Economic Slowdowns, Geopolitical Tensions, and Industry Shifts

What if the global supply chain you rely on every day is more fragile than you think? On this episode of the Chain Reaction Podcast, we're tackling the pressing issues that are shaking up supply chains worldwide. From China's economic slowdown and the troubles in their property market to the escalating protectionism impacting trade rules, this episode promises to equip you with a nuanced understanding of these complex dynamics. We also delve into the exciting growth in Malaysia's chipmaking industry and the significant leadership change at Boeing with new CEO Kelly Orberg.

As if these disruptions weren't enough, we'll also explore the critical actions US retailers are taking to counter potential port worker strikes and the disruptions stemming from geopolitical tensions. With the October 1st strike at US seaports looming, what's the impact on container imports and air freight routes impacted by Russian airspace closures? Join us as we decode these developments and more, ensuring you stay ahead of the supply chain curve. Don't miss our previews of future episodes, where we'll cover topics like supply chain language, Google's third-party cookie updates, and expert strategies for mastering the supply chain game. Make sure to subscribe and stay informed!

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Chapters

• 0:07 Current Global Supply Chain Challenges
• 13:18 Global Supply Chain Challenges Amidst Disruptions

Transcript

Tony Hines: 0:07

Hello, tony Hines, here you're listening to the Chain Reaction podcast, all about supply chain advantage. Well, this is the news roundup, and some interesting things have happened this week and we'll be with those stories in just a moment. All things impacting global supply chains this week Chain Reaction. Official data from China shows that during the second quarter, the economy grew 4.7% in three months to June, but that fell way short of expectations after its strong start to 2024. The target of growth in China is around 5%, so disappointment in Beijing with these figures.

Tony Hines: 0:53

The world's second largest economy is facing a prolonged property crisis. It has steep local government debt, weak consumption and high unemployment, and those are just some of the things that are happening inside China presently. According to the BBC, they say there are more than 4,000 banks in China and over 90% are smaller regional banks, and they're highly exposed to the housing market, and that's in trouble. It's expected that the ruling party will push for consolidation of the small banks in an attempt to make them more resilient. Producer prices have continued to fall, while consumer prices rose by just 0.2%, and that's the slowest in the past three months. Retail sales have grown just 2%, and the real concern is about the loss of investor confidence and the ability of the economy to negotiate its way out of its current position. The government in China is reluctant to turn to stimulus plans to get the economy started. The rhetoric is talking about bolstering supply chains and investing in high-tech.

Tony Hines: 2:05

China has focused its attention on renewable energy, artificial intelligence and chip-making, and it wants exports to lead the way out of the current situation. The Director-General of the World Trade Organization, the WTO, dr Ngozi Okonjo-Iweala, said this week we're seeing an increasing protectionism that's undermining the WTO rules, and some of this is leading to fragmentation. That was in an interview she gave to the BBC. Global trade is really part of the lifeblood for making countries resilient and for underpinning growth. In recent weeks, fragmentations have come to the fore in the imposition of tariffs on Chinese EVs, both in the United States, which introduced 100% tariffs, and in the European Union, which imposed 37.4% on imports of Chinese EVs to the EU. Both the EU and the US have accused the Chinese government of subsidising its EV sector, and they think that this is unfair. It's threatening jobs in the West and creating a very unlevel playing field. So the argument here is about dumping. Are the Chinese actually dumping EVs into those economies? That's the claim by both the United States and the European Union. The US economy, of course, has been pouring billions of dollars in a rush to get investment into green technologies through the Inflation Reduction Act. This is an attempt by the Biden administration to make the US economy resilient. Last year, global trade volumes fell for the first time in 30 years. According to the WTO, there was a 1.2% decline, which was linked to higher inflation and volatile interest rates, but they are expecting that to recover in the current year. So much of the geopolitical shenanigans that we see around the world are impacting growth in the global economy. Of course, those aren't the only things that are happening. It's the instability in the global economy through the actions of various states, in the policies that they introduce and also the wars that they engage in.

Tony Hines: 4:26

The EU's introduction of tariffs on Chinese-made EVs followed a surge in exports to Europe. Over the past few years. Exports jumped from 1.6 billion US dollars in value to about 11.5 billion, and that's damaging the European car industry and its potential to develop its own EV manufacturing facilities. Byd, geely and SAIC are some of the Chinese EV makers that have benefited from this export drive into Europe, and that was reported in a previous episode of the Chain Reaction Podcast and you can go back and listen to that particular story in detail.

Tony Hines: 5:11

Well, last week we were reporting the shivers down the world economy with regard to the drop in share prices of big tech companies in the United States and falls in stock markets around the world. Well, this week US stock markets had their best trading day since November 2022, after a surprise drop in unemployment claims helped ease concerns about the US's slowing economy. The Standard Poor's index ended 2.3% higher and the Dow Jones Industrial Average rose by 1.8%, and the Nasdaq, which we reported the falls on last week, jumped 2.9%. Stocks in Asia also climbed higher, with Hong Kong and Hang Seng index which moved up 1.7%, south Korea's KOSPI up 1% and the Nikkei was remaining flat. Japanese stocks had had the worst day since 1987 earlier in the week. Of course, when that kind of thing happens, many investors decide to move out of the market fast, which destabilises it more. Investment and trading in shares is likely to remain fairly volatile, despite the improvement this week. Many want the Fed Reserve in the United States to cut interest rates to stimulate the economy, but of course, they'll be reluctant to do that until they know that it won't be inflationary.

Tony Hines: 6:42

German chipmaker Infineon is investing in a new fabrication plant in Kulim, which the company says will become the world's largest silicon carbide factory, making Malaysia an attractive chipmaking hub, according to Malaysia's Prime Minister, anwar Ibrahim, and is hoping this will attract more investment in Malaysia. Back in December 2021, american chipmaker Intel announced plans to invest $7 billion to build a chip packaging and testing factory in Malaysia. The company's first overseas production facility was there in 1972, with a $1.6 million investment. Last September, global Foundries opened a hub in Penang to support its global manufacturing network, and that complements other facilities in the US, europe and Singapore. Whether Malaysia can generate enough investment to make it a hub remains to be seen. The country has ambitious plans to upskill 60,000 Malaysians to become highly skilled semiconductor engineers in the next decade.

Tony Hines: 7:58

Well, boeing's new CEO, kelly Orberg, took over the reins at the US aerospace giant on Thursday. He previously headed supplier Rockwell Collins and he inherits the company in severe difficulties. He's highly regarded by many in the industry and there are big hopes that he'll be able to put some basics back in place and drive up the quality output at the troubled aircraft manufacturer has suffered in the past two years, and probably longer, with the difficulties of the quality issues surrounding the 737 MAX. Ortberg said he's proud and excited to be a member of the Boeing team. He recognised that they've got a lot of work to do in restoring trust, but I'm confident he said that working together will return the company to be the industry leader we all expect. Well, I think that's what everybody in the industry would like to see. It's essential that Boeing does get back to being that quality producer and, of course, providing healthy competition and driving up standards across the aircraft industry.

Tony Hines: 9:08

Commentators have said he's got a reputation for listening and for letting people push back. I think that's always a good thing when there's open dialogue. It's important that companies do listen to employees' concerns and, when necessary, act on them. You'll know that we've been following the story, or the various stories around Boeing's difficulties during the past year under its previous CEO, dave Calhoun, and there's been incidents of the various whistleblowers highlighting the quality difficulties at the company. But I think everybody wants Boeing to become that great company once again. Kelly Ortberg sent a message to all of the staff on his first day as CEO. People's lives depend on what we do every day and we must keep that top of mind with every decision we make. Well, good start, I think, top of mind, with every decision we make, well, good start, I think.

Tony Hines: 10:06

There's been a large explosion at the port of Ningbo in China. The ship was carrying a dangerous cargo and it exploded in one of China's busiest ports. You may have seen the video online. China's news network showed the fireball erupting and it flung debris high into the air. The shockwave from the blast was so strong it took the roof off a nearby building and there were rattles in stores nearby. Thick black smoke rose from the damaged ship. There have been no reports of injuries so far, so we hope it stays that way.

Tony Hines: 10:41

The ship, the YM Mobility, is owned by a Taiwanese container shipping company, yang Ming, and it was moored at the Bailon port area. The crates on board contained a type of organic peroxide which is a reactive chemical. It can be used in the making of explosives. The cargo was rated as a hazardous material hazardous class of 5.2, meaning it needs to be refrigerated or it can combust and spew harmful or flammable fumes. Apparently, the cargo's water cooling system wasn't plugged in. A shipping worker has told reporters, with Ningo's recent hot weather, that could be a potential cause, but it's pure speculation at this stage. It will need further investigation. The ship was due to sail to the Middle East from Shanghai. Tugboats and fire crews were on the scene.

Tony Hines: 11:39

Now, in recent weeks, we've had a few episodes that, if you've missed them, you perhaps may want to catch up on. I know it's been summer and many people will have been on vacation, but it's time to catch up. Achieving supply chain excellence through inventory strategies asks the question can accurate inventory management significantly impact your bottom line? And if you want to know what the answers are, well, drop by and pick up the episode that was published on the 9th of July. There was also an episode back in June called Cracking the Code of Supply Chain Metrics, which is related in some respects than that particular chapter, so you might want to pick that one up too. Then we had the episode on fast fashion's ethical dilemma and global supply chain disruptions, and that's all about the challenge from two major Chinese online retailers, temu and Xian and you might want to listen to that too and how they exploit a little-known rule called de minimis. Then there's been the various news roundups where we've talked about the software glitches, the CrowdStrike events, tariff hikes on EVs. That was published on the 20th of July. And then we had Supply Chain Insights from Major Industry Players, which was out in the past week or so. And then I did a special episode to tell listeners about my Supply Chain Strategies book Supply Chain Strategies Demand Driven and Customer Focused and I wanted to share with you the great resources that support the book but also that you might be interested in. And then there are some good episodes on the way to you, coming along in the pipeline, and I'll tell you about those before we close.

Tony Hines: 13:18

Today. Retailers in the US are expected to act fast to get those imports into the United States. They're concerned that there'll be strikes by port workers and ongoing shipping disruptions from attacks in the Red Sea, so they're hoping to get those goods in sooner than later. Container imports and freight rates surged in July and that signalled an earlier peak than usual, so peak season is coming earlier. The ocean shipping industry, remember, handles about 80% of global trade. Now if you've noticed things that you want not appearing in the catalogues or in the availability lists of your suppliers, it could be that they're stuck on ships crossing the ocean in ports or sailing those longer routes because of those Red Sea disruptions, and we're likely to see more, not less, of those disruptions in the months ahead. In July, us container imports were the third highest monthly volume on record, with 2.6 million 20-foot equivalent units. That's up 16.8% from a year earlier and that's in part a result of record imports from China. According to supply chain software provider Descartes August imports are expected to be strong and that's according to the NRF, which is the National Retail Federation, which is chaired by the CEO of Walmart. It has the CEOs of Target, macy's and Saks on the executive committee.

Tony Hines: 15:01

Retailers are concerned about the October 1st strike at Seaport stretching from Maine to Texas, and there are talks between Long's Hormones Association and the United States Maritime Alliance which have stalled. Shippers also are concerned that their ships might get stuck, maersk said on Friday it outlined the consequences of potential strike disruptions at US ports. It would take four to six weeks to recover from a one-week shutdown at a port and that would cause significant backlogs and delays, compounding with each passing day. According to Maersk, they're one of the biggest carriers. It was announced this week that British Airways would no longer fly over Russian airspace to reach China. That means they're going to airspace to reach China and that means they're going to withdraw flights going to China, so they're going to stop the Chinese flights.

Tony Hines: 15:50

Now I'm just wondering how this will affect any other airlines and whether there'll be problems with air freight travelling those routes. I'm thinking particularly Lufthansa and the big carriers in Europe, because those, of course, coming from the United States, may fly different directions or different routes. So it remains to be seen, but it's a piece of news to keep an eye on, because if Russian airspace closes, it's a long way from Europe to China and it will cost more. More fuel will be used on the flights. Well, just following up on the question of, are other airlines affected? Apparently so. The closure of the Russian airspace is also affecting Virgin Atlantic, and they've announced that they're going to suspend flights to Shanghai from October 2024, and they cite similar challenges and complexities. Qantas 2 has also reduced its service to mainland China, but that's due to weak demand For freight carriers. The impact is significant. The longer flight routes required to avoid Russian airspace lead to increased fuel consumption and higher operational costs. This can result in higher shipping costs and potential delays in delivery times. Additionally, the competitive advantage held by Chinese airlines, which can still fly over Russia, may shift more freight business to those carriers. So we'll have to see how things develop Now.

Tony Hines: 17:14

Have you ever wondered why we call a supply chain a supply chain and not a demand chain? Well, it's one of the questions I ask in an episode. It's coming your way in August and it's an important question. The episode tackles the language that we use in supply chains, and so it's a bit different to our normal episode, and we're exploring how particular things developed and why we use the language we do, and we have to be careful not to slip into jargon. So that's an episode for you to come along and have a listen to if you're curious. There's also a podcast which is dealing with the Google third-party updates, and you might want to drop and pick that up if you're interested in knowing about that particular episode. It's only about three minutes, but it just gives you an update on why Google have changed their mind about third-party cookies, and it might be important for you if you operate a website. So come along and listen to that one.

Tony Hines: 18:05

We've also got an episode on unmasking workplace intolerance. One of the things of our age is intolerance and more than ever, it's important to think about diversity and how intolerance impacts the operation of businesses and the operation, of course, of supply chains and the teams that work in supply chains, so you might want to drop by and pick that one up. It's called Unmasking Workplace Intolerance, hidden Costs and Strategic Solutions. Then we've got an episode coming along Mastering Supply Chain Strategies Efficiency, innovation and Resilience. I'm sure you'll want to drop by and pick that one up. And then, somewhere coming along, I think, we've got an episode called Achieving Supply Chain Synergy, and it's about unleashing collective power and overcoming barriers. Once again, I think you'll want to drop by and pick that up too. So plenty for you to be thinking about.

Tony Hines: 18:59

Well, that's it for this week. I hope you've enjoyed the news roundup and I hope you've learned something new by listening. And don't forget, we've got over 250 episodes of the Chain Reaction Podcast, and I'm sure there's something there that you won't have listened to, that you may want to go and listen to, and we've got new episodes coming out all the time. There's some good episodes coming your way in August and September. So look out for the Chain Reaction Podcast. Or, better still, why don't you subscribe? And if you subscribe, you'll be first to know about the new episodes. You'll get it right to your email. You'll be told right away once you subscribe on your favourite platforms. Well, that's it from me. I'll see you next time on the Chain Reaction Podcast. I'm Tony Hines. I'm signing off. See you next time, stay safe and take care. Bye for now.

Tony Hines: 20:27

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