Global Logistics—June 2016
Who made the clothes you're wearing? Where were they dyed? Where were they sewn? You may have no idea. As it turns out, there's a good chance the clothing manufacturer has no idea either.
Some companies have come a long way in terms of supply chain visibility since the April 2013 Bangladesh factory collapse, but some have a long way to go, according to the first annual Fashion Transparency Index, a research report released by Ethical Consumer magazine and Fashion Revolution, a global initiative to improve conditions in fashion supply chains.
The report surveyed 40 fashion brands (chosen as the world's largest by their public financial information) and rated them based on their level of transparency and support of workers' rights, using survey answers and sustainability information made publicly available through corporate websites and other sources.
Levi Strauss & Co. rated the highest, with a 77-percent transparency rating. Chanel ranked lowest, with a mere 10 percent.
The study revealed some disturbing trends:
- Only a few brands, including Adidas, H&M, Levi Strauss, and Nike, hold a publicly available list of all or the majority of their cut, make, and trim suppliers.
- 28 percent of the companies surveyed don't communicate about taking any special measures to monitor supply chain human rights violations.
- 40 percent of the surveyed companies don't have a system in place to monitor compliance with labor standards, while 38 percent show no evidence of incorporating labor standards into buying practices.
- 30 percent of companies surveyed don't provide supply chain workers with confidential complaint mechanisms.
In 2017, the report's sponsors plan to increase the scope of the survey to evaluate 100 global fashion brands and retailers.
Five evolving trends are influencing the global maritime industry, according to a new report from IHS Maritime and Trade.
- China begins to restructure its economy. The world's second-largest economy attempts a change of direction, but how will shipping respond?
China's economic expansion has been slowing for years. Economic growth now depends on efficient raw materials import and finished goods export. However, an underlying trend in China's reform process cannot be monitored and measured through the maritime industry alone.
The impact on shipping is that the most significant source of dry bulk demand, and major contributor to the wet bulk and container sectors, is changing.
China's burgeoning economy significantly influenced the health of dry, wet, container, heavy lift and project cargo, and general cargo shipping. Less demand for shipping from China, combined with the industry's failure to react in time, forced many vessel operators, shipyards, and related businesses to rebuild their future scenarios. It is not yet clear what kind of shipping a more internally focused Chinese economy will need; it will take years to finalize the transition.
- Impact of low crude oil prices. Low prices have had a devastating impact on the offshore sector, but crude oil shipping is healthy.
A second trend is the collapse of crude oil prices, sparked by Saudi Arabia's refusal to continue its traditional role as global swing producer, especially when rival producers and exporters—U.S. shale oil, Russian oil and gas, and Iranian crude—threaten to increase their share of an already overcrowded market.
This has been good news for crude oil shipping. Freight rates are strong, the fleet of ships is able to handle rising demand, and newbuilding deliveries are entering the market steadily.
- Charter market weakness drives consolidation. Survival in several sectors of the shipping business will depend on mergers and acquisitions.
The container shipping sector plans several high-profile mergers, including the most unlikely, although the most necessary, between the two South Korean lines: Hanjin Shipping and Hyundai Merchant Marine.
The dry bulk sector is far more fragmented than containers. A prolonged period of low freight rates is now weakening vessel owners' resolve. In Singapore, BW Group, riding high on oil and gas revenues, is openly in the market to snap up distressed assets as vessel values fall in tandem with dry market rates.
The tanker business is generating sufficient revenue to avoid the merger merry-go-round, but the offshore oil sector has suffered catastrophically since oil prices plunged in September 2014. This is a sector where acquisitions are expected when the upturn comes, and that will happen when the crude oil price rises—but there's no sign of that coming in 2016.
- Mega containerships in the wider supply chain. As shipping absorbs ever-larger vessels, supply chains are exploring the challenges.
With a limited number of ports and terminals able to receive them, megaships are challenging the very supply chain they were ordered to serve.
The arrival of larger vessels has also stimulated investment in new terminals and equipment. This improves handling efficiency, but challenges logistics businesses at every stage of the supply chain.
- Big data, small data, and security. Shipping came late to the Internet of Things party, but it's catching up fast.
Making sense of data and connecting its disparate pieces will enable shipping to gain actionable insight.
Shipping businesses need to assume a new role as maritime analytics leader, combining detailed quantitative experience with detailed industry expertise. Until that role is defined, "the industry will continue to make decisions on the basis that data flaws and discontinuities are routinely ignored, that the paucity of data is unfailingly accepted, and that the research and forecasts we cling to are biased and opinionated," says Patrick Thomson of the IHS advanced analytics team.
Shipping is becoming technology-intensive; besides new maritime analytics leaders, expect whole new digital businesses to be set up, with no assets under ownership but providing operational control.
Further, as ships become a system of systems, connected not only to each other but via satellite to a shore-based control center, the need to provide different levels of security protection becomes urgent.
A pending referendum will decide if the United Kingdom remains part of the European Union (EU), or if it strikes out on its own again. Many Britons claim that this referendum is long overdue, considering the last national vote regarding EU membership took place in 1975.
There seems to be little doubt that Britain's exit, or Brexit as it has become known, would have a substantial impact on Europe's supply chain. Britain would lose the benefit of tax-free exports into Europe, and would have to renegotiate trade deals with Europe and the rest of the world because it would no longer be subject to the EU's trade agreements.
No two sources in the UK seem to be able to agree on the outcome of the referendum, or the consequences an exit from the EU might have on both sides. Polls are scattered, with some claiming a majority will vote to leave, and others claiming a majority will vote to stay.
So what can businesses do? The best answer is to be prepared for both scenarios. If the UK stays within the EU, things should mostly be business as usual. But if things go the other way, companies that source between the UK and Europe may want to secure back-up suppliers in Asia or the United States, where a British exit won't have such a dire effect on trade relations.
In addition, losing access to the EU's single market may result in a negative financial impact for British companies that depend on export revenue, at least in the short term. These companies should be prepared to take a temporary hit in the pocketbook.
As the people of Britain vote to define the future of their global identity, one thing is sure: Supply chain managers will be at the front of the line of those waiting impatiently for the referendum's results.