Archives January 2022

Supply Chain News from around the globe. This week Tony Hines looks at the continuing CO2 production problems for the UK Food Industry returning to a story that hit the headlines back in August 2021. CF a US company has two fertilizer production plants in the UK one at Ince near Warrington and the other in Durham. CO2 which is a byproduct of fertilizer production is sold to the UK Food and Drinks industry. It provides most of the supply. The UK Government provided a financial package back in August that kept supplies moving. The cause of the problem is the high cost of energy forcing CF to stop production of Fertilizer. Now the financial package has ended and there is no sign of lower priced energy CF intend to stop production once again to cut their cost. This will cause problems for the UK Food and Drinks Industry unless a solution is found.

On a visit to his local supermarket Tony Hines noticed that in-store space had been reduced. On further investigation he discovered that this is down to supply chain disruptions as stores are reclaiming more space for onsite storage for goods. He followed up by looking at the demand for warehousing space during the past year. You can find out more listening to the episode.

Inflation is pushing up prices in the US and UK. Year on year at the end of 2021 it was 6.2% in the US and 5.4% in the UK. Supply chain disruptions have added to the woes. This is likely to continue pushing up the cost of goods during the first half of 2022. Production problems due to Covid 19 along with port delays, slow turnaround of container boxes, transportation and increasing fuel and energy costs are likely to ensure inflationary pressures persist in 2022. Added to this is the threat of Russia moving into Ukraine and the impact that this will have on supply chains causing severe disruptions to some critical products including commodities and energy. Wholesale gas prices are likely to remain high as a consequence. For countries reliant on gas for a high proportion of their energy for industry and domestic supply this will cause product shortages and higher costs for everyone. The energy market is what economists refer to as an oligopolistic supply controlled by a relatively small number of organizations. This means that one or a small number of suppliers can have a high impact on prices paid by businesses and consumers downstream. In simple terms governments have put all their eggs in one basket when it comes to energy. A lot more investment is required into finding multiple sources that can spread the risk, maintain price stability and achieve the goal of reducing pollution.

The Northern Ireland Protocol remains problematic with customs checks increasing from January 2022 and mid-year this needs to be given attention if Northern Ireland is not to become a poor relation. Direct shipments to the island of Ireland have increased from European Ports which has impacted the trade conducted between Holyhead and Ireland.The economics of these trade routes have been severely disrupted. Many of the journeys now come directly from EU ports to Ireland to cross the land border to the North. This has added cost to operations.

Inputs of materials are in short supply of between 6-8% and outputs shortages 4-6% as a consequence of supply chain disruptions. Semi-conductors are one item in short supply but there is news of some big investment happening that will improve this situation in the next two years.  We take a look at the likely impact of disrupted supply chains if Russia invades Ukraine.  We also consider the consequences of port delays, increased dwell times and the liklihood of further disruptions in 2022.  

In this episode of Chain Reaction Tony Hines takes a look at emergent battery technology for the electrical vehicle revolution. The announcement by the UK Government this week of a new factory in Northumberland will increase capacity and yet the British Volt investment along with the existing plant in Sunderland previously owned by Nissan before it was sold to a Chinese based business will still fall significantly short of supply needed by 2040 to meet demand. So there is more to do. The race is on all over the world to ramp up investment in battery production to service the growth of electrical vehicle demand. The technology is still developing to produce more efficient batteries.

Battery production itself is not as green or clean as you might think. It relies on mining activities to get hold of raw materials sucha as lithium and cobalt used in the production of batteries.  Novak Djokovic is a Serbian professional tennis player who as we know was refused entry into Australia because he had not been vaccinated against Covid 19 but this week Serbia withdrew permission for Australian Companies to mine for lithium in what is thought to be some form of retaliation. This is significant because Rio Tinto Zinc was expecting to harvest significant lithium for battery production. The RTZ share price fell by 123 pence on the London Stock Exchange as a consequence of this decision. As for cobalt that is an expensive metal with 60 per cent of supply coming form just one country the Democratic Republic of Congo. Cobalt mining is a very dirty business as you will discover if you listen to the episode. There is also the big question about what happens to all of these materials when the useful life of the batteries comes to an end. How will the electric vehicle manufacturers deal with waste.

Volatile energy markets have been around for some time and they are not getting any better. If we look at the demand for Gas cold weather in different parts of the world will drive prices up but the capacity to meet demand is limited which means prices per unit increase. Gas wholesale markets have risen consistently in the past year. This has a greater impact on large users and those without capacity to store gas supplies.  Cold weather depletes reserves held in storage facilities. Many suppliers needed to carry out maintenance work postponed during lockdowns and as a consequence supplies were not replenished as normal meaning shortages.  This is significant risk for the UK which has woefully low storage facilities compared to other European countries and it will suffer more as a consequence.  Gas is still the main source of domestic supply in the UK and while all this was happening it wasn't as windy as usual meaning all the wind turbines were generating less energy too. 

Article referred to in the podcast:
Brink S. van den, Kleijn E.G.M., Sprecher B. & Tukker A. (2020), Identifying supply risks by mapping the cobalt supply chain, Resources, Conservation and Recycling 156: 104743.

If you are a CEO, Supply Chain Professional, Policy Adviser, Academic or Student you should spend some time each week listening to Chain Reaction – All About Supply Chain Advantage; we will keep you updated with what's happening. Listen on your way to work or on the way home. We have regular listeners comprising CEO's, Supply Chain Professionals, Governments, Policy Makers, Academics, Students and Media/Press.  Listeners from 297 cities in 43 countries tune in. So what are you waiting for, stay informed listen to Chain Reaction – All About Supply Chain Advantage.

Listen to this short trailer for the Chain Reaction Podcast-All About Supply Chain Advantage. Join us each week to stay informed about what is going on in supply chains. Follow the trends, listen to how businesses are strengthening supply chains to make them more resilient. Find out how businesses are impacted when things don't go to plan. Learn how consumers are  affected by supply chains. Find out how much waste there is and what supply chain professionals are doing to minimise it. Learn how digital transformation is changing the ways that supply chains work. We cover all business matters across different sectors to understand what's happening with supply chains. We search for ways that organizations can develop strategies that lead to supply chain advantage.

Electric Vehicles and concerns about battery power feature in this epsiode. We also take a look at supermarket retailing in the United Kingdom. How discounters are winning market share. Gas prices are rising in Europe and Gazprom is seeking approval to open its pipeline from Russia through Europe. China has announced the removal of subsidies for New Energy Vehicles (NEV's).

Gazprom is the largest supplier gas world-wide. It is Russian owned. It is currently negotiating with the European Union to allow it to run its Nord Stream 2 pipeline through central Europe bypassing  Ukraine and passing through Germany.  Germany said it would give permission back in July 2021 but the EU has to agree. Germany suspended its approval in November 2021 because Nord Strum is registered in Switzerland and not Germany. This will be far more efficient for distribution than loading many ships. However, relations are not as good as they could be and the EU is likely to take time until about mid-year to reach a decision. Gazprom is currently highly profitable with demand for gas up and supply in short measure. As the largest supplier of Gas with a quasi-monopoly position it can virtually write its own profit figure. Wholesale gas prices have increased fourfold in the past year. Consumers in Britain will likely be paying about £700 more per household in 2022. The EU gets about 40% of its gas from Russia. UK supply is much lower (5%) but as wholesale prices increase in the market the UK will pay higher prices too even though much of its supply comes from Norway.

How has the UK’s departure impacted the EU? Since the 1st January 2022 there are further delayed bureaucratic checks at borders and there is little understanding of this in Europe. This is likely to cause further disruptions in the first part of the year.  Listen to the special edition of the podcast on Tariffs, Trade and Policy.

Have you ever wondered why discount retailers might be doing better in the current economic climate? Listen to what is happening in the UK retail market. 

Governments are pushing for people to make the switch to electric cars sooner than later. Listen to the snippet about some of the problems that need to be resolved before this can happen. Battery technology is something that needs further innovation and there needs to be better coverage of charging points. Battery capacity, charging speed, vehicle characteristics and range are all part of the equation. 

Finally, listen to the report of withdrawal of subsidies for new electric vehicles in China. 

In this episode Tony Hines takes a look at tariffs, trade policies and how they impact supply chains. Is managing international trade through the blunt instrument of tariffs and quotas fit for purpose in the 21st Century? Should governments be looking for better ways to facilitate trade? We begin by examining a brief history of tariffs by taking a look at how they developed as an instrument to grow the British Empire in the 18th Century and how tariffs became the genesis for the United States to exist.
When Adam Smith published his influential book the first about political economy Britain had an empire that stretched around the globe. An empire that was protected by favourable trade policies to the benefit of the East India Trading Company established in 1601. There was much interest from France under Napoleon and from Prussia in Smith’s ideas. The system of market regulation based on tariffs and quotas was known as Mercantilism. Governments thought that they could regulate trade to their benefit whilst simultaneously deriving income from taxes. The system developed a complicated elaborate structure of customs duties on imports and exports. What these taxes actually did was create monopolies for certain interested parties particularly the British East India Company.
At the time Smith was attacking the Mercantilist policies there was a dispute brewing in the American colonies over Tea Trade.  A minister of the Crown with responsibility for the thirteen colonies in America wanted to tax tea and enforce regulations on a variety of commodities to the letter so that Britain could make them pay taxes to support the cost of their own defence. These enforced regulations were unenforceable at a distance of 3,000 miles and the states had little ability to regulate them in the ways demanded by the British.  Earlier in the eighteenth century the British Government had implemented a range of taxes on the cotton trade which woollen manufacturers promoted to protect their trade in textiles. Arguments grew louder after the publication of Smith’s Wealth of Nations and free trade became the mantra (Laissez-faire – let it alone). Businesses argued that these were not matters for the state to concern itself with. Mercantilism was abandoned and William Pitt the younger was an outspoken advocate and adopted the policy when he became Prime Minister in 1783. Progress was interrupted by the French War with Napoleon’s army by which time Britain had amassed a large national debt to fund the war. Trade regulation continued until William Huskisson became President of the Board of Trade under Pitt in 1823.
The Free Trade movement set the agenda for economic growth and through it Britain prospered until Chamberlain began to revive interest in tariffs at the start of the wars with South Africa in the first decade of the twentieth century. In 1944 the Bretton Woods Agreement set out to establish a complex system to manage international trade  through a General Agreement on Tariffs and Trade (GATT) .  The agreement  laid the foundations for the establishment of the World Trade Organization (WTO) on the 1st January 1995.  Today the WTO manages a complex system of trade regulations mainly through tariff and quota arrangements in 163 countries. The WTO also deals with trade disputes through its appeal procedures.  All of this despite the fact that most economists think that tariffs do more harm than good. Supply chains work best when there is no friction. Tariffs cause friction through customs checks, bureaucracy and additional costs added to what would otherwise be a simple commercial trade. Supply chains have to establish systems to cope with this. When trade agreements change they cause disruptions and there are inevitably winners and losers in the process.  Read Full Article

What’s New In 22?

In this episode Tony Hines sets out his supply chain predictions for 2022.

 What will the supply chain landscape look like in 2022? What will you do in 22 that will make things better for you and your organization? Digital Transformation is top of my list if you are not already there yet.

 Returns are a big problem for retailers online and in store. We take a look at the problem of returns. The growth in E-commerce in 2020 was about 44 per cent and online sales overall climbed to over 21.3 per cent compared to 19 per cent in 2019. Returns are in the region of 25-40 per cent. So what can be done to manage the reverse logistics in supply chains and reduce their impact on profitability? Solutions include return kiosks, specific drop-off points and carrier returns 90 per cent of consumers prefer to return to stores and 70 per cent repurchase. Checking returns and refurbishing if necessary is essential to get goods to a resalable state.

 Brexit raises its head yet again with post Brexit controls with more checks likely in 2022. This has potential for even more disruption than in 2021. New rules, regulations mean more bureaucracy, cost and friction for exports and imports. Smaller firms will likely get caught out. The EU has agreed a deal for steel with the US meaning zero tariffs between the two. Meanwhile the UK does not have a deal and this will likely make UK steel 25 per cent more expensive. This is an early test of the UK Government’s ability to negotiate equivalent or as they are prone to say ‘world-beating deals’. It will be damaging to the UK steel industry if they cannot strike an equivalent deal.

 Zero emissions by 2050 but the UK claims it will be the first country to achieve a reduction for HGV’s less than 26 tonnes by 2035. Listen to the details. Tesco the largest UK supermarket is introducing HGV’s in January 2022.

 There will be continuing shortages in many categories of goods in 2022. Covid 19 is still a major disruption. We can expect delays and factory closures as a result of the pandemic. There are also geopolitical problems between the EU, Russia and the US along with the China and US outstanding issues. We need to begin to resolve differences with the aim of working together co-operatively for the benefit of everyone.

 Fifteen years ago Amazon Prime made headline news offering overnight deliveries. Today the Amazon Innovation has extended to other companies employing digital technologies. Listen to find out more.

 Listen to why Trust is necessary in supply chains.

 Three things that will create advantage in 22 are an ability to mitigate risk managing three things: 1 Volatility, 2 Visibility and 3 Virtuality. You need to develop strategies that will achieve these aims.