Beware odious forklift dealer practices

Acquiring forklifts through contact rental/lease, the most popular way in Britain, is a minefield for the unwary but how many truck users realise another minefield lies ahead when the contract period, typically five years, reaches the end? There is no issue if the trucks are bought outright, easily the cheapest form of acquisition, provided in-house maintenance is top notch, and the problem is also much reduced if the rental contract includes full maintenance. But for those users who rent without full maintenance included in the contract they are at risk of odious dealer practices that in some cases border on blackmail.

This is not to suggest that most forklift dealers are sharpers, far from it. The majority work hard to give their clients a good service but the fact remains that the industry is intensely competitive, many of the dealers (typically 20%-30%) are financially weak and so not only are they incentivised to shuffle the pack (deception by omission) at the beginning of a contract period, they may resort to thinly-disguised threats at the end of a contract because they desperately need the contract to be renewed.

Typical underhand examples just before contract renewal time include presenting truck users with unexpected bills for excessive truck use or damage. On the former, the best defence is to examine any new contracts' small print to discover how many hours truck usage per year the contract is based on. If no figure is provided, then customers should hammer that out with the supplier and define what the extra costs would be if those hours are exceeded. To be fair to the supplier, they will want to sell on or hire out their trucks after each five-year contract ends and the truck's rentability will be influenced by its condition and so it may need costly refurbishment.

Even if the designated hours usage has been exceeded and the consequent extra costs agreed at the start of a contract there is still the long-festering problem of paying for truck damage when it is returned to the supplier. A small nick to the driver's seat would mean paying for a new seat which would cost many hundreds of pounds. It is not so much the principle of having to pay for truck damage on return but the very inflated prices charged for the spares/repairs. All truck users should bear in mind that owing to the competitive nature of the forklift industry profit margins on sold counterbalance trucks are wafer thin and so they try to make up for that by charging high prices for spares. After all, they must make an adequate return somewhere. Even so, at times the matter has been highly contentious, with court action threatened, so to clear the air somewhat, the Forklift Truck Association (FLTA)* in Britain has issued a useful guide on what constitutes fair wear and tear issues.

So desperate, however, are some truck dealers to get a contract renewal that after presenting a hefty, unexpected bill at the close of the old contract they will offer to 'write off' those bills provided the customer renews the contract for another five years. This comes close to blackmail and should be strongly resisted because continuing with a new contract could be extremely costly if the nature of the user's business has changed. The user, for example, may wish to change from counterbalanced and reach trucks to articulated trucks to cope with an expanding business or, indeed, use different, more productive trucks not offered by the current supplier.

Another potentially more serious truck supplier ploy, when it realises it will not be getting a contract renewal, is to threaten to remove its trucks from a client's site, leaving the client with no means of shifting goods around the warehouse/factory. This would not be a problem if the renter had lined up a deal with another supplier so that the new trucks arrive at or just before the old contract expires. Alternatively, any truck user should seek greater assurance that their supplier has an ethical exit strategy when the end of the contract is reached.

In theory, truck users are likely to obtain more ethical deals from the large forklift manufacturers or dealers like Briggs Equipment because they have a reputation to maintain and will not risk that through adverse trade press publicity. Moreover, an extra comfort is the greater financial stability compared with small/medium -sized dealers. Smaller dealers should have their financial strength assessed because if one leases a truck from them the contract is with the lease company, not the dealer. If, therefore, the dealer goes bust and therefore can no longer provide a contracted maintenance regime the payments will still have to be made to the lessor on time. Finding an alternative truck maintenance company will almost always be more costly. Some extra comfort may also be gained by dealing only with companies belonging to one of the leading trade associations like the British Industrial Truck Association (BITA) and the FLTA.

If the problem persists or worsens a case could be made for an industry-independent 'watchdog' or ombudsman body to be created to whom one can register complaints of alleged odious dealer practices and where such complaints are upheld the dealers in question are placed on a widely published blacklist.

*www.fork-truck.org.uk   
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China's military posturing raises supply chain risks

"When might is right," the adage goes, "money takes flight." In the Far East one could add that foreign trade, too, could also take flight and the world is moving closer to just such a scenario as China begins to make preposterous territorial claims to much of the South China Sea, reportedly rich in oil reserves. But are the posturing spats over the South China Sea worrying enough for foreign investors in that region to consider re-arranging their global supply chains to avoid another 'pants down' exposure like that caused by the Japanese tsunami in 2011 and its consequent mayhem for JIT-oriented global supply chains? Alas, this time around the auguries support the yes camp. I say this time around because China has been through a boy-who-cried-wolf scenario for 30 years when American predictions that China one day would try to dominate its region by force have proven wrong. What is different this time, however, is China's new, highly nationalistic leadership epitomised by President Xi Jinping, egged on by the hawks in the Communist Party who have pressured the top leaders to take more forceful policies.

In an incredible show of chutzpah, President Xi Jinping declared that "in Chinese blood there is no DNA for aggression or hegemony." Hmmm. One wonders if Xi is weak on Chinese history, from the Divine Wind upset of the Mongol fleets, largely comprising ethnic Chinese, against Japan to the bayonets to Lhasa in living memory. Yet Xi probably approved the recent decision to move an oil rig into waters claimed by both China and Vietnam, and shows no signs of backing down. This has led to enmity against Chinese people living in Vietnam, thousands of whom have been forced to return to China. A Vietnamese fishing vessel has also been rammed and sunk by a Chinese vessel.

China also probably senses that Asian nations who could be territorial rivals in the South China Sea cannot over the long run afford to fight back. In pursuit of that strategy it has already defanged the Association of Southeast Asian Nations (Asean), which operates by consensus and unanimity, through buying the votes of one or two members like Cambodia. China also feels that the military capability of its neighbours is not up to their own and, sensing this, countries like Indonesia, Malaysia, the Philippines, Singapore and Vietnam have begun an arms race.

China should think again about its military posturing. It depends heavily on imports of raw materials and its exports to western countries to maintain its growing prosperity. Already, however, there are forces at work undermining its export achievements, not least of which is the move towards re-shoring of outsourced manufacturing back from China to Europe and other countries nearer to their main markets. This has been brought on by strongly rising wage rates in China, where hitherto low wages were the main case for outsourcing to China. But there are a host of other reasons which underpin the case for re-shoring. These include the long production runs demanded by Chinese suppliers, poor quality issues, intellectual property theft, ethical concerns over sweat shops, higher freight charges, long delivery times, and other costs concerning communications when problems arise. If there is any doubt about this one should consider, for example, one of the least likely industries where this is taking place --textiles. According to the head of retail at Britain's management consultants, KPMG, the UK is poised for a revolution in textiles. "The trilogy of brilliant British textile manufacturing, stable wage rates, and shorter lead times needed at retail level have made the UK a compelling proposition once again," he says. So to all these reasons for re-shoring cited above one must now surely add the growing political risk which, of course, would not only affect China but also its neighbours which have relied heavily on cheap labour rates to attract foreign investment.

If, as newspaper reports claim, President Xi came into office vowing to restore the greatness China enjoyed for centuries, then Xi should reflect that true greatness does not spring from the barrel of a gun. Instead, it comes from raising all of the people's well-being through the peaceful pursuit of trade. In any serious shooting war with its neighbours those aspirations would be seriously compromised. The Chinese leadership should also reflect that the country has serious internal weaknesses and threats. Its banking sector is in an unholy mess, which could bring on an internal credit crunch to rival the western eruption in 2008. Denied their aspirations, the people themselves could become China's biggest internal political headache for the Party. And then, as always, there is the natural threat from floods and earthquakes, which is reason enough for the Chinese Government to spend sparingly rather than wantonly on building up its armed forces. The nation's hard-won resources should be husbanded to meet the inevitable threats from Nature's fury. It is no less than the long-suffering Chinese people deserve.
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Korean ferry loss exposes maritime greed culture

The Western Pacific from Indonesia to Korea is a peacetime ships' graveyard, especially around the Philippines where the world's worst peacetime maritime loss cost over 4,000 lives in 1987. In many cases the causes are primarily driven by incompetence and greed, and the latest example is the tragic loss of the 6,825-ton ferry, Sewol, in South Korean waters last month involving 302 fatalities, many of them young students. But does this ferry loss have lessons for cargo ships, particularly container vessels, even in seas considered safer where safety standards and oversight are higher? Yes, it does, and the worry is that thanks partly to the IMO's compromise over the container weighing amendments last year such tragedies will almost certainly recur repeatedly.

According to reports, the tragedy was "the result of endemic disregard for safety regulations, bad judgement and botched rescue efforts," said The Chosan Ilbo (Seoul). Reportedly, the Sewol was breathtakingly overloaded with cargo, carrying 3,608 tons of apparently improperly secured trucks, cars, trailers and machinery when the legal limit was 987 tons. The first mate reportedly testified that the ballast water, used for stabilising a ship, was reduced to make room for more freight. "It appears that such a practice was not uncommon," said a prosecutor on the investigation team. Police also suspect that the reported weight was understated.

While under the control of the inexperienced, 25-year old, third mate steering through one of the most treacherous waterways in the country, the ship seems to have made a sharp turn, shifting the cargo to one side (hence the loud noise reported by passengers), causing the ship to capsize. Allegedly the crew seem not to have been trained in lifeboat handling and told passengers to stay where they were for nearly an hour after the accident, a period that would have been more than ample to disembark all passengers safely in lifeboats, provided the ship's list was not too great and almost immediate. As an ignominious finale, the captain and crew were reportedly the first to jump ship once rescue boasts arrived. Fifteen crew members now face charges but they cannot be blamed for the underlying, greed-inspired motives of the ship's owners and/or company officers, who in pursuit of profit allowed the gross overloading of the vessel. They reportedly paid the lowest wages in the industry and converted the ship to boost its capacity. The owners, too, should be in the dock.

The problem of deliberately miss declared cargo weights has plagued shipping for decades. In 2008 I reported in Shipping Times* that deliberate under declaring of shipping container weights costs shipping lines and governments billions of pounds in lost revenue every year and places ships and their crews at risk. The financial incentive for freight shippers to break the law is huge. Governments impose import duties on the declared tonnage inside containers so if the payload is significantly under declared then big savings on import duties can be made. The shipping lines are also defrauded because they charge by the container, and although there are maximum container cargo weight limits, if these limits are seriously exceeded then fewer containers need to be hired and shipped.

Payload scams beggar belief

The size of the payload scams can, perhaps, be gauged by the loss of the container ship MSC Napoli, beached in Devon in 2008. The subsequent investigation by Britain's Maritime Accident Investigation Branch (MAIB) found that no less than 20% of all the on-deck containers were over three tonnes heavier than their declared weights and in one case the difference was 20 tonnes. MAIB reported that such discrepancies were "widespread in the container ship industry and is due to many packers and shippers not having the facilities to weigh containers on their premises."

The cargo shippers have been able to get away with such payload scams because the container shipping industry is the only sector of the industry in which the weight of the cargo is not always accurately known and there is no mandatory requirement for containers to be weighed at a European port before loading a ship. Without such accurate data a safe cargo arrangement plan cannot be guaranteed and so stability issues, especially in rough seas, become a major safety hazard.

After years of lobbying for mandatory weighing of container cargoes by the International Transport Workers Federation (ITF) and other bodies a golden opportunity was missed last year when the IMO watered down an amendment to make container weighing mandatory at all 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. The IMO settled for a decision by its sub committee on dangerous goods, solid cargoes and containers to accept an alternative mode of verification to the mandatory weighing of container payloads, much to the chagrin of the ITF. This serious watering down means that governments will be allowed to either choose the gold standard of mandatory weighing or the lesser method of certifying containers on an unformulated process of verifying the weight by adding together the constituent parts of a container load at unspecified times and places along the transport route.

The result of this feeble alternative choice will inevitably see more container ship losses and fatalities, especially as there are also widespread practices over lax cargo lashing inside the boxes. The Korean ferry disaster sends a clear message on maritime safety. Until international maritime safety law is upgraded and rigorously enforced, many more lives will be sacrificed on the altar of mammon.

*Google my headline: Container payload scams cost billions and risk lives
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Britain's trade deficits risk economic collapse

Investor sentiment is like a scared cat. It is easily spooked and does not care who gets clawed during any frights. It is just such sentiment which is keeping the British economy calm, for now, but can it last much longer? The reason for concern is Britain's alarmingly high Current Account deficits on foreign trade. Unless corrected soon, there will be serious consequences for the nation, and Britain's global supply chain logistics in particular, which should pay more attention to re-shoring outsourced manufacturing back to Britain.

Given, however, that Britain's total earnings from tangible exports (visibles) and intangibles (invisibles), like services income from banking, insurance, shipping and overseas investment income, have not exceeded import costs for decades, why should now be a cause for concern? One reason is the alarmingly high deficit last year of £108 billion on visibles, which reduced to a £27 billion deficit when invisible earnings were included. Last year's awful trade performance, however, was not an aberration. According to Britain's Office of National Statistics (ONS), the combined current and capital account has been in deficit since 1983 and the trend is getting worse. Another is that the capital inflows that have financed these deficits, such as investment in industry and real estate, plus hot money, reflect the scared cat side of the equation. What were once healthy capital inflows could very quickly become unhealthy capital outflows.

For three decades the country has relied on the financial account (direct and portfolio investments) of the Balance of Payments to keep the nation's head above water. This is potentially dangerous because these capital inflows that have come to dominate the Balance of Payments are volatile and intractable and, equally disturbing, such foreign investment in Britain has proved a mixed blessing because of the financial contrivances global corporations use to minimise their taxes and so deprive Britain of billions of pounds in lost corporation and VAT taxes. Such tax avoiders also place indigenous UK corporations, who pay their taxes in full, at an unfair trading disadvantage.

Why manufacturing matters

It has long been touted by purblind political and economic commentators that British manufacturing does not matter much any more because the services side of the economy accounts for the lion's share of Gross Domestic Product. The current deterioration in Britain's invisible exports show just how asinine that view is and the price that Britain must now pay for neglect of its goods-producing sector. The fact is, Britain's investment income for operations abroad showed a £10.3 billion deficit in the final quarter of last year and £17 billion for 2013 as a whole, up from £3.7 billion in 2012. Back in 2008 there was a surplus of £33.2 billion from this source and £22.7 billion as recently as 2011. This has happened because of losses abroad by British banks, at the root of which was British banking's lack of good governance. There has also been a drop in income on overseas investment by British firms. This partly reflects deteriorating returns from British investment in a depressed Euro zone. It was fortunate for Britain that the Euro zone countries with big trade surpluses were prepared to pour money into Britain to fund the country's current account deficit. It is, however, a risky scenario because such financial flows could be vulnerable to political and economic uncertainty.

Britain's long post war history of current account deficits, punctuated by several devaluations and sudden brake slamming on policy, is symptomatic of a serious imbalance in the economy, the cures for which are both short and long term. In the short term, Britain must wean itself off reliance on cheap money which is now stoking up another housing boom that can only end in tears unless the Bank of England acts now to signal careful rises in the base rate. That may not go down well with manufacturers thinking of new investment, which Britain badly needs, but it is far more preferable to huge interest rate spikes down the line forced by soaring inflation rates owing to a de facto devaluation caused by rising import costs and consumer binge spending, financed partly by saving less. Such a scenario partially unfolded in America back in 2007 when for a straight 21 months of negative domestic savings, adopted so that people could pursue their have-it-all-now culture, often based on taking out second mortgages and liar loans, meant that much higher interest rates than three years before (2004), left buyers at the end of their rope. Then, on January 12th, 2007, eight months before Britain's first major retail bank failure in over 100 years, I warned in Warehouse & Logistics News: "The Bank of England's rate policy since being spooked by the dot com crash six years ago, aided by overly eager banks to lend irresponsibly, is a major cause of dangerously high national indebtedness. The banks and credit card companies may well pay a high price for their rapacious stupidity through record numbers of consumers seeking voluntary insolvency deals."*

Another short-term move must be for all British governments to eschew foreign military entanglements because these have a direct bearing on the foreign trade current account. According to one estimate, the Afghanistan war has cost Britain £38 billion so far, with many more years of costs to support the maimed forces personnel and widowed families, with almost nothing to show for it. The Iraq war would have cost much more, again with little to show for it. This is what happens when economically naive governments, egged on by even more benighted military top brass, bestride the saddles.

Moving to solutions of a medium term nature, the British Government, in concert with other governments, must take united action to reform international taxation regimes so that all global corporations pay their righteous taxes, instead of hiding their low-taxed profits in overseas tax havens, and competing unfairly with native companies.

The long-term solution will be harder to achieve but there are signs that desirable moves are already under way. One is the nascent trickle of re-shoring outsourced manufacturing back to Britain for a host of reasons, not least the soaring labour rates in countries like China, where hitherto low labour rates were the main attraction. British companies which have yet to re-shore back to Britain may also like to consider that if Britain's import costs rise owing to a falling Sterling exchange rate then they will be disadvantaged against indigenous producers. Another encouraging sign is that more investment is going into apprenticeships. If Britain is to boost manufacturing it needs a larger pool of suitably qualified labour. In this respect it would be helpful to overhaul a failing education system, which shamefully sees around four in five adults have a low level of numeracy which has been declining since 2003. This has led to the realisation that 17 million adults in England are working at a numeracy level roughly equivalent to that expected at primary school. There could hardly be a more damning indictment of Britain's current educational establishment. There should be more emphasis on occupations like engineering rather than on non productive vocations in the arts. Manufacturers, however, may need more Government incentives to invest so as to counter any adverse impact of rising interest rates that chronic Balance of Payments crises could impose.

On the social front, the Government must bear down even harder on the social security budget to eradicate fraud and waste. Money wasted in this way from undeserving, non contributors to society manifests itself in a deteriorating Balance of Payments. If nothing is done to at least balance Britain's foreign trade accounts then it is the markets that will ultimately decide the issue, and the markets can be merciless. If that happens, then the sparks will fly upwards.

* Google my headline: Good governance must prevail
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New Zealand's commercial fishing 'slavery' shames the nation

New Zealand ranks high in the decency stakes, especially for minimal corruption, transparency and the rule of law upholding human rights, but in one area it is shamefully deficient - the treatment of overseas fishing crews on foreign-flagged vessels operating in its territorial fishing grounds and partnered with some of the country's biggest fishing corporations. Ongoing for years, the scandal is so huge that a US State Department report released in 2012 scathingly labelled it "21st century slavery." It cited conditions of forced labour, including debt bondage, imposition of significant debts, physical violence, mental abuse and excessive working hours on board.

To be fair to the New Zealand government, it has proposed legislation to implement recommendations, including the requirement that all foreign fishing vessels working in the country's waters must be new Zealand flagged by 2016, but it is yet to be passed and now seems unlikely to be until after the next election because it has been pushed back to number 27 on the Parliamentary Bills list. Such foot-dragging "is outrageous," said Joe Fleetwood, secretary of the Maritime Union of New Zealand. "The New Zealand government is missing in action when it comes to protecting the rights and welfare of fishers in our region," he adds.

The accusation of tardiness is valid. It is almost 10 years since the government concluded a ministerial enquiry into the use of foreign charter vessels after national and international accusations of slave labour in New Zealand waters. The risks of further procrastination, moreover, pose significant threats to the New Zealand economy, not to mention the sullying of the country's reputation abroad. Various international condemnatory campaigns spurred and spooked big foreign fish buyers like America to pressure the land-based fishing industry to clean up its act. New Zealand's sea food exports consistently rank as the country's fourth or fifth biggest export earner, valuing the harvest at between NZ$1.5 billion to $1.2 billion a year, of which the aquaculture industry contributed about $200 million, so there is much at stake.

To ratchet up the pressure and seek justice for the exploited foreign crews, the International Transport Workers Federation (ITF) president, Paddy Crumlin, recently met with key stakeholders in Auckland about its ongoing campaign to secure NZ$ 30 million in unpaid wages for fishers in New Zealand's waters through recourse to the the courts. He said it was imperative that the fishing workers get better wages and conditions in an industry where 24,000 are killed globally every year. "We are trying to break apart the industrial model upon which commercial fishing is built, because it is akin to modern day slavery," he said.

That model may be fairly said to reflect the dark side of globalisation, not that globalisation per se has been generally bad, far from it. New Zealand's biggest fishing companies engage in joint ventures which exploit quotas under the country's fishing regime by bringing in foreign chartered vessels with overseas crews. Given that crews wages, when paid, on often poorly maintained and unsafe trawlers, are very cheap, the country's fish processors profit enormously and take the view that what goes on a few miles over the seas' horizons  is of little concern to them. It is an 'out-of-sight, out-of-mind' attitude from the industry and regulators because overseas crews are not New Zealand citizens and not in a position to advocate for their own interests, and their rights are overlooked. When conditions become so bad on board and unpaid wages so delayed many foreign crews abscond in the country's ports, only to be humiliated by notices of $1,000 rewards for their capture, somewhat reminiscent of the 19th century American reward notices for capture of runaway slaves.

The problem of fishery slavery is not confined to New Zealand's waters by any means. Greed, theft and oppression of many kinds extend back to the abused crews' homelands, where usually they are hired by local, disreputable employment agencies. The problem is endemic throughout south-east Asian waters and many of the abuses suffered by fishers around New Zealand waters are reflected on board some of Britain's and Ireland's trawlers of terror* which use migrant crews, particularly from the Philippines.

The damage to New Zealand's reputation is hard to quantify, said Joe Fleetwood. "The blame must be put at the feet of the cowboy operators in the industry and successive governments who soft-pedalled the issue and only took belated action when forced to, the lesson being they can't afford to sweep these dirty issues under the carpet any more."

The New Zealand government would be foolish to delay any longer to rectify a festering sore under its nose that would shame any country trying to maintain its hitherto high regard for human rights.

*Google my blogs: 
Britain's trawler fishing shame intensifies
Ireland's shameful role in migrant fishermen exposed
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How to contain Crimea's logistics threats

It might seem incredulous that Crimea's unpleasant brouhaha should pose a significant threat to Europe's logistics or that the obvious solution to the problem is not being pursued. Yet it does pose a significant threat, albeit of a knock-on kind, if allowed to get out of hand, but the solution is dependent on goodwill from all parties.

Imposing trade sanctions without prior moves to defuse the problem through political compromise with honour upheld for all invites enormous upheaval for Europe and Russia, in which everybody loses. Russia, for example, supplies up to 40% of Germany's gas needs and 1% of Britain's, while the figure for the whole of Europe is between 25% and 30%. Despite healthier European gas stocks than usual, any total cut in supplies would send European gas supply costs soaring at a time when Europe is still struggling to recover from the banking crisis. This would not only affect national output in many countries in various ways, it would also mean more consumer belt tightening. In Britain, as explained in my last blog,* cash-strapped consumers are migrating to deep, cut-price food retailers, forcing the leaders to make price cuts as they lose market share. That, in turn, will adversely impact Britain's global food supply chain through further squeezing of suppliers, as if they were not squeezed enough already. This is an example of the knock-on effect referred to earlier.

The hit Russia would take from any gas supply interruption would be massive, too. Its gas supplies to Europe are worth about US$100 million a day and around half of Russia's total budget revenues comes from oil and gas. Any gas cut off would send a potent message to European buyers that alternative, less politically endangered supplies must be sought as soon as possible, and they are already, in fact, being developed. That development could prove a body blow for Russia's skewed economy so overwhelmingly dependent on natural resource exports. That is one good reason why Russian should refrain from further military moves.

It  seems that the most desirable solution to the Crimea problem would be a return to the former status quo, but with certain changes. Crimea already has a level of autonomy with its own Parliament but subject to Ukrainian law. Its people are predominantly Russian-speaking and prefer closer ties to Russia than Europe. The western half of the Ukraine, predominantly non Russian speaking, prefer closer ties with Europe, while the eastern half is more ambivalent. It was the former Ukrainian president's act to initiate closer ties with Russia instead of Europe, and apparently against the western half's majority wishes, that sparked the civil unrest and overthrow of the President and his government, technically an illegal putsch, which Western leaders should remember before casting stones about Russia's illegal invasion of the Crimea.

                                                   Russian motives

Russia' avowed motive for invading the Crimea was to protect the interests of the majority, Russian-speaking and leaning inhabitants. It is, of course, about more than that, but at least Russia has been accommodating enough to allow a referendum on what the majority want by way of future external relationships, however unrecognised that may be by certain Western nations. The situation is not so dissimilar from Britain hanging on to Gibraltar and the Falklands Islands because the overwhelming majority of their citizens prefer closer union with Britain rather than elsewhere.

Russia's other motives for Crimean action are probably just as much to do with access to a year-round, ice-free naval port for its Black Sea fleet and access to reportedly rich oil and gas reserves. Certain elements of the West's gutter Press also demonize President Putin as a vainglorious demagogue bent on a posthumous,
glorious legacy in Russian eyes, a free Press price any democracy must pay however odious its opinionated writers may be. What is disturbing, however, is certain members of the Russian Parliament reportedly agitating for a recapture of former Russian-annexed states like Kazakhstan, and if  Putin truly wishes a glorious epitaph he would do well to scotch such military madness.

A return to Crimea's former status as part of the Ukraine should involve certain conditions to help ensure a just and lasting accommodation. First of all, there should be cast-iron guarantees that the rights of the Russian-speaking inhabitants are in no way oppressed or otherwise disadvantaged. Secondly, there should be international recognition of Russia's legitimate right to have unfettered access to its Black Sea naval port for so long as it wishes. This, after all, would not be much different from America's occupation of the military base on Guantanamo, Cuba. Thirdly, the Ukraine must play its part by cleaning out its Augean stables of intractable corruption and start to adopt good governance. The fact is, the Ukrainian economy has been in a mess well before the Crimean crisis erupted, and many of its politicians are in the unwholesome thrall of billionaire oligarchs. Some Russians are rightly incensed that certain Ukrainian politicians evince a hard-right (fascist) interest and we have the recent televised incident of just such a disgraceful example when a group of far-right politicians broke into the Ukrainian state TV company to assault the head of the station, Olexandr Pantelymanov. Under a group battering he was forced to resign because the bullying intruders took offence after a ceremony was broadcast from the Kremlin showing Putin signing a bill to make Ukraine's Crimea region part of Russia. It is shameful incidents like that which the Ukraine cannot afford if it wants to earn the respect of the outside world.

An example of the Ukrainian financial delinquency is Kiev's outstanding debt of $1.5 billion for gas supplies in 2013 and so far in this year, and it shows little evidence of paying up. A whole Ukraine, including the Crimea, should also try harder to court closer economic ties with both the West and Russia. Meanwhile, Russia bashing by the West's gutter Press and even its more respected media does not help. Europeans should never forget that they enjoy much of their freedom today thanks to Russia's heroic and appallingly high human sacrifice in World War 2 to rid the world of the 20th century's greatest political scourge -- Nazi tyranny.
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*Google my blog: "Food retail price wars threaten supply chains"

Food retail price wars threaten supply chains

It is ironic that smart logistics can be both a business game changer for the better and for the worse. This is particularly so in Britain's food retail sector, where looming price wars threaten to unleash hell on every part of the global supply chain, from farmers to third party logistics providers (3PLs), as if they were not abused enough already by the dominant buying power of big retailers. The catalyst is the cash-strapped consumer joining forces with the deep discounters like Aldi, Lidl and Poundland, whose remorseless rise in a few short years is rattling the leaders like Tesco, Sainsbury, Asda and Morrison, who jointly control 76% of Britain's food retail market. The chief enabler is the discounters' harnessing of smart logistics with an effective business model that has inventory control at its core. The result is that these deep discounters are seizing market share from the big four, prompting a price war reaction initiated by Tesco and Morrison. This may sound good news for consumers initially but the way in which the market leaders will pressure their suppliers to cut their costs and take on even more risks will have undeniably adverse, long-term effects for consumers.

For many years the abuse of buyer power has been widely and routinely practised against suppliers, and competition authorities have largely failed to deal with this problem in Britain. Big retailer abuse of suppliers takes many forms, including:

• Listing fees to be on a list of suppliers, thus raising suppliers' costs
• Delisting/threat of delisting. This occurs when suppliers refuse to cut prices or make other payments concessions.
• Slotting fees to gain access to shelf space
• Demanding retrospective payments like extra discounts and after-sales rebates
• Return of unsold goods to supplier, which means at the suppliers' expense because fresh food cannot be readily resold, and so the retailers' forecasting errors are passed back to the supplier
• Late payments, pushing up supplier finance costs. 
• Retrospective change to agreed terms putting limitations on suppliers' ability to supply competing retailers.

All of these odious forms of payment, and more, are reported to reduce suppliers' revenues by up to 50-70%. The adverse effects of all these downward pressures on supply prices mean that there is 1) a threat to supplier viability and supply, 2) it may raise prices and reduce choice, 3) downgrading of quality by cheapening of ingredients, leading to events like the recent horse meat scandal, 4) squeezed working conditions that could amount to gross abuse of human rights and people trafficking. Invariably, throughout the food supply chain it is the large retailers who take the lion's share of the retail price of any product they sell. With pineapples, for example, it has been shown to be 41% and with bananas 29%. The farm labourers take only 4%.

Best practice inventory control is key

Mr Zen Yaworsky, director of Britain's Supply Chain Academy, says: "We are not very good at inventory control." There is plenty of evidence to support that claim as poor inventory control has seen off many British household-name retailers, while embarrassing many more through empty shop shelves. Good inventory control, therefore, is at the heart of a successful supply chain, and a lesson the foreign-owned deep discounters have taken on board. Their business model relies heavily on stocking a much smaller range of items than the retail leaders, but which are commonly and frequently in demand. Lidl, for example, would typically stock only 1,600 SKUs while Tesco stocks 40,000. But almost all of Lidl's SKUs are fast movers, and when fast items become slow they are quickly dropped. What this means for the leaders is that a large percentage of their stock is relatively slow-moving and that in turn pushes up stock-holding costs, which can dwarf all other warehouse costs combined. In short, the large retailers are disadvantaged in this respect compared with the discounters because their higher stock holding costs are reflected in their higher item costs.

Over 20 years ago this writer went to Denmark to see the food retailer Netto's national distribution centre (NDC) in action and how the company was able to offer cheaper prices. The company subsequently became the first of the foreign-owned, deep discounters to set up in Britain, shortly to be followed by Lidl and Aldi with similar business models. Netto fully exploited the latest IT systems and automated materials handling equipment, particularly very fast sortation conveyors, to fulfil its key objective of fast stock replenishment to shops. All 125 shops were EPOS-equipped so that at the end of each day all information on items sold was transmitted electronically to the NDC, to initiate the replenishment process. Overnight all the replenishment items were picked and delivered to the shops before opening times the next day, thus ensuring no stock-outs. In effect, it was the consumer that did the stock forecasting for Netto whenever they bought an item, and stock forecasting is a potent weapon the the war to control inventory costs, but a weapon that is often dulled through complexity based on assumptions.

Squeezing suppliers is wrong-headed

The result of all this smart logistics was that 90% of all the inventory in the NDC passed through it every 24 hours, thus avoiding huge costs of financing slow-moving stocks. Britain's big food retailers cannot hope to compete with the discounters' business model centred around fast stock movement unless they adopt similar business models. Pressuring their suppliers to cut prices is not the way and would only ultimately harm consumer interests. One area, however, where the leading retailers could improve their supply chain costs without resort to abusive measures is to do more than lip service to supply chain collaboration, a hot topic for many years. Those companies that have initiated supply chain collaboration agreements have seen dramatic cuts in inventories and, therefore, costs. Why, then, have many more interested parties not followed suit? Many retailers still see collaboration with the supply chain as a threat rather than an opportunity and are reluctant to reveal the kind of business critical information to their logistics partners. Perhaps the threat from the discounters will concentrate their purblind minds.

Britain's rise of the supermarkets over the last 50 years has done much to improve the shopping experience and keep prices from rising too fast. Shoppers liked the idea and convenience of being able to fulfil all their weekly shopping needs under one roof, but technology moves on, and so do shoppers' habits. Today, one need not step outside one's home to buy anything, thanks to the Internet. The old habits are breaking down and buyers in a cost-conscious age want value for money in their food, every-day consumables and clothing more than ever. One estimate suggest that within five years 40% of all Britain's bricks and mortar shops will close permanently under the merciless hammering from on-line shopping. The big food and consumable retailers need to remember and implement the first law of marketing -- give the consumer what the consumer wants and not what retailers think is best for them.
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