Restoring Trust in UK's Water Industry & Boeing's Labor Stand: Economic Insights

Unlock the secrets to restoring trust in the UK's water industry while navigating Boeing's labor challenges. Discover the dramatic story behind skyrocketing water bills in the UK, where regulatory demands and infrastructure investments are clashing with consumer expectations. As trust erodes due to relentless sewage leaks, governmental reviews are underway, scrutinizing the role of regulators like Ofwat. Meanwhile, delve into the high-stakes drama at Boeing, where 30,000 workers are making a bold stand for a 40% pay rise, shaking the foundations of the company's operations and supply chains.

Stay ahead of global economic trends as we break down pivotal meetings, market moves, and industry shifts. From the intriguing dynamics of the BRICS summit led by President Putin in Kazan to Tesla's stock market surge driven by Elon Musk's optimistic EV vision, we cover it all. Uncover why Amazon is recalibrating its same-day delivery service and how a new rail link between Mexico and the U.S. Southeast could revolutionize freight transport. With insights into Cal-Maine Foods' cage-free investment, Levi Strauss' logistics partnership, and McDonald's legal battle with beef producers, we paint a comprehensive picture of the economic landscape. Plus, see how Nvidia has outpaced Apple in stock market valuation, heralding the lucrative rise of AI chip production. Tune in for stories that define the economic pulse of our times.

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Chapters

• 0:06 Water Industry Challenges and Solutions
• 8:09 Global Economic News Roundup

Transcript

Tony Hines: 0:06

Hi, tony Hines. Here you're listening to the Chain Reaction Podcast, all about supply chain advantage. Well, we've got a great episode coming your way in just a few moments. So thanks for stopping by today and I hope you enjoy it. In the news edition this week I have a follow-up to my earlier episode where I discussed the woes of the water industry. That was on May, the 16th this year, and you might want to go back and have a listen to that and see what's happened since. Not much Got worse and we tell you about it here.

Tony Hines: 0:35

Changing reactions Now I suppose many of you will have read in the press about how your water company will be changing the billing arrangements, and some of these billing arrangements are going to increase substantially by 2030. Some of the costs are almost doubling and Ofwalt is a pretty poor regulator. They don't seem to put any pressure on the water companies to take responsibility for the jobs they've contracted to do, and once again they've backed off. And after saying they were going to do, and once again they've backed off. And after saying they were going to control prices when water companies were saying they were going to put fees up by about £20, now they're going up by 90% in some cases by some water companies, they're going to do nothing. So where's the sense in that? Water quality is at risk presently? There's regular spillages out of the system into rivers, lakes and into the ocean, and the infrastructure is not particularly maintained as it should be. And who's paying for all this? Well, you are the consumer.

Tony Hines: 1:36

The UK water industry is currently facing severe challenges. It has rising costs. There are trust issues with the public and an increasing number of complaints. Water companies in the UK are seeking significant increases in customer bills. For example, thames Water is requesting 53% increase in bills by 2029-30. Southern Water is asking for an 84% hike. These increases are largely due to new regulatory requirements and the need for infrastructure investment. The water companies say Trust in the water industry has been eroded due to various factors, including repeated sewage leaks and failures to tackle those leaks. Consumer and environmental campaigners have criticised the industry for prioritising profits over infrastructure improvements.

Tony Hines: 2:26

The number of complaints about water services has been rising steadily. Issues such as water quality, supply interruptions and billing problems have been common points of contention for customers. It's a complex situation and there are no easy solutions. Serious pollution incidents between 2022 and 2023 increased from 44 to 47, with over 90% caused by just four companies. Executive bonuses, despite poor performance, reached £9.7 million. That's in bonuses and benefits to water and sewage company executives in 2022-23. A recent survey by Ofwat revealed that only one quarter of customers believe the water companies act in the interest of people and the environment. That's very low, isn't it? Environmental performance that's not so good either. The Environmental Agency's annual report of 2023 showed an improvement in star ratings under the Environmental Performance Assessment EPA, but the majority of companies continue to underperform. So how does that happen?

Tony Hines: 3:35

The UK and Welsh governments have launched the largest review of the water sector since privatisation, aiming to address systemic issues and restore public confidence. The Water Special Measures Bill, introduced to strengthen the powers of water industry regulators and hold failing water companies under special measures, was brought in by the government, and the government is planning further legislation to attract long-term investment and clean up water for good. But it's going to cost further legislation to attract long-term investment and clean up water for good, but it's going to cost. Now, if you want to listen to a full discussion about the problems in the water industry, I did an episode back in May this year, 2024. I think it was about the 16th of May and you can go back and have a listen to that. So water, water everywhere, not a drop to spare. The government has announced an independent commission will examine three main regulators of the water industry, that's, the Environment Agency, ofwatt and the Drinking Water Inspectorate.

Tony Hines: 4:34

Many think that the regulator OfWatt needs to be demolished and we need to think again about how to regulate the industry. Regulators have been blamed for failing to prevent water companies from dumping huge volumes of sewage into the rivers, lakes and seas, which we've discussed and Ofwat has been accused of allowing water firms to under-invest in the infrastructure while paying large dividends to shareholders. That needs to stop. The problem, of course, is that the government doesn't have an appetite to nationalise water as an industry, but it really should, and it really should be thinking not about investment, because that doesn't really work with a public service like this. It's been proven to be problematic the way the structure is set up. They pay dividends out to those investors and, of course, that takes investment away from where it's needed in the industry itself. And if it has to be more heavily regulated, who's going to invest and not receive the dividend? Well, only the government could regulate properly.

Tony Hines: 5:40

Well, the problems of Boeing have been an ongoing saga and we report them every week on the Chain Reaction Podcast because it's a supply problem, and this week, kelly Ortberg said that the quarterly losses reached US$6 billion and there's no light at the end of the tunnel. It's going to take a long time to resolve and this is due to the strike that's still going on at Boeing. Well, the strikes at Boeing continue. 30,000 US West Coast workers have been on strike since September 13th and the latest offer of 35% over four years was rejected by 64% of the voters. The strike is damaging Boeing finances and it's hitting supply chains. Some big suppliers to Boeing are also having to lay off workers, as they can't continue to employ them and pay them when there isn't anything to work on and there's no output, and they've also, of course, invested heavily in inventories to meet the ramped up demand that was expected when the new CEO came in to sort out the problem. Planemaker, the workers want a 40% pay rise and they said they've lagged behind for years. 95% of workers voted against the first contract last month, but they're still keen to hold out for a better deal and they want a defined pension scheme as part of this pay offer. The union's seeking a 40% pay rise and the return of the defined benefit pension scheme. So will this strike get settled anytime soon? Well, we'll have to wait and see. Boeing hasn't commented on the vote yet and it's halting production. Of course, the strike of the 737 MAX, as well as the 767 and the 777 Widebody programs.

Tony Hines: 7:38

Well, the first expanded BRICS summit took place this week and on the agenda fears of Western sanctions. For some members, there's no real challenge to dollar dominance right now. They talk about this a lot, but they can't really compete presently. Of course, the US election is just a week or two away right now, as they begin electing the new President of the United States. Will it be Harris? Will it be Trump? Well, we're holding our breath.

Tony Hines: 8:09

President Vladimir Putin was in the Russian city of Kazan, welcoming leaders of countries which together make up nearly half the world's population. The Bricks Club of Emerging Economies is a long way from rivaling the International Monetary Fund, the IMF or challenging US dominance with the dollar, but the first summit, with a new batch of members, showed clear signs of well getting larger. Will it be influential? We'll have to wait and see. Probably years. They talked about new payments and trade mechanisms which could bypass Western-dominated structures, but they're really, in practice, quite a long way away from this. And, of course, russia is concerned about imposed sanctions after its invasion of Ukraine. United Nations Secretary General Antonio Guterres and Tyler Perdigon, president of NATO member Turkey, also expressed interest in joining the BRICS group.

Tony Hines: 9:09

For President Putin, of course, the fact that so many leaders travel to Russia for talks is helping him counter the narrative that his country is facing isolation from the global economy, but I don't think Kazan is yet anywhere close to Bretton Woods as a world changing organisation. So the countries of Brazil, russia, india, china and the extended membership have a long way to travel. Right now, india has the highest growth amongst the BRIC countries at 6.8%, china 4.6%, united Arab Emirates 3.5%, iran 3.3%, russia 3.2%, egypt 3%, saudi Arabia 2.6%, brazil 2.2%, south Africa 0.9% and Ethiopia 62%. Well startling growth rate for Ethiopia there in growth rate for Ethiopia there. It's incredible, isn't it, what the power of a forecast can do.

Tony Hines: 10:18

This week, elon Musk laid out his forecast for 2025 on EVs at Tesla and, hey presto, the stock for Tesla rose by 20% on the news that the forecast gave to the market. So forecasts, of course, don't always come true, as we know, but they are influential, and especially if a CEO comes out and says, hey, it's not so bad, evs are looking better than we expected and the market's going to be higher. Well, shows a lot of trust, I suppose, by the market in what Elon Musk has said. Tesla profits in the third quarter were boosted by US$739 million in revenue for environmental regulatory credits, and JP Morgan analysts noted they were potentially unsustainable drivers of the earnings and cash flow. Automakers have to get a certain amount of regulatory credits every year and if they can't meet the target, they can buy credits from other companies. But Tesla has exceeded the credits because it only makes EVs, so it's put it in a good place. And Tesla earnings also got a boost from the full self-driving supervised system, which contributed about $326 million in revenue in the quarter after Tesla made it available for use in the Cybertruck. Elon Musk said that his best guess is that vehicle growth will reach 20-30% next year because of lower cost vehicles and the advent of autonomy. Analysts were expecting growth of about 15% for 2025, so this increase to 20-30% is much higher than they were expecting, and that's why the share price has gone up.

Tony Hines: 12:12

Now let's take a look at some of the other stories making news this week. Amazon have said that they're going to stop same-day deliveries. Amazon decided to end its same-day delivery service this week. It said it's part of the company's strategy to focus on more profitable and efficient delivery options. The move is expected to impact consumers who rely on the convenience of same-day delivery, but Amazon believes it will help streamline operations and reduce costs. So who said cost was unimportant in supply chains? It sometimes seems that way, doesn't it? But it obviously isn't, and it's very important. And you hear people from time to time saying oh, we focus on other things rather than cost. Well, you can't ignore cost, and Amazon have proven the point.

Tony Hines: 12:56

Canadian Pacific, kansas City and CSX Railroads have received approval for a new rail link between Mexico and the Southeast United States. This project is aimed to enhance freight transport efficiency and connectivity between the two regions, providing a more direct route for goods moving through the supply chain. Well, there's a lot of goods coming from Mexico these days into the United States, and so they need good rail freight systems. Ups has forecasted a softer peak shipping season this year. The company expects a 3% increase in electronic and mail order sales for the fourth quarter, down from the previous expected 5%, and this is due to a shorter peak season, with only 17 shipping days between Thanksgiving and Christmas Eve, leading to a more traditional in-store shopping experience. Despite this, ups still anticipates a strong peak season with higher revenue and volume compared to last year.

Tony Hines: 13:55

Calmain Foods, the largest egg producer in the United States, is investing $40 million to expand cage-free egg production, converting a former Tyson facility in Missouri to add more free-range hens. Levi Strauss has partnered with Maersk to open an omni-channel fulfillment center in Ohio, aiming to enhance its wholesale retail and e-commerce logistics. Mcdonald's, the world's largest buyer of beef, has filed a lawsuit against Tyson, jbs and other major beef producers, alleging price fixing and illegal activities to drive down supplies. Well, it's what we call a cartel, isn't it? It's when firms work together and they cooperate behind the scenes to fix prices, to fix the market. Well, there's money in them, there hills. That's what they used to say about oil, isn't it? And then, of course, in the pharmaceutical area, you'd be saying there's money in them, there pills. But it doesn't quite sound the same when you say there's money in that artificial intelligence chip. But it is. And it's true, because at the end of this week, nvidia overtook Apple in its stock market valuation as the world's most valuable company, and it's all to do with those specialist chips that NVIDIA make. Nvidia's stock market value reached 3.53 trillion US dollars. That was slightly above Apple's number, which was 3.52 trillion dollars, according to LSEG data.

Tony Hines: 15:31

It's not only in Australia where we have boomerangs, but we have them in economic policy too, and this week it was announced that we're going to have five new free ports in the United Kingdom going to be announced in the budget next week, and strange isn't it? This, of course, was a Tory policy. It was one of Rishi Sunak's very prominent policies during his time as Prime Minister and, of course, he wrote a paper on this topic about 2016, I think it was which sings the praises and merits of Freeport. Will the new Labour government have resurrected such an idea? And they're about to try this one again. Well, will my Freeport come back? Wasn't there a song about a boomerang coming back? But this is about Freeport. I need to read more about it, but this is a preliminary announcement of the boomerang policy.

Tony Hines: 16:25

Freeports, of course, are shipping ports or airports where imported goods are free from taxes, so they don't have to pay tariffs, which are normally paid to the UK government, and firms in those areas pay lower national insurance on new employees and they have lower property taxes. So there are quite a number of incentives. But the critics of the idea say that what happens is that people just move from one area to another to get those benefits. So you don't actually generate a lot more economic activity, you just shift it. And you shift it by giving subsidies. Manufacturers and free ports only pay tariffs on finished products as they leave the port for elsewhere in the UK, and imported goods can be re-exported overseas without any duty at all being paid. They're located around ports in Inverness, the Forth, teesside, the Humber, liverpool, anglesey, milford Haven, plymouth, the Solent, the Thames, felixstowe and Harwich, and there's a Freeport near East Midlands Airport which covers Leicester, derby and Nottingham. There are many critics of these policies and they haven't been particularly successful where they've been tried over the years. But Sir Kier Starmer seems to be singing the praises of the Freeport at the moment in advance of the announcement next week.

Tony Hines: 17:44

Yet another leak before the budget. This must be the longest trailing UK budget ever. It's part of the growth plan, but will it work? There's the big question. Sir Kier said there'll be thousands of well-paid jobs. Well, we've heard this before from all colours of government. The Office for Budget Responsibility predicted in 2021 that tax breaks in England's Freeport would cost the UK government £50 million a year, so a cost rather than income and growth. The current government is claiming that Freeports in the UK have attracted £2.9 billion worth of investment and created 6,000 jobs.

Tony Hines: 18:27

Well, that's it for this week. I hope you've enjoyed the news roundup and I hope you've learned something that you didn't know before you began to listen. We've got some great episodes coming your way in November and I'm sure you'll want to drop by and pick those up. And don't forget to subscribe to the Chain Reaction Podcast so that you're first to know when new episodes arrive. In the meantime, I'm going to sign off. I hope you have a great weekend and a great week ahead. Thanks for listening. I'm Tony Hines. I'm signing off. I'll see you next time. Bye for now, thank you.