Repercussions of a Software Glitch, Tariff Hikes and More

What happens when a single software glitch sends shockwaves through global supply chains? Join me, Tony Hines, on the Chain Reaction Podcast as we dissect the chaos stemming from a faulty CrowdStrike update that paralyzed computer systems worldwide. Discover how the tech industry leapt into action to mitigate this unprecedented disruption, and the significant financial repercussions faced by CrowdStrike. We'll also analyze Russia's recent import tariff hikes on consumer goods from sanctioning countries, uncovering the far-reaching effects on Russian consumers and foreign suppliers. Moreover, we'll explore the tense dynamics between China and Canada and their ongoing efforts to restore a strategic partnership.

On this episode, we navigate the turbulent waters of current global supply chain challenges. We'll cover everything from political unrest and surging fuel prices to the complexities of managing unpredictable consumer demand and heightened expectations. Dive into the post-pandemic landscape with its declining service levels, labor shortages, and the growing trend of unionization, and learn why fair workforce management has never been more crucial. We'll tackle pressing cybersecurity threats, intricate regulatory hurdles, and the importance of effective inventory strategies and customer experience. Tune in for an insightful discussion that underscores the necessity of building resilient and fair supply chains.

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Transcript

Tony Hines: 0:04

Hi, tony Hines, here You're listening to the Chain Reaction Podcast, all about supply chain advantage. This is the Newsrounder All things impacting global supply chains this week. Well, what a week it's been. We've had the CrowdStrike issue, which brought down many businesses during the week. It's like a global pandemic for computers, but short and sharp, by the sounds of things, and most organizations appear to be getting back to some sense of normality fairly quickly. So I think the tech industry has worked hard to do that. But of course this will have a massive impact on supply chains. Of course, and it's probably the biggest story of the week, chain reaction will have a massive impact on supply chains, of course, and it's probably the biggest story of the week.

Tony Hines: 0:51

Well, I guess we're likely to hear a lot more about CrowdStrike and the problems that occurred in cybersecurity software this week, which caused computer systems to crash globally on Friday. Apparently, it emerged that this piece of software didn't undergo adequate quality checks before it was deployed, so it was just rolled out. The latest version of its Falcon Sensor software was meant to make CrowdStrike clients' systems more secure by updating the threats it defends, but a piece of faulty code in the update resulted in one of the most widespread tech outages in recent years for companies using Microsoft Windows operating systems. Global airlines, banks, hospitals and government offices were all disrupted. Crowdstrike has since released information to fix affected systems, but experts say this will get them back online, but not immediately. In some cases it might take a little bit of time to do that and it will take time to get rid of the flawed code. So it looks like a vetting system, which is known as sandboxing. When they do look at the code may have been overlooked when this piece of software slipped through the net.

Tony Hines: 2:02

The problem came to light quickly after the update was rolled out on Friday, and for many it was in the evening. So when they came to work in the morning, switched on the computers, they got the blue screen of death, as it's become known, just a blue screen saying Windows is unable to start right now. It was in a file that contains either configuration information or signatures to get the whole system started, and it's common in these security products to update signatures once a day because they're continuously looking for new malware that's been launched over the previous day and they want to make the systems more secure. But in this case it brought everything down. It did more than a piece of malware might have done. It's market capitalisation on Thursday, before the incident happened, at US$83 billion. It was the 109th listed US company by market capitalisation, so quite a big player, and if you take 15% off that, well that's about 8 billion plus 4 billion, about 12 billion. So that's what they lost.

Tony Hines: 3:08

But many are saying this is a temporary problem for the market capitalisation and the share price issue and is likely to be resolved as the issue gets resolved and I think that's true. Markets overreact to ensure that the immediate impact is taken into account and then they gradually readjust when the problem is solved. But it shows how vulnerable and interconnected the whole global tech system is, and I've heard people in the past couple of days talk about the problem with tech is that it's in the hands of too few players, which may or may not be the issue, because if you look at all the players that link in to the big companies, then there's hundreds of these suppliers, just like CrowdStrike. It's not as if there's just one or two. So I'm not sure how serious that is, but it might be to do with the economics of the system. You have to outsource a lot of the things that come in to the main system and all the systems are interconnected, and once a piece of the system goes down, it can impact the system in predictable and unpredictable ways. So I think that's what's uh, what's happened, but we'll find out more over the coming weeks and hopefully in the next few days, companies affected by this will be able to get back to the position they were in before this CloudStrike software that was designed to protect them actually brought down the whole system, so the Falcon flew too fast.

Tony Hines: 4:54

Another piece of news coming out of Russia this week is that they've hiked import prices and they've put prices of alcohol and wallpapers amongst the goods that have increased the tariffs. These tariffs and the import rises are on consumer goods. They include wine, beer, candles, biscuits and shampoo produced in countries that are unfriendly. They have sanctions against Moscow, according to a government order published on Friday, and the Russian imports from nations imposing those sanctions against Moscow have, of course, caused problems. Since 2022, when Russia invaded Ukraine, western producers, or some of them at least, stopped selling to Russia, and I've reported in the past couple of weeks how Russia has managed to get round some of those restrictions by buying goods on the grey market, goods on the grey market. Cosmetics and shampoo from Poland are affected, along with perfume, and they will have 35% added to customs values, and duties for wallpapers from Lithuania, latvia and Estonia will rise by 50%. Well, what I would say about this is this probably harms consumer choice more than it affects these suppliers, but we'll wait and see. See how that one works out.

Tony Hines: 6:10

Bilateral relations between China and Canada were established in 1970, but in 2018 they turned a little bit colder after Huawei's chief financial officer, meng Wanzhou, was arrested in Canada, and China subsequently arrested two Canadians in China. All three were later released, but the allegations that Chinese interference in Canada affairs have kept relations strained. The last time Chinese and Canadian leaders met was in Indonesia in 2022, and President Xi Jinping criticised Prime Minister Trudeau over alleged leaks of a closed-door meeting. This week, china's Foreign Minister Wang Yi has said that China and Canada should promote normalising relations and getting back on track so as they can establish a strategic partnership. So things appear to be moving forward, but it will perhaps take some time to get back to the established relationship that they had prior to 2018. Prior to 2018.

Tony Hines: 7:18

The Australian Cyber Intelligence Agency said on Saturday that malicious websites and unofficial code have been released online claiming to aid recovery from Friday's global digital problems, which hit banks, airlines, retailers and media corporations and government departments, and they said that people and businesses should look out and be careful when looking at solutions to the problem online. The sites are claiming to help entities recover from the widespread outage caused by CrowdStrike and the technical incident caused by CrowdStrike and the technical incident, but in actual fact, it's another variation to get control of your system. So be careful. Many governments are struggling with the fact of how to pay for major infrastructure projects, and that's across Europe and the United States, and they're actually cautious about raising taxes because they don't want to do that. Obviously, they need people to be motivated in the economy, to drive the economy upwards, and they're looking to generate the income for infrastructure projects from capital growth. Now, that's a laudable aim and it's the right thing to do, but it's tricky, it's difficult and it's uncertain. There has to be a fairer way to distribute the cost of such major infrastructure projects amongst the beneficiaries, and we all benefit when infrastructure projects amongst the beneficiaries, and we all benefit when infrastructure projects happen. If we get better transport systems or we get better electricity distribution, energy distribution, grid systems more efficient and so on, then all those things are improvements to our lived experience and it's something we all want, but it's whether we want to pay for it as much as we might have to, and it's a delicate balance for governments to consider. Well, no easy answers, but it's why governments are nervous about raising taxes, the burden of taxation. Of course, in the principles of Adam Smith were always to create a system that was simple, achieved the result and, of course, was laid at the door of those with the ability to pay, and that's still the principle today.

Tony Hines: 9:47

The biggest issues we have in global supply chains at the moment and for the past year or two have remained fairly constant, and they are global political unrest, rising fuel costs and energy costs for businesses and for consumers, because when consumers are affected, that impacts the disposable income that they have available to spend on other goods, which makes the predictability of demand more uncertain. We have higher consumer expectations about what they expect to have and receive from businesses, and those will only get stronger. Those expectations will increase and I think also one of the things that strikes me is the falling level of service in some industries, which are now probably falling quite a bit below par when it comes to pre-pandemic levels of service, and I think that's one of the big challenges of the situation we now find ourselves in. There are labour shortages too, and problems in the workforce. We've only got to look at the unionisation of labour, which is increasing, and labour wants a further distribution of the cake when it comes to seeing major global corporations make big profits and their wages aren't going up. Well, there's something not fair about that particular arrangement, and so fairness is a big issue. I think in the marketplace today and workforce management, it doesn't make sense for big corporations to stop the workforce from unionising if that's something that they actually want to have. If we think about good employers and we look historically at good employers, they've always had fairly smooth labour relations. Now it's obviously come through a fight between labour and capital, if that's how you want to situate it, and that's, of course, how the economists situated it and how perhaps the governments have looked at the problem.

Tony Hines: 11:57

There are also cyber security threats, and we've seen a major cyber incident this week, but it hasn't come from a piece of malware by bad actors. It's come from a piece of badly written code that took systems down globally, and it's disrupted Many supply chains, many passengers moving around by air or travelling to places. Booking systems have gone down, banking systems have gone down and, of course, healthcare systems have gone down, so almost everything was affected by something intended to do good. So cyber security threats might be posed by good actors as well as bad actors. There's plenty of bad actors, but it's also good actors too, so it's something to bear in mind when we think about the risks and how to mitigate risks and to prepare for risks, of course. And then there's the increasing regulatory frameworks and compliance issues that businesses have to go through to get their goods to market. And that's in addition to the everyday operation of supply chains and the transport and logistic constraints that we might face and the natural risks that we face in terms of changing climates, changing weather patterns, and those are very real too, and there's plenty of evidence.

Tony Hines: 13:21

And if you look back in the last few weeks over the Chain Reaction podcast and some of the things that we've discussed, you'll find many of these issues discussed and the evidence for the sort of claims we're talking about here are there for all to see. So I'll ask you to drop by the site and pick up some of the programs that you find of interest for you and your organization, so that you're up to speed with all the things that are happening around the globe that could impact your supply chain. Now, some of the episodes you'll definitely want to go and look at are achieving supply chain excellence through inventory strategies, and that's a particularly useful program just to remind everybody about how you can do things better to manage inventory for customers and to improve efficiency and profitability in return on investment. And then there's the program coming your way on supply chain synergy. Now, that will be with you in the next week or two and that's an important one to come and listen to. Then there's mastering the customer experience in supply chains, and I've just talked about how important customers are in supply chains and how we need to manage that customer experience and we need to do better in some cases and in some industries.

Tony Hines: 14:42

And then there's the various news roundup programs that have lots of evidence about supply chain resilience, labour disputes and the future of AI in sustainability and how to build resilience in supply chains. Then there was a great episode managing credit risk in global freight forwarding with josh simon, and you need to go and take a listen to that if you haven't heard it already, and the program cracking the code of supply chain metrics. I'm sure you'll want to go along and have a listen to that one. And then we've got some other great episodes heading your way in the next few weeks, so look out for those those too, and I'll say more about those next week. So plenty to think about, plenty to listen to and plenty to stimulate those little grey brain cells. So that's it for this week. I'm Tony Hines, I'm signing off and I'll see you next time in the Chain Reaction Podcast. So bye for now, thank you.