News: FAA Directives, Canadian Rail Strikes, Airline Mergers, Apple Services Growth, EU EV tariffs, Sinking Salt Flats in Chile

Get ready to uncover the latest twists and turns in global supply chains! On this week's Chain Reaction podcast, we promise you'll gain critical insights into the Federal Aviation Administration's recent directive for Boeing 787 Dreamliner inspections following a serious incident involving uncommanded seat movement. We'll also explore the high-stakes negotiations between Saudi Arabia's Public Investment Fund and major aircraft manufacturers Boeing and Airbus. Plus, don't miss our analysis of the $1.9 billion merger between Alaska Airlines and Hawaiian Airlines, and Apple's ambitious financial goals for 2024, including its groundbreaking revenue-sharing talks with Tencent over mini-games on WeChat. Learn why the South China Sea is becoming a hot spot for geopolitical tensions and why it matters for global trade.

But that's not all—brace yourself for a deep examination of the anticipated rail strikes in Canada and their potential to disrupt Rio Tinto Zinc's operations and wider industries such as aircraft, automobiles, and jewelry. We'll discuss the Canadian government's move to mandate arbitration to end the standoff and the broader reliance on railways in North America. We also touch on the European Union's recent decision to cut tariffs on Chinese-made electric vehicles, a boon for companies like Tesla. Lastly, get the scoop on Sunil Bharti Mittal's latest investment in BT and the environmental complexities surrounding the Atacama salt flat in Chile. Tune in for these stories and more, as we navigate the intricate web of global supply chains!

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Chapters

• 0:06 Global Supply Chain News Roundup
• 0:30 FAA inspection of Boeing Dreamliner pilot seats
• 1:51 Saudi Arabia Public Investment Fund New Cargo Airline
• 2:13 Alaska and Haiwai Airlines Clear to Merge
• 2:32 Apple Services Growth Strategy
• 6:10 Tensions in the South China Sea
• 12:27 Canada Rail Strike Disruption Impact
• 16:59 EU Reduces it's planned tariffs on some EV's including Tesla
• 19:12 Mittal's investment makes him BT's largest investor
• 20:14 Lithium extraction in Chile sinks Atticama Salt Flat

Transcript

Tony Hines: 0:06

Hello, T Hines. Here you're listening to the Chain Reaction podcast. All about supply chain advantage. Great to be here. Thanks for dropping by today. You're listening to the News Roundup all things impacting global supply chains this week Chain Reaction.

Tony Hines: 0:26

Well, the Federal Aviation Administration said this week it would require inspections of Boeing 787 Dreamliners, and that follows an incident that took place in March when a LATAM Airlines plane went into a sudden mid-air dive, injuring more than 50 passengers. The reason for the dive was uncommanded movement of the captain's seat, which caused the autopilot to disconnect. The agency said it received five reports of similar problems with the captain and first officer's seats on 787s, and the most recent was in June. Two remain under investigation the FAA's Airworthiness Directive, impact 158 US, and the most recent was in June. Two remain under investigation the FAA's Airworthiness Directive, impact 158 US, registered airplanes and 737 airplanes worldwide and requires those airlines to inspect the captain's and first officer's seats on the 787-7, 9 and 10 aircraft, looking for cracked rocker switch caps or cover assemblies within 30 days. So another pointer to quality issues with Boeing Could, of course, be component failure, maybe the components. I don't know where the components are sourced from, but it might be the supplier of those components that's at fault, or it could be an assembly issue, but it needs investigation. Saudi Arabia's Public Investment Fund is in talks with Boeing to secure Boeing's 777 aircraft along with Airbus A350s for a new cargo airline that was reported by Bloomberg this week. The cargo operation would serve Saudi's flag carrier and start-up, riyadh Air. It was announced this week that Alaska Airlines and the Hawaiian Airlines proposed merger has been cleared by regulatory authorities in the US and that allows the $1.9 billion merger to take place. Allows the $1.9 billion merger to take place.

Tony Hines: 2:32

One can't help thinking that the world was a simpler place when phone companies just made phones and weren't really involved in other things. But when it comes to the modern age, of course phone companies aren't just phone companies, are they? They're not even phone companies because if you look at a company like Apple, they make screens, they make all kinds of products, they have their other services, the Apple streaming services like Apple TV, and so on. If we take a look at Apple's financial projections for the full year 2024, and we look along product lines, we can see that the iPhone represents about 52% of revenue at $205 billion for the year, the Mac 10.1% of revenue at $40 billion, the iPad 7.6%. $30 billion. Wearable home and accessories 10.1 percent about 40 billion again, and services, which is probably the most interesting category, at 20.2 percent. So it's about the size of the mac business and the wearable home and accessory business. Put together, it's worth 80 billion and there's been significant growth in that service segment in the past five or so years it's quadrupled in that period in terms of revenue and its profitability is good too, and a lot of the business is based in protecting rights and protecting the brand, and if you think about how they do that and set about the task, it's very complicated, and this week a story that caught my eye in this respect was Apple's relationship with a Chinese company called Tencent, and the iPhone maker wants a share of revenue from games played on Tencent all in one WeChat platform.

Tony Hines: 4:24

Apple boss Tim Cook said it's a lucrative opportunity as handset sales cool, so they're looking for other revenue streams and, of course, they're under severe pressure from regulatory authorities in Europe about their approach to monopolising their apps on phone systems. We're the European community have said it's unfair competition. Tencent's chief strategy officer, james Mitchell, confirmed that the two companies were in discussions about revenue sharing on so-called mini games. These are titles played directly on WeChat and they can be played without users having to download apps from a store. They're known as apps within apps and these have taken off since Tencent introduced them six years ago and now there's half a billion WeChat users playing mini-games at least once a month, and it's the advertising income. Of course that's important because they gain about 15% of WeChat's total income from that source of advertising. Apple would normally take 30% as its cut, but Tencent currently doesn't monetize its minigames on Apple's operating systems via its app transactions. So potentially there's a large revenue stream at stake here in these discussions and of course, other players in the market might be watching how these negotiations go and may decide that they'll try a similar strategy to cut Apple out of the revenue stream and avoid that commission. Now.

Tony Hines: 6:12

The South China Sea is an expansive sea where about $3.4 trillion of the world's $16 to $17 trillion of trade passes through. Oil and natural gas reserves have been found in the area and it accounts for about 14% of the world's commercial fishing. The United Nations Conference on Trade and Development, unctad, estimates that about 80% of global trade, by volume and 70% by value, is transported by sea, and of that, 60% of maritime trade passes through Asia, with the South China Sea carrying an estimated one-third of global shipping. The waters shared by China, taiwan, japan and South Korea, all of which rely on the Straits of Malacca, which connects the South China Sea and, by extension, the Pacific Ocean, with the Indian Ocean. China is the second largest economy in the world and the security of that economy is is the second largest economy in the world and the security of that economy is tied closely to what happens in the South China Sea, which is why they claim territorial rights over most of that area. About 5.3 trillion dollars worth of goods transit through the South China Sea annually, with 1.2, accounting for trade with the United States. That was stated in the UNCTAD report from 2016 data, but with each year that passes, it becomes significantly more important.

Tony Hines: 7:39

The South China Sea is a critical hub for world trade. It's one of the most strategically important regions of the world and it plays a pivotal role in global trade and geopolitics. It's a vast body of water. It's a major shipping route, but it's also a hotspot for territorial disputes, particularly over the Nine Dash Line and its rich oil and gas reserves. The South China Sea is a crucial maritime corridor 21% of global trade passes through the waters, and that includes vital shipping lanes that connect economies of East Asia with the rest of the world. Its significance is underscored by rich fishing grounds and potential reserves of oil and natural gas, estimated at 11 billion barrels of oil and 190 trillion cubic feet of natural gas.

Tony Hines: 8:29

China has claimed nearly the entire South China Sea and they've drawn a demarcation line called the Nine Dash Line, a U-shaped boundary that extends hundreds of miles south and east from its southernmost province. The claim overlaps with the territorial waters of several other countries, including Vietnam, the Philippines, malaysia, brunei and Taiwan. The disputes are particularly intense around the Spratly and Paracel Islands, which are believed to be rich in natural resources. The South China Sea's untapped oil and gas reserves are a major factor driving these territorial disputes, and control over the resources could significantly boost the energy security and economic power of China. China wants to secure the resources as part of its broader strategy to sustain the economic growth and reduce its dependence on foreign energy supplies.

Tony Hines: 9:26

The potential impact on the Western economies if China invaded Taiwan are immense. It would have profound implications for global stability and the economies of Western countries. Taiwan is a major player in the global semiconductor industry, producing a significant portion of the world's advanced microchips, and disruption to the supply chains would have a ripple effect on various industries, from electronics to automotive manufacturing. Moreover, such an invasion would likely lead to severe economic sanctions against China by Western nations, and that would further strain global trade relations, as if they're not already strained enough. The South China Sea is a flashpoint and it could become volatile. The South China Sea is a flashpoint and it could become volatile, disrupt shipping routes and increase the cost of goods worldwide. It's likely that prices out of China would increase if any conflict between China and Taiwan were to result in the invasion of Taiwan.

Tony Hines: 10:26

The South China Sea is the linchpin of global trade and a focal point of geopolitical tension, and that nine-dash line and the region's oil and gas reserves are at the centre of this dispute. The South China Sea and the pinch point of the Straits of Malacca are two of the world's most vital maritime trade routes. The South China Sea carries approximately one-third of global shipping and it includes over 3.4 trillion's worth of trade annually. The Straits of Malacca is the narrow waterway which sees over 60,000 vessels annually carrying about a quarter of the world's traded goods, and it's a critical chokepoint connecting the Indian Ocean and the South China Sea. The ships passing through these routes are primarily heading to and from major economies in East Asia and beyond. China, japan, south Korea, taiwan, singapore, india are all en route, and the goods that are carried through these routes are many and diverse. Oil and natural gas is a significant portion of the world's energy, and that's carried from the Middle East through those waters. Consumer electronics, too, with high-value goods such as smartphones, computers, tablets and, of course, microchips. Automobiles and the parts for automobiles are also carried from South Korea, japan and other South Asian ports, and raw materials such as iron ore, coal and many minerals critical for electric vehicle production are carried on the route, along with agricultural products essential for food production. These are strategically important waterways and any disruption, geopolitical tensions, blockades or invasions would have significant impact on global trade.

Tony Hines: 12:27

Mining company Rio Tinto Zinc is preparing to have strikes disrupt its business in Canada. It expects the labour dispute between Canada's two biggest railway companies and their workers to affect the ability to receive raw materials at several sites across Canada. The company has a contingency plan to minimise the impact. It will truck certain materials and products and increase the use of its own rail network the Canadian Pacific, kansas City and the Canadian National Railway blocked out more than 9,000 unionized workers on Thursday and the stoppage will threaten billions of dollars worth of economic damage and disrupt North American supply chains. Rio Tinto's Canadian operation includes production of iron ore, aluminum and diamonds. Canada's operations contribute $800 million to the company's total revenue, which is $26.8 billion in the first half of 2024. So you can see which industries feel the knock-on impact if we're talking iron ore, aluminum and diamonds. So that's aircraft, automobiles and the jewelry trade amongst the impact community.

Tony Hines: 13:46

Canada's busiest import gateway in Vancouver is acting ahead of a rail stoppage. To reduce the problem, container ships told to slow down as the labour strike is imminent. Canada's busiest west coast container port is implementing measures to sustain cargo flows. It's all about the flow keeping the traffic flowing. In the event of railroad employees disrupting port activity, further labour disruptions could impact port and supply chain operations. The Vancouver Fraser Port Authority said in a statement on Monday, the impact to the port of Vancouver will be significant, with approximately two-thirds of all cargo volumes at the port moved by rail, including 90% of international exports.

Tony Hines: 14:36

Canadian National Railways on Sunday formally notified Canada's Teamsters Union that it would begin locking out employees. At 12.01am Thursday. The union issued its own 72-hour strike warning action to CPKC on Sunday. No new talks are scheduled, so it's likely to come to fruition. So the advice from the Port Authority is for ships to slow down so as not to be queuing at the port. That will maintain throughput and it would also lower cost for the ships arriving at Vancouver because of course if they're disrupted they'll stay longer in port and incur port charges.

Tony Hines: 15:18

And just as this week's episode is coming to a close, we get news from Canada that the Canadian government is trying to mandate a binding arbitration that would end the unprecedented rail stoppage in the country's main freight rail carriers. The Teamsters union has also filed notice to strike on Monday at Canadian National Railway, canada's largest railway. The union moves are the latest twist in this labour dispute at CN and Canadian Pacific Kansas City, which locked out Teamster members on Thursday 9,300 of them and that triggered a simultaneous rail stoppage that the group said could inflict hundreds of millions of dollars in economic damage. And it was further complicated by the Canadian Industrial Relations Board, which was meeting for hours on Friday with the union and railway representatives after the government asked it to end the impasse. The Labour minister, Stephen McKinnon, said that the risk to the economy was the reason that they'd stepped in and they asked the board to impose a binding arbitration on the talks between the union and the companies and for the operation of both the railways to resume immediately.

Tony Hines: 16:25

Canada's heavily reliant on trains and the US too is reliant on trains for the distribution of much of its goods. Canadian National and Canadian Pacific cover large areas of both Canada and the United States, from Vancouver, edmonton, calgary, winnipeg, minneapolis, toronto, Ottawa, boston, new York, washington DC, chicago, kansas City all the way through to Mexico City. The European Union said it planned to reduce the extra tariff it placed on Tesla for its imports of China-made vehicles. It revised the proposed punitive duties on imports of Chinese-made EVs in draft findings. It set a new reduced extra rate of just 9% for Tesla. That's lower than the 20.8% it previously indicated in July, and it said that some Chinese companies in joint ventures with EU automakers may also receive lower planned punitive duties on Chinese-made EVs, so they're being rewarded for having joint ventures with European partners. The tariffs, of course, are on top of the EU standard 10% duty on car imports, which are designed to try and make a level playing field in the world automobile markets. Tesla requested a recalculation of the rate based on specific subsidies the company had received, and the commission said it accepted that. It's verified the information that Tesla gave and it's taken action. It's also lowered the overall rate to 36.3% in the worst case, which it had previously said would be 37.6% in July.

Tony Hines: 18:13

Tesla was one of the companies it classified as cooperating with the EU investigations, so it's been rewarded for that. Three companies it sampled would each receive slightly lower provisional duties than indicated in July. Byd will face a rate of 17%, down from the 17.4% it levied in July. Byd will face a rate of 17%, down from the 17.4% it levied in July. Geely 19.3% down from the 19.9% previously indicated, and SAIC down to 36.3%, down from 37.6%. Volkswagen, too, is expecting to receive a lower tariff, and BMW said in a statement its joint venture in China that produces the electric Mini was also classed as cooperating and it expected a lower duty of 21.3% as against the 37.6% that was indicated by Brussels last month.

Tony Hines: 19:14

Sunil Bharti Mittal is an Indian entrepreneur billionaire and he owns 24.5% of BT. He has interests in Telecoms, insurance, real estate, education and more, and hotels. He owns the Glen Eagles Hotel in Scotland and he wants to invest more in BT. Sunil Bharti Mittal's investment in BT is by far the largest of any individual shareholder, so he's the single largest shareholder in the company and the stake is worth about 4 billion US dollars. He was recently knighted by King Charles. I'm sure that's helping his position worldwide, of course, to negotiate for his businesses.

Tony Hines: 20:09

Another piece of news in the last day or two was from Santiago, chile, where the Atacama salt flat is sinking at a rate of 1-2 cm per year, and that's because there's lithium brine extraction taking place and the University of Chile has had satellite data collected between 2020 and 2023 to verify deformations in the Earth's crust, and that was published in the IEEE Transactions on Geoscience and Remote Sensing Journal. Francesco Delgado, a researcher at the Department of Geology at the University of Chile and lead author of the report, said the sinking area is in the southwest part of the salt flat where lithium mines operate, so it's not the entire salt flat area is in the southwest part of the salt flat where lithium mines operate, so it's not the entire salt flat. It's in a specific area, but it is a cause for concern. It's an area of about 8km or 5 miles north to south and 5km or 3 miles east to west. Well, that's it for this week's news roundup.

Tony Hines: 21:13

I hope you've enjoyed the episode and I hope you found out something you didn't know before you listened, and then it's worthwhile investing your time, isn't it? 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 favorite platforms. Well, that's it from me. I'll see you next time in the chain reaction podcast. I'm tony hines. I'm signing off. See you next time, stay safe and take care. Bye for now, thank you. You've been listening to the chain reaction podcast, written, presented and produced by tony hines.