Record level of concerns hit global supply chains

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1:11Hello and welcome to Business Matters. I'm Roger Hearing. On the programme today, a crisis of confidence for those shipping goods around the world. A new survey suggests a record number, a record level of concern among shippers. We'll have the details on that. Also, as the US pursues trade deals with major players, we'll find out what's happening in the talks with Japan. Also, why is it that cassava, a major food source across the world, doesn't make more money for Nigeria, which grows it in profusion? Prada acknowledges its latest footwear is actually something Indian artisans have been making for many centuries.

1:49And while the US comms giant AT &T gets into trouble with President Trump when a conference call doesn't go quite as planned, we'll have a look at what happens with those sort of communications nightmares. And I'll be joined throughout the programme by two guests on opposite sides of the world. Peter Morisi, economist and professor of business at the University of Maryland, who's joining us from Alexandria, Virginia. Peter, a very good evening to you. Good evening. Nice to be with you again. Good to have you back with us. and actually not that far away from you, Peter. Well, I'm certainly in the same continent.

2:23Jennifer Pack, China correspondent at Marketplace, usually based in Shanghai, but in fact joining us today from Calgary in Canada. So, Jennifer, also, I suppose, a very good evening to you. Good evening to you too. Yeah, evening for both of you. But let's start as we always do by getting a sense of what's going on where you are. So, Jennifer, I mean, I know you're sort of off your usual area, but what's making the news in Calgary? oh well the uh digital taxes right the cancellation of that and uh talks trade talks with the u.s that's dominating all the headlines that's the that's the tax that uh canada at one point was threatening to uh put in place on on some of the big uh tech companies but in fact now was pulled back after donald trump said there won't be any talks that's essentially it isn't it yeah essentially Canada thought that it was unfair that online, like these tech giants are coming in to do business just like any other brick and mortar business, but they're not paying taxes.

3:21They saw it as a loophole. So they thought, OK, well, we're going to tax tech companies of a certain size if they're running online marketplaces, if they get advertisements, if they run social media platforms. So essentially, you're talking about all the major U.S. tech companies, Amazon, you know, Meta, Google, they were all looking at possibly billions of dollars because it's retroactive. So it got US tech companies quite upset. And now Canada's back down. So obviously, things have gone back to another set of situations, which I'm sure we'll explore further at different points. Right, Peter, let me come to you.

3:56What's making the news where you are? Well, believe it or not, the trade talks are not at the top of the news unless you're a financial wonk, which really got everybody focused is Donald Trump's tax cuts and spending priorities as it moves through Congress. And we're having a bit of drama about how to keep score. You know, a lot of the provisions of his 2018 law expire this year. So the question is, do we count renewing those as increasing the deficit or just continuing present policy? if you're just continuing present policy then what they want to do adds about 200 billion dollars a year to the deficit and frankly the tariff revenues which look like they're going to stick as i follow the trade negotiations will pay for that ah so yeah so an upside potentially well if you notice in all these negotiations the americans are very stubborn about that 10 That's what that's about.

4:54Well, we will come on to parts of that later in the program. And one aspect of that, in fact, is the fact that the tariffs and also, of course, the recent international political turmoil, particularly in the Middle East, have had something of an effect on the way that stuff is moved around the world. It's been a very challenging, challenging time. Trade wars, tariffs, turmoil. So a global supply chain that we notice are in trouble and the people who run them seem to know it. The latest survey, a CIPS pulse survey, in fact, carried out by the Chartered Institute of Procurement and Supply, shows sharp rises, record rises, in fact, in concern over supply chain disruption.

5:33The highest level, in fact, since tracking of all this began. I've been hearing about this from Ben Farrell, CIPS CEO, who told me what the survey showed. Our members are calling out the geopolitical risks, particularly the conflicts in the Middle East, clearly preeminent, but on the back of the trade wars, the tariffs. So one way or another, the level of anxiety related to disruption and uncertainty around global supply and procurement of goods, which are moving around through these supply chains, is actually at an unprecedented level. One is reluctant to use the unprecedented word, but genuinely, I think those of us who've been involved in this business for some time have never seen this level of anxiety in the leaders of global supply.

6:21So pretty, perhaps not that surprising, but pretty stark stuff. So worse even than COVID, for example? Yeah, we're heading that direction. Actually, I think one of the things that is worth bearing in mind is the nature, the growing nature of the interconnected supply chains around the world. So where you can see, for example, through our members, you know, concerns around things like Israeli manufactured goods, phosphate derivatives used in water treatment, for example, that's popping up in different parts of the world. At the same time, you know, there's different bits of tech which are being disrupted through supply chains.

6:59so one way or another uh it's not a single issue there are a number of different issues and this highlights to me you know the tactical nature of where we are we can describe today tomorrow in the coming months but actually when you take a step back the world is so connected now and i think you know we need to sort of be cognizant of that in our sort of international relations of the way you know the way this is all playing out i mean i think supply chains historically have There's always been disruption in some way, but the consequence of disruption now is much more profound than it's ever been in history, I think.

7:32Well, that was what I wanted to pick up, the consequence, because obviously one assumes it's going to be higher prices. Well, you can see a bit of it emerging. You know, our members are reporting particular anxiety around input prices in shipping, logistics, petrochemicals, pharmaceuticals, food and beverage. you know some fabricated metal products perhaps unsurprisingly given what we've seen around steel so those are input prices and you could reasonably expect those to flow through to some extent you know you might see you know things like shipping and logistics inflation having a trickle down effect into higher prices and things you know perhaps furniture electronics uh yes generally things are moving and equally you'd expect you know some fuel prices perhaps uh flowing into you know the cost of the pumps there's a bit of volatility in it we can't be certain only last week we were talking about the Straits of Hummers and the impact of that and that's died away we saw that you know the fuel prices go up and then dive again so it's really it's just a backdrop of uncertainty and all these guys are now you know expert risk managers expert replanners and highly responsive indeed but I suppose Ben if we wanted to sort of try and see a bit of light at the end of the tunnel.

8:42I mean, the immediate Middle East issue hasn't gone away, but it's clearly slightly the heat has gone down, at least in the last week or so. And also, you know, we do know the US government is negotiating with numerous countries in terms of bringing the tariffs as part of a trade deal. So could we see next survey perhaps rather better? You genuinely, genuinely could. I suppose the story a bit of is a bit of volatility. So maybe this is, you know, for governments to start thinking to what extent is their nation dependent on international supply chain and how satisfied are they that that is not a risk to national resilience longer term.

9:19So I think there are bigger questions. You're probably right. Next month, you know, we'll see a better picture emerge. But behind it, I think there's a more strategic question about resilience in nations and businesses related to supply. Ben Farrell there of the CIPS. Well, part of the real-world consequence of this is congestion in ports, with reports now of delays of over 70 hours in some major European cargo hubs. What does it all mean for those who are actually shipping the goods? Well, I asked Emily Stauspelt, Senior Market Analyst at the shipping analytics firm Zenita. I don't think it's too surprising, really.

9:54We have just so many things going on at the same time that's kind of leading to this new perfect storm that's causing concern and a lot of disruption for many supply chains. And what is behind it is obviously concern, I guess, about the Middle East situation diverting ships in various ways, but also the tariffs. Which is the most important factor, do you think? So I think just in the past few months, the most important factor, especially around North Europe, is the tariffs and how that's shifted volumes and shifted where ships have been put. The situation in the Middle East hasn't changed markedly for shippers who aren't shipping in and out of that region.

10:29The big concern on that is still that they're sailing around Africa rather than going to the Red Sea. But that's nothing new, and that's kind of been built into supply chains over the past year. The issue here is really kind of these changing trade flows in response to the trade war. So what would change the sentiment that we heard from the CIPS, do you think, and what would give them more confidence? What needs to change? I think a lot of different things. We need some more predictability in the world at the moment. We're just a few days away now from that 8th of July deadline for an idea of what happens with tariffs on US imports.

11:04And everybody's still looking at that. And then we have also strikes at the moment in many areas, especially in Europe and all sorts of other stuff going on. And I think shippers are kind of aware of that fact and that they need to be prepared for that. And they're going to pass on the costs that they've got, I guess, that come from all this as well. I mean, there's going to be a push in that direction. They will always try. I think what we've seen in many years in container shipping is that the freight rate you pay for that sea transport isn't directly linked to the costs. And at the moment, actually, we're seeing a sort of softening of rates.

11:35So a deteriorating market, really, for the ocean liners to be working in. So they're going to struggle a little bit more to pass on those extra costs directly on the freight rate. But, of course, delays and that kind of stuff, that also adds costs to the system. So what's the best advice for businesses trying to deal with this kind of situation? I mean, what's the best way to proceed to make things work better for them? You need to look beyond just kind of getting the cheapest rate. You need to have a relationship with a supplier, whether that's a carrier or freight forwarder, that means you can actually call them up and say, hey, we need some help here.

12:05And if you've been just negotiating them down to the absolute lowest freight rate, that leaves you vulnerable when things go wrong, as they seem to be doing increasingly often these days. And are you hearing from the people you deal with that they are suffering a lot at this moment, that they're telling you this is a really difficult time? Yes, with comparisons made to those first few months during the pandemic in many ways. Looking to the US in many ways, both when it comes to tariffs and also what's happening in the Middle East, I think it's clearly doubtful that we'll see any significant changes that will make their lives easier in the coming weeks.

12:36Emily Starspel there. Peter, do you see the supply chain system, well, sort of really beginning to not be able to manoeuvre effectively amongst all these challenges? Well, we've been very focused on that in the United States since COVID and the vulnerability that is created by the fact that businesses are very good at optimizing supply chains to minimize costs. But they're not particularly good at dealing with risk or minimizing risk. And a lot of this diversify out of China business reflects that. Suppose that we had the peaceful kingdom and we were getting along with China. It's still a different place.

13:15And look at the kinds of shutdowns they had during COVID. Well, that cut off vital materials for us. For example, in pharmaceuticals, the building blocks of generic drugs and so forth. Simple example, doll manufacturers in the United States, they don't make dolls here. They design them. They subcontract the manufacturing to China. It turns out with optimized supply chains, you've got to get your doll orders in April or so for Christmas. If you need to switch, there isn't anybody else to do it. There's only one or two people that do it. Lighting, interior fixtures and so forth. It's taking an American company that was manufacturing in China two years to move basic lighting production to Cambodia because it's so specialized now.

14:06We've gotten down to one or two people that do everything. So it makes it difficult. And Jennifer, let me bring you in on this because China, I guess, is the shipper out to the rest of the world par excellence or has been. Are they suffering under this situation in which things seem to be grinding to a halt? Well, absolutely. And to further what Peter was saying, even for industries that are not necessarily so specialized, think about shoes. It's pretty what the industry calls low-end manufacturing. But it's taken a good five years for them to shift to Southeast Asia, to Vietnam, to Cambodia. But many shoe manufacturers tell me that if they were to make some of the athletic shoes, for example, a lot of the materials are still coming directly from China and the machinery.

14:51So it's not completely there yet. And the second thing is it's not just about money, but about timing that you touched on earlier. Right. So these retaliatory tariffs came in about April. Right. That is going to impact. You'll see how the consumers feel them, maybe in back-to-school sales, because that's typically around that time when there was that uncertainty when exporters were going to put the products onto the freight, to the cargo. Now, in June, July, this is the time for Christmas products to go out. And the majority of those products come from China, especially from a place called Yiwu.

15:26Well, I'd love to see what's going to happen to all these Christmas decorations, those little trinkets, Christmas trees. All of this is uncertainty. So, yeah, 90-day pauses sound great, but, you know, it doesn't do a whole lot for business. And further down the line, as you say, come Christmas, there may be a lot of people feeling a bit left out and not what they wanted under the Christmas tree. But let's talk about one particular product. You mentioned footwear there, which is a rather different issue that's come up, which is to do with what we call cultural appropriation, where something appears to be, well, taken from somewhere else, perhaps without the necessary permissions or acknowledgement.

16:05What we're talking about is a sandal. Now, is it just leather footwear? When it has a pattern that's pretty much identical to the traditional Kolopuri sandals made in the Indian states of Maharashtra and Karnataka, but is nonetheless presented as the latest line from a major Italian fashion house. Well, the sandals I'm talking about were shown off by Prada at the Milan Fashion Week last week without mentioning the Indian origins. The Maharashtra Chamber of Commerce, Industry and Agriculture was not happy and wrote to Prada saying the design was commercialised without crediting the artisans who preserved its heritage for generations.

16:41For their part, Prada have said, well, that they are talking to the Maharashtra authorities and they also acknowledge this link. I've been speaking about all this to the former U.S. head of LMVH, Pauline Brown. Not surprising at all. I can find examples going all the way back to the 1960s, where one of the early Christian Dior collections used motifs from saris in its collection without attribution. And similar to this case, you know, you simply said it was inspired by a certain cultural tradition. I think the real challenge here is, number one, that Prada did say it is inspired instead of saying, as it was, purely source, because there was absolutely no variation on those sandals from what you can buy on the street in this one section of India.

17:31And secondly, that the Indian economy is becoming very important in luxury fashion, and therefore the consumers have a voice. And I think cultural, political, economic pride is much more fierce today from that part of the world than it would have been, say, in the 1960s. Yeah, and I mean, it comes under the title, which can be misused, I suppose, but it is perhaps a bit of cultural appropriation. People saying, hang on, you can't just go around gathering things that are made traditionally and then making money out of them without, I suppose, paying your due to the artisans. Yeah. Well, and look, fashion is always appropriating from, if not other cultures, then other designers, other parts of history.

18:16It's an industry that's built on inspiration as opposed to innovation. That is, to me, less the problem than the marked economic inequities that happen. So this particular sandal would retail in districts in Calipari area for, say,$20 max. Now, if this comes to market and Prada was pre-showing its collection, it doesn't retail the sandals just yet. But if it did, I guarantee you that they wouldn't sell them for less than$600. and they would not necessarily be paying a license or any sort of markup for those original makers. So I think the outrage is really about the economic inequity. I mean, would you say it is unethical to do that?

19:03I mean, you're from the fashion industry yourself. You definitely think that it is right. I would. I would. I would. Normally what I would expect to see on a runway is just what was originally admitted to, that you take inspiration from different designs. They could be from other cultures. They could be from other designers. But then you put a twist on it. Right. Then you do something that makes it markedly Prada. And in this case, there was no twist. Inspiration, not appropriation, I suppose, is what we're talking about. Well said. Pauline Brown there. Jennifer, I mean, it's an interesting area where things have been taken.

19:37And they have been over many, many years from perhaps places where they were traditional and suddenly put on a runway, in this case, in Milan and claimed or in some way claimed by the fashion house that puts them out there. And they make an awful lot more money, of course. Oh, yeah. I mean, there are countless incidents of fashion houses making that faux pas, especially in China. I think it was Dior again with the skirt. It was a Ma Mian Qun that they had. They said that this was explicitly a Dior silhouette, I believe. That's how they promoted it. And then somebody identified it and said, no, no, no, no.

20:16This is from, I think it's from the Song Dynasty. They were saying that comes from some village that they were very upset about. And of course, you know, you heard people say there are boycotts. But I don't really know exactly how long that actually lasts. In China, it kind of just, you know, comes in waves. And then eventually people kind of fall back into it. But, of course, that's a separate issue altogether. But now Chinese people are spending a lot less. So, you know, overall luxury sales are down. Yeah, and I suppose, Peter, one of the things about this is everything's probably been done somewhere at some time before.

20:50Well, that's right. Yes, that's right. I was at the Hirshhorn Museum in Washington this week, and I had a tour. where they do restoration work and where they do preservation and they archive and so forth. And they said in curating collections, they talk to the artists if they're alive, you know, dealing with contemporary art, as to how they are playing off of other artists, how they're in, quote, conversation by being inspired by each other. So think about all the classical buildings in London. You know, they were inspired by the Greeks. That's different, it always is, than just copying what someone else does, which is plagiarism.

21:30Well, that's really the key of all this, isn't it? I can't say that I have to see the Indian sandals that are being sold in the street next to these Dior sandals. Well, they're Prada sandals. And the Prada people have actually acknowledged. Prada sandals to see what's going on here. Well, they've acknowledged that. They've interacted with the Maharashtra people. They're effectively saying, well, yes, this is what that is or it's similar enough. That's silly, I mean, to just take them that way. There's no need to do that. You know, you can always do variations. Yeah, you can, but I suppose it's maybe, Jennifer, is it a lack of inspiration by the designers themselves in a way that they feel the need to take it from somewhere else rather than, you know, highly paid as they are, come up with something original?

22:14I think it could be just a case of people feeling, you know, a bit entitled when they travel. They feel inspired and they just kind of just fail to say where they got the inspiration from i mean in china at least from chinese designers it's a lot less of that in fact they have to fight the opposite which is that they have to show that they are um you know doing something quite unique or worth that extra price they actually show that they have to really make that very clear yeah they do they do and they couldn't just say pop up with the chinese design because people will say well i mean why am i paying the extra premium.

22:50So it's different for, you know, in China, the way that people approach business sometimes is that they don't, I mean, yes, there is this argument that, okay, they don't respect IP and all of that. But part of it comes from that whole communist background, right? When it was a planned economy, nobody owned specifically anything, even artists and their art were state owned by the state, because they were, you know, being taken care of by the state, their salaries came from the state. So everything was kind of public. There was no concept of, okay, this is mine. That's only come recently, especially with high-tech companies and stuff like that.

23:28But fashion, I mean, gosh, you should just go on Taobao and see how fast those copies come on. But the thing is, you find something, you put a label, like a Prada label, and suddenly its value enormously increased just because of that. So almost nothing to do with what the actual thing is itself. The strange world of fashion. Right. Well, in the next part of the program, and we're going to go back a bit more to the trade talks and trade issues across the world. We're going to find out what Japan is doing in negotiating with Washington. We'll talk about that when we come back here on Business Matters.

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24:43Welcome back to Business Matters with me, Roger Hearing, and my guests today, Peter Morisi and Jennifer Pack. Now, earlier in the programme, we were talking about the problems facing global supply chains. And those problems, of course, include the tariffs. President Donald Trump's announced and changed several times the taxes payable on goods being brought into the US. The idea, he says, is to get other countries to negotiate trade deals with the US in which many of the tariffs would be diminished or potentially would be. One of the big deals being discussed right now is with Japan. Now, how is that going?

25:16Joining me is Tobias Harris, founder and principal at Japan Foresight in Washington. Tobias, thanks for being with us. First of all, where are we in the process? Well, the clock is ticking because we now have a July 9th deadline. line, and this is not just for Japan, for all countries, for the suspension of the tariffs that were imposed or announced on Liberation Day and then subsequently suspended. Japan has been near the front of the line in those negotiations. They've had seven rounds of talks, and it does not look like things have really progressed to the point where they're close to getting a deal done.

25:52So what are the main sticking points, really, between the US and Japan? well in one way of thinking about it is that the main sticking point is automobile tariffs so before those liberation day tariffs of course the u.s government imposed 25 percent tariffs on imported automobiles and auto parts given that automobiles are roughly a third of japan's exports to the united states basically the japanese government said that that's unacceptable and any agreement we reach has to have some concessions from the U.S., if not the outright elimination of those tariffs. And so that really is the main sticking point.