'Green' issues could help reshape global logistics

The politics of business is to minimise costs but the problem for mankind today, more than ever, is the need to identify hidden or external costs which do not harm company balance sheets but leave a legacy of widespread costs elsewhere -- incalculable, insidious, death-dealing. Once identified, these costs should be carefully considered and fairly apportioned to those businesses responsible. More than that, however, ways and means must be found to cut these internal and external costs for businesses and that may mean changing attitudes towards business techniques like JIT (just-in-time) deliveries.

JIT, of course, is a business boon that allows firms to slash costly inventories which simply put money to sleep and carry other risks. But when supply chains become globally stretched and rely on parts and sub assemblies being airfreighted many times before the whole product is assembled in one place then that, along with other air pollution, carries a huge, incalculable external cost that seriously contributes to killing many thousands and robs economies of billions of dollars, largely through respiratory and cardiovascular diseases.

Pollution comes in many forms, both legal and illegal. The latter is the lesser problem that can be effectively controlled through determined prosecutions but the former is far more intractable and complex. But just how big are these legal pollutions and what can be done to cut them substantially while at the same time enhance corporate profits?

In China alone an estimated 500,000 people die every year from air pollution while many more are left seriously ill. This is not helped by the lack of environmental law enforcement and rampant corruption among big energy suppliers. Cars in the capital, Beijing, use high sulphur fuel which is higher than the national standard. The cost to China is breathtaking. It is estimated that in Beijing and surrounding regions the economy loses between US$19 billion and $39 billion a year owing to the side effects of PM 2.5 pollutants, much of it generated by cars and industry. That is equivalent to a loss of 3.4% to 6.7% of GDP for those regions alone. This air pollution, however, is not confined to China. Toxic-laden prevailing winds dump the insidious threat on South Korea, causing health problems for their citizens.

Dirty ships kill

In northern Europe about 50,000 die prematurely from cargo ships' emissions. This is because cargo ships use high sulphur content oil but as from 2015 all cargo ships plying north European waters must cut their sulphur content by 90%. Elsewhere in the world, however, this specific problem is being unfairly addressed. In Hong Kong smog kills 3,000 a year and much of that can be attributed to cargo ships' emissions. To their credit, container shipping lines like Maersk and 17 other operators have been using low sulphur fuel for the last two years to curb pollution but many others refuse to do so because it carries an extra cost burden and they are under no legal obligation to comply. Clearly, the Hong Kong authorities, who have not met their air quality targets set in 1987, need to act robustly and swiftly to deliver a level playing field. To be fair, they have cut the port charges but that covers only 40% of the added cost of going 'green'. If Hong Kong is to meet its air quality target then it must make all shipping lines comply over sulphur emissions. There may, however, be a problem when switching over to low sulphur fuel because on entering ports ships' engines have cut out, leading to helpless drift and collisions costing millions of dollars.

Around the world many authorities need to legislate for cleaner air but that will add costs to distribution companies, which ultimately will be passed on to the final consumer so it is important to consider ways to reduce their costs. One of those ways is to redesign global supply chains and another is to consider changes to the means of transport.

 Renaissance for rail?

Already, global supply changes are taking place which should favourably impact the air pollution issue and, perhaps, other climate threats. The rationale behind the outsourcing of production to far away countries over the last two decades was simply one of harnessing cheaper labour costs in those countries. But changes are under way which are not only eroding that cost advantage but also reveal the hidden costs of global outsourcing which were not allowed for. These include, for example, rampant intellectual property theft, (especially virulent in China), natural calamity risks that seriously disrupt JIT supplies, inflexibility to react quickly enough to changes in demand, poor quality issues and long production runs. This could mean that global supply chains will move to serving regional areas rather than global as western companies begin to re-shore back to their homeland or nearby countries. That will have a favourable impact on carbon emissions, especially from airfreight, but there are more 'green' dividends to come by changing and developing the means of transport.

A good example of how a change in the transport mode can pay 'green' dividends while also cutting internal costs is the new rail route from Chongquing, China, that passes through Kazakhstan, Russia and Poland before reaching Germany. This 11,179-km rail route will not only help western companies like HP slash transport costs to $10,000 per container, a third the price of air freight, it will halve delivery times to 21 days compared with 40 days by sea. Compared with air transport, rail transport's carbon footprint is only one thirtieth. In Britain, which has a well-developed rail network, the move to establish large container ports like that at London Gateway will see a big switch from road to rail container transport, reducing the carbon footprint by two thirds.

Sea shipping, owing to economies of scale, is the cheapest of all transport modes and the least polluting per container but there is scope to cut their emissions and costs through technology changes. A promising development here is the Belfast-based B9 shipping company which will use windjammers with automated sail trimming for most of the voyage, supplemented by Rolls Royce methane gas turbines for when winds are light and for port manoeuvring. The biomass fuel will be from discarded food mountains. The first vessels promised will only be of 3,000 tonnes, though there are plans for 5,000 tonne vessels, but B9 believes there are around 10,000 short-trade coastal ships in this bracket that could be replaced and so deliver a substantial environmental gains.

There are many other reasons to be optimistic over air pollution based around technology changes, like video conferencing and online selling but much can be done to cut distribution's carbon footprint significantly which, alas, has been exacerbated by global outsourcing and JIT delivery techniques.
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Logistics wins the war for Taliban

It must now be abundantly clear that the coalition forces' war in Afghanistan is lost, an outcome that would surprise no one with any grasp of geo-logistics.* It is a dismal testament to the hubris of advanced nations' reliance on their modern weaponry in a hostile terrain where the costly problem of stretched logistics could be turned against the invaders. The war may well go down in the annals of military history as the one that cost so much and achieved so little.

There are, of course, many reasons why the coalition forces could not achieve a military victory, not least Afghan corruption and narco politics, but there can be little doubt that the cost of logistics was decisive -- the most potent weapon in the Taliban's armoury. But why were the logistics costs so high in the first place and how could a relatively poorly armed Taliban wreak such havoc?

To understand that, one must appreciate the prevailing regional politics. To Afghanistan's south and east lies Pakistan, a country of ambivalent feelings with provinces supportive of the Taliban. To the west is Iran, hostile to any American involvement, and to the north the former Soviet Union states and Russia, which would have required the latter's approval for land-based supplies from Europe. That left just two routes, one air and one land. The land route, however, is notoriously hazardous as it means using the mountain passes where supplies could be easily destroyed. Just one attack here destroyed 40 oil tankers. That left air transport as the main option.

The costs of airlifting supplies from Europe to Afghanistan are stratospheric. One tonne of supplies, for example, would cost US$14,000 compared with just $500 if a rail route had been possible. Put another way, the cost of airlifting a fully equipped American brigade would be over $200 million. This helps explain why the coalitions' total costs are running at an estimated $2 billion a week. Britain alone has reportedly spent £17 billion so far but the true cost is much higher as that does not include the cost of supporting the maimed, the widows and their children that will continue for many years after the war. There will also be a costly fallout from those service personnel who can, alas, be expected to commit suicide. In the Falklands War the number of UK personnel who subsequently committed suicide exceeded all the UK fatalities during the war.

Afghanistan's harsh, arid, largely mountainous terrain, honeycombed with caves, make it ideal guerilla warfare terrain, which Russian discovered to their cost during their occupation. These natural advantages were put to good effect by the Taliban whose per capita support costs were less than one tenth of the coalition forces. Their relatively low cost weapons exposed another cost problem for the coalition. In a recent Taliban attack on the sprawling Bagram air base the destruction of six jump jets cost over $100 million. Hi-tech weapons can be cost effective but they come at a very high price and their usefulness in  a guerilla war is marginal.

The horrific logistics cost factor has at last dawned on the British Government, who have announced an early, substantial withdrawal this year rather than 2014. Reports also suggest that the White House wants to reduce its current 68,000 troops to less than 10,000 in 2014. It is, of course, possible that the current, global economic climate has worked in the Taliban's favour, for debt financing of war is not popular back home when ordinary people are struggling under Government cutbacks caused by years of cheap credit binging, leading to unsustainable debt mountains.

So much for the costs so far but what of the achievements? It's true that much of Afghanistan has been free of Taliban trouble and that in the cities women and children enjoy a level of freedom and dignity unknown under harsh, Taliban rule. They do not want to see a return to Taliban rule, but that does not mean they will not get it. Wealthy Afghans are taking no chances. They are already moving vast sums abroad with a view to following the gold because they fear collapse after 2014 when the coalition will leave only a small presence. The only people to have truly gained are the army of foreign contractors replete from lucrative government contracts paid for by long-suffering taxpayers who have only more pain to come.

The world has grown tired of warfare and what the appalling costs mean for the global community. Global investors are, at last, rumbling those Governments who used the debt tap to finance their irresponsible binge spending over decades. They are on notice to rein back their profligacy and a major chunk of that is military related. Each year the world spends an estimated $1.47 trillion on armaments and warfare, depriving help from the sick, the homeless and elderly huddled around their winter fires insufficient to prevent death from hypothermia.

If military logistics teaches one lesson it is that if geographical factors can be harnessed by the invaded forces and turned into a potent logistics weapon against the invader then the latter is in serious and very costly trouble.
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*How geography can impact logistics operations

Skills gap threatens Britain's industrial renaissance

As remarked in a previous report, "Supply chain shifts threaten Asia," there are many hidden costs attached to outsourcing manufacturing to the Far East to serve markets back in the West. These include inflexibility, poor responsiveness from far off factories, poor quality issues, wholesale intellectual property theft, large minimum production runs and Nature's fury which can wreck JIT delivery schedules. Many outsourcers overlooked these significant costs but the biggest oversight, and this is not hindsight, was the threat from rising production and distribution costs which are now beginning to make the Far East a less attractive, if not uneconomic, place to locate. That does not mean that the Far East will fail to attract foreign investment, but rather that it means such foreign investors will concentrate on serving the regional markets instead, given their potential for huge growth.

So just how fast are these production and distribution costs rising and will it mean that UK and European manufacturers face a golden manufacturing opportunity? Since 2003 wages in Thailand have jumped from US$3 a day to $10 a day while shipping costs have risen by 20%, says one British parts supplier for pick-up trucks. Elsewhere in Asia wage rates have been soaring. In China, minimum wages in the provinces have risen by more than 20% in the year to September and the Chinese government has pledged to double workers' average income this decade. According to one American consultancy, if Chinese wage rates rose 30% a year, the renminbi by 5% a year against the dollar, along with freight rates, it would be as cheap to produce in America as in China by 2015. But already certain products can be made in America cheaper than in China. Likewise, in Britain it is already cheaper to produce high-end clothes rather than in places such as China, Bangladesh and India.

There is no doubt that many British companies are bringing back to the UK some or all of their manufacturing side but it is, perhaps, still only a trickle rather than a trend, but many trickles reach their oceans as mighty, raging rivers. That trickle, however, will be effectively dammed if Britain cannot overcome its serious shortage in manufacturing skills, particularly at the hi-tech end. It is thought, for example, that in Britain's West Midlands there will be around 90,000 hard-to-fill manufacturing jobs over the next five years. One French fashion house now makes between 50% and 70% of its entire global production in the UK and would like to make more there but complains that Britain no longer has the skills.

It may come as a surprise to many readers that recent research claims that Britain is producing more manufactured goods than in 1966 when manufacturing employment was at its peak. This is due to survival strategies put in place by manufacturers to mitigate the effects of globalisation. But these successful firms are now concerned about the lack of high-tech skills in the labour market and some are even worried that their businesses many not survive into the next decade owing to their inability to recruit employees with the right expertise.

Closing the skills gap

There is no doubt that if Britain is to take advantage of the golden opportunity for a manufacturing renaissance then the skills gap must be closed. The British Government is fully aware of this and has some laudable initiatives, like the £140 million being pumped into high-value manufacturing and the financial support for its quango, Skills for Logistics. But the fact is that the firms that need the skilled labour do not have the capacity to offer training because they are largely SMEs.* Such training schemes were largely offered by the big firms which have subsequently relocated from the UK. This means that it it clear that much more is needed to encourage apprenticeships and may even require far more spending on school education to make manufacturing more appealing at GCSE and A level. This may require rewarding some schools better than others who can show that they are producing pupils more suited to a manufacturing society than a services economy so that pupils will be guaranteed jobs waiting for them rather than the arts degree graduates for whom the jobs paucity leaves them walking the streets unsuccessfully looking for work. The government may even need to overhaul school education root and branch for there can be no doubt that the level of education attained by many pupils leaving school is abysmal. The current GCSE qualifications attained by British pupils at 16 has been discredited as a dumbkopf version of its predecessor, the GCE O level, and there is far too much reliance on course work.

Such remedies can be very costly for the Government already strapped by a chilly economic climate but there are ways that both Government and the people, in concerted actions, can add billions of pounds to the Exchequer's coffers. Owing to the complexities of global tax laws, many leading corporations take advantage of low tax rate economies and tax havens. There is nothing illegal about this though the argument that such avoidance is profoundly immoral is unassailable. There has been much recent media criticism of American companies, like Google, Amazon and Starbucks, paying little or no tax in Britain where much of their sales and profits arise. One British MP claimed that Google, Amazon and Starbucks paid a UK corporation tax rate of 0.4%, 2.5% and zero respectively, compared with the current UK corporation tax of 25%.

Finding the cash

It will take time to resolve this through normal channels because it calls for international regulation but concerted action by aggrieved consumers could bring far quicker results. If people wish to change odious corporate cultures there is no greater weapon in their hands by far than collective, sustained and focussed boycotts of the offenders' goods and services. It is an irresistible power that is every boardroom management's potential nightmare.

Apart from the multi-billion pound loss to the Treasury through tax avoidance schemes, money which could be well spent preparing Britain for a manufacturing renaissance, there is a more alarming reason why this insidious canker must be lanced, and quickly. As pointed out by one British department store that pays its taxes in full those firms that pay little or no UK corporation tax have an unfair advantage over those who do and in time the vast sums saved on tax avoidance could be reinvested in the businesses so that, all other things being equal, they would out-compete the full tax-paying companies. Eventually, that could leave the Exchequer so short of revenues that much of its social spending would have to be slashed, risking social collapse and anarchy.

Balance of payments remains untamed spectre

Britain now stands at a crossroads presenting a golden opportunity for a more assured, long-term future. The right route must involve a manufacturing renaissance concentrating on the high, value-added products, in particular, but that will never be achieved without the closure of the skills gap. If this opportunity is missed Britain seriously risks raising the spectre that once was a frequent hot political issue -- a balance of payments crisis. The importance of these statistics has faded in recent decades owing to the liberalisation of financial markets that allowed firms and countries to ramp up their borrowings to fill the gap. But the trouble with debts, as the recent turmoil in the PIIGS** members of the EU so painfully shows, is that if the creditors' confidence in the ability of debtors to repay the loans is shattered then financial Armageddon looms.

Britain's fervent espousal of a finance-based economy to the detriment of manufacturing has had a corrosive impact on the balance of payments. In the second quarter of 2012 the UK's balance of payments deficit reached a record £20.8 billion and the deficit on goods reached £28.1 billion, the largest ever recorded. Back in 1950 Britain had more than a third of its labour force in manufacturing and there was a trade surplus in manufactured goods equal to 10% of GDP. That trade surplus has now fallen to a deficit more like 4% of GDP. Is there any wonder that there is a widespread feeling that the country has put too much faith in finance at the expense of manufacturing?

Capital inflows required to finance national trade deficits may stop, possibly abruptly, if there are mounting, imagined currency or default risks. As far as defaults go the imagined has turned to reality for many countries. For Britain, the default risk is lower but not fanciful. With a fair wind and the right moves to rebalance the economy away from a scenario dominated by paper pushers and City pinstripe bookies, Britain faces a once-in-a-lifetime, golden opportunity. It now remains to be seen if the coalition Government has the resolve to steer the right course and carry the nation with it.

*SMEs: small and medium sized companies
**Portugal, Ireland, Italy, Spain, Greece 
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Unique articulated forklift will save warehouses millions

It may seem pushing the limits of credulity to claim that a newly launched, special kind of forklift delivers instant truck payback and much more by cutting new/altered warehouse building and running costs. But that is just what Translift Bendi* has done with its Mini Bendi pedestrian articulated forklift developed in close cooperation with ASDA, one of Britain's largest food retailers and part of the Walmart group, the world's largest retailer.

There is nothing new about the ability of articulated forklifts to reduce new or redesigned warehouse building and running costs or even eliminate satellite warehouses entirely. What is new, however, is the introduction of forklift operations with pedestrian traffic in a safe way and so save substantial costs that would otherwise be incurred if truck operations were entirely separated from pedestrian workers.

Undeniably, the articulated forklift is by far the most versatile of forklifts thanks to its 220 deg fork mast rotation and large cushion tyres that combine all the virtues of outdoor counterbalance trucks with internal warehouse machines working in very narrow aisles (VNA) down to 1.6 mt wide. Such versatility can substantially cut forklift numbers and avoid costly warehouse expansion. But just how is the Mini Bendi, costing around £20,000, able to help ASDA not only reduce construction costs but also running costs and what are the hard figures?

A typical ASDA store in the UK costs around £10 million to build, and ASDA's Simon Grass, back-of-house development manager, believes the Mini Bendi has saved 0.5%, or £50,000, from the building cost, including £4,000 on sprinklers. As he explains: "Reducing the building costs helps to maintain hardly any cuts in the building panels, therefore no waste. The steel columns are lower, reducing steel tonnage and costs. In terms of the building and how it looks it is now lower and more acceptable when running through the planning procedure. We now have a truck that offers greater flexibility as well as efficiency and productivity benefits compared with other types of handling equipment."

ASDA has hundreds of large superstores in Britain, with more planned, which gives an inkling on the potential for multi-million pound savings that the Mini Bendi can achieve nationally, and far more if marketed globally. As Simon Grass was keen to stress: "It is not just new stores that benefit from the Mini Bendi. When ASDA reviews one of its more established stores within the estate, the Mini Bendi can save significant space, time and money in the back-of-house areas, as ASDA can reduce the capital spend on realigning the warehouse to separate colleagues and forklifts. This is because the Mini Bendi can perform the same tasks as many of the existing reach trucks within the estate. ASDA can simply swap them over and the area becomes pedestrian friendly."

As a business, ASDA constantly looks at ways to separate pedestrian and forklift trucks to minimise the cost of accidental collisions. However, when segregating it would often lead to usage and productivity becoming inefficient, explained Mr Grass, but "We no longer need to compromise."

Owing to the truck's way of working, ASDA can now have pedestrian pick within the same area, permitting the stores to drop and fill effectively. This supports the reduction in the building footprint and thus improves the building's selling efficiency because ASDA can either build a smaller store or increase the selling space. Either way, it makes no difference to the store running costs like rates, possibly rents, and all the utility costs, all of which the Mini Bendi confers for the building's lifetime -- a truly remarkable return from a humble, pedestrian lift truck.
*www.Bendi.co.uk
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Asian quality issues can undermine Western businesses

As explained in my last blog: "Will technology reshape global supply chains," the perils of outsourcing manufacturing or parts supplies to Far Eastern countries are many but, perhaps, none can be worse than poor quality issues that cause their western customers to collapse. The crucial importance of checking quality issues in any Far Eastern supplier when considering outsourcing cannot be overemphasised, as the recent collapse into Administration of the UK company, Manganese Bronze, (MG) vividly shows.

MG makes London's iconic black cab taxis but it struck a deal with its Chinese partner, Geely, in 2006, who took a 20% stake in the company and transferred taxi production to China. The rationale behind the move, as it is for most companies outsourcing to China, was to reduce production costs to compete better on the world markets.

The latest cause of MG's financial embarrassment was the recall of 400 of its London taxis following problems with its power steering. It succeeds a fiasco in 2008 when it was forced to withdraw 5,000 taxis after some burst into flames. Reports claim that the latest fault was caused by a component from an unnamed Chinese supplier, introduced as part of wider moves to cut costs.

There are parallels to this even within Europe when a reputable company switches to a cheaper country within the EU without always informing their customers. One British manufacturer of forklifts, for example, had a reliable relationship with a West German gear box manufacturer who subsequently sought supplies from East Germany where quality issues fell short. The result was the British company spent 10 times as much rectifying problems as it received in compensation from the German supplier. And that does not include any potential sale losses caused by the damage to the truck brand. The incident also damaged the German company as the UK truck producer switched to Italy for its gear box supplies.

It should not be thought that Chinese manufacturing quality is inherently risky. When Japan was recovering from World War 2 the Western perception of its production quality was one of shoddy, cheap products. Today, Japan's quality issues, especially in car production, albeit with a few recent hiccups, is second to none. There is no reason why China should not become a top quality producer but it may need State intervention to hasten the process before too much damage is done. The Chinese authorities should also be more vigorous  in dealing with wholesale intellectual property theft committed by its corporations. Another British forklift producer whose trucks came from Taiwan felt obliged to reshore its production back to Britain because of concerns by its component suppliers who were reluctant to supply because they feared leakage of their product designs to China for copying.

It should be said in fairness to Chinese producers that there are other problems with MG that seem to have contributed to its collapse. MG reportedly tried to secure a £15 million loan from Geely because it stopped sales while investigating the steering fault and so had no income. Geely owns Volvo so such help would not have been too onerous but it may have felt wary about a bailout given the discovery a few weeks earlier of a £3.9 million accounting black hole allegedly connected to the introduction of a new IT system. When its delayed interim results were announced it showed widening losses of £3.6 million for the six months to the end of June and it has made only losses for the last four years. This seems to indicate that despite several years of Chinese production their production costs could not be reduced sufficiently, hardly surprising given strongly rising Chinese wage rates and soaring fuel bills impacting distribution costs. This has salutary lessons for all companies setting up businesses in China supplying customers half way around the world. China is losing its allure because the law of comparative costs in their favour is diminishing.

At one time holding a virtual monopoly in the London black cab taxi market, MG's woes grew as its market share fell when new entrants, like Mercedes, secured successes with its Vito model. Nissan is also about to enter the London cab market. Even so, as many other Western companies have found when outsourcing to the Far East, keeping a handle on quality issues is very difficult and so should be considered carefully as a key determinant when outsourcing.
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Will technology reshape global supply chains?

There are many forces at work in the global supply chain which are already beginning to reshape global logistics but one which has yet to have any impact is, arguably, changes in productive technology that could undermine the prime reason behind offshoring production to far flung countries ---lower costs, particularly labour rates.

Hitherto, the main reasons forcing a rethink on global supply chains have been concerns over rising costs, both at the production level and in distribution, poor quality, prolonged time to market, wholesale intellectual property theft and natural calamities. The last of these can be disastrous in a world economy geared to JIT (just-in-time) deliveries. There are also political risks but fortunately these have not had any impact so far. They may also be augmented by environmental concerns which lead to some form of taxes because offshoring has boosted carbon emissions. Despite all these risks, global corporations have not been dissuaded from offshoring to cheap labour countries on a significant scale because the law of comparative costs is still in their favour.

That law, however, could be turned against cheap labour countries by advances in technology which will give high wage economies the edge. Already, in some respects, America is cheaper than China in the production stakes and that gap is narrowing. But that trend could be galvanised through the application of robotics that will replace many low wage menial factory tasks.

An interesting example is Rethink Robotics' Baxter robot that can learn any menial assembly line task. It, and doubtless others like it to come, can increase the productivity of US manufacturers and so help them keep business that would otherwise move overseas. Mounted on a gurney, its two arms, five cameras and sonar sensor that detects motion through 360 deg around it, and enough intelligence to learn tasks within an hour, Baxter can work safely beside humans at remarkably low cost owing in part to its low price tag of US$22,000. Based on three years of an 8-hour shift, that is the equivalent of $4 an hour, almost half the minimum wage in Britain. According to Rodney Brooks, Baxter's brainchild, "We are spending hundreds of billions of dollars doing this kind of work in China and we want companies to spend that here, in a way that lets American workers be more productive." Baxter's upgrades will also be free to enable more complex tasks like two-handed manipulation, and early next year the company will release a set of programming instructions so users can create their own tasks and attachments for the machines.

Plausible though this scenario may be, and while it could have some initial impact, it could cause more problems in the long run of a political nature. Cheap labour economies will develop their own capable robotics when they see that their cheap labour no longer makes the law of comparative costs work in their favour. Production costs are important but these can be changed as market forces dictate. What cannot be changed, however is the exposure to natural and political risks and sharp changes in fuel costs and wage rates. Given that universally applied robotics will not give any one country a competitive edge, the more likely scenario to unfold is a trend towards regional manufacturing, with many companies wanting to produce their products as close as possible to their customers. This will have manifold advantages, like minimising the natural and political risks of stretched global supply chains, enhancing the environment, and lowering distribution costs. Given China's and other Asian countries' social problems of burgeoning populations and their growing aspirations, it is to be hoped that any changes in international trade patterns will be managed skilfully to avoid major social upheaval.
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China and Japan's chauvinism threatens global logistics

Once again the global supply chain geared to JIT (just-in-time) deliveries shows just how Asia is a high risk trade partner without a robust recovery plan to sidestep disruption to supplies for western importers. This blog has repeatedly warned of the folly from placing too many eggs in one supply chain basket. The Japanese tsunami in 2011 and the Thailand floods showed just how nature alone can cripple global supply chains. As if that were not enough we now have the political risks surrounding the disputed, uninhabited islands known as Senkaku to the Japanese and Diaoyu to the Chinese in the East China Sea. Readers should not be surprised that Asian politics is threatening the global supply chains. In my blog of April 25, 2011, headed: "Japan's earthquake must force JIT supply changes," I warned: "Nature, it should be said, is not the only threat to the supply chain. There are also significant political risks."

Japanese factories produce about 40% of the world's electronic components, and in some cases is the only source of supply for items like parts for jet engines. China's Guangdong province provides 80% of the world's basic electronic components and is the largest source of rare earths, so essential for electronic devices. This shows how vulnerable the world is to any political upheaval in this region.

Japan and China, the second and third largest economies with an estimated £218 billion trade relationship, have been a 21st century success story but that success could be seriously set back by the current dispute over typhoon-lashed, uninhabited islands.

Inflamed feelings in both China and Japan, whipped up by a jingoistic media with Government connivance, has already caused considerable economic damage. Japanese businesses in China have been ransacked and closed down. Japanese car makers in China have ceased production following calls for a Chinese boycott of their cars, leading to estimated losses of £154 million so far. The Organisation for Economic Cooperation and Development is so worried by the flare up that they believe it is making the world economy more fragile than at any time since the 2008 financial crisis.

It is difficult to discern what is really behind the flare up over five small islands. Historically, China has the stronger claim that stretches back to imperial times, long before Japan forcibly annexed the islands in 1895. Geographically, the islands are also much nearer China (about 150 miles) compared with over 600 miles to mainland Japan. There are believed to be valuable natural resources like gas but if this is the motive for militaristic passions then is should not be difficult for both governments to reach agreement on development of the islands' surrounding resources by mutual consent and share the revenues equally.

America could help here by hinting to Japan that it will not honour the US-Japan security treaty if Japan is attacked by China around the disputed islands and only come to its aid if mainland Japan is threatened. America right now needs a Pacific war entanglement like a dose of the plague. Its economy is in an unholy mess built on an appetite for unsustainable debt, fanned by rampant banking greed and military spending supporting world-wide bases and numerous military entanglements.

As always, trade is the hand-maiden of prosperity and the surest guarantor of peace. Both Asia and the world have too much tied up in trade interdependence for that to be jeopardised over a few barren rocks. And Japan, in particular, should recall the words of General MacArthur at the dawn of the Atomic Age when taking the Japanese surrender in Tokyo Bay: "It must be of the spirit if the flesh is to survive."