News Roundup: Climate, Health, and Markets in a Connected Economy

Feel the ground shift beneath your feet as we navigate the tangled web of surging inflation and its seismic impact on the global supply chain. Brace yourself for an in-depth analysis that pulls no punches, revealing how rising consumer prices are dictating the Federal Reserve's delicate tango with interest rates, and how businesses and consumers alike are feeling the pinch. From the housing market's skyrocketing costs to the transportation sector's fuel price woes, we dissect the ripple effects that are keeping the Fed's elusive 2% inflation target just out of reach. And as geopolitical tensions threaten to fragment international trade further, we probe the World Trade Organization's grim trade growth forecasts, understanding the true cost of a splintered global economy.

Venture with us to the frontlines of global health where dengue fever outbreaks are the latest harbinger of climate change's far-reaching grasp. Hear firsthand accounts from Sri Lanka and Peru, exposing the stark realities and government responses to a threat that endangers half of the world's population. Shifting gears, we analyze China's contracting trade figures and what these cautionary signals mean for the worldwide market. We also illuminate the bright spots on the horizon – the electrifying rise in copper demand thanks to the EV revolution and AI breakthroughs, a boon for Chile's economy. Finally, witness the environmental and legal reckoning as corporate leviathans confront the consequences of Forever Chemicals. Join us for a journey where economics, health, and policy collide, reshaping the landscape of our global supply chain and the very fabric of our interconnected world.

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Transcript

Tony Hines: 0:05

Hello, I'm Tony Hines and you're listening to the Chain Reaction Podcast all about supply chain advantage. This is the News Roundup Edition all things impacting global supply chains. This week US consumer prices increased more than expected in March Gasoline, shelter, all going up in price and it's, of course, put matters in a quandary for the Federal Reserve, who want to start cutting interest rates in June. This unexpected turn may see rate falls delayed until the autumn, september maybe. Annual price rises for US consumers come in for housing up 4.7% year on year, transportation up 4%. The all item index is up 3.5%, food and beverages are up 2.2%, medical care up 2.2%, recreation at 1.8%, apparel just 0.4% and education and communication up 0.2%. So that's what it's looking like with all the inflation figures coming through. The US Consumer Price Index. Rents account for more than half of the increase in the CPI figure. The US central bank, of course, has a 2% inflation target, so that's where they want to get to. The financial markets are predicting only a 56% probability of the Fed cutting rates in June, and it's more likely that the range will stick the same, around 5.25 to 5.5.

Tony Hines: 1:37

The World Trade Organization, the WTO, has said that it expects world trade to bounce back in the year ahead, but more slowly than it predicted. This is after only its third decline in 30 years in 2023. The Geneva-based trade body said inflationary pressures are reducing and that should help increase volumes of trade. They expect it to increase by about 2.6% in 2024 and 3.3% in 2025, after a decline in 2023 of 1.2%. The previous forecast said it would be 3.3% in 2024, but that's been revised downwards. It's also warned of risks from what they call trade fragmentation because of geopolitical tensions, increases in protectionism and a worsening situation in the Middle East, with attacks on commercial shipping in the Red Sea, which has diverted trade between Europe and Asia. There was a fall in global trade only in two years in the past 30 years, once in 1995 and once in 2009. 1995 saw a fall of 5% and during the pandemic in 2020, it fell by 12%. Import demand in Europe was particularly weak in 2023. The geopolitical tension in recent days between the United States and China continues to put a cloud over the bounce-back. The WTO chief economist, ralph Ossor, was keen to point out that this wasn't deglobalisation. It was just a matter of trade fragmentation. The WTO also pointed out that geopolitical blocks are having an impact and reducing global GDP by about 5%. The IMF the International Monetary Fund has also pointed to a low growth economy in the absence of productivity reforms, so it looks like there's some consensus from the economic commentators.

Tony Hines: 3:53

Well, I've been reporting over the past few weeks about the problems that Boeing has had with its quality programs and trying to get those aircraft out the door, and they've been problematic to say the least, and it was all brought to attention with the mid-air panel blowout on the Alaska Airlines 737 MAX 9 in January. There's been a slowdown in production and they're now limited to producing about 38 of the 737 planes per month until it's actually cleared up the quality mess that's happened in the past year or two. Safety procedures are being properly adhered to and the US Federal Aviation Administration, the FAA, has been involved in investigations to see what's happening. There's quite a long backlog of orders. At the end of March, boeing had about 5,591 orders outstanding. The US aircraft manufacturer delivered just 83 planes in quarter three, down from 130 in the same three-month period last year. The quarter three figures, of course, refer to 2023. That's according to Statista. Prior to the pandemic in 2019, boeing had been in the lead against its arch rival, airbus when it came to deliveries, but the 737 MAX 8 crashes of 2018 and 2019 gave rise to a temporary production halt. Boeing and Airbus, of course, are the world's two largest competitors when it comes to commercial plane manufacturing, and it's important to have that healthy competition between the two. So the sooner that Boeing could get these quality problems behind it, the better that would be for all involved.

Tony Hines: 5:42

Public investment and public policy are two critically important matters that can impact supply chains, and if you've not thought about this, then now's the time to do so. I'll give you a couple of examples of things in the news right now which are results of changes to public policy which have implications for global supply chains. Now, as we know, we face an uncertain world with many disputes, disruptions and, of course, global conflicts taking place, and one of the cries from politicians, of course a clarion cry, is to invest more in armed forces and, of course, nuclear deterrence, and that can be a signal to those who make products and provide services in those areas that maybe some public investment is likely to come their way and that can change the nature of the business, the profitability and the future for those businesses. And if we think about the military-industrial complex, then conflicts are the very source of public investment. Now, if we move away from the military aspect and think about something else, in the United Kingdom there was a U-turn on the policy to develop a high-speed train link the HS2 project and that was pulled by the Conservative government in the last year. Now that has implications for public investment in rolling stock.

Tony Hines: 7:20

The railway infrastructure and lots of companies in a much wider supply chain are impacted by that change of policy. For some it will create an uncertain future and it already has for a major business that provides rolling stock and track and, of course, high-speed trains themselves. And if we take one such company in Derby that's been there for about 135 years. It's now owned by Alstom, which is a global player in this market, providing rolling stock and high-speed trains to Western Australia and, of course, to many other countries around the world. It stood to gain a lot of business from the public investment in railways in the United Kingdom, but the U-turn by the government and a change of policy has put jobs at threat in that particular company. About 1,300 workers at Alstom may be made redundant as a direct result of the change in policy and a further 15,000 are said to be at risk in the wider supply chain as a result of the change in policy. So you can see that public investment and public policy shifts can change the nature and complexion of supply chains.

Tony Hines: 8:45

It was only last year that the British government designated Derby the headquarters for the Great British Railway. That's an organisation to coordinate and manage the British railway system. So it's rather an embarrassment to have this closure of the Derby Works. If that happens, even the threat of it is an embarrassment. Great British Railways was a bit of a PR stunt. It still hasn't been formally launched and the celebrated cluster of skills and talent might not even exist by the time it was due to get going. When the factory at Derby is in full swing, it's able to build a complete passenger carriage from start to finish in 16 hours and it has the ability to produce 700 of these every year. And it's the only place in the United Kingdom that has the capacity to design, build and test. So if it were to go it would be a big loss to the UK's capacity to build its own rolling stock. It impacts the greater supply chain, of course, the wider supply chain.

Tony Hines: 9:55

The Department for Transport has indicated that it may be incorrect to attribute all of Alstom's challenges to HS2, but it must be a big part of it, mustn't it? Transport Secretary Mark Harper said he's been seeking viable and sustainable long-term options. Derby has been a major centre for train building since 1839. That was less than 10 years after Robert Stevenson's rocket changed the world forever in 1830. The National Farmers Union in the United Kingdom said that it's the worst period that they can remember. Only half of spring planting has been completed because the fields are too wet for tractors. Dairy farmers are having to keep cows in barns much longer than usual and they're running out of food. Every field is muddy, tractor ruts are full of water and we've lost 10% of the wheat in the field, according to one farmer who spoke to the BBC about the matter in North Wiltshire. According to the Food, farming and Countryside Commission, this year's record levels of rainfall have decimated crop yields and caused uninsurable damage to farmers' land.

Tony Hines: 11:17

Now I think that second issue is quite a big issue for many people in business. If you've got uninsurable losses, it means you carry the risk and you bear the cost, and that can be really damaging. And of course, it can persuade you to take different courses of action than you would otherwise. There is, of course, an urgent need for resilient food and farming systems that can both adapt and mitigate the devastating effects of climate change. In the south of England, it's the wettest on record since records began in 1836. So that's how bad it is.

Tony Hines: 12:00

Water, of course, is both a source of life gives life and it helps things to grow and it sustains life but water is also a resource that's under great pressure, and the way we decide to grow our food and produce food can consume a great deal of water, and it's to that I want to turn attention when it comes to looking at supply chains in food. Right now, asian rice growers use about 13% of all the global pesticides. The urban population has grown from around 43% to 60% in the past 15 years, and global food consumption patterns are changing. That's according to the World Wildlife Fund, it takes about 3,000 to 5,000 litres of water to produce just one kilogram of rice. A report from the World Wildlife Fund talks about thirsty crops, and they say that the world is facing a water crisis. The thirsty crops referred to in the report are rice, sugar, cotton and wheat, and we're going to have to find ways to reduce the amounts of water that we use in the production of those particular products.

Tony Hines: 13:17

It's estimated that about 2 billion people are affected by water shortages in over 40 countries, and the extensive withdrawal of water for agriculture from rivers, lakes and aquifers has resulted in limited supplies for other human needs, such as drinking, washing, cooking and sanitation. Average water supply is predicted to fall by a third in the next two decades. Industrial and household uses account for 20 and 10% respectively, while agriculture consumes, on average, 70% of water, and this is likely to increase by 2030 by about 14%. So, as we have our breakfast in the morning, whether it be cereal that we eat, or whether we have rice with our meals, just think all those foods require substantial amounts of water, and we're going to have to be a lot smarter in the way in which we grow crops in future and conserve water. So you can see that water is a problem when we have too much and it falls in the wrong places due to climate change, and it's also a problem when there's a shortage. And, as we began we said, water gives life, sustains life and, of course, through flooding, it can take life away.

Tony Hines: 14:50

Now it's more than a decade since I last visited Sri Lanka, but I remember the last time I did visit Sri Lanka and I was having a look at the clothing industry in that country and looking at the various producers and the various products that they made. I travelled from Colombo north towards Kandy and I recall the conversation I had with a taxi driver on that trip and he was telling me about the real problem of dengue fever and how dangerous that particular virus could be to humans. And I have to say I hadn't heard much about dengue fever until that particular trip and I didn't realize how deadly it was. But the taxi driver certainly took it seriously. They had white cloths over the seats in the taxi so that they could actually see and identify mosquitoes in the vehicle, even though they were air-conditioned, because of course sometimes in hot countries, as you will know, you tend to open windows. In any case, and this week I saw a story coming from Peru about the spread of dengue fever which made me reflect on my time in Sri Lanka and how serious that particular disease was was illustrated by the taxi driver who had real experience, because he told me his wife had suffered from a mosquito bite that had caused her to contract dengue. Fortunately she survived, but many don't.

Tony Hines: 16:23

Deaths caused by mosquito-borne dengue disease have more than tripled in Peru so far in the current year, and that's according to data from the government. They're said to be redoubling efforts to contain the epidemic, but, of course, it hits the poor areas the hardest. The president, Dina Baluarte, said this week they'd approved an emergency decree allowing extraordinary economic measures to bolster the plan to counter the outbreak, which experts are putting down to you've guessed it climate change. Mild symptoms include nausea, rashes and body pains, while the rarer severe form threatens infants and pregnant women, and it can cause internal bleeding and is potentially fatal. There were 117,000 registered deaths from dengue in the current year, with 33,000 in the same period in 2023, but the number of cases has risen by three times to around 135,000. Health officials have carried out fumigation in poor areas across Lima, which is the capital of Peru, and that includes in cemeteries, where mosquitoes have been found to breed in the water that gathers in vases around the graves. The Adides aegypti mosquito is the carrier of the disease, and they're spreading that disease to areas where it hasn't previously been detected. Most of the cases are in the coastal and northern areas of the country, and the mosquito has adapted itself to climate change and is said to be reproducing at faster rates than in previous years. That's according to the University of Lima epidemiologist Augusto Tarrazona. About half of the world's population is now said to be at risk from dengue fever. According to the World Health Organization, who estimate it's somewhere between 100 and 400 million infections that occur each year.

Tony Hines: 18:31

China's economy is under pressure and the latest data coming out of China suggests that they've missed export and import targets by quite a margin. Exports have contracted sharply and imports have also unexpectedly fallen. Customs data, which emerged on Friday, has highlighted some tough policy questions for the government in China. Shipments from China have fallen by about 7.5% year on year in March, and it's the biggest fall since August last year. The government had forecast that they expected a fall of only 2.3%, so it's fallen a long way short. Exporters are having a tough time with falling demand overseas and tight global monetary policy, with the Federal Reserve and other countries tackling inflation with interest rates. Chinese manufacturers could face further problems ahead and, of course, if more protectionism kicks in with the policies of the US government, that could damage the China export data further in the months ahead. Imports also declined 1.9% from the 3.5% growth experienced in the first two months of the year and it missed what they thought would be an expected rise of 1.4%, so it's quite a margin of error. Economists indicate that the economy overall grew by about 4.6% in the first quarter from a year earlier, but it's the slowest in a year.

Tony Hines: 20:14

Now, if you keep an eye on stock markets, you may already know that there's been a long bull run in the demand for metals, and particularly copper, and it was reported this week that the Santiago Copper Belt is one of the beneficiaries from this long bull run, with its share price rising significantly. And that's because it's fuelled by everything that's going on with the transition to electric vehicles and, of course, the rise of artificial intelligence, because all these things require copper to make the components, to make them work, and other metals too, to make them work, and other metals too. Johnson Controls International PLC reported this week that its subsidiary has agreed to pay $750 million as a settlement with some US public water organisations that detected Forever Chemicals allegedly associated with the use of products made by the company. These are the PFAS chemicals, the Forever Chemicals. They say it doesn't constitute an admission of liability or wrongdoing, but the payment has been made. The PFAS chemicals, of course, don't break down in the human body or in the environment, and they have resulted in $11 billion in settlements. Earlier this month, 3m received a court approval for a $10.3 billion settlement with a host of US public water systems. And if you want to find out more about PFAS, then you can drop by the Chain Reaction website and pick up my episode where I discuss PFAS, and you'll find out all about the problem.

Tony Hines: 22:04

Well, that's it for this week. I hope you've enjoyed the news roundup and I hope you found out something new that you didn't know before you began to listen to the program, because that makes it worthwhile, doesn't it? So I'll see you next time to the program. Because that makes it worthwhile, doesn't it? So I'll see you next time. In the meantime, just one thing to mention If you want to catch up on any episodes you've missed, drop by the Chain Reaction website, take a look and make sure you listen to the ones you've missed, and don't forget, of course, to pick up this week's episode on Lean Thinking. I'll see you next time on the Chain Reaction Podcast. I'm Tony Hines. I'm signing off. Bye for now, thank you.