Fast Fashion's Ethical Dilemma & Global Supply Chain Disruptions

Can fast fashion ever truly be ethical, or are we sacrificing too much for cheap clothes? This episode of the Chain Reaction Podcast takes a deep dive into the murky waters of fast fashion with a critical look at Chinese e-commerce giants, Shein and Temu. We'll be unpacking the environmental and labor concerns that plague their rapid production models, and scrutinizing their competitive pricing strategies that keep consumers hooked despite questionable product quality. From import restrictions to data privacy issues, we'll explore the regulatory hurdles these companies face in both the EU and the US. Consumer complaints about manipulative practices and subpar safety standards are front and center as we question the true cost of budget-friendly shopping.

Shifting gears, we'll tackle issues of corruption and climate change that are shaking up global supply chains. Discover the shocking allegations against Hyundai for manipulating EV sales figures, leading to a high-stakes lawsuit by Napleton. We also spotlight how severe weather events, driven by climate change, are disrupting industries and daily life, with real-world examples from the Caribbean and Texas. Learn about BYD's ambitious £1 billion car factory in Turkey and the ripple effects of new EU tariffs on Chinese EV makers. We wrap up with a review of economic indicators in the US and China, offering insights into how these trends impact global trade and supply chains. Subscribe now for essential updates and catch up on past episodes!

You can follow Chain Reaction on LinkedIn, Twitter and Facebook

Transcript

Tony Hines: 0:00

Hello, I'm Tony Hines. You're listening to the Chain Reaction Podcast, all about supply chain advantage. This is the News Roundup all things impacting global supply chains this week. We've got a special report coming along your way in just a couple of moments and it's about two major internet retail giants from China Shein and Temu. So stick around, stay tuned, stay informed. We're going to take a look at the two biggest names in internet sales coming out of China and some of the concerns that have been raised about those companies in the past few months.

Tony Hines: 0:37

Two major Chinese brands, shine and Timo, the e-commerce giants, are giving some cause for concern. These prominent Chinese e-commerce platforms have gained popularity in Western markets and that's because they offer really low prices, but there are ethical problems and concerns that are associated with their business practices. So let's take a look at them. When it comes to pricing strategy and fast fashion, Shein and Temu follow the fast fashion model, emphasising rapid production and consumption, but there have been ethical concerns. Fast fashion contributes to environmental issues, with waste and pollution and exploitative labour practices. Consumers should consider the environmental impact of disposable fashion. What about quality? Well, low prices that Shein and Temu offer attract consumers, because consumers think they're going to get value for their money, and they attract budget-conscious shoppers. But the quality is variable and some items may not be durable. Consumers need to weigh up whether the affordability of the goods they're purchasing are really of comparable quality to other retailers. Both platforms have faced criticism for lack of transparency regarding supply chains, labour conditions and sourcing. Ethical consumers seek brands that disclose information openly, and these two companies don't. Some say companies like offends naked and people tree prioritize sustainability and ethical practices, but our consumers really bothered. They seem to purchase large quantities of goods from both shein and temu. How do they get around import restrictions? Because both the EU and the United States have placed regulations to prevent Shein and Temu from bringing goods into their markets. The European Commission aims to close the 150 euro import tax loophole affecting ultra-fast fashion giants this is the de minimis act. Ultra-fast fashion giants this is the De Minimus Act In the United States. De Minimus provisions allow Shine and Temu to avoid customs scrutiny by shipping packages worth less than $800 to the United States. This exempts them from tariffs and from human rights reviews. While both Shein and Temu offer budget-friendly options, consumers need to weigh up the ethical considerations, look at the sustainable alternative provision and generally be aware that the companies may not fulfil the value proposition that they try to project.

Tony Hines: 3:19

Both Shine and Temu are subject to the European Union's Digital Services Act, which aims to raise standards for digital services, including marketplaces. The DSA focuses on consumer protection, especially regarding the sale of illegal or dangerous goods. Recently, the European Commission sent requests for information to both platforms to assess their compliance with DSA requirements. The Commission is particularly interested in the notice and action mechanism, which allows users to report illegal products. What about consumer complaints and manipulative design? Well, consumer protection groups across the EU have filed complaints against Temu, and these complaints allege that Temu uses manipulative design tricks and lacks transparency in its recommender systems. Additionally, there are concerns about the traceability of traders and whether products meet EU safety standards. The Commission's enforcement action is based on these concerns. The US-China Economic and Security Review Commission, the USCC, has accused both companies, shine and Temu, of mishandling user data and infringing on intellectual property, and this poses a risk to consumer data, especially for users in the United States. The safety of using both of these companies to purchase goods. Shine and Temu remains unclear. If you're concerned about data harvesting, perhaps you should think about using a web browser instead of downloading their apps. Both companies offer very low prices to consumers, and sometimes you can see products on their website which are about a quarter to a fifth of the price of comparable goods, so they're being monitored closely in both the United States and Europe.

Tony Hines: 5:08

Shein and Temu offer a wide range of products, primarily in the fashion and lifestyle categories. Shein offer clothing, trendy, affordable. They sell dresses, tops, bottoms, outerwear, swimwear and activewear, and accessories, too bags, jewellery, sunglasses, scarves and hats. They also offer footwear, swimwear and activewear, and accessories, too bags, jewellery, sunglasses, scarves and hats. They also offer footwear, and you can find shoes, sandals, boots and sneakers all on Shein. Beauty and cosmetics are also available, and then they have home and lifestyle products so quite a range of goods.

Tony Hines: 5:39

Temu offer fashion and apparel similar to Shein. They have accessories bags, belts and hats, footwear, and they also sell electronics and gadgets and tech accessories. Shein offer extremely low prices and have regular sale events. Their business model focuses on quick turnover and high volumes. Compared to traditional bricks and mortar stores or mid-range online retailers, shine's prices are significantly lower. However, you should keep in mind that these low prices sometimes reflect the quality of materials and workmanship. Some of the Shein products may not be as durable or long-lasting as higher priced alternatives. Temu follows a similar pricing strategy to Shine. They offer competitive prices for clothing and accessories. They're not as well known as Shein, but Temu still attracts budget conscious shoppers. Their prices are generally lower than those of established high-end brands and they're a lot cheaper when you compare other retailers. Prices, as we've said, might be attractive, but shoppers need to be aware of the quality and some of the risks they might take by using the apps.

Tony Hines: 6:49

Both companies have been accused of using and misusing consumer data. The companies, of course, deny all of this and say that they're trading responsibly and providing what consumers want. Now you may know that API, often referred to as API software, allows applications to communicate with each other in real time, and that's critical to the effective management of operations, logistic operations. It creates efficiencies in the supply chain and it links the end-to-end supply chain from the start of that chain through to the customer. The infrastructures are very interconnected and they often don't have levels of cybersecurity sufficient to protect organizations who are connected in the chain. It's a moving feast. It's developing all the time. Part of the chain might be protected, and this, of course, is why organizations were so keen when they heard about blockchain technology and how that could protect them. But these integrations can be compromised and used by bad actors. Now this is one of the concerns that consumers and consumer groups are raising as a result of Shein's expansion and Temu too into the United States.

Tony Hines: 8:13

Shein recently moved its headquarters out of China to Singapore to avoid scrutiny. It's a practice known as Singapore Washing. There are over 10,000 companies that comprise the supply chain, one tier away from Shine. So as Shein expands its operations, it could mean that consumers in different parts of the supply chain and, of course, suppliers in different parts of the supply chain are impacted in a negative way by the expansion of the Chinese retailer, and there are concerns that the data could be compromised and used by the Chinese authorities. If Shein embeds its technology within US supply chains, this might change the competitive landscape, reduce regulatory standards in other words, they can be violated and it could create additional risks, including cyber security. Shein has its global headquarters in Singapore, but it also has regional offices in Los Angeles, Sao Paulo, Dublin, Guangzhou, Paris, Washington DC, London and Singapore. Now, if you think about this, when companies relocate in this particular way, they often do so because of regulatory reasons as well as operational reasons. Temu has also shifted its global HQ from China to Boston, Massachusetts, and that happened in September 2022. They put the shift down to market expansion, regulatory environment issues, logistical and supply chain issues, access to talent and strategic partnerships.

Tony Hines: 10:00

Well, you've heard me report on the Boeing 737 MAX and all the woes on quality in their production over the past few weeks, and then there have been the whistleblower cases which have been reported, saying that Boeing used parts that were scrapped and they brought them out of scrap and put them on the planes. Now all those allegations are denied by the company, and that's important to say, but it does sound strange, doesn't it? Anyway, the Federal Aviation Administration has not been happy about the goings-on at the company and, obviously, the removal of Dave Calhoun as the chief executive. He's paid the price for everything that's gone on under his watch.

Tony Hines: 10:42

Boeing's agreed to plead guilty to a criminal fraud conspiracy charge and pay a fine of $243.6 million to settle a US Justice Department investigation into two 737 MAX fatal crashers. The plea deal needs approval from a judge, but it would brand the planemaker a convicted felon in connection with these crashers in Indonesia and Ethiopia. Over a five-month period in 2018-2019, the 737 MAX crashers cost 346 people their lives. This settlement is criticised by the families, who wanted Boeing to face a trial and suffer harsher financial consequences. The Justice Department's push to charge Boeing has deepened the ongoing crisis engulfing the company, and there have been separate incidents that have happened since, with the door blowing off the Alaska flight back in January. This guilty plea would threaten the company's ability to secure lucrative government contracts with the likes of the US Defense Department and NASA. Although they could seek waivers as part of the deal, boeing became subject to the criminal prosecution when they violated a 2021 settlement involving the fatal crashes. This plea, however, does spur Boeing a contentious trial. So in some ways it actually protects the company and some would argue, perhaps more than it should be protected. It also makes it easier to pave the way for a new CEO to enter the company later in the year and to go ahead with the acquisition of Spirit Aerosystems. So we'll have to see how this one plays out. Lawyers of some of the victims' families said they plan to press Judge Reed O'Connor, who's been overseeing the case, to reject the deal.

Tony Hines: 12:39

Honda announced this week it will halt vehicle production at its Ayutthaya factory in Thailand. It plans to consolidate output at Prachinburi. This highlights the tougher conditions that Japan's second biggest automaker is facing in Southeast Asia as Chinese brands are aggressively gaining market share in the Thai electric vehicle market. Honda is keeping the plan to tie a tire to produce components market. Honda is keeping the plant at Ayutthaya to produce components. It was first opened in 1996 and it will stop making vehicles there next year. Honda has seen its combined production at these plants fall from 228,000 vehicles in 2019 to just under 150,000 in each of the four years through to 2023. A lot of that fall in demand, of course was due to the pandemic, but it shows you the difficulty in these markets and the threats they face. From the rise in EV demand, company sales in Thailand have been just under 100,000 for each of the four years. So demand falling, production falling and well overcapacity is the result.

Tony Hines: 13:52

Now it doesn't seem that a day or a week goes past without more bad news for Boeing, and this week the Federal Aviation Administration said on Monday it's wanting to inspect 2,600 Boeing 737 airplanes because passenger oxygen masks might fail during an emergency because of the retention strap. The FAA said it was requiring the inspection of the 737 MAX and next generation airplanes after multiple reports of passenger service unit oxygen generators shifting out of position, and it's an issue that could result in the inability to provide oxygen to passengers during depressurization and if you fly, you'll know that depressurization does happen. It's quite painful when it does. Boeing issued a bulletin to airlines calling for visual inspections on Monday. These straps have had a problem back in August 2019 when they introduced new adhesive on the straps and that allows the units to move up about three quarters of an inch. So it seems to be to do with the glue on the strap. The FAA said its airworthiness directive was issued and is effective immediately, and they want it sorted out within 120 to 150 days on the 737 model. And the FAA is also barring airlines from installing potentially defective parts. Now, that's because of the whistleblowers at Boeing talking about how defective parts have been incorporated in to the 737 from scrapyards at a production plant. So, as Lewis Carroll might say, incredibler and incredibler. I don't think he ever said that, but it sounds like a Lewis Carroll word, doesn't it?

Tony Hines: 15:49

Now this next story illustrates how corruption can creep into supply chains, and it's in the auto industry again. And it's in the united states, where Hyundai allegedly have asked dealers to fiddle the figures on the sales of EV's. They wanted higher numbers to report to the press, and so that those dealerships that played along with this request benefited from receiving new models for the sales outlets, higher discounts and other benefits. And if you didn't play along, then you didn't get the cars. So they're being investigated. There's a lawsuit taking place from one of the suppliers that lost out, and that's Napleton, and they had a similar lawsuit back in 2019 against Chrysler, which they won. So there's going to be some money changing hands at some time in the near future as a consequence of this alleged corruption.

Tony Hines: 16:49

Well, there have been all kinds of reports on the weather in the past couple of weeks, with storms in the Caribbean, storm Beryl, and it's now hit Texas and it's left millions of Texans without power as dangerous heat descends on the region. It makes us realise how fragile our lives are when these weather storms hit home and of course, it disrupts people's lives and it creates problems for manufacturing and shipping, all forms of transport, and of course, there'll be people left homeless in the wake of the storm. So these disruptive events seem to be occurring more frequently and many scientists believe this is a result of climate change. It was reported this week that Chinese EV maker BYD is to open a £1 billion car factory in Turkey. That was announced by the Turkish government earlier in the week. The CEO of BYD, Wang Shonfu, and Turkey's Industry and Technology minister, Mehmet Faith Kaki, signed the agreement in Istanbul. Byd say they aim to meet the growing demand for new energy vehicles in the region and to reach consumers in Europe. So it's a bridgehead into Europe. The announcement came just days after the provisional duties were announced on Chinese EV makers. After the provisional duties were announced on Chinese EV makers, those tariffs range from 17.4% to 37.6%. Byd will invest about a billion dollars in the factory and they'll be able to produce 150,000 EV and hybrid vehicles annually, and they'll have a research and development centre for sustainable mobility technologies located at the plant. The factory will begin production in 2026 and it's likely to provide somewhere in the region of 5,000 jobs in Turkey. The EU decision earlier this year imposed an extra tariff of 17.4 percent on BYD. That's in addition to the standard charge of 10, so 27 percent in total.

Tony Hines: 19:10

The producer price index in the united states rose by just 0.2% last month After being unchanged in May. The Labor Department for the Bureau of Labor Statistics said on Friday that economists polled by Reuters had forecast the PPI nudging up 0.1% In the last 12 months through to June. The PPI increased 2.6% after advancing 2.4% in May. Consumer prices fell for the first time in four years in June, amid cheaper gasoline and broader acceleration of the cost of goods and services, including rents. The unemployment rate two and a half year high at 4.1%. With the Federal Reserve now concerned about labour market weaknesses, economists think that there will be a rate cut in September and possibly another in December. The US central bank has maintained an interest rate currently between 5.25 and 5.5%. Data out of China shows that exports grew at the fastest rate in 15 months in June, and this is put down to the fact that the front-loading orders ahead of tariffs expected from a growing number of trading partners those are the additional taxes placed on EVs etc. From the US and the European Union, amongst others and imports unexpectedly shrunk because of weak domestic demand.

Tony Hines: 20:48

Well, that's it for this week. I hope you've enjoyed the news roundup. I hope you've found out something new and I hope it's helped you think about your own organization's position in the world, and I look forward to welcoming you to the Chain Reaction podcast next time. In the meanwhile, don't forget to subscribe to the podcast. That way you hear about the episodes as they come out and you'll be able to be one of the first to listen. And if there's any episodes you've missed we've had some great episodes in the past few weeks drop by and pick those up from the website. I'm Tony Hines, I'm signing off and I'll see you in the Chain Reaction

Tony Hines: 21:52

Podcast next time. Bye for now, thank you.