Japan's earthquake must force JIT supply changes

It is, perhaps, ironic that the first country to adopt Just-in-Time (JIT) supply techniques avidly should now be the cause of a rethink on JIT global supply chain deliveries that could leave Japan worse off.

JIT supply issues have done much to cut costs by reducing inventories at every level of the supply chain. The West's outsourcing of much production to Far Eastern countries, particularly China, has also raised living standards of their peoples sharply and helped western countries keep a lid on their inflation through cheaper imports. As a technique, therefore, JIT is here to stay but as the Japanese quake and tsunami of March 11 clearly showed, many supply chains have become too rigid and wedded to outsourcing components to low-labour cost countries prone to high earthquake risks, floods and typhoons. "In many cases, tightly stretched global supply chains do not make sense any more," said Robert Martichenko, chief executive of Leancor, a US logistics company.

In my blog of April 23, 2010, headed: " Has volcanic ash lessons for logistics?" which touched on the supply chain effects of the Icelandic volcanic eruption, I warned that "vulnerability to disruption must be reduced." That disruption was on a far lower scale than last month's Japanese quake but big enough to spur a JIT rethink. But it is clear that many companies have failed to put in place back-up plans to cope with emergencies like the Japanese catastrophe. They were content to place all their eggs in one basket like Japan or China owing to low production costs while ignoring the obvious risks of natural disasters. But even where companies had a disaster-recovery plan in place, room for manoeuvre depends largely on the nature of the industry. What use, for example, is a disaster-recovery plan if parts cannot be duplicated outside of Japan, as is the case with parts for Boeing jets?

The degree of dependence on Japan for critical parts is alarming. Japanese factories produce about 40% of the world's electronic components and Hitachi Chemical has 70% of the global market for a type of slurry used by chipmakers to polish wafers, and its plant was damaged by the tsunami. In China, mainly in Guangdong province, 80% of the world's basic electronics components production, along with a great deal of final assembly, shows the potential for disruption here to affect global industries. In such industries there are few opportunities to mitigate the consequences of severe natural disasters in south-eastern China.

The March 11 quake and resultant tsunami expose the over reliance on one source of component supply. The costs, this time around, are so huge that, hopefully, some lessons will be learned and acted upon. Japan's earthquake and tsunami are estimated to have cost the three big Japanese car makers at least a $1 billion hit to profits. One consultancy estimates that the tsunami-related disruption will cut worldwide light vehicle output by 2.7 million vehicles in this year's second quarter of which one million will be in Japan and 475,000 each in North America and Europe. In Britain, Toyota was the third car company to announce production cuts owing to the Japanese quake. Toyota's plants in France, Turkey and Poland will also be subject to cutbacks.

In time, rising production costs in China will favour a shift of production back to countries concerned to have a more secure source of supply unaffected by natural disasters. There are, however, other reasons favouring a production shift back to regions close to their markets, like flexibility to react to market changes more responsively. This process has already begun but it is not to argue that countries like China and Japan should be eschewed entirely as a manufacturing base for components. Rather, China and Japan should be considered as only one of several supply sources so that disruption in one country can quickly be compensated by production ramp ups elsewhere . This will require key investment in more geologically and climatically favourable countries.

The problem for many global corporations is that they are mesmerised by cheap production costs in disaster-prone countries. They know the natural disaster risks but feel that their infrequent occurrences on a major scale justifies the risks. But the past record of natural disasters is no guide to future trends and so, hopefully, the Japanese quake last month will be a wake up call for greater diversity of supply. Nature, is should be added is not the only threat to the supply chain. There are also significant political risks.

Uneasy though it is for me to assume Cassandra's role, I have strong feeling that a natural disaster, be it seismic or flooding, will slam south-east China within months, despite this area's
relatively low seismic activity. The last serious quake to strike Guangdong was in 1918, leaving around 1,000 dead. Another severe quake here could, perhaps, test the global supply chain in some products to almost breaking point, unless companies act now.

It is a tragedy that when history is ignored it becomes as dust-laden garbage. It becomes far greater and crasser tragedy still when it is deliberately ignored for commercial expediency. History, after all, can bight back.

Bank of England's hidden agenda guts all savers

There can now be no doubt that the Bank of England (BoE) has abandoned all pretence of controlling inflation through the interest rate mechanism, once considered its core function since its independence over 10 years ago. And like America's Federal Reserve Bank, it is now trying to serve two masters, despite the Nazarene's missive on such futility. On the one hand the BoE still professes to want to curb inflation but on the other it keeps interest rates at historically low levels ostensibly to help the nascent recovery and so bring down unemployment. But in pursuing the first objective through ludicrously low interest rates it merely risks a re-run of the credit mess following the dot.com bust and 9/11 which created crassly low interest rates and so unleashed a spending binge fueled by cheap, lax credit. The BoE's anti-inflationary policy has failed lamentably, though in fairness partly because of circumstances beyond its control. Its monetary policy committee is required to achieve a target of 2% inflation. The latest retail price index for February 2011 shows an annual rise of 5.5% while the Government's own preferred benchmark, the consumer price index, has soared by 4.4% over the same period. But is the BoE's low interest rate policy to encourage recovery a smokescreen for a more cynical ploy that will have unprecedented adverse impacts on pensioners and all those who saved hard for their old age? The numbers suggest that it is. "Banking establishments are more dangerous than standing armies," commented Thomas Jefferson. How right he was but in ways, perhaps, that even he did not realise. Such an ostensibly august institution like the BoE was, in fact, born out of the perceived necessity to finance war. With the power to create credit up to 12 times the cash deposits placed with it, the BoE used debt to finance the British Government's wars throughout the 18th century until the national debt soared to over 200% of gross domestic product (GDP) at the end of the Napoleonic wars in 1815. Such a debt level was not seen again until World War 2, while today it stands at 60% of GDP, a level not seen since the late 1960s. Debt, it seems, is the Devil's chaplain. Clearly, debt has some advantages. It can, for example, facilitate economic growth and allow consumers to have their desires fulfilled now rather than years down the line when they have saved enough to buy goods outright. The flip side on runaway debt levels, however, has disastrous potential. It is the BoE's hope, and probably the Government's, that by keeping interest rates absurdly low it will encourage business investment and private consumer spending. But will it? Compared with collectivist economies, capitalism's one great disadvantage is that the decisions to invest and the decisions to spend are taken by two different groups. Capitalist economies can encourage investment through government incentives like lower taxes and low interest rates, but it cannot force the public to spend more as as result. The risks that the current BoE and Government's policy may fail in their pump-priming objective are high because the huge debt levels taken on by government now mean public spending must be drastically cut and many workers fear for their jobs and when fear stalks the land the public's propensity to save rises. Business will not invest much more if they see a public spending less. Meanwhile, the dangerously low interest rate policy has other recovery impediments. It takes four to five building society investors to support one mortgage borrower. While borrowers benefit from low interest rates and so may be inclined to spend more, the savers supporting them all suffer real falls in their disposable incomes because inflation and tax now far exceed investors' derisory returns of 3% or less. It is, perhaps, the BoE's greatest, most shameful transfer of wealth from the frugal to borrowers. But there is seemingly worse behaviour afoot. The UK government's debt for 2011 is estimated at £932 billion, or 60% of GDP. Its spending on state pensions will be £117 billion this year and while that may be indexed to the retail price index for annual rises it is clear that by keeping interest rates low the BoE will make it much easier for the government to repay its huge debts through depreciated money. At 5% inflation the Government's national debt would be cut by £51 billion in real terms after one year. The extra costs of the state pension in money terms would be only £5.85 billion over the same period. The case for continuing the low interest rate policy is unsustainable and grossly iniquitous on those least able to defend themselves -- the pensioners and small savers. If rates were allowed to rise to their long-term levels of 5% or 6% it would encourage the retired, in particular, to spend more and these far outnumber mortgagees who would be faced with spending less. Higher rates would also head off the reckless spending by investment banks, hedge funds and other pinstripe bookies which dreamt up new investment packages like collateralized debt obligations and credit default swaps, which together with derisory interest rates largely caused the worst credit implosion since the 1930s. There is, however, another lesson the British Government, in particular, must learn. The Chinese sage, Sun Tzu, remarked in 400 BC : "Where the army is prices are high. When prices rise the wealth of the people is exhausted." With Afghanistan costing the British tax payers well over £6 billion a year, Libya at least £3 million a day, with the potential for far more, and military spending commitments like two unnecessary aircraft carriers and the Trident submarine replacement cost looming on the horizon, such events can only be inflationary. When America grappled with the rocketing inflationary consequences of the Vietnam war in the 1970s it led to Federal fund rates hitting 20% and soaring unemployment to get the situation back under control. The message from the Fed was that unemployment had to take a back seat to fighting inflation. It is a lesson that thus far seems to have been lost on the BoE. Now is the time to raise rates significantly before it is too late.

Japan's earthquake exposes global supply chain unpreparedness

Just-in-time (JIT) production techniques have revolutionized global business efficiency but as the recent Japanese earthquake and tsunami clearly show JIT is not without its disasters waiting to happen for those lacking foresight and preparedness. As pointed out in my blog last April 23, under the headline: "Has volcanic ash lessons for logistics," the Icelandic ash cloud should at least have spurred a rethink on JIT techniques but there seems little evidence of it.

The ash cloud was on a far lower disruption scale than the Japanese quake since it merely affected airfreight, although some 25% of the UK's freight business by value moves by air. Perhaps because of this low disruption factor, global businesses simply shrugged their shoulders. Hopefully, they will be less inclined to do so now.

JIT-oriented manufacturers are exposed to many disruptive supply risks and even the smallest and most unlikely of these can have a disproportionately huge impact on the bottom line. When a Southampton container crane collapsed in 2006, for example, while unloading parts for the Honda car plant in Swindon, the shortage of parts brought the entire plant to a standstill.

This time round, the Japanese quake and tsunami that have devastated much of north-east Japan could cost Japan's big three car makers a combined $1 billion hit to profits and that does not include damage to car plants. Moreover, in Britain Toyota has stopped all overtime working at its Burnaston plant, and General Motors said it would close two European plants because of component shortages.

There are also growing concerns that other manufacturing sectors, particularly electronics, will be disrupted by parts shortages. Producers of both high and low-tech products rely on components that, in some cases, are made by a single supplier, many of them Japanese. Japan, it seems, is home to nearly 100 manufacturing "choke points" that could affect businesses worldwide. YKK, for example, makes most of the world's zips while another company dominates the world market for bicycle gears.

There are techniques for efficient disaster recovery, anticipatory measures and production philosophies that could sidestep or ameliorate supply chain disruption*. Insurance companies, for example, have well-developed models of the likelihood of earthquakes, floods, hurricanes and tornadoes for America and other countries.

Volcanic eruptions are usually preceded by tremors but these signs are often ignored or dismissed by managers. Given that Japan is a high risk earthquake area does it make sense to have all one's eggs in one basket as regards certain vital parts? Wiser counsels would advise access to alternative sources not exposed to earthquakes and floods, even if that means partly financing new investment. This may be unwelcome news on Japan's job front but it is the greater good that must prevail.

The ramifications of the Japan quake, alas, have far-reaching consequences beyond the impacts on the supply chain. It is already panicking the financial and commodity markets which just could herald a setback to a delicately recovering global economy. A minor foretaste of this scenario occurred on January 4, 2006 when a strong earthquake hit the Gulf of California, a one in an 11-year event. Damage was insignificant but it briefly panicked the foreign exchange markets and pushed copper prices to new heights. Only weeks before, in my city desk column for Warehouse & Logistics News+, my concluding comment on the Katrina hurricane aftermath was: "There is a feeling in this column's bones that worse natural calamities are to come, including a tectonic event in the Gulf of California."

Readers need not concern themselves why I felt such an event was due soon but the lesson for all supply chain personnel is clear: Have some alternative supply sources in earthquake-free zones or future earthquakes could move the supply chain earth for you.
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*See Yossi Sheffi's book: "The Resilient Enterprise," MIT Press, Cambridge, Massachusetts
+Warehouse & Logistics News, London, September 19, 2005

Somali piracy's end game nigh?

Two critical mistakes by Somali pirates could soon end their mayhem which has caused unprecedented damage to the global economy at the hands of so few. The first was their murder of four American hostages on February 22 and the second is that they have reportedly reached a multi-million dollar deal with the Islamic militant terrorist group, al-Shabaab, allegedly linked to al-Qaeda. In return for a safe anchorage at Harardhere and the release of pirate chiefs by al-Shabaab, the pirates will reportedly pay 20% of all ransoms to al-Shabaab, who captured Harardhere last year. This dramatically raises the stakes which can end in only one of two ways -- a far worse costly disruption to world trade or punitive military intervention both at sea and on land.

The latter move to deal with terrorists is a game changer, believes Wing Commander Paddy O' Kennedy, spokesman for the EU naval force operating in the Horn of Africa, because it could change the rules of engagement. Payments of ransoms to terrorists are illegal so any hostage sailors could find themselves languishing in squalid conditions for years, as opposed to months so far. Faced with such threats it is hardly surprising that the International Transport Workers Federation (ITF), an umbrella organisation representing 720,000 seafarers worldwide, sees "no alternative but to stop putting people and ships within their reach, with all the effects that could have on world trade and oil and food prices."

The ITF is now, therefore, advising seafarers and their trade unions to begin to prepare to refuse to go through the danger area. In a warning to shipowners, ITF said: "The risk of passing through the affected area and the knowledge of the inhuman manner in which captured seafarers will be treated amount to a breach of their duty of care to seafarers. It is also reckless, to a point, that should a seafarer be killed by a pirate attack while the vessel transits the high risk area, it would amount to corporate manslaughter. We call on the military to neutralise the threat caused by the use of mother ships."

There seems, however, to be a problem with mother ships in that the pirates have reportedly changed tack by seizing large fishing vessels as mother ships and using their hapless crews as human shields. It is, therefore, perhaps fatuous for the ITF to call on the military for this specific help unless such ships are entirely crewed by pirates. Its other pronouncements also betray woolly thinking. It calls on flag states, for example, to deploy naval assets to protect ships from piracy but but many tiny flag states, like St Vincent and the Turks & Caicos Islands, have scarcely two brass farthings to rub together and to expect them to take custody of convicted pirates is a fanciful notion. An American Nato admiral also advised that even a World War 2 naval fleet would be inadequate over such a vast area and called on merchantmen to be armed.

Belatedly, the ITF is coming round to the view that merchantmen should be armed but not by seafarers. Rather, they favour military personnel or private armed guards, subject to agreement by trade unions. It also calls on the UN to take all necessary measures to address the underlying, shore-based situation in Somalia which has allowed piracy to flourish, without saying what those measures should be. A long-term UN armed presence will have little appeal to America and European nations, given past experiences, already overstretched with current military obligations and straightened economic circumstances at home.

There is no doubt that arming of merchantmen will help but by itself is unlikely to end the pirate scourge. It is not just al-Shabaab that will be taking baksheesh but local officials who have been taking up to a third of ransom monies, much of which, claims John Drake, a piracy specialist with the security firm, AKE, "is already falling in al-Shabaab's hands."

Lightning punitive actions in all known pirate ports, with carefully planned rescue attempts of hostage sailors, seem to be closer. There is, of course, an alternative -- a complete boycott by all seafarers of the Arabian Gulf and much of the Indian Ocean. But in global economic terms the consequences of that would be disastrous, making the current $7-12 billion annual piracy cost look like small change. There would also be a political price to pay through more instability in a region already wracked by despised, corrupt and incompetent regimes. Egypt, for example, could have done so much more to deploy its 12 frigates on anti-piracy patrols and so cut down the loss of its Suez Canal transit fees. Even relatively stable neighbouring countries could have trouble coping with the loss of tourism revenue from cancelled cruise ship calls and other disruptions.

The time is surely nigh for condign punitive action of the kind Algiers received nearly 200 years ago, which permanently ended the centuries-old scourge of the Barbary pirates. It would, of course, have sad consequences as innocent parties would suffer along with the guilty but history clearly shows that down through the ages pirates have only ever respected one language -- applied superior force. It is not enough to sink them at sea. Their lairs must also be neutralised -- an action that has no legal bar.

Containerisation's ugly side risks lives and costs billions

Global distribution costs have dramatically fallen since containerisation of shipping cargoes began in the 1950s but it has not been without a high price in risks to lives, ships, their cargoes and the environment. The causes are various, including poor training, cost cutting and, worst of all, deliberate fraud that denies governments and shipping lines billions of pounds in lost revenues every year.

After nearly 60 years of container shipping it seems incredible that there are still no mandatory instruments requiring the weighing of containers at ports, nor guarantees that all those involved in transport and handling of containers are fully informed of the state of packing, stowage, lashing and security of the cargo. Belatedly, that may start to change following the International Labour Organization's (ILO) forum, to be held in Switzerland, February 21-22, on safety in the supply chain in relation to packing of containers.

But global agreement on any issues is ponderously slow and for containerisation issues that is a tragedy, for the price of tardy deliberations will see more lives lost, injured and cargoes ruined. The public are largely unaware that container handling and transport problems are not confined to sea-borne journeys. It could be, for example, that in Britain more than 75% of lorries are not loaded safely. In 2009 officials from the Health and Safety Executive (HSE) and Vehicle Operator Services Agency stopped 40 vehicles during 3 days of checks in Wrexham, Birmingham and Humberside. The majority needed remedial action to make the loads safe for onward travel and unloading. The problem is exacerbated by containers because loads are hidden until opened. Over a 3-year period in Britain, 14 people were killed and over 2,000 injured by cargo falling from vehicles when they were being loaded or unloaded. On the roads fatalities also occur because poorly restrained container loads can cause multi-vehicle accidents.

Preventable losses are huge and much of it stems from inadequate training and cost cutting. In 1999 one in three shipping containers was found at fault, claimed the UK P&I Club, the world's largest marine mutual insurer. This meant one in six container journeys caused cargo damage costing owners $5 billion every year. Today that figure must be far higher.

Best practice will not defeat the unscrupulous

Much of the problem could be cut by using the right packaging and installing the loads correctly. But before any container is stuffed it should be thoroughly inspected for problem areas like holes, protruding nails, inadequate lashing points and porous rust patches, plus any residues from previous cargoes that could contaminate a new cargo. Stretch and shrink wrapping offer good protection against water and air bags can be quickly installed as alternatives to conventional shoring. These are all common sense measures and ably explained in the P&I Club's video: "If you think any fool can stuff a container think again!* but they are no protection against unscrupulous container stuffers bent on deliberately overloading their containers or falsifying cargo documents.

David Cockroft, ITF's general-secretary, said: "So far, best practice and self regulation have failed to stop the worst kind of accidents, and we are therefore recommending that international mandatory instruments be developed that guarantee that those handling and moving containers are informed of their weight, state of packing, stowage and securing, as well as their centre of gravity and whether or not any fumigants or dangerous substances are present." This clearly shows the need to make weighing of containers at embarkation ports a key mandatory requirement. Many container stuffers may overload their containers unwittingly but a scale fitted to a pallet truck and forklift would cost only £800 and £2,000 respectively so there is no excuse for feigning ignorance or relying on guesstimates. The temptation to overload deliberately, however, is huge because shippers can save so much by swindling shipping lines and governments out of billions of pounds every year.

The purpose of the ILO forum is partly to reach consensus on a common approach throughout the supply chain for the correct applications and enforcement of the appropriate standards for packing containers. Such lucubration, however, should not be an excuse for tardy deliberations, during which more lives will be lost and injured. Incorrectly stuffed and overloaded containers can sink ships. Given the size of the latest box ships being launched or considered, including 12,000 TEU vessels, the loss of just one such ship could cost over £1 billion in cargo losses alone.

It is bad enough that ships must cope with monster killer waves that could sink the largest of vessels without giving nature a helping hand through human shortcomings, deliberate or otherwise. It also reflects badly on an industry that has known of the problems for decades but only now is tardily starting to address them to remove the ugly side of the business.
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*For a copy visit: www.marisec.org

Somali piracy --- sympathy is not enough

The recent Somali pirate attack on the Beluga Nomination 390 nautical miles north of the Seychelles plumbed new depths of barbarity. It brings nearer the likelihood of an irremediable military strike on all known pirate ports harbouring the mother ships which give the pirates the range to attack over 1,000 miles from their shores.

The incident on January 22 involved taking aside three captured seafarers for punishment as reprisals for an abortive attempt by the Seychelles coastguard to free the hostages, during which one Somali pirate was shot dead. The tortures reportedly included keel hauling and hanging seafarers up by their ankles while their heads were under water. At least one sailor was murdered in cold blood, bringing the total murdered so far to over 40.

In a press release issued by the International Transport Workers Federation (ITF) on February 2, BIMCO, the International Chamber of Shipping, Intercargo and Intertanko all declared their outrage at such cold-blooded murder, adding: "We express our deepest sympathy to the seafarers involved and to their anxious families." But sympathy can never be enough and nor is the industry's repeated calls to urge governments to empower their naval forces to take fast and robust action against pirates and the vessels under their control, before passing ships are boarded and hijacked.

As explained in my last report on Somali piracy headed: "Somali piracy may cripple global logistics," Admiral Mark Fitzgerald, commander of NATO allied joint task force, Naples, said: "We could put a World War 2 fleet out there and it would still not be able to cover the whole ocean." He advocated arming merchant ships in the Horn of Africa.

The ITF has so far opposed the arming of merchant ships for understandable reasons but it and the shipping industry must realize that if they take no action to defend their ships with lethal force then the logic for a crushing military strike on known pirate ports against all fishing vessels large enough to act as mother ships is incontrovertible. Even ITF's General-Secretary, David Cockroft, recently chastised the majority of those who make the most from shipping for "Doing little or nothing." Insurance companies, it could be said, even have a vested interest in playing no part in a resolution as they are making far more money since jacking up premiums 4-5 fold than they are paying out in ransoms.

The ITF believes this latest atrocity marks a shift in the behaviour of Somali pirates and that shipowners and their crews will be re-evaluating the current determination to ensure this vital trade route, through which 40% of the world's sea-borne oil trade passes, will remain open. This will include alternative routes like around the Cape of Good Hope, which would severely raise transport costs and delivery times. Piracy is already estimated to have cost the global economy between $7 billion and $12 billion a year but that does not include the impact on just-in-time production techniques.

Shipping's supine response exacerbates seafarers' woes

Shipping lines and their trade bodies may bluster indignantly about the piracy menace but their supine response so far has only encouraged ever-more piratical attacks, which now sees an estimated 500 seafarers imprisoned in squalid conditions for many months. Underlying this discreditable response is the industry's preference for the "calculated risk" approach and the fact that their increased costs can be passed on to consumers hard hit by the credit crunch. Such nonchalant thinking, however, is particularly dangerous for developing countries dependent on subsidised staples like wheat. Last September this blog site warned about the consequences of Somali piracy on Egypt's economy, which could see Suez Canal transit fees plummet, and chastised the Egyptian regime's shameful refusal to deploy its 12 frigates adequately on piracy patrols. "There could also be incalculable damage to Egypt's economy through the loss of billions of dollars in canal transit fees which could destabilize the whole country," I warned. So far, estimates reveal that Egypt is losing $642 million a year as ships reroute to avoid the canal, a sum equivalent to a quarter of money spent on food subsidies. Sadly, that instability exploded last month as discontent over annual food inflation hit 18%, the world's highest. There may be other reasons for Egypt's social discontent but Somali piracy is not unconnected to the country's economic woes.

History shows punitive action works

Fortunately, at long last some shipping lines are taking more robust action to defend their ships, and according to Wiki-leaks, ex-SAS officers are being hired by foreign shipping firms through a private commercial firm. But some believe that these hired officers are seen as bait because the shipowners believe that the Royal Navy will intervene to rescue them and free their vessels. Such a scenario seems unlikely but it raises concerns that the Royal Navy is being forced to act as an international police force because other navies are failing to pull their weight off the Horn of Africa, not least Egypt. This is a pity because even a very small military response has already been effective. In November 2008 the Royal Navy shot dead two Somali pirates while repelling an attack on a Danish cargo ship off the Yemen coast. American navy officers at the time ascribed a sharp fall in pirate attacks in the first half of 2009 to this British intervention.

It would surely be far more effective, therefore, if decisive action was taken against all known pirate ports harbouring the pirates' mother ships. There is, undeniably, a tragic element in such punitive action in that innocent fishing vessels would be sunk along with the guilty but when pirates ply their trade they declare war on many nations and in any war collateral damage is unavoidable. There is also the safety of hostage seafarers to consider.

There is no legal bar to such action as the UN Security Council Resolution 1851 authorises military action against piracy on Somali territory. But if such action is considered too punitive then the only other effective means must include the arming of ships passing through the infested seas. The former initiative, however, would be much cheaper and quicker and there are historical precedents to prove its effectiveness. For centuries the Barbary pirates were the scourge of the Mediterranean and the Atlantic but when their Algiers stronghold was bombarded in 1816 and 1824 and their ships sunk their stranglehold was broken permanently and 1,000 Christian slaves released unharmed. It is to be hoped that it will not take centuries to eradicate the Somali pirate scourge.

Britain will yield to Afghanistan's logistics costs

The British military may call the tune on resources for Afghanistan but it is the power of economics and logistics that will be the final arbiter of its fate. This observation also applies elsewhere, more so than ever in America where gathering adverse economic forces will sap the military's capabilities and ultimately the support of its citizenry to wage an unwinable war costing $2 billion a week.

As Britain's former ambassador to Kabul, Sir Sherard Cooper-Coles, remarked to the House of Commons' Foreign Affairs Committee last November: "It is a political problem that needs political treatment.... and it is time for the politicians to take charge of the project, as I believe the new coalition government is doing." The problem, as he sees it, is that Afghanistan needs a new political and regional settlement that cannot be delivered by military force. He sees the Afghan constitution as unstable because it is highly centralised and therefore does not go with the grain of Afghan tradition. "We need something much more decentralised," he added, which cannot come soon enough as efforts so far to build a durable causeway of good governance between the narco-mafia and the Taleban have not succeeded, admitted Sir Sherard.

The undesirability of allowing the military unquestioned support was hinted at in supplementary written evidence by Sir Sherard delivered in January. "Good soldiers.....are not especially imaginative. Nor, until relatively recently, did many senior officers have intellectual pretensions." He believes "the war in Afghanistan has given the British Army a raison d'etre it has lacked for many years, and new resources on an unprecedented scale. In the eyes of the Army, Afghanistan has also given our forces the chance to redeem themselves in the eyes of the Americans.....of the British Army's performance in Basra."

It beggars belief that the British military mindset should be concerned about what its allies may feel about the Army's image and that is should take a real war to justify its existence. Such numskull thinking, however, gets worse. Sir Sherard explained how the then Chief of General Staff, Sir Richard Dannatt, told him in the summer of 2007 that if he didn't use in Afghanistan the battle groups then starting to come free from Iraq, he would lose them in a future defence review. "It's use them or lose them," he said.

Logistics ignorance costs billions

If Britain's top military brass and its politicians had a thorough grasp of logistics they might just have baulked at the cost of military intervention in Afghanistan, however strong the deferential desire to please the Americans. This is because the Taleban's greatest weapon is logistics, which in per capita terms is costing the coalition forces 10 times as much as the Taleban.

Sir Sherard believes that the Afghan war is costing Britain £6 billion a year but the true cost is likely to be much more when consideration is given to the high cost of supporting maimed military personnel, the war widows and their children. But it seems that even now the Army has no intention of cutting its demands on the public purse. Its latest request is for the supply of 12 Challenger 2 main battle tanks that would cope better with IEDs. They would not, however, be immune to armour-piercing missiles, as the Afghan countryside testifies with its numerous wrecks of heavy Russian tanks.

Jingoistic journalism's ignoble role

In Sir Sherard's experience, "Ministers were reluctant to question the military advice put to them for fear of leaks to the Press suggesting that they were not supportive enough of the troops." Ignorant, jingoistic journalism, therefore, also plays an ignoble role in the Afghan mire. But ministers risk widespread public anger if they continue to ignore the economic consequences of overseas warfare at a time when Britain's government finances are sorely stretched and the public hard hit by economic cutbacks.

In America, the economic situation is worse but potentially far more dangerous to global financial stability. From just 0.1% of gross domestic product (GDP) back in 2001, America's structural gross federal deficit, excluding one offs like bail outs, is now 8%, or $1,230 billion. This compares with Britain's 7.9% of GDP. In a startling warning, Paul Ryan, the new Republic chairman of America's House of Representatives budget committee, said that if the US did not get its finances in order, "We will have a European situation on our hands and possibly worse. The consequences of not tackling the country's mounting debt burden would be dire. We will have the riots in the streets, we will have the defaults, we will have all those ugliness problems," referring to the French teenagers lobbing Molotov cocktails at cars because the retirement age would be moved from 60 to 62.

Currently, the US government borrows about 40 cents in every dollar it spends. The big fear over the deficit is that if no action is taken investors might punish the US for its fiscal laxity and so undermine its triple A rating. This would have consequences for foreign affairs and defence. Mike Mullen, chairman of the joint chiefs of staff, warned last year that the debt pile could limit the flexibility of the US in funding its military. Last week, the Pentagon announced that it would trim its annual budget of $500 billion by $78 billion over the next five years compared with its earlier projections.

Meanwhile, it should not go unnoticed that the West's involvement in costly wars is doing for China what the aftermath of World War 2 did for Japan -- strong economic growth unencumbered by wars. China is now banker to America and seems to have pretensions to be the same for the EU. That would shift the balance of power dramatically in ways that are not entirely comforting at present.
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