Supply Chain Blues

Yes that's right it's the second episode this week. I've started publishing interviews separately so that the episodes don't get too long. In the coming weeks we’ll hear about the sustainable search engine, about using AI to irrigate crops, how members of the World Cement Association aim to cut their carbon footprint and solar energy generated without solar panels. If you become a patron at patreon.com/sfr you’ll never miss an episode and always get them in advance of general release.

No. 7

I hear we’re No.7. Feedspot announces that the Sustainable Futures Report comes in at number 7 in the top 25 UK sustainability podcasts. Thanks for your support, but I’m sure we can do better. Let’s get the listeners in - tell your friends!

This week

And so to this week’s episode. Short-termism, Black Swans, supply chains, energy. Is just in time just too late?

Day-to-Day

The Sustainable Futures Report is generally about what we need to do by 2050 in order to have a liveable planet in 2100; for those of us who will still be around. Suddenly day-to-day sustainability is concentrating everyone's mind. There are disruptions to supply chains in the UK and in Europe as well. Global energy prices are having a dramatic affect across the world. Led by gas, they directly affect consumers in the northern hemisphere as they prepare for winter and turn on the central heating. Other fuel prices are rising too. Crude oil at $80/barrel is double what it was a year ago, though the effect doesn’t seem to have fully reached the pumps yet, at least in the UK. I’ll talk about the prospects for oil next week.

UK Problems

Things are difficult in the UK because of Brexit. New customs regulations, even though not yet fully implemented, are causing delay at ports and causing shortages of food and other goods in the shops. A shortage of tanker drivers is only part of the distribution problem as it’s estimated that the industry needs 100,000 drivers. Not sure where that figure has come from since the ONS Annual Population Survey reports that while there were 321,000 drivers in March 2017, we still had 275,000 in March 2020.

European HGV Drivers

Some drivers have gone back to Europe and will find it difficult to return to work in the UK, despite a short-term visa scheme introduced by the government. Drivers based in Europe are also increasingly reluctant to cross the border into the UK because of the risk of delays and because the new regulations may prevent them from carrying return loads. New tax regulations mean that some drivers are now taking home half what they earned before. That’s a disincentive both local and overseas drivers. With the sharp increase in online shopping there’s a big demand for local delivery drivers, and at least they get to go home at night. Long-distance truckers spend many nights sleeping in their cabs, often in lay-bys with no food or washing facilities. There are not nearly enough truck stops, and many of those that exist in the UK are rundown and squalid. All-in-all not an attractive proposition for new jobseekers.

Fewer HGV drivers

According to the ONS, between March 2020 and March 2021 the number of HGV drivers in the UK declined by 29,000 or 9.5%. All age groups fell by similar proportions, but the 35-49 cohort was significantly smaller than the number of drivers aged 50 and above, indicating that the problem will get worse as these drivers retire unless the recruitment rate increases significantly.

Just in Time

We have a UK problem with distribution, but we are certainly not alone. The whole world has adopted the just-in-time policy across all supply chains. It makes a lot of practical and financial sense. If suppliers can deliver product or components just when you need them you can minimise your investment in stocks and avoid the costs of warehouses. You can avoid the losses from food going off in store, or toys or clothing or other things going out of fashion. Major retailers can be ruthless, passing the risk back to suppliers by cutting orders overnight if demand does not meet expectations. At the same time they expect suppliers to step up and meet increased demand equally quickly. Now we are in a situation where just-in-time becomes just-too-late.

Motor Industry

The motor industry is an example of precision scheduling where a range of components comes together just in time to build a car. The industry does not make glass, or tyres, or oil, or leather or touch screens or computer chips or a myriad of other things. But if any one of these components from outside suppliers is delayed the production line stops. Computer chips have been in short supply in recent months and car manufacturers have had to slow or cut production.

Apple iPhone 13

This week Apple announced delays to the iPhone13 as a result of chip shortages. It’s estimated that it will lose 10 million units out of a planned 90 million. It’s not just these high profile companies that are affected. Wikipedia estimates that 169 industries are suffering from chip shortages.

Reasons for Shortage

There are several reasons behind the problem. During the pandemic some companies misread demand. They thought that during lockdown people would not be buying home entertainment systems or white goods, so they stopped buying chips. Meanwhile, the spread of homeworking stimulated demand for laptops and other electronic equipment which took up the supplies. A trade war between the US and China means that China cannot buy US-manufactured chips and so sources them elsewhere. Then there was a completely unseasonable winter which caused chaos in Texas and disrupted supplies from factories in that state, a drought in Taiwan, the world’s leading chipmaker, which needs large amounts of ultra-pure water for the manufacturing process and a fire in a Japanese factory which supplies 30% of the global market for microcontroller units used in cars.

Continuing Shortages - 2023

Ola Källenius, Head of Mercedes-Benz, says he expects the effects of the shortage to continue into 2022 and 2023.

Look around at the electronic items that you use. Actually, don’t think electronics, think electric. Almost anything you have which needs to be plugged in or has a battery will have a chip in it, from a mobile phone or laptop to a washing machine or toaster, not to mention the car. Let's just hope all of these things keep working and you don't need replacements in a hurry!

Black Swan

Some would argue the chip shortage was unforeseeable like the COVID pandemic. You could call it a Black Swan event: something which looks perfectly reasonable in hindsight but nobody saw it coming. Maybe people would claim that the Suez Canal being blocked by the Ever Given in March was a Black Swan, but I would find it harder to accept that. As ships get bigger and bigger the margin of error in passing through the canal gets smaller and smaller. Last month another ship ran aground. The consequences were much less serious and it was cleared up relatively quickly so it didn’t make the headlines, but it shows it can happen again, even when everyone is on their guard because of the chaos in March.

Long Chains

International supply chains are now so long that one broken link has international consequences. Organisations and governments should be constantly scenario planning to assess risks and develop Plans B to minimise the consequences when things go wrong. Did anyone think that a shortage of HGV drivers would disrupt international shipping? This week ships have been diverted from Felixstowe to Rotterdam. There are not enough drivers to take the containers away from Felixstowe so ships can’t be unloaded and other ships cannot get into port. Containers will be unloaded in Rotterdam instead and will have to be loaded on to smaller ships for delivery to the UK. Double handling, extra cost and delay. On top of that, the cost of shipping containers across the world has risen since the start of the pandemic by as much as four times. The OECD warns that this will drive up inflation in the G20 countries.

Consequences for the Climate

What’s all this got to do with sustainability and the Climate Emergency? Somebody once said that when you are up to your elbows (or something) in alligators, it’s difficult to remember that your objective was to drain the swamp. If global governments and corporations are overwhelmed by short-term alligators they are going to lose focus on longer term issues like the climate, even if it’s vastly more important. Will this limit the outcome of COP26? Many people fear that it will.

And so to energy…

Energy, when has there not been a story about energy? This week I look at Chinese coal, British biomass, Australian hydrogen, and projections from the IEA.

China cuts coal station plans

In advance of COP26 China has announced that it will abandon plans for building 43 coal-fired power stations overseas. It will not stop building coal-fired power stations at home and continues to rely heavily on coal in the face of an electricity shortage, in spite of worsening air quality in major cities. As Jason Szeftel told the Sustainable Futures Report back in July, the Chinese government is desperate to keep the economy running and to keep the people employed or else face discontent and civil disobedience. The Guardian reports that up to 20 provinces are experiencing outages, with local blackouts and factories on short time. Railways and miners are urged to speed up the flow of coal.

China 2060

China has set itself the target of achieving net zero by 2060 or earlier, a full decade later than most other countries. S&P Global warns that to achieve this they will need to fundamentally revamp the nation’s power generation and distribution systems. The Chinese Society for Electrical Engineering has prepared a roadmap which indicates that China will still depend on coal and gas for 20% of its power mix in 2050.

Biomass

Meanwhile, writing for ember-climate.org, a campaign group calling for the transition from coal, Tomos Harrison lays out the case against Drax. You’ll remember from previous episodes that Drax is the U.K.'s largest power station and has converted the majority of its boilers to run on biomass instead of coal. It claims that its biomass-fuelled operations are carbon neutral and collects large government subsidies on that basis. Indeed, without them it is unlikely to be economically viable. Many people reject the carbon neutral argument on the basis that most of the wood comes from the United States and apart from the emissions from the transport there is a massive infrastructure involved in harvesting and processing the wood.

Drax

Harrison sets out that Drax is the UK’s largest single source of CO2 emissions, the EU’s third largest CO2 emitter among coal plants when biomass emissions are included and one of the top 5 emitters in Europe of PM10 air pollution from power stations. On the Sustainable Futures Report website you’ll find a link to the EMBER website with links to the background on all this.

Share Price

The Daily Mail reported rumours that fund managers Blackrock had blacklisted the stock in response to the EMBER report. Drax share price dropped by over 5%.

IEA - World Energy Outlook

Published this week by the International energy agency, the World Energy Outlook 2021 shows a new energy economy is emerging – but not yet quickly enough to reach net zero by 2050.

“The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” said Fatih Birol, the IEA Executive Director. “Governments need to resolve this at COP26 by giving a clear and unmistakeable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future. The social and economic benefits of accelerating clean energy transitions are huge, and the costs of inaction are immense.”

The world’s consumption of coal is growing strongly this year, pushing carbon dioxide (CO2) emissions towards their second largest annual increase in history.

According to the report, getting the world on track for 1.5 °C requires a surge in annual investment in clean energy projects and infrastructure to nearly USD 4 trillion by 2030. Most of this, it is claimed, will pay for itself. Will delegates to COP26 make commitments of this magnitude?

Oil and Gas and Hydrogen

I'm planning to look at the oil and gas markets in more detail in next week’s Sustainable Futures Report. Before I go, there’s news that Queensland in Australia will soon be home to the world's largest green hydrogen manufacturing facility. Green hydrogen is produced by electrolysis using renewable energy. It’s not clear yet whether that will come from wind or solar, but there’s certainly plenty of sunshine in Australia. It’s planned to use the hydrogen from the new plant for fertiliser production, but potentially there could be many other uses. The key thing about hydrogen is that it’s a store of energy available 24/7, unlike solar or wind.

And Finally…

In the last couple of weeks prices have gone up dramatically at some UK filling stations - £3/litre has even been reported - but consumers have accepted these increases as a consequence of the supply shortage. That shortage of course is imaginary. A lack of tanker drivers meant that the distribution companies had to work very hard to keep all the filling stations supplied. It’s a classic just-in-time situation geared to meeting regular and predicted demand. They were doing very well until a government minister assured us all that there was absolutely no need to panic buy. At that point panic buying started, with people filling jerrycans as well. Accessories store Halfords sold out of jerrycans in days. There was plenty of fuel; it was just that far more of it was stored in cars than usual and until panic buyers stopped buying because their tanks were full many commuters and even emergency vehicles went without. It’s largely back to normal now, but it shows the fragility of the supply chain. Are we going to have to move from just in time to just in case? The cost of buffer stocks will inevitably push up prices.

Travelling in Hope

During these recent fuel problems some motorists even trailed tankers in the hope that they would arrive at a service station about to be refilled. One tanker driver pulled up on a building site and was confronted by a queue of following motorists asking why he’d stopped. “Because this is where I’m making my delivery. This is a load of mortar” he said. “Well you could have stopped and told us!”

And that’s it for this week.

Next Wednesday there’s an interview with Christian Kroll, CEO of Ecosia, the sustainable search engine and on Friday I intend to bring you the usual magazine edition. Two for the price of one! But of course the Sustainable Futures Report is always free to all listeners and is brought to you without advertising, subsidy or sponsorship. I do recognise and thank my patrons who help with the costs of running the podcast by making a small monthly contribution. It’s very much appreciated. Join them at patreon.com/sfr and I’ll give you a shout-out next time.

That’s all for another week.

Who knows what next week will bring?

I’m Anthony Day.

That was the Sustainable Futures Report.

Until next time.

Sources