Exploring the Future of Global Trade

Unmask the intricate dynamics of today's global supply chain challenges on this episode of Chain Reaction. Ever wondered how a hurricane could disrupt electric vehicle safety or why the transfer of a remote island has the world watching closely? Join us as we unravel the surprising vulnerabilities exposed by Hurricane Helene, where the unexpected fire hazards in EV batteries have grabbed attention. We further explore the ripple effects of rising oil prices as tensions heat up between Iran and Israel, and consider the inflationary pressures on advanced economies. Gain insights into the geopolitical chessboard with the UK's decision to transfer the Chagos Islands to Mauritius, and understand the strategic moves in the Indian Ocean influenced by the Belt and Road Initiative. Plus, delve into the controversial import of luxury cars into Russia under sanctions and the unexpected surge in diesel cars in the UK, challenging the electric vehicle trend.

From the shores of America, discover the ramifications of a potential resolution to the port strikes, promising a 62% wage hike over six years, and the economic puzzle pieces it affects. We'll dissect the European Union's internal wrangling over tariffs on Chinese electric vehicles and the wider economic consequences that could unfold. As oil prices climb, the conversation shifts to the growing allure of hydrogen as a green energy source in places like Latin America and the UK, offering a glimpse into the future of energy investments amidst uncertain regulatory landscapes. This episode equips you with the knowledge to navigate these complex issues, ensuring you're informed about the forces redefining global supply chains.

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Chapters

• 0:07 Global Supply Chain News Update
• 8:00 Port Strikes and Energy Shifts

Transcript

Tony Hines: 0:07

Hello, tony Hines. Here you're listening to the Chain Reaction podcast, all about supply chain advantage, and this is the news edition. So stick around, stay tuned, get informed. Chain Reaction Chaining Reactions Coming up in the news round.

Tony Hines: 0:29

Well, the biggest news items this week are to do with Hurricane Helene, the dock workers' strike and, of course, conflict in the Middle East, all of which are impacting the global economy.

Tony Hines: 0:40

Oil prices are up as conflict widens between Iran and Israel, and the dock workers' strike also threatened to cause major disruption, but of course, that's now all over. Now here's an interesting side effect of Hurricane Helene. Apparently, it was reported after the storms that many of the EVs that were abandoned during the storms were experiencing problems with the battery systems in the cars, and that's due to a chemical reaction after salt water had damaged the battery system in the EVs. It can cause the cars to catch fire with the chemical reaction and people were being advised that if they had any cars that were damaged, located in garages, under apartment blocks or indeed under houses or any other buildings, that they check them out for safety measures and if they spotted any problems or had difficulties getting the car moved to contact the authorities, had difficulties getting the car moved to contact the authorities, so an unexpected effect of the transition towards electric vehicles.

Tony Hines: 2:01

President Biden made a statement about fears that Israel would strike Iranian refineries and shortly afterwards this caused a market reaction. The comments came after Israel pledged to take retaliatory action over Iran's attack, with nearly 200 ballistic missiles fired earlier in the week. Iran's threatened to hit back, of course, but oil prices jumped by 5% yesterday amid fears of Israeli strikes. Oil traders are buying up reserves, bidding up prices that in recent weeks have been much lower. They were nearly at the lowest level since 2021. And lower energy costs actually helped to pull down inflation during the summer and autumn period. The US has been the biggest oil producer for the past six years, which has reduced the volatility in the marketplace and eased supply chain disruption. So the effect of a statement, the impact of a war it's all it takes to disrupt the supply chain for oil. Iran produces about three percent of the world's total oil supply and it's thought that the leading export terminal, karg Island, or Oil Island as it's known locally, could be a target. It's geographically closer to Israel than other sites. It's been estimated that it could add about $10 a barrel to oil prices and cause a move in inflation in advanced economies of somewhere around 0.4 to 0.6 percent Since November.

Tony Hines: 3:28

You might recall that the Houthis have attacked shipping in the Straits of Hormuz and they've attacked about a hundred so far. Apparently, this week Greek shipping companies were hit with an email campaign from the Houthis saying that they're likely to target ships moving through the Red Sea and they're at risk from these Houthi Iranian-backed militia. Now there was a strange story that emerged this week about the Chagos Islands. Well, I doubt if you've heard of them. They're a small number of islands located in the Indian Ocean close to Mauritius, and apparently the new Labour, located in the Indian Ocean, close to Mauritius, and apparently the new Labour government in the United Kingdom, has agreed to give the Chagos Islands to Mauritius, which is close by Mauritius of course, got its independence back in 1968 from the UK. It's culturally closer to Mauritius and of course both the Chagos and Mauritius are culturally close to India and of course more exports from those countries go to India than to China. But there's been some fear-mongering this week after the announcement and not many people would think much about that.

Tony Hines: 4:40

It's a small island or a a group of islands in the Indian Ocean, the main terminal at the Sir Siwusagur Ramgulam Airport, named after the revered Mauritian Prime Minister who secured the country's independence from Britain in 1968, was completed in 2013 by a Chinese company with the help of $260 million that's about £197 million in loans from Beijing and that's to be paid off over 20 years at a cost of some $390 million. So there's $130 million interest on top of the loan. Of course, this is only one of many projects built by the Chinese as part of their Belt and Road Initiative, where they've put investments into countries. They invested some money in Sri Lanka, for example, in one of the northern ports on the coast of India, and I don't think India were very pleased about that one, and I reported that earlier in the Chain Reaction podcast.

Tony Hines: 5:41

But Mauritius has become the first and, to date, the only African country to sign and activate a free trade agreement with Beijing. China is the biggest importer into Mauritius and it sends goods of about a billion dollars a year Lots of electrical equipment for broadcast equipment and aluminium products for building and so on. All coming from China for building and so on, all coming from China. And Mauritius exports about $24 million to China, mainly sugar and rum, under preferential arrangements. Now, you'll remember last week I talked about luxury cars going to Russia.

Tony Hines: 6:19

It was a report from Ed Conway on Sky. It was very informative about how luxury cars made in the UK were finding their way to Russia despite sanctions, and this week the chief executive of the Society of Motor Manufacturers and Traders, the SMT, mike Hawes, said that the Solihull-made Range Rovers that were being filmed, taken to the border at a time when they're not shown in official statistics, was not necessarily UK manufacturers failing. The import of cars into Russia is banned under both the UK and EU sanctions introduced back in the wake of the February 22 invasion of Ukraine, and criminal activity has been blamed for new UK cars moving into Russia from Georgia. There's another interesting report emerging this week about the increase in the sales of diesel cars in the UK. They're outstripping EVs. The demand for those new diesel cars is growing faster than for pure battery vehicles. That's according to the Society of Motor Manufacturers and Traders. Private buyers seem to be the main group of people buying diesel cars and the market grew in September by 17.2% compared with the same month last year and that's about 1,369 vehicles, and that compares to about 3.7% year-on-year increase for battery electrics. The SMMT said that car manufacturers were on course to spend at least £22 billion discounting EVs this year to try and offset the underlying fall in demand.

Tony Hines: 8:00

Now the port strikes in America appeared to be continuing earlier in the week and we looked as if we might be in for a long haul. We looked as if we might be in for a long haul, but as we came to the weekend it emerged that there was a possible deal on the table which would bring the strikers back to work, and everybody hoped that that would be the case, and the Longshoremen's Union is said to be considering the deal. 54 container ships were queued outside ports. The tentative deal includes 62% wage hike over six years, according to sources, and the strike has cost the US economy about $5 billion every day, according to JP Morgan. The US East Coast and Gulf Coast ports reopened on Friday after dock workers and ports operators reached a wage deal settling the industry's largest stoppage in nearly half a century. But many commentators have said it will take some significant time to clear the backlog, with the strike ending sooner than expected. That's lowered the price of shipping stocks and of course, that's because there's no longer expected to be a large hike in freight rates. The port strike has ended fairly quickly and the risks have been significantly lowered of further disruptions. The number of container ships has spread out 14 outside the port of New York, 3 in Philadelphia, 8 in the port of New York, 3 in Philadelphia, 8 in the port of Norfolk, 7 at Charleston, 15 at Savannah, 3 at the port of Mobile, 1 in Miami and 3 at Houston.

Tony Hines: 9:40

And just spare a thought for all those retailers that have been caught up in the port strikes. And there are some big retailers IKEA, rtg Furniture, adidas International, walmart, goodyear QVC Tractor Supply City Furniture, adidas International, walmart, goodyear QVC Tractor Supply City Furniture, kroger, mattel, h&m, fashion, ralph Lauren, l'oreal, levi Strauss, estee Lauder, amongst others. And they've all got shipments held up at various East Coast ports and they'll take a few weeks to clear East Coast ports and they'll take a few weeks to clear In supply chains. Of course, you'll know as well as I do that once you've solved one problem, you move right on to the next, and no doubt there are others coming down the track or through the ocean. Right now the unemployment rate in the United States has fallen to 4.1% and that's good news for the US economy.

Tony Hines: 10:39

The European Union this week pressed ahead with Chinese EV tariffs after a divided vote. The Commission says it's necessary to support tariffs. It will continue talks on pricing with Beijing, but more states have backed tariffs than oppose. But there were many abstentions. It's the Commission's biggest trade clash with China in a decade and of course, beijing has already threatened retaliation if the tariffs go ahead. But they are going to go ahead and the executive said on Friday that the largest economy, germany, actually rejected the tariff, exposing quite a rift between Germany and other nations in the EU. It could cost European carmakers significantly if they've got the balance wrong here, and of course Germany do. Ten EU members backed the vote on the tariffs, five voted against and there were 12 abstentions, according to a source.

Tony Hines: 11:32

Well the oil price closed this week at $78.8 a barrel and that's the highest it's been for some time. It went up roughly around 10% in this week, but it's still nowhere near the dizzy heights of the $130.30 US dollars a barrel. It was a year or so back. So energy prices are on the rise and of course the Strait of Hormuz carries lots of LNG. About 30% of LNG travels through that route and then you've got the oil that travels that way from the Gulf to the rest of the world. Of course oil prices, when they do increase, send other prices up, as we know, and of course they add to pressure on inflation, the general rise in prices, because oil, whether we like it or not, still drives the global supply chains. It brings the goods through shipping, through transportation, and will continue to do so for some time. The dependency on oil is still large. The other factor to be aware of, of course, is that when oil prices go up, it can be substituted in some cases by other sources of energy when available, such as LNG. But even so, the substitutes increase in price as demand for the energy sources increases and the supply is short. If it's short in one area and it's replaced by another. The demand will increase for the substitute product and the prices there are likely to rise too. We don't need to be too concerned presently because it's only a relatively small increase in price. But of course, if there's a full-scale war in the Middle East, then the situation could change rapidly.

Tony Hines: 13:19

As various countries around the world push for green energy sources, I read this week that Latin America, particularly Colombia, is looking to produce hydrogen. It sees opportunities in the world market, but so do other countries. They're also pushing for hydrogen and renewable energies. In the United Kingdom they have a programme the new government to push ahead with green energy. The problem is it requires a great deal of investment and you have to be certain, or have a degree of certainty, that you've backed the right horse in the race. And I think that's a problem for many investment decisions presently. It is ever thus, of course, because we often look at opportunities and think we can commit resource to that. But if you do pick the wrong horse, it can be very expensive, and then you're left playing catch-up when you realise that it's something else that's going to take over from the existing favorite.

Tony Hines: 14:17

At the moment, those in favor of clean hydrogen fuels see it as an opportunity to fuel everything from trucks to steel blast furnaces and as an input to green fertilization products. But critics say that the production requires excessive energy inputs and that means that the trade-offs could be different than the way they're presented in any investment report to get the green light to go ahead. And it's a shifting economic minefield because the economics of energy shift constantly and public regulation of energy products makes that situation worse. As governments try to tax and reclaim sums for insulation or switches to different forms of energy in the mix, then the economics of energy shifts rapidly and so government policies can quite often cloud the data. And of course, like any modelling scheme, the assumptions you build into the model also change the equations in the way you view the winners and losers.

Tony Hines: 15:24

And there was an example of this this week, as the government in Spain has moved to charge a levy on the waste product from nuclear plants, and many are unhappy about it. There's a lobby group, foro Nuclear, which has filed a legal challenge with the country's top court against the 30% increase for the nuclear waste levy, and the main operators of the plants are also joining in the resistance to this. Iberdrola and Endesa are the main operators of the country's nuclear fleet. In June the government raised the levy to 10.36 euros, that's about 11.36 dollars per megawatt hour. That went up from 7.98 euros due to rising storage and disposal costs. The government in Spain is planning to close nuclear reactors which generate about a fifth of the electricity by 2035. And that's faced opposition from industry and business groups. The dismantling of those plants and the management of radioactive waste is said to cost about 20.2 billion euros, and the government wants the operators of the plants to pick up that tab.

Tony Hines: 16:36

Now we all appreciate our breakfast and of course Kellogg's has been around for some considerable time, but it's now changed its name to Cullanova in the UK and the managing director, chris Silcock, said that they've invested a major commitment to cereal production in the UK by bringing together manufacturing of all breakfast cereals at one site in Wrexham. Yeah, that Wrexham, the one that's got the football team owned by Ryan Reynolds and Rob McElhenney. We can make significant leaps forward in the efficiency, quality and sustainability of our operations by bringing them all together. It's a big investment and it'll create 130 new roles at Wrexham and improve existing facilities for colleagues. So Wrexham's the home of cereal production as well as soccer dreams. The company says it'll help reduce CO2 emissions in Kelanova's cereal production by about 11% annually. It also means that more raw materials, for example rice, can be used, delivering a tenfold reduction in food waste across the supply chain, and new packaging lines will be added.

Tony Hines: 17:43

So everybody seems to be very pleased about this investment and it will improve the supply chain for Cullinan. There was more investment in North Wales last week at the old steelworks site in Shotton. It was an investment in a recycling plant that could handle most of the UK's cardboard and paper recycling in one place, and it would be able to take recycling waste from elsewhere and turn it into packaging material. Well, that's it for this week, but just before I go, don't forget to subscribe to the Chain Reaction Podcast so you'll be first to know when a new episode drops, and we've got some interesting episodes that have come out in the past week. There's one on forecasting using technology, and I'm sure you'll want to stop by and pick that up. And we've got a great episode coming up in October with Madhu Hosadurga, who's the VP for AI at Schneider Electric, and you won't want to miss that interview. So over 250 episodes of the Chain Reaction podcast available for you right now to go and listen to.

Tony Hines: 18:50

So when you get a moment, pick the ones you like the look of and go and have a listen. You can check them out and let us know if you like them. Tell your colleagues and tell anyone else who you think might be interested. Don't keep it to yourself. I know we all like to keep secrets, but don't keep it to yourself. Tell others. I'm Tony Hines, I'm signing off and I'll see you next time. Thanks for listening. Bye for now. Thank you.