co.uk

Nature threatens port centric logistics

Momentum is gathering pace to change the supply chain map of Britain, evinced by a switch to port centric logistics, but is a key factor being overlooked that could make the move disastrous without environmental preparedness? The economics of re-basing logistics parks to port vicinities look cogent. They can eliminate many return empty container trips and allow containers to be fully loaded, and so reduce transport costs and carbon emissions.  But a new, insidious threat, incalculably damaging, beckons, albeit still hedged by uncertainties --- rising sea levels.

By the nature of coastal ports they must be at sea level but the port assets, like wharfs and dock cranes, can at least be placed high enough above high spring tide levels so as to make them unlikely to flood in the next 100 years. The problem is their hinterland. These areas around the new London Gateway terminal, due to open this November, Tilbury, further up the Thames, Felixstowe, Southampton and Portsmouth are all low- lying and mostly marshy. There is nothing much that can be done with existing ports, though where they incorporate huge logistics parks, like that at London Gateway, effective bunds may be needed to counter future flood risks and any future ports might need to consider substantially raised roads and railway banks that connect them to the inland sites so that they will not leave the ports marooned by flooding.

Is the risk from rising sea levels, however, strong enough to galvanise authorities around the world into more forceful and inevitably costly action? A look at the facts leaves little room for complacency. For 2,000 years global sea levels barely changed. Then they began to rise in the late 19th century as the Earth started to warm, helped by industrialisation and its consequences for CO2 emissions and other greenhouse gases. At an eighth of an inch a year sea levels are rising twice as fast as they were a few decades ago, and there is no comforting reason why this rate of acceleration should not quicken. Over the past century the planet's temperature has risen one degree Fahrenheit and the sea level by about eight inches. Only in last May the concentrations of carbon dioxide in the atmosphere reached 400 parts per million, the highest in three million years.

Clearly there is a need for a global effort to cut greenhouse gas emissions but even if we stopped burning all fossil fuels tomorrow the existing greenhouse gases would continue to warm the Earth for centuries, so future generations have been irreversibly committed to a warmer world and rising seas. Even so, that does not negate the case for more stringent gas emission controls because without them the future would be even more intolerable. It must be admitted that in the short-term scientists are still uncertain about how fast and how high seas will rise. Estimates vary between 23 inches and six feet by 2100 and the US Army Corp of Engineers recommends that planners consider a high scenario of five feet. But what is certain is that past estimates have been too conservative, and there is a joker in the pack. This is the huge Thwaites Glacier in West Antarctica, underpinned by a 2,000 ft undersea ridge, slowing its slide into the sea. If a rising sea allowed more water to seep between the ridge and glacier the latter could detach. Such a breakaway would be enough to raise sea levels by 10 ft.

To an extent, the damage is done, and a foretaste of things to come was New York's hurricane Sandy storm surge last year that inundated a defenceless city, killing 43 and leaving a US$19 billion bill. Many coastal cities are now at significant risk, including even those like London which have built hitherto effective barrages. If one uses a conservative estimate of a 20 inch sea level rise then according to the OECD estimates some 150 million people in the large port cities will be exposed to risks from coastal flooding, along with US$35 trillion worth of property. The consequences of doing nothing more effective than at present are too nightmarish to contemplate. Rapidly developing countries like China and India who are spending huge sums on military expenditure and who have the most to lose from rising sea levels should abandon such inessentials and redirect their revenues to meet the inevitable, natural calamities to come.
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Shipping's regulatory framework shames the industry

It would not be unreasonable to ask if now is the time for the International Maritime Organization (IMO) to be administered an effective enema, such has been their egg-bound deliberations on certain maritime safety issues, which continue to exact their lethal, heavy toll. In releasing its findings on the sinking of the general cargo ship, Swanland, in the Irish Sea on November 27, 2011, Britain's Marine Accident Investigation Branch, (MAIB) commented that concerns surrounding safety and high loss rates on similar ships had been repeatedly raised at the IMO. "However, progress to address the problems appears to have been slow," said the report. It is a tardy record that over 2002-2011 saw 248 general cargo ships foundering worldwide with the tragic loss of over 800 seafarers. Some 226 of those vessels were 15 years old or more, and 139 at least 27 years old. But this is not the only issue where the IMO's apparent tardiness has been disturbing.

Structural failures on ships in heavy weather, for example, affects container ships and the key problem here is deliberate overloading of containers to save freight costs and import duties that probably amount to over £1 billion a year. The solution is a simple one and has been under IMO's consideration for some years. Making the weighing of containers mandatory at all ports is the simple solution but the lack of effective, timely action by the IMO adds daily to the risks, which can only worsen as container ships become ever-more leviathans with 18,000 TEUs or more on board.

Yet a third disturbing lack of action concerns the need to overhaul SOLAS regulations regarding lifeboat capacities on cruise ships. The wrecking of the Costa Concordia was a wake up call that seems to have fallen on deaf ears. As this column commented in previous blogs and elsewhere on shipping sites over the last six years, there is a serious shortage of lifeboat places on most cruise ships, averaging 25%, when allowance for rapid listing is factored in. It is not unusual for cruise ships to list quickly and so prevent lifeboat launching on the opposite side of the list. Almost as disturbing is the cost-cutting means cruise lines use by making use of much cheaper inflatable life craft that would be almost useless for senior citizens in a raging sea, especially if they had to jump 50 ft or so and then struggle to get on board. Had the Costa Concordia foundered many miles from shore in a hostile environment the death toll could have far exceeded the Titanic's tragic loss.

The problem of general cargo ships is clearly a regulatory one. As the International Transport Workers Federation (ITF) commented on the Swanland report: "The ITF condemns the lack of effective regulations and control in the international shipping industry that allowed the tragedy to occur. The MAIB report reveals how negligence and cost-cutting led to the sinking of the general cargo ship, Swanland.... with the loss of six Russian seafarers." ITF, therefore, is calling for:

A wholesale review of the general cargo ship safety,
Stricter enforcement of all the existing regulations,
Additional checks and safeguards to guard against the potential, precarious safety of all general cargo ships.

The Swanland sinking shows, as in many ship losses, that there was a cocktail of reasons that became lethal, almost all of which were man-made and without which even in the roughest of seas the vessel would have survived. At 2 a.m. the 34-year old Cook Islands-registered general cargo ship, (1,987 grt) experienced a structural failure when heading directly into rough seas and gale force winds (Beaufort scale 8-9) when on a passage from Llandulas to Cowes, Isle of Wight, with a 2,730 ton cargo of limestone. An underwater survey showed that the upper structure on the upturned vessel had failed in the midships region on both the port and starboard sides.

The investigation found that the major factors contributing to the structural failure were:
1) The limestone was a high-density cargo that had been effectively loaded as a single pile within the central section of the hold. As a result, significant stresses were generated in the vessel's midship section.
2) The stresses in the midship section were exacerbated by the rough seas in which the wave lengths were similar to the length of the vessel.
3) Swanland's longitudinal strength had probably weakened significantly over the previous 2.5 years through corrosion and wastage ("the maintenance and repair of the vessel had lacked focus and oversight and no structural repairs had been undertaken since 2009"), said the report.

Other contributing factors include non compliance with the International Maritime Solid Bulk Cargo code; insufficient loading information; a lack of effective safety management; poor quality of survey and audit; lack of oversight of the classification society by the flag state; and the financial pressure of operating this type of vessel in the current economic downturn. The investigation also identified several safety issues concerning the immersion suits and life jackets on the vessel and sadly none of these issues is new.

Financial exigences can also contribute to the lamentable shipping losses and the Swanland was no exception. Such pressures are common within the shipping industry and the scale of the problem is disturbing.

Swanland was only one of thousands of general cargo ships operating on small profit margins that, as they become older, they also become increasingly costly to operate. Its trading pattern was driven by the spot market, plying around the UK, northern Europe and the Baltic, carrying various cargoes like limestone, salt sand, slag and grain. In 2003 Swanland had been fitted with a self-discharging conveyor and moveable carriage to support a tractor and excavator on the port side of the main deck. Although the vessel's mortgage had been paid off it had not made any profit since 2006 and had incurred a £1 million loss since then. The pressure to cut costs, therefore, was high and so the main reason for switching its classification society from Lloyds Register to the International Naval Survey Bureau was to reduce the classification society's fee by 30%. But as MAIB pointed out, while the savings made on the cost of surveys and audit fees would have been immediate it is recognised that many ship owners also enter their vessels with non IACS societies, expecting their audit  and surveys conducted would be less robust. In effect, significant, long-term savings are possible through reduced costs of repairs and rectification of deficiencies. "It is apparent," goes the report, "that general cargo ships tend towards being entered in class and registered with lower performing societies and flag states as they near the end of their service life." This is what the ITF means when it commented: "The fact that at the time of the accident Swanland had been certified as being in accordance with all applicable statutory requirements makes a mockery of the existing regulatory framework."

Recommendations have been made to the International Naval Survey Bureau to improve the quality of their classification survey, audit and training regimes. Recommendations have also been made to Swanland's managers, Torbulk Ltd, that are aimed at ensuring solid bulk cargoes are safely carried on all its vessels and that crews are familiar with and well drilled in the use of life-saving appliances on its vessels.

MAIB says that there is no justifiable reason why the safety record of general cargo ships should be allowed to lag behind other vessel types such as bulk carriers without vigorous attempts being made to redress the imbalance. In summing up its recommendations, MAIB says: "It is hoped that the loss of Swanland and her six crew will be a catalyst for the work already being undertaken by the IMO to tackle the global issue of general cargo ship safety." If the IMO's history is any guide such a hope seems forlorn and so seafarers around the world will needlessly continue to die and for that the IMO should ask if its hands are spotless.       ------------------------------------------------------------------------------------------    

Will shipping herald next credit crunch?

All is not well in the shipping world, and by extension, the banking industry, as freight rates tumble, shipping companies enter bankruptcy protection and bankers tremble at their multi-billion pound exposures to non-performing shipping loans. The root causes include huge tonnage capacity increases, based on unrealistic world trade growth projections, at a time when the global credit crunch began to bite in 2008. The fall-out of that credit crunch and its body blow to shipping continues to restrain economic recovery today as banks struggle to clean up their balance sheets first before expanding lending to pre-crunch levels.

The ship owners desperately need a boost to world trade, partly because of collapsing freight rates but also because new accounting standards by 2017 are expected to force them to place bareboat charters and time charters exceeding one year on balance sheet, increasing liabilities/debt ratios and causing them to be in default on loan covenants. But how realistic are hoped-for boosts to world trade and, by implication, shipping freight rates? Not much, as we shall see, given the new forces at work which could stymie or weaken any recovery in freight rates long enough to pose a serious threat to world banking almost every bit as bad as the 2008 credit implosion. These forces are impossible to quantify because the future always defies certitude. Before we examine them, however, how parlous is the current shipping-banking partnership?

A perfect storm gathering?

Alarmingly, dud shipping loans are not the only worry for banks. In Britain, in particular, banks have still not come clean on their exposure to dud, multi-billion pound commercial property loans. On their own, these dud loans are containable, with patience, but when combined with huge shipping loan losses yet to be openly declared the fear is that a perfect storm is gathering in the financial markets, and all it would take to ensure it is a mismanaged exit from quantitative monetary easing, a euphemism for electronic money printing.

There is, admittedly, a glaring lack of detailed information about banks' portfolios of shipping loans but what facts can be gleaned make disturbing reading. Most of the banks heavily exposed to shipping loans are north European, including German, Scandinavian and British, and the fear is that most of them are in denial about potential losses. "It is probably the most serious commercial problem that the banks have," opined Paul Slater, chairman of the consultancy firm, The First International Corporation, of Naples, Florida. According to him banks are saying: "Give it time and it will work out," but it is not going to do that, he adds. He is almost certainly right, though for some reasons that he may not have perceived.

So how big are the shipping loan risks? German banks' exposure to them is estimated at US$129 billion, more than double the value of their government debt holdings in Greece, Italy, Ireland, Portugal and Spain. Commerzbank, Germany's second largest, has a shipping loan exposure of Euro 18.9 billion, of which the non-performing part is estimated at Euro 4.5 billion. Its second quarter profits in 2013 crashed 84% on the same period last year owing partly to a Euro 110 million loss on bad loans to build ships. The company is reportedly anxious to cut its shipping loans by 40% but it seems the bids received so far are so low that the necessary write-down would imperil Commerzbank's equity. This exposes all banks' double whammy from shipping loans --- non payment of interest and asset values far below the loans to finance the ships. According to some shipping specialist estimates, large vessels that might have sold for US$150 million in 2008 fetch only about $40 million today. Half of the cargo ships on the high seas, it is estimated, may no longer be worth as much as the debt they carry.

Another German bank, HSC Nordbank, of Hamburg, although only a mid-size lender, is the biggest lender to the shipping industry, with reportedly more than £39 billion  in outstanding loans. Other big players in shipping finance include the DNB Group in Norway, Nordea in Sweden and Britain's Lloyds Banking Group and Royal Bank of Scotland (RBS). Overall, it is estimated that global shipping loans amount to £350 billion and the growing fear is that some of the lenders have yet to confront the scale of potential losses.

The recent decline in freight rates brought on by the glut of shipping and weak global trade is alarming and has even spilled over into the oil tanker market. Rates for non-liquid cargo are half or less than the level needed for shipowners to break even, according to consultants, KPMG. Rates for the biggest crude oil carriers tumbled 68% in the past two weeks. A very large crude carrier holding 2 million barrels could expect only $7,954 a day on August 2nd, having risen to $24,493 as recently as July 12th, according to Clarkson, the world's biggest ship broker. This comes on the heels of America's largest tanker operator, Oversea Shipbuilding Group, filing for bankruptcy in November 2012.  

New constraints on sea-borne trade?

Global trade will strengthen but that does not necessarily mean a concomitant growth in freight rates that shipping and banking so desperately need to keep that sinking feeling at bay. Some of the factors holding back growth are obvious enough, like the uncertainty about banks' true financial health which fosters mistrust among institutions, making them reluctant to lend to each other, and is partly responsible for a shortage of credit for businesses and consumers. Other reasons, however, are less obvious, impossible to quantify but which only the foolish would ignore. These include:

1) Development of inter-continental, rail-based land routes
2) Super-sized container ships whose economies of scale will undermine smaller box ships
3) Trends to re-shore manufacturing back to homeland countries or nearby
4) Green issues, which in part could spawn hybrid gas/sail vessels.
5) Technical developments like 3D printing and very much cheaper assembly robots
6) Shale oil developments in major oil-importing countries.

Good examples of continental, rail-based cargo transport are the German rail operator, Deutsche Bahn AG, which has started another direct train link on the Europe-China trade route, extending its reach into a domain dominated by shipping companies like Moller Maersk and Hapag-Lloyd AG. The journey takes just 15 days compared with the 30-40 days container ships need on the Asian-Europe route. This has two significant advantages for businesses. Ships should be viewed as floating warehouses and like all warehouses they put money to sleep. If the transit time can be drastically cut then that means stock can be converted into sales so much quicker. The second advantage is that electronics and automotive companies, particularly, find that the value of goods lost during the longer sea journeys is relatively high.

The super-sized container ships of 18,000 TEU or more coming on stream add further to the container shipping glut but because of their economies of scale they are likely to undercut much smaller box vessels and drive them into the breakers' yards.

The trend to re-shore manufacturing may only be a trickle so far but it is gathering momentum and now has new allies to bolster it. In the rush two decades ago to outsource manufacturing to the Far East where labour rates were much lower, certain hidden costs, if perceived, were ignored. These include rampant, intellectual property theft, natural calamity risks that severely disrupt JIT supplies, inflexibility to react quickly enough to changes in demand, poor quality issues and long production runs. To these must now be added rapidly soaring labour costs in China which can now make even the cost of high end apparel cheaper to produce in Britain than in China.

The new allies promoting re-shoring must now include developments like 3D printing and much cheaper assembly robots. These mobile robots will be able to perform basic assembly tasks and move around humans safely for a cost of about $25,000, compared with the $225,000 or so for welding and paint sprayer robots.

All these forces could restrain world growth based on ship-borne trade, and so depress freight rates for years to come but will that be enough to herald a second global credit crunch? Undoubtedly, the huge suspect shipping loans are a worry but when combined with heavy exposure to non-performing commercial property loans they put some big banks on a knife edge. Britain's tax payer-funded RBS and Lloyds Banking may show signs of recovery but it could be a false dawn. The UK commercial property market remains a major threat, with £38 billion of the £190 billion UK book in negative equity, and £93 billion on a loan to value ratio of more than 70%. RBS and Lloyds, according to Britain's Daily Telegraph in November 2012, have the largest exposures of £69 billion and £64 billion respectively. These banks are now under regulatory pressure to come clean on their dud property loans. Meanwhile, Commerzbank has dumped the UK commercial property market by selling Euro 5 billion of holdings.

The most likely scenario is that the first credit crunch will continue agonisingly for a few more years, along with rock bottom interest rates which are key to propping up the shipping industry, domestic and commercial property. What can be in no doubt, however, is the hell that awaits shipping lines and, perhaps, ship building yards. Soon, an inevitable financial cleansing will require the financial institutions to cease hiding the real value of their assets and that, in turn, could force governments into more bail-outs. Then, as the ancient Chinese curse goes, they will live through interesting times.
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