News: Trade Winds - Geopolitical Tides and Corporate Responsibility in Crisis Shaping Our World

It was the hottest year on record in 2023 and it is rewriting the rules of global supply chains as businesses readjust to the impact  of climate change and extreme weather events. Tune in as we connect historical tree ring data with contemporary weather patterns to underscore the urgency of environmental stewardship in our interwoven world. In this episode, we also chart the potential seismic shifts caused by the US's bold tariff increase on Chinese imports and the immediate international response it provoked. With the world's economic titans caught in a diplomatic dance, we scrutinize the impact on the European auto industry as it plans strategic manoeuvres to cope with changes. We examine the geopolitical chess game following Xi and Putin's summit, with implications that could rattle the pillars of Western economic clout.

Undercurrents of the erosion of trust in UK water supply companies—a byproduct of neglecting critical infrastructure for the sake of profit, a theme that resonates deeply in the climate change era and cost of living crisis facing many communities. And the alarming state of Britain's waterways, tarnished by the very companies tasked with preserving them, offers a sobering reflection on corporate responsibility. Companies stripped of assets and loaded with debt since privatization in 1989 along with mega salaries for CEO’s of these failing businesses. It is argued it is time for government intervention as public health is threatened by the mismanagement of these essential public assets now in owned by foreign investors. The UK water industry a system not fit for purpose.

And as for Boeing, the skies look anything but clear with legal thunderclouds looming on the horizon.We'll also expose the underbelly of the aviation and pharmaceutical industries, with Boeing's legal entanglements potentially jeopardizing its future, large pay settlements for an outgoing CEO and UK pharmacies buckling under financial pressure while big pharma reaps profits. The societal repercussions of bank branch closures make for a gripping discussion on the evolving landscape of community banking i

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Transcript

Tony Hines: 0:05

Hello, tony Hines. Here You're listening to the Chain Reaction Podcast, all about supply chain advantage. It's great to be here. We've got some great things coming along your way in just a few moments, so stick around, stay tuned and stay informed. This is the News Roundup All things impacting global supply chains this week. 2023 was the hottest year on the planet and that's having an impact in all kinds of ways and, of course, supply chains for all kinds of goods are affected.

Tony Hines: 0:36

I reported last week about Joe Biden's quadrupling of tariffs on China's trade with the US. Well, there's been some action this week on the part of the Chinese and sticking with China. Xi Jinping is welcoming Vladimir Putin and they're going to discuss various things about how to combat Western supremacy when it comes to markets. We also discuss the impact of these tariffs on the automobile industry in the European Union. We take a look at pharmacy problems in the UK, and we also take a look at Boeing and the problems they face with regard to criminal actions by the government and also report a payoff to the chief executive, dave Calhoun. We're also taking a look at the banking network in the United Kingdom this week and how that's declined since 2015. And we compare that to the United States, which has taken a different route, and the big story of this week is about the breakdown in trust from the water supply companies in the UK. So that and many other things coming your way in just a few moments, so stick around stay tuned, get informed.

Tony Hines: 1:50

Well, lots of strange weather events this week in the Carolinas, in Florida, in the Gulf of Mexico area and, of course, in the Midwest Amarillo, oklahoma and if anything was pointing to extreme weather events and climate change, it's events such as those unusual extreme conditions. And, of course, unusual extreme conditions disrupt supply chains in ports, on roads, on rail and across the oceans. Now, interestingly, when it comes to weather, last year's summer of 2023 wasn't just the warmest since weather records began. It was the hottest in more than 2,000 years, and this is backed up by evidence examining tree rings. Tree rings provide a record of every year going back more than two millennia in the Northern Hemisphere, and they show that 2023 was the hottest year.

Tony Hines: 2:51

So we don't just have to rely on the data that we've gathered since the 19th century on weather records. We can use natural phenomena such as tree rings, and this is according to research done by Professor Ulf Bunkern of Cambridge University. Conditions in the Northern Hemisphere were about 2.07 degrees centigrade hotter than between 1850 to 1900. And they actually show that the Paris Accord that was reached by the International Climate Change Committee in 2015, has already been exceeded. So they agreed, if you remember, to limit warming to 1.5 degrees, but that's already been breached. The coldest summer, according to TreeWings, was back in 536, and that was due to a massive volcanic eruption. It was 4 degrees centigrade cooler than in 2023.

Tony Hines: 3:48

And the records also show that there were cold summers in 627, 1601 and 1642. That was the start of the English Civil War, of course, in 1642. Incredible More people are now dying from heatwaves. Of course, there were 150,000 deaths from heat waves. Of course there are 150 000 deaths from heat waves worldwide in the past three decades. So if you didn't think climate change was a big threat, it's right up there.

Tony Hines: 4:19

Last week I reported tariff rises on Chinese goods coming into the United States across all kinds of categories, from EV cars to pharma products, and this week there's been a response from China and they've accused the United States of bullying tactics and they said that some people in the United States have lost their mind over this. So quite an aggressive response. China's foreign minister said on Wednesday that the US's suppression of China does not prove that the US is strong, but rather exposes that it's lost its self-confidence and is out of order. That's what Minister Wang Yi said to the state broadcaster CCTV. So it certainly rattled the cage of the tiger, or rather fired up the dragon. This week, of course, the bear will meet the tiger, as Russia's President Putin is travelling to see President Xi, and it'll be interesting to see what comes at the outcome of those talks. Wouldn't it just like to be a fly on the wall there? Maybe it's an update of Russia's progress in Ukraine, reporting to China of what's required in the months ahead to support activities in that war, who knows? Many believe that Putin's trip to Russia to meet Xi, of course, is simply symbolic, following his re-election as president of Russia. It's a rail from both Russia and China against the dominance by the United States and the West that's likely to be on the table, so it's a forged alliance to try and change the world order. President Putin, of course, is likely to use the opportunity to try and secure new supplies for military operations in Ukraine. That might range from machines and chemicals and discussions about discounted oil and gas purchases.

Tony Hines: 6:15

China is, of course, russia's strategic partner and many believe that that's unlikely to change. Russia, of course, is China's top oil supplier. It supplies China via pipelines under long-term contracts and year on year it's risen to 2.14 million barrels a day making its way from Russia to China, and China saved about 4.34 billion US dollars in the first nine months of 2023 buying discounted Russian oil. It's bought a lot of Russian oil over the past few years, taking advantage of the prices, while Russia, of course, is under sanction from the West. There's a mutual mistrust by both Russia and China of Western dominance, but there may be some unrest back in Russia, china simply seeing Russia as a resource for China's development. China, of course, needs Russia to be as one with China so as to try and dominate the geopolitical discussions, and China is perhaps the major economy that hasn't shunned Russia during the period of its war with Ukraine. It's obviously in President Putin's interest to keep China on side too.

Tony Hines: 7:34

When it comes to the trade in automobiles and components produced in China and the tariffs that have been introduced by the USA, it's quite complicated Because, if you think about it, many of the auto traders are already in China, either manufacturing components, sourcing parts or indeed with their own manufacturing plants. Tesla, for example, has its largest car plant in Shanghai, and so when goods come back out of China and move back into the United States, they'll be incurring increased tariffs, which were intended to hit the Chinese markets and Chinese competitors, but in fact could be hitting home producers or European producers, or could be missing them altogether if they do the trade via Mexico, because then they can bring in goods without tariff. So, far from rebalancing and hitting the competition which they see as unfair coming from China, because many of the companies are heavily subsidized by the state. It could rebound and backfire. So what was an effort to stop the Chinese from entering the US market? By undercutting homegrown producers, by increasing the tariffs on their goods, because they have overcapacity and of course they heavily subsidise vehicles and they can obviously sell the cars much lower in the US than many of those home producers, because labour is a lot cheaper in China and car manufacture still relies heavily on labor costs and all other costs are just much lower too.

Tony Hines: 9:11

So where is this going to get the United States? Well, if we turn the question around and say well, what's going to happen to European car makers In the European market? It's approaching still only a low number of EVs being a total proportion of the market, but BYD has approaching 10% of the market in Europe and other Chinese car makers have low market shares. But they could grow very rapidly and, of course, if they're forced out of the US market because of the high tariffs, if Europe don't follow suit and have similar kinds of tariffs, they could find themselves on the receiving end of more severe competition from Chinese products. But is all this protectionism sensible?

Tony Hines: 9:58

Biden said last week that he was determined the future of electric vehicles will be made in America by union workers, and that's a laudable objective. But it may not be achievable. The United States only currently buys low numbers of EVs from China, but in Europe, as I've said, it's much higher, and this move by the Biden administration could actually end up forcing Brussels' hand to act in a similar vein, and it may not be in the best interest of anybody to be imposing these particular tariffs. The EU might, for example, raise its tariffs in a similar vein two or three times higher than they currently are, but the informed opinion seems to think it will be very difficult to go beyond around 30%. Of course, governments are used to pulling other tricks when they can't get the tariffs to do the job. They might pick on data security, or they might pick on enforcement of environmental standards or labour standards to hit back and stop the imputation of what they see as unfair competition. The EU overall accounted for about 36% of Chinese EV exports last year and that's more than the next five largest markets combined. That's according to Citi. By contrast, in the United States they get just over 1%. Chinese production costs are much lower than European rivals, and it means that duties of 40 or 50% would probably be necessary to make the European market unattractive. It would be interesting to know whether the auto manufacturers think of this competition, and I did hear the CEO at Scania, a Swedish truck company manufacturing in Sweden but also has facilities in China, say he wasn't very keen on the idea of these tariffs and thought they would be harmful in the longer term. No doubt the G7 summit in Italy next month will be discussing these very issues, and no doubt we'll return to this story then.

Tony Hines: 12:08

Well, boeing are back in the news this week for all the wrong reasons. The US Justice Department said this Tuesday that Boeing had breached its obligations in a 2021 agreement that protected the planemaker from criminal prosecution over fatal 737 MAX crashes in 2018 and 2019 that killed 346 people. The court filing in Texas said the US planemaker had failed to design, implement and enforce a compliance and ethics program to prevent and detect violations of the US fraud laws through its operations. So pretty scathing. The US may prosecute Boeing, and the decision is due on July 7th. Boeing could face fines and tighter regulations. Boeing's retaliated, saying it believed it had honoured the 2021 agreement.

Tony Hines: 12:52

There's been further problems since, of course, with the blowout of the Alaska Airlines door panel on a 737 MAX jet in January this year. Boeing is working hard, of course, to fix the quality problems that have been experienced on the 737 MAX jets. In April, the production numbers coming out of the Boeing factory were down by two from 26 last month to 24 this month, but they're still down on schedule from the year previous. Now the Boeing investors the shareholders have signed off on a plan to pay Dave Calhoun a 2023 pay package worth US$33 million. There was a majority vote in favour, which many had criticised, as the company is embroiled in controversy about quality issues since the blowout of a door panel back in January, and there was also a vote to keep the outgoing boss, dave Calhoun, on the company's board of directors. So it's a very strange decision, isn't it? You get rid of your chief executive, but you keep him on the board, and all this while the US Department of Justice is considering whether to prosecute Boeing for the deadly crashes involving its 737 MAX aircraft back in 2018 and 19. The company praised the efforts of Mr Calhoun for steering the company through challenges such as COVID since 2020, and they said that they believe that the company's primary focus right now on safety, quality and transparency is why Mr Calhoun's sticking around. They also voted to keep the 11 other board members on the board.

Tony Hines: 14:34

The 33 million US dollars paid to Dave Calhoun is the biggest payout to a Boeing CEO of all time, and it's a 45% increase from the $22.6 million he received in 2022. The majority of the increase comes from a giant stock bonus which is granted on top of his more than a million dollar salary. Mr Calhoun has been the Boeing CEO since 2020, and he's due to leave the company by the end of the year, but of course, the shareholders have voted to keep him on the board, so he'll still be around. Mr Calhoun said he declined to accept an additional annual incentive bonus of $2.8 million. When he retires, he'll take home another golden bonus. He's expected to get $45 million in a mix of stock awards and auctions.

Tony Hines: 15:35

While the big pharma companies are cashing in on the products that they offer to the market and particularly selling to health services, such as the UK's National Health Service, they charge different prices for different brands, and that, of course, disrupts the market and it makes it difficult for those procuring supplies for health services to use their budgets wisely. But while those big pharma companies might be cashing in on the drugs, the pharmacists are actually struggling to maintain supplies to consumers. Over the past year, over 400 pharmacists in the United Kingdom have closed up shop, and in the previous year it was only around just under 100, somewhere in the 90s. So what's going on in this pharma supply market? Lots of consolidation, people leaving because they can't make enough money out of supplying those goods. What exactly is happening? Well, pharmacies in the United Kingdom are facing challenges that have led to closures, and the main reason for this decline is government funding and high levels of inflation. They're experiencing rising operational costs, they've got staff shortages and, of course, the reduced government financial support. And this is happening despite rising patient demand and plans for pharmacists to provide more services to ease pressure on GPs. The situation is particularly bad in deprived areas. Internationally, pharmacies are also facing disruption. For instance, there have been cyber attacks at military bases that shut down the commercial prescription processing program the military health system uses. Additionally, thousands of fake online pharmacies have been shut down as part of a global police operation. As for pharmaceutical companies, they are indeed experiencing significant profits. The pharma industry has experienced growth during the past two decades and pharma revenues worldwide totaled 1.48 trillion US dollars in 2022. Some companies, such as Novo Nordisk and Eli Lilly, have seen revenue increases in the region of 31% and 20% respectively. Big pharma companies appear to be more profitable than most large companies in other industries.

Tony Hines: 18:04

In the United Kingdom, more than 6,000 bank branches have closed in the past nine years. That's about 60% of the branch network. That's according to the which Consumer report. They began tracking closures back in 2015 because they were concerned that it impacts customer service to local communities. And, of course, many segments of the market are unable to switch completely to a digital banking service, but the banks seem to have ignored what the customer wants and simply gone for the cost saving option.

Tony Hines: 18:41

In the United States, it's different. Digital banking has become more prevalent, but it hasn't led to an increase in the number of physical bank branches. Since the financial crisis of the late 2000s, more than 10,000 US banks have closed branches. The rise of digital banking in the US has coincided with a decline in the presence of traditional banks, but they have only closed 2,500 branches across the country in 2023. It's important to note that, while digital banking has grown, physical bank branches play a large and crucial role for many communities and the closure has a significant impact. The shift towards digital banking also highlights that there's a need for accessible alternatives for those who rely on physical branches. So if you want to provide customer service, perhaps this is an opportunity for you to step up and make sure that you're not closing bank branches in communities that require service. Perhaps they ought to boycott those banks that do close branches. Move away, go somewhere else. Make it a competitive market, because it isn't really a very competitive market Now.

Tony Hines: 19:56

Britain's waterways are in some difficulty and that's all down to the farms themselves. They're dumping raw sewage into our rivers and it's causing a major problem of public health concern. And, of course, you can hear more about this in my special episode this week, which is all about water. So stop by, tune in turn on the episode on water and listen to what's happening. Britain's water companies are now discharging so much sewage into the rivers 54% increase in 2023. And they can't deal with these discharges. The nine water firms in England alone pumped raw sewage into rivers a total of 56,000 hours last year. That was reported in the R newspaper this week, and the worst offenders include Seven Trent in Birmingham, northumbrian Water in Durham Wessex Water in Bath, where the Avon is one of the filthiest rivers in the country most polluted United Utilities was illegally pumping 10 million litres of untreated sewage into Lake Windermere, a beauty spot in the Lake District, and they've just announced their profits of 518 million pounds.

Tony Hines: 21:14

And some of these chief executives at these companies get paid enormous sums of money. The South West Water chief executive earned about 3.2 million just last year and she's been paid about 16 million over the past four years. So it's quite a business to be in, isn't it? And I call it a business now because that's what it is. The owners of these companies are not based in the UK, they're overseas mainly, and they have no investment in the country. And, of course, while all this bad publicity is lingering around, it's likely that some of those investors will pull out because they don't really want to invest. They were just hoping for a quick return on investment on the public assets that the UK government signed over to private companies back in 1989. But the public health concerns are greater and you'll get the detail in my special on this, so drop by, have a listen.

Tony Hines: 22:21

Well, that's it for this week. I hope you've enjoyed the news roundup. All things impacting global supply chains in the week. Well, don't forget to drop by the Chain Reaction website and pick up any episodes you've missed, and also subscribe. You'll be the first to know of new episodes when they come along. And don't forget about the great episode coming on credit risk with josh simon. See you next time in the chain reaction podcast. I'm tony hines. I'm signing off. Bye for now, thank you.