News Roundup: Shattered Connections The Far-Reaching Effects of a Local Disaster And More

How do the tremors of a local catastrophe reverberate through the global supply chain? We're tackling the intricate aftermath of the Francis Scott Key Bridge disaster in Baltimore, shedding light on the implications for lives lost, global trade routes, and the daunting task of rebuilding. The collapse is a stark reminder of the fragility within our interconnected commerce systems, and we're here to sift through the financial and legal consequences facing businesses like Wallenius Wilhelmsen and the crew of the cargo ship Darley. What's more, we're also connecting the dots on how Brexit's new regulations and environmental concerns are rocking the boat for international supply chain dynamics.

Back on home turf, we delve into the quagmire that is the UK's water industry, with Thames Water's looming debt and antiquated infrastructure at the forefront. This episode peeks into the Pandora's Box of privatization, the weight of financialization, and the contentious debate on re-nationalization. From Boeing's costly crisis to Tesla's production pivot, Alphabet's acquisition chess moves, and the resolution of Carrefour's tiff with PepsiCo, we cover a gamut of market news with far-reaching implications. And as if that weren't enough, we cap off with a sobering perspective on CO2 emissions, pointing fingers at a select few companies responsible for a staggering environmental footprint. Tune in for a comprehensive, no-stone-unturned analysis of these pressing issues shaping our world and your wallet.

You can follow Chain Reaction on LinkedIn, Twitter and Facebook

Transcript

Tony Hines: 0:01

Hi, you're listening to the Chain Reaction Podcast, all about supply chain advantage, and it's great to be here. Well, we've got some great things coming along today, so stick around, stay informed, give those insights and build that supply chain advantage. Well, this is the News Roundup edition all things impacting global supply chains this week. Well, we'll catch up on the Baltimore Bridge and see what's been happening. It's just over a week since the bridge came down and we'll check on that one. We'll also take a look at what's happening in Great Britain with the new regulations with regard to Brexit that were never thought through properly, and we'll take a look at river pollution, disruptions from Taiwan's earthquake and the impact that might have on chip production. And we'll also take a look at all the other things happening in the news that impacts supply chains this week.

Tony Hines: 1:34

Well, work has started on clearing the wreckage from the disaster that struck Baltimore's Francis Scott Key Bridge just a week ago, or just over a week ago, after the cargo ship Darley crashed into it. It sent the bridge tumbling into the sea, along with six construction workers who were killed in the accident, who were killed in the accident. It's likely the replacement bridge will take a number of years, but the port authorities have opened up two temporary channels to allow some shallow draft vessels, barges and tugboats to move around the container vessel. Very sad affair for the construction workers who were killed in the accident. You'll recall that the ship's pilot and crew had reported a loss of power just before the accident and they dropped anchor to try and slow the vessel down, but unfortunately the vessel still ploughed into the bridge. A number of lives were saved with the notice that was given to stop traffic onto the bridge and the emergency services were very fast on the scene and did all they could in very difficult circumstances. The Dali was heading off with its cargo from Baltimore along the Patapsco River, heading for Colombo, sri Lanka. It was about 1.27 when they ship struck a pylon of the bridge and brought the whole thing tumbling down. It's the worst US bridge collapse since the Mississippi River incident in 2007.

Tony Hines: 2:51

The Baltimore Bridge is classified as fracture-critical by the federal government and that means that if one component or member of its primary structural framework falls, almost all the span will collapse, and there are about 16,800 of these bridges in the United States, according to the Federal Highway Administration. Fracture-critical spans in structural engineering are not common in newer bridges, which makes them less vulnerable to this type of accident, it will still do damage to the part it hits. It might bring part of the structure down, but the whole structure would not fall in the more modern construction of bridges. Well, the Transport Department released funds of $60 million on March 28th as an emergency fund to get the debris cleared and begin the process of regenerating the bridge. To fully replace the bridge, congress will have to approve funding and it's estimated it will cost about 600 million US dollars. That's 10 times the initial fund. Some think it will cost much more than the 600 million estimate and the highest estimate I've seen is about 4 billion. I don't think it will cost that, but it's going to be probably higher than the 600 million that's estimated, although we'll have to see how things pan out.

Tony Hines: 4:08

Here's what we've learnt about the Dali since the accident. It set off with a crew of 21, plus two pilots on board, and all were said to be accounted for and safe. They had enough food on board and provisions to get the ship through its 35-day voyage from Baltimore to Colombo. According to the US Coast Guard, the ship's about 289 meters long, that's 948 feet. It's about the size of three football fields and it was stacked with containers, but it is capable of carrying twice as much cargo as it had on board. But it is capable of carrying twice as much cargo as it had on board. The black box, the recorder that has the data of the vessel's position, speed, direction radar and the bridge audio and radio communications, as well as all the alarms, was recovered. The same ship was involved in an incident in Antwerp, belgium, in 2016, which I reported in the previous edition of the Chain Reaction podcast. We've since learned that an inspection that was carried out in June 2023 in San Antonio, chile, reported the vessel to have propulsion and auxiliary machinery deficiencies and that data is on a public, equasys website, which provides information about ships site, which provides information about ships. Singapore's Maritime and Port Authority said the vessel was passed by Foreign Port Inspections in June and September 2023. The registered owner of the Singapore ship is Grace Ocean, which is based in Singapore, and it was currently contracted or chartered by Maersk.

Tony Hines: 5:41

The bridge itself carries about 31,000 cars every day, about 11.3 million vehicles every year. It's a steel construction. It had four lanes and it was about 185 feet, or 56 meters, above the river, and it opened back in 1977. The Francis Scott Key is named after the author of the US National Anthem. He wrote the words to the Star Spangled Banner in 1814. This was after he'd witnessed the British bombardment of the US garrison at the nearby Fort McHenry from Baltimore Harbour. So a lot of history around this particular area, a lot of people employed at the port, which I reported in the last edition About 15,000 people directly. So we hope it gets back to normal as quickly as can possibly happen and I'm sure everyone has the goodwill to get that bridge back up and running and the port of Baltimore to be operational or fully operational in the way it was before the accident. But there's going to be some large insurance claims to settle before then and of course the inquiry will no doubt release further data and further claims. So lots of legal wrangling now, I guess. But we'll keep you posted on the Chain Reaction podcast.

Tony Hines: 6:58

Norwegian car shipping company Wallenius Wilhelmsen has estimated it will have lost about 5 million to 10 million US dollars on its core earnings as a result of the bridge collapse in Baltimore. It expects the channel to be closed for weeks. The company has said that its vessel Carmen, which according to shipping data is amongst the biggest car carriers in its fleet is stuck in the port of Baltimore with the ship and its crew ready to sail. As soon as the channel was reopened, recovery teams opened a second channel, but it's only for smaller vessels to navigate the port and that happened on Tuesday. But most of the commercial shipping lanes remain blocked by the collapsed bridge and stranded container ship Dali that brought the structure down in the first place. So it's likely to hit the profit statements and they've pushed that one out quickly, obviously to let people know. So they're not expecting the commercial shipping lane to be cleared for quite a few weeks. Of course, baltimore port is the biggest port for car traffic in the United States. Cargo headed for Baltimore has currently been rerouted to the ports nearby, such as Newport, newark and Savannah. There'll be billions of dollars in claims from insurance companies. One estimate says it will be about four billion, but it could be even higher. It'll be a record shipping insurance loss and I gave some figures from Lloyds of London and their estimates last week. So flick back to the last episode. Take a look at that and see what they said.

Tony Hines: 8:38

Well, we're crossing the ocean right now for our next story and it's about the United Kingdom and what's happening with the new arrangements coming into place for imported goods from the European Union. Now, it may be you think that this is one of the biggest dramas in the past few years Britain leaving the European Union, european Union and it certainly turned out that way. And not only is it, as I said last week, like a boomerang, but it's a very challenging landscape for smaller and medium-sized businesses trying to bring imported goods into the UK and trying to get their goods across to the European Union. And it all comes down to one simple thing that the government in the United Kingdom did not pay enough attention to what would happen after these arrangements came into force. And there's a full discussion from the cold chain trade body in last week's episode and you might want to stop by and listen to that, because it's all about what they say are the problems in the supply chain and so we have this additional friction, and it's costing small businesses and medium-sized businesses a lot of extra money and time, and so we are likely to see hold-ups at the ports again at the end of April unless the government gets a move on Now.

Tony Hines: 10:01

The problems come about, of course, because companies have to pay imports on foods from the EU because of Brexit, and small imports of products such as fish, salami, cheese, sausages, yoghurt, will be subject to fees of up to £145 from 30th April. That's according to the UK Department for Environment, food and Rural Affairs. Defra, the Cold Chain Federation, said the new charges will hit food prices. Horticultural consignments such as plants, bulbs, seeds, cut flowers, are all affected by this additional tax and lots of people are very unhappy with this. There'll be border checks, which will be phased in over the next 12 months, but they will start on the 30th of April. The costs associated with those particular border checks had been hidden until the past few weeks, prior to Brexit. Of course, the trade between the European Union and the United Kingdom was completely freely flowing and frictionless, but not anymore. It's a result of the UK's departure from the trading bloc and, of course, they were pretty uninvolved for quite some time and almost hostile towards the EU, who, of course, they should have been negotiating with to try and get a better deal than they actually got. It will probably go down as the hands-off, chaotic government period in the United Kingdom, and now, of course, the businesses will pay the price, as will, indeed, consumers.

Tony Hines: 11:40

Well, sticking with the UK, we're just going to take a brief look at the situation for London's water, and in London, the Thames Water Company is the one that's responsible, and they've got quite a problem on their hands, with much of the infrastructure needing replacement. They require a great deal of capital investment. They've got a liquidity problem. The holding company of the UK's largest water supplier warned last week it might not be able to repay £190 million that's about $241 million for a loan that's due by the end of April. This is because the shareholders, including Ontario Municipal Employees Retirement System, abu Dhabi Investment Authority, decided not to pump any more cash into Thames Water. Now, this, of course, is not necessarily the deal that they signed up for. They're shareholders in a business that requires investment and you can't just take dividends all the time. They knew what they were investing in when they took this on, and it's a public asset that's been sold to make a profit for its shareholders. Now, it's a risk, isn't it, that you take when you invest in a business.

Tony Hines: 12:56

Thames sewers and water infrastructure are older and more decrepit than most of the United Kingdom water authorities have to manage, and it came to news this week with the Oxford and Cambridge boat race that took place on the River Thames on Saturday, with rowers complaining that they were ill due to sewage in the river. So they'd actually suffered. Some of them appeared to have e coli from simply rowing boats in that river, and they stopped the normal practice of throwing the cocks into the river at the end of the race for that very reason. Temps water has said that they'll have to hike the bills of their customers by 40% from 2025 to pay for the repairs that are needed to the water infrastructure. Upgrades will cost more than £19 billion in the coming decades, given the estimate from Thames Water. So all is not well.

Tony Hines: 13:58

The Prime Minister has intervened and said he's examining whether it's fair that customers have to shoulder the burden of the company's unsuitable and unsustainable debt load. Well, if you think about it, I mean it's just incredible. These are companies, of course, that didn't carry the sort of debt load that they now carry, and lots of public assets that have been acquired by private shareholding groups have basically distributed profits to shareholders in the good times, and they're now being asked to pay for infrastructure for future income, and they don't like it, and, of course, neither do customers, nor do taxpayers in the united kingdom. So there's a perfect storm brewing up here with regard to water companies, and the question will be asked once again should these assets be taken into public ownership once again? Should they have ever gone out of public ownership is the other question, of course, and I say this with all seriousness, because, when it comes to health, because when it comes to public health, water is a necessity to sustain human life and a healthy life. It's almost a human right and therefore it's incumbent on governments to keep a healthy nation. So the water supply industry is under a great deal of pressure and it may be the only way to resolve the issue is to make the supply of water a community asset once again.

Tony Hines: 15:36

Thames Water was privatised, along with other companies in the United Kingdom back in 1989. It was Margaret Thatcher's government that sold off the publicly owned water and sewage industry for £7.6 billion. Since then, of course, there have been significant changes. As these public utilities became privately owned, they moved from a debt-free organisation to one carrying debt, and that's because, of course, shareholders want to extract value from customers. In 1989, the UK government, under the Prime Minister, had privatised those water companies where they had no debt. Thames Water was the biggest. It serves 15 million people.

Tony Hines: 16:24

In 2006, the German utility firm RWE announced it would sell Thames Water for £8 billion, and it was bought by Kemble Water Holdings, a consortium led by the Australian Macquarie Group. This was when Thames Water's journey as a private entity took a different turn. Macquarie, along with its co-investors, purchased the company from RWE for about £4.8 billion, and Macquarie borrowed the money on the strength of the asset they were buying. This is known as a leveraged buyout, of course, so you might not have the money yourself, but you can basically take a loan on the strength of the asset that you're buying. By 2017, macquarie sold its stake and the company debts had tripled from £3.2 billion to £10.5 billion, and that's unadjusted for any inflation. Over the 11 years of control, macquarie and its co-investors paid out £2.8 billion in dividends, about two-fifths of the total dividends paid by Thames Water between 1990 and 2022. The average yearly dividends during Macquarie's period were five times higher than those paid after it sold its final stake in 2017.

Tony Hines: 17:43

In the past five years, dividends have not been paid, but the debt of the company is significant and a concern, especially as investigations take place to look at sewage and other problems of pollution arising from the management of the water system. The water privatisation journey for Thames Water has been smeared in financial complexity, operational challenges and, of course, significant debt. The performance failures are of considerable concern to customers, the taxpayer and, of course, government. There have been water supply interruptions, the companies failed to meet targets related to water supply, there have been pollution incidents where the water, the quality of the water, hasn't met the expected standards and there's been internal sewer flooding. Thames Water faces financial penalties and obligations for these breaches and will have to return about £80 million due to performance shortcomings. So they are a company with significant, challenging issues, one might say.

Tony Hines: 18:56

Now the big news of this week was another disaster, this time in Taiwan, where an earthquake the largest in 25 years struck the country. It was 7.4 magnitude on the Richter scale and it left buildings leaning at about 45 degrees in Hualien, which was the epicentre of the quake, and there are people trapped in the cave systems nearby and they're searching for survivors around about. So it's pretty unclear at the moment how many people have been killed or injured by this particular earthquake. But no doubt, if you've seen any video footage of these events, you can see how severe the earthquake was, and there are questions over the normally very efficient early warning system that operates in Taiwan, because that didn't seem to give the usual notice of impending problems. So many are asking questions about the injuries and loss of life and of course, taiwan are one of the biggest semiconductor manufacturing countries in the world. So there'll be issues with regard to the production of some critical electronic parts made in Taiwan, and we'll have to see how that impacts the economy too. There'll be some nervous procurement specialists in the supply chain.

Tony Hines: 20:23

Right now, alaskarare has reported that Boeing paid $160 million in compensation after the MAX 9 grounding. The payment is equivalent to a lost profits payment for the quarter. The carrier has said they expect additional compensation to be forthcoming. You'll remember this is the Alaska Airlines MAX 9 plane which experienced the Medair cabin panel blowout on one of its jets in January and that brought to light a whole host of other problems at Boeing. And of course, boeing's quality problems have been there for all to see for some time and there's an investigation in place at the moment to take a look at this by the Federal Aviation Administration. Boeing seems to be a company in crisis at the moment, but we all hope that the planemaker gets back to its quality production and is able to meet its targets in the years ahead, but it looks like there's a lot of work to do right now. The latest issues of Boeing have taken the toll on the company's performance, but I think there was already a drop in output before that and there was difficulty meeting the various supply chain targets that they had in place. The main thing for Boeing now is, of course, to get the quality back to where it should be and then ramp up the output numbers, so perhaps the newly appointed team will be able to meet that challenge.

Tony Hines: 21:58

In other news, tesla has decided to produce cars in Germany, and the right-hand drive models that will be exported to India. These cars will be produced in Berlin Now. Up to now, tesla's produced all its right-hand drive models in Shanghai, in their biggest plant, and that's located closer to the markets such as Japan, australia and India, so we'll have to see how this pans out. Of course, united Kingdom is also a right-hand drive market, and that's closer to Berlin than it is to Shanghai. Alphabet is looking at the possibility of making a bid for HubSpot. Hubspot's an interesting company. They're a tech company and they do all kinds of marketing activities, so it's probably a good fit, and it takes out some of the competition. So whether that'll come to fruition or not, well, we'll have to wait and see.

Tony Hines: 22:57

Now there's been a price dispute that's been going on for some time between Carrefour and PepsiCo Three months in fact and it's just been resolved. This is the sort of negotiation that goes on between retailers and suppliers, and sometimes it can get quite difficult. Pepsico said on Thursday that they companies had reached agreement and that will see their products, including Pepsi Doritos and Quaker Oats, returned to the Carrefour shelves in France. So the customers will be pleased. The agreement is only for France at the moment and stores in Belgium, italy, poland and Spain are still in discussions. This dispute began back in January start of the year, about January the 4th, and there'd been increasingly difficult relations between the two companies. Neither of the two companies have given any indication of how this has affected sales of both the products in PepsiCo's case and, of course, retail sales at Carrefour, but I'm presuming it's had some impact. When retailers pull a brand, which is a well-known negotiation tactic, it often destroys the relationship with suppliers and it makes the brands less willing to promote and spend, so it damages not just the product but the retailer too. The average retail margin on products is only about 5%. There are lots of these disputes and they happen all the time between the big brands and the retail organisations.

Tony Hines: 24:31

The Carbon Majors report by non-profit think tank Influence Map said that just 57 producers were making the highest contribution to CO2 emissions, and they're mainly fossil fuel companies and cement producers. They produce 80% of the world's CO2, and these 57 entities include state organizations and, of course, private companies. According to the report, the world's top three CO2-emitting companies were the state-owned oil firm, saudi Aramco, the Russian state-owned energy giant, gazprom, and Coal India, also state-owned. Most companies appear to have upped fossil fuel production since 2015. Most companies appear to have upped fossil fuel production since 2015. That's the year when almost all the countries signed the UN-Paris Accord committing to take action against climate change.

Tony Hines: 25:28

Well, just a quick reminder don't forget to pick up any episodes that you've missed or any you want to listen to again. There's over 200 episodes for you to listen to, so catch up and indulge yourself and, if you like what you hear, subscribe and you'll be the first to know about new episodes as they drop. So enjoy. Well, that's it for this week. I hope you've enjoyed the Chain Reaction podcast today and I hope you're going to get the supply chain advantage working in your business for your organization. I'm Tony Hines. I'm signing off. I'll see you next time in the Chain Reaction podcast. Bye for now.