Global supply chains, in their myriad complexities and broad impacts, are a fascinating topic that warrant an in-depth exploration. In the recent episode of our podcast, we dove headfirst into the topic, dissecting the impact of recent high-profile events, legislative updates, and sustainability practices.
Starting with a deep dive into recent events, we discussed potential derailments like the potential abandonment of the UK’s HS2 high speed rail link and the US auto workers’ strike. The potential abandonment of the HS2 link is a blow to the UK’s transport infrastructure and has far-reaching implications for numerous stakeholders. Coupled with the US auto workers’ strike, the impact on the auto industry supply chain is immense. The strike underscores the importance of worker rights and fair labour practices in maintaining a stable and efficient supply chain.
Another pivotal event that we examined is the recent settlement by Amazon with its labor board. The agreement, reached in 2021, required the online retailer to allow its workers to unionize. This settlement not only highlights the increasing importance of labor rights in global supply chains, but also signals a potential shift in power dynamics between companies and their workforce.
The discussion then moved to the implications of current procurement regulations in the UK and Germany. In Germany, the recently enacted Supply Chain Act requires companies to monitor human rights and environmental risks in their supply chains. While it strengthens human rights and environmental protection, it also poses significant administrative and financial challenges for companies. On the other hand, the UK’s proposed Procurement Bill, currently making its way through parliament, aims to consolidate existing procurement regulations into a single regime, providing greater transparency and value for money.
In addition to these high-profile events and legislative updates, we also touched upon the ripple effects of the recent car recalls by Kia and Hyundai in the US. The recalls, due to potential fire risks, underline the complexities and challenges inherent to global supply chains. It demonstrates the importance of stringent quality control measures and the impact of recalls on a company’s reputation and bottom line.
Lastly, the episode consistently threaded in discussions around sustainability and ethical practices in supply chains. The call to unionize Amazon workers, the German Supply Chain Act, and the UK’s proposed Procurement Bill are all indicative of a growing emphasis on ethical and sustainable practices in supply chains. Moreover, when natural events like the historic low water levels of the Mississippi River occur, it becomes increasingly clear that sustainable practices are not just an ethical obligation, but also a business imperative.
In conclusion, this episode of our podcast offers a comprehensive and nuanced understanding of the vast and dynamic sphere of global supply chains. From the impacts of high-profile events to legislative updates and sustainability practices, the intricate web of global supply chains continues to evolve, presenting both challenges and opportunities for businesses worldwide.
Supply chain chaos, additional friction, labour shortages, delays, problems with border controls and the Northern Ireland Protocol. It has been six years since the UK voted to leave the EU. One thing that has become clear since is the woeful lack of preparation and planning by the Government. Listen to why this is so. Things have moved on and we have had disruptions due to the Global Pandemic and the War in Ukraine. The Global Supply Chain Volatility may well remain a permanent feature for the foreseeable future.
There is also an interesting story of how one Welshman, John Hughes built the Russian Iron and Steel Industry in Donetsk in Ukraine formerly known as Hughesovka.
Shanghai has been closed down for the best part of a month now. Listen to how this has and will continue to impact global supply chains this year. It is also taking its toll on China too.
Avian flu, the price of chicken feed, fertilizers and the crisis on the farm and in our food supply chains.
Microbeads in the cosmetic supply chain – do we really need them?
Supply Chains have become critical. They are not yet in the emergency room or on life support but they are severely distressed. One development that will help is the insatiable demand for data since the pandemic began in the first quarter of 2020. Data has become the new fuel to drive decision-making. In the United States the Biden Administration views supply chains as central to the well-being of people and the economy. They have taken steps to gather data to understand data and what it is telling them about supply chains. Just after Thanksgiving weekend President Biden gathered a mixed group of retailers, suppliers and businesses together to ask a number of questions about supply chains.
In the United Kingdom since the pandemic started the Office of National Statistics (ONS) has used regular surveys to understand the pandemic and this was extended to how business has been affected. The Business Insights and Conditions Survey is conducted fortnightly to test the temperature of the business environment. There are a number of questions on the survey that examine the impact of Brexit and how supply chains have been affected by shifts in conditions.
Supply Chain Critical could well describe many supply chains around the globe right now. In this episode Tony Hines takes a look at US food and other supply chain disruptions following President Biden’s initiative to get parties around the table to discuss issues. On November 29th the Federal Trade Commission (FTC) issued an order to discuss what’s going on in those supply chains. The FTC stated “Supply chain disruptions are upending the provision and delivery of a wide array of goods, ranging from computer chips and medicines to meat and lumber.” Price hikes and anti-competitive practices are also under the spotlight. With US inflation at 6.2% and some goods coming in at higher than that for consumers this is cause for concern. Availability of products is also of concern. Ranges have thinned and there are reported shortages in specific categories.
“The FTC is issuing the orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct wide-ranging studies that do not have a specific law enforcement purpose. The orders are being sent to Walmart Inc., Amazon.com, Inc., Kroger Co., C&S Wholesale Grocers, Inc., Associated Wholesale Grocers, Inc., McLane Co, Inc. Procter & Gamble Co., Tyson Foods, Inc., and Kraft Heinz Co. The companies will have 45 days from the date they received the order to respond.”
Source: FTC (see the link in the text)
In the UK Data Are Key To Understand What’s Going On
In the UK inflation is 4.2% and on the rise. There is also concern about shelf availability for many goods. The Office for National Statistics has been gathering data fortnightly from businesses in the UK. We take a look at some of the findings from the data and what it means for supply chains. The ONS Business Industry and Conditions Survey reports on ‘the impact of challenges facing the economy and other events on UK businesses.’ The survey is based on responses from the voluntary fortnightly business survey (BICS) including financial performance, workforce, trade, and business resilience. Businesses currently trading who reported that the prices of materials, goods or services bought in the last month had increased compared with normal expectations for this time of year was 38%. In the last month, 17% of businesses reported they were either not able to get the materials, goods or services they needed from within the UK, or had to change suppliers or find alternative solutions to do so.
Nurdles in the Oceans Time For The IMO To Classify As Hazardous Waste?
A few weeks back I reported the distressed ship Xpress Pearl was on fire and sinking off the coast of Sri Lanka with diesel and other chemicals on board the vessel leaking into the Indian Ocean. Since then it has come to light that nurdles were also on board, Nurdles a small plastic pellets that are used to produce packaging materials. Being plastic they are of course produced from oil (fossil fuel). However, nurdles are not classified by the International Maritime Organization (IMO) as hazardous waste. The damage to the local ecology and economy from the leakage has been devastating to livelihoods of fisherman in Sri Lanka. Listen to the episode to find out more. Notes: 1. 250,000 tons of plastic pellets known as nurdles pollute our oceans every year. https://cbsn.ws/2QXCkxO Trillions of small plastic pellets have been escaping from petrochemical plants into waterways and oceans for decades. 2. The IMO is aware of the problem but so far has not classified nurdles as hazardous waste which they clearly are.
Up Next
A look back at 2021 – Retrospective on Supply Chains – The Ghost of Christmas Past.
A look forward to 2022 – The Future of Supply Chains.
A special edition on Trade Policies and Supply Chains in January 2022
Special Report Examining the Supply Chain for Batteries to power the electric car revolution in January 2022
Catch Up – Listen to All Available Episodes Here…
The Only Way Is UP
Inflation in the US is at a thirty year high standing at 6.2% and in the UK the Consumer Price Index stands at 4.2% in November up 1.1% from a month ago. As demand goes up and supply remains short inflation is one consequence. In this episode Tony Hines discusses cause and effect and what it means for supply chains. Shipping accounts for 90 per cent of the moveent in gloabl trade and it is still reliant on the dirtiest fuel to drive them around the world. So what can be done to clean up the industry? What will the UK Government decision to pull back from investing in rail infrastructure in the Nort really mean for the economy including future supply chains?
Timing is everything says Tony Hines when it comes to achieving supply chain advantage. Whether it is how long it takes to procure goods, process work-flows or transport goods (raw materials, work-in-progress or finished inventories) to the customer. Time endows advantage. Of course time can also be a problem if you do not manage it well. Managing time in supply chains is a risk. There are uncertainties beyond your control that give rise to risks that you may not have factored in. Even the most savvy supply chain professionals are subject to it.
Cargo
Take the current issues in global supply chains with ports experiencing delays in handling cargo. Satellite pictures of ports in California showed about seventy ships lining up waiting to discharge containers at Los Angeles. Long Beach too has delays. About 40 per cent of US Container traffic passes through these two ports. In the UK too at Felixstowe which handles about 36 per cent of the UK container traffic there are similar problems. In the US it has been taking up to 14 days to get ships into port and in the UK 6 days. There is also increased dwell time in turning around containers. It has raised form 4 days to 10 in the UK. The Biden Administration brought those involved in the US crisis to the table to discuss practical solutions and gain commitments. This is seen as a positive move and parties are keen to operate ports 24/7 to get the job done. In the UK the underlying problem is the shortage of 100,000 HGV drivers to clear the ports and get containers in the right places. Time is everything because these delays are costly for everyone the shippers, the ports, the hauliers, the customers and those managing the various operations. A number of large retailers have been agile in trying to manage the risk by hiring their own vessels to move goods. These are generally smaller ships to weave in between the larger ships and to drop cargo at smaller facilities to avoid the backlogs. Home Depot’s Sara Caliga said the idea started as a joke saying they would charter the ships themselves to get the job done but that’s exactly what they have done. Wal-Mart said their strategy was to hire smaller ships to move goods more quickly. IKEA, Target and Costco are all doing something similar. Coca Cola said it was using smaller vessels usually used for grain or coal to move their products around. In the UK the John Lewis Partnership runs 38 department stores, 12 at home stores and about 338 Waitrose Stores and it too committed to charter ships on 16th September to ensure they had supplies for the run up to Christmas. Hiring ships is not cheap. It is also not a skill expected of retailers to run the shipping operation so it will be interesting to see how they do. These retailers are looking to secure the high velocity inventories the goods that make them most profit. Listen to the podcast and find out more.
Electricity Shortages in China
Electricity shortages in China have impacted production capacity as factories in some of the biggest industrial areas have had to close. This is in addition to the problems experienced from the pandemic shutdowns that occur with China’s no tolerance policy to Covid. This will mean more disruptions to some goods. Recent closures in Vietnam have also seen some production move from there to China but Vietnam is now opening up again.
Driver Shortages
The UK is still impacted from the HGV driver shortage (100,000) meaning goods are not moving as quickly as they should. This is impacting the UK’s largest container ports. This week the reintroduction of cabotage by the UK Government means that EU drivers can do more pickups in the UK but this has not gone down well with UK hauliers who fear their work will be taken away by EU firms.
Planning and Control
Planning and control are two concepts to employ across supply chains if you want to deliver on time, every time. On time delivery is always important but with some categories it is not just important it is essential e.g. medicines, fresh food and ambient goods. To plan effectiveley you need systems, processes, technologies and people working seemlessly together across the supply chain. Visibility across the system for all parties that are partnering in that system is essential. Communicating information that is timely to take action to control the system is essetial.
Ever Given – Supply Chain Disruption in the Suez Canal
Supply Chain Resilience and Risk
Post Brexit Supply Chains UK-EU
Value, Customers and Service
Complexity and Disruption
7 V’s Explained
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Three words in my title are connected and policy makers might want to make the connection too. Why you ask? Well it might help focus attention where it is needed rather than searching the back of the policy wardrobe to dig out that 1980s number that really wasn’t that great at the time – “Free Ports”. So let me explain!
Pareto and Policy – the 80/20 Rule
Vilfredo Pareto identified that 80 per cent of the wealth was owned by 20 per cent of the population in the nineteenth century. His ideas have since been extended to other areas and have been shown to have wide application. As an example 80 per cent of the problems can be traced to 20 per cent of things that cause them. In a supply chain context by managing those 20 per cent of items that yield 80 per cent of value is an efficient use of resources. The lesson here is clear; focus attention and scarce resources on what matters. While the Prime Minister and the Chancellor of the Exchequer spent time this week visiting Teeside in their high viz jackets for publicity about the Free Port policy; across the pond in the USA President Biden was announcing a policy to make US supply chains resilient. That is, to make them secure ensuring supply is maintained in the face of threats.
Free Ports UK Policy Confirmed in the Budget
UK POLICY The UK government first announced their policy to establish Free Ports this time round back in August 2019 just seven years after they closed them before reprising them in November 2020 and as a key policy for regeneration in the Budget in March 2021. The UK had a number of Free Ports prior to 2012 which were established in the UK in 1984 by Prime Minister Thatcher’s government. Prime Minister Cameron let the licenses lapse in 2012 which suggests they were not a great success in the 28 years they existed (1984-2012). The latest policy seeks to re-establish nine Free Ports. None are yet announced in the devolved government areas of Northern Ireland, Wales or Scotland but they have the right to establish their own. The UK Government has claimed up to £9 billion could be added to GDP and 86,000 jobs could be generated. Critics say that these jobs will be mainly low paid and the net contribution to GDP is likely to be significantly lower. It is probable some economic displacement will take place with existing businesses moving inside these Free Ports as a tax shelter to claim tax breaks. They work similar to customs warehouses by storing goods without duty paid until they are moved out of the space. If they are moved on to another tax free or tariff free area there is nothing to pay. Businesses operating inside the zones get other tax breaks such as 100 per cent Capital Allowances on asset expenditure to set against corporation tax as well as receiving employment subsidies. Many of the claims that have now entered UK Government Policy come from a Centre for Policy Studies Paper “The Free Ports Opportunity: How Brexiit could boost trade, manufacturing and the North”, published in 2016 authored by Rishi Sunak then as MP not Chancellor of the Exchequer which he now is. UK Budget Announcement 3rd March 2021
US Policy Resilient Supply Chains
US POLICY By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows: Section 1. Policy. The United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security. Pandemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition, and other conditions can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services. Resilient American supply chains will revitalize and rebuild domestic manufacturing capacity, maintain America’s competitive edge in research and development, and create well-paying jobs. They will also support small businesses, promote prosperity, advance the fight against climate change, and encourage economic growth in communities of color and economically distressed areas. (Extract from the US Policy Statement, March 2021).
Teething problems or something more structural?
Since the UK left the EU on 31st December 2020 there have been problems in supplying goods and services as additional friction caused supply chain delays between the two. Some of which spilled over with acrimonious responses on both sides. For example, the EU invoked Article 16 accusing the UK of trying to slip goods into the UK from Ireland without proper border checks. Many supply chains have now become bureaucratic nightmares for the businesses simply trying to conduct normal trade in difficult times. Additionally, there is the latest spat about the Astra Zenica Vaccine manufactured in Italy being refused an export licence and the EU endorsing it to prevent Astra Zenica fulfilling orders to Australia. Nevertheless, in some respects these are minor when you place them within the context of the disruptions caused by not planning properly to leave the EU and to forsee some of the problems that UK Firms might face. I discuss some of these in my new weekly podcast Chain Reaction. You can click on the image below to listen to the issues highlighted in three industry sectors: Service, Food and Fishing. I also discuss some of the transportation problems experienced by UK seaports as ships bypass the UK to deliver goods to and from Northern Ireland.
Chain Reaction – Post Brexit Supply Chains UK-EU – Click the cover above to listen
In the twelve month period leading to the UK exit from the EU Customs Union concerns were raised by many hauliers that the previous roll-on roll-off ferries could be disrupted at UK ports if trucks had to que to access ships while export documentation was checked. This is expected to impact many Just-in-Time (JiT) supply chains particularly in the manufacturing sector although many have stockpiled to avoid inventory shortages prior to the start of 2021. Trade with the EU represents nearly half of all UK trade. Exports to the EU are slightly lower than imports from the EU to the UK.
‘UK-EU Trade Falls Sharply as Brexit disruption begins to bite’ was the headline for the Financial Times article by Martin Arnold (5th March 2021). France, Germany and Italy have all recorded a fall in trade both imports and exports. France reported a 20 per cent fall in imports from the UK. German exports to the UK were 30 per cent down year on year at the end of January 2021. Italy reported a fall of 38 per cent year on year for imports and 70 per cent for exports to the UK. The fall off in trade between the EU and UK is higher than that of falls in trade between the EU and China, the US and Switzerland. It is not clear how much of the trade disruption is down to Brexit or Covid 19 disruptions.
There were press reports about the M25 becoming a lorry park. The government’s commitment to build additional lorry parks approaching ports has reduced the impact but whether or not this is a long-term solution to the problem when trade increases remains a question-mark. Trade volumes are significantly lower at many UK ports with the Road Haulage Association saying it is approaching 70 per cent at some Welsh ports including Holyhead the port that has carried most of the traffic to and from Ireland in recent years with about 450,000 vehicles passing through the port each year. Since Brexit we have the UK bypass with ships going direct from the continent to Ireland. Sea journeys from the continent (Dunkirk or Cherbourg) to Rosslare missing out the UK take 24 hours and cost on average £250 more per journey for each truck. Sailings from Holyhead to Dublin take 3.5 hours and the ferries were more frequent. “The survey of 350 UK supply chain managers found that 63% have experienced delays of at least 2-3 days getting goods into the UK, up from 38% in a similar survey in January this year.” (CIPS 2021). Other trade and professional bodies also support the numbers being significantly lower too.
Delays continue to disrupt supply chains between UK and EU
58% of businesses say that delays have become longer since the beginning of January
More than 60% of UK businesses importing or exporting goods through the UK/EU border have experienced delays of at least 2-3 days getting goods into the UK
The main driver of delays is the time taken for customs to work through the new paperwork Source: Chartered Institute of Procurement and Supply 24th February 2021
Holyhead has become a major casualty
In just seven weeks, freight volumes have plunged by 50%. The port’s owner, Stena Line, part of the shipping line owned by the Swedish Olsson family, is warning that the slump could be permanent. Joanna Partridge, The Guardian Newspaper, Saturday 20th February, 2021
Services
The UK is more reliant on services than any other G7 Economy. Services account for 78 per cent of GDP and 85 per cent of total UK employment. There were few, if any arrangements for services as part of the Prime Minister’s exit deal from the EU concluded at the eleventh hour in December 2020. In any commercial setting critics might be asking serious questions of the CEO and the Board of Directors, if they left the negotiations with a major trading partner to the last minute and then omitted the most important part of it – services. It emerged in press reports in February that Amsterdam has become the major financial services centre in the EU taking over from the City of London. This was widely trailered during the period between the Brexit vote and leaving but little was done to remedy the threat posed after the UK left the EU. Financial services alone are worth £126 billion to the UK Economy (ONS, 2019).
Food and Drink Supply
The UK food and drink supply chain is worth £120 billion with £23 billion of that exported to 220 countries all over the world. It is the biggest manufacturing employer in the UK larger than automotive and aerospace together (FDF, 2020). All manufacturing and production contributes 21 per cent to the UK economy (GDP). During 2020 many food retailers had raised concerns about cross-channel trade and highlighted that delays would cause shortages and empty shelves in supermarkets. Retailers moved swiftly to stress test their food supply chains in an attempt to make them resilient in the face of this threat. ‘Rules of Origin’ are an issue for many suppliers in this industry and may become moreso when the grace period under the Free Trade Agreement (FTA) ends on 31st December 2021. Ian Wright CEO of the Food and Drinks Federation has said that food exports to the EU fell by 60 per cent in January 2021. The Road Haulage Association estimated that exports through UK ports was down by around 68 per cent in January 2021.
Fishing Industry
During November 2020 in the run up to the December 31st Brexit deadline fishing rights became a sticking point of the deal. Fish represent a very small percentage of the total trade between the two parties (UK-EU i.e. 0.2%). Fewer than 15,000 people work in the sector which covers marine fishing, river fishing, shell fishing and fish food processeing and related activities. The majority of the discussion was on marine fishing. Regaining control of fishing rights was a key part of the rhetoric in the ‘Leave Campaign’ in 2016. ‘Rules of Origin’ are an issue for fish processing and shipments with registration of vessels, nationality of crew and company ownership of prime importance in the decision to apply EU tariffs or operate under the Free Trade Agreement (FTA). This time would have been better spent thrashing out the Services part of the economy (78 per cent). Time added to a supply chain through delay is always problematic for a supplier but for perishable goods it is disastrous. One exporter of lobster, crab and prawns said his consignment of £50,000 worth of goods was delayed over 30 hours at the port. The Fishing Industry is valued at £437 million (ONS,2019).
Seafood Scotland says border delays at the start of the year cost firms more than £1 million a day. The cost of new paperwork is estimated at around “£250,000-£500,000 a year. Seafood Scotland boss Donna Fordyce has told MPs she fears long-term damage is now being done to the industry. Source: Shetland Times 3rd March 2021
Conclusions
Disruptions due to higher shipping costs, transportation delays, health certificates, rules of origin, more complex customs arrangements and IT teething problems for new custom arrangements have all added to the complexities experienced by UK businesses trading with the EU. Some of these issues may be temporary teething problems as the UK government claims but others may be more permanent. One thing is certain which is a failure of planning to mitigate the impact on business supply chains after leaving the EU in December 2020.
So here we are now full circle with the Pareto link knowing that a disproportionate amount of time was spent dealing with under one per cent of the UK economy (i.e. Fishing) taking up all that time when the focus needed to be on services which after all is close to 80 per cent of the total UK economy by value and employs 85 per cent of the labour force. Both the UK and US governments announced policies in the same week designed to stimulate economic performance but one cannot help thinking that the US policy will be more impactful. It is time for UK Policy Makers to focus on making UK Supply Chains Resilient. This means taking a hard look at services too. It might be good to get them under the microscope before they evaporate or migrate.
As for my assessment of ‘Free Ports’ read my previous article by clicking the link below.
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