Always look on the bright side of tariffs - part 2

 Well, at least with a tariff things are merely (a lot) more expensive.  It may lead to some suppliers dropping out of the market, and some products and services no longer being available....  but in theory they just add cost, inconvenience and drive inflation.

A bigger concern, which I think has been there but just not really a major focus of attention, is that China is not only a key manufacturer but a key source of raw materials.  Which they have tight control on.  Through the belt and road initiative they also exert control on some alternative sources of supply.

A particular choke point may be on rare earth metals (physicists joke that they are not rare, not earth and not even metals... but ignore us).

Controlling access to these essential elements used in advanced materials has long been a key Chinese economic strategy - and now they may just turn off the supply to the USA.  And the EU.

Not being able to get things at any price is a bigger problem than higher prices.

A couple of articles here and here.

Good luck out there.

COVID-19 and the complexity of supply chains.

It is a rather unpopular point of view these days, but the world is rather complex.  Things seem very simple on the surface, but rather like a swimming swan, there is a lot going on under the water line.

Our supply chains - basically - just work.  It no longer seems miraculous to us that we have strawberries in January, and can order a coffee spoon from around the world for 90p  (I did.  It came from China via Guadalcanal).

The current lockdown has made us all more aware - many of us can barely remember shortages, let alone for multiple products at the same time (toilet paper, pasta, flour....)  Our supermarket supply chains are so optimised that a relatively small increase in demand (from both panic buying, and an increased demand now that more of us are eating 3 meals per day at home instead of only 2 or even 1) has meant empty shelves.  In classic Inventory Bullwhip fashion, this has lead to people increasing order quantities (as we supply chain folk like to call panic buying) and increased stockholding (aka hording) leading to even more shortages.

The supply chain IS reacting.  But having optimised for efficiency it is difficult to reformulate for effectiveness.  So we have people like the wholesale suppliers (no longer able to supply restaurants) being willing to supply the public - but only providing flour in 12kg sacks.  It will get there.  And may be people may be just a little bit more aware of what a miracle it is.

But a word of warning - you can hardly buy a webcam for love nor money.  And they mostly come from China, and are not likely to be the number one priority as things normalise there.  So, some shortages will continue for quite some time.  Sorry if you intended starting a podcast.

Bidding for HS2

The Chancellor, George Osborne, has attracted a bit of flak for inviting Chinese companies to bid for contracts for the High Speed 2 rail link from London to Birmingham.  A figure of £12bn has been bandied about, and there are complaints that he is being cynical in talking to potential suppliers before the legislation has passed in Parliament and that he should be promoting these opportunities to British businesses rather than Chinese.

Well, he is a very political beast and so we can assume that this is part of a bigger political plan (which appears to be to build better links to China).  From a procurement point of view it probably makes sense.  This is a very big project.  The Chinese have great expertise, having built far more miles of high speed rail than we have in Britain.  However they may not be aware of a decent project possibly happening on a small island on the other side of the world.  I cannot believe that there are any British (or European) potential bidders who are not aware of the project.

So it makes sense to do a bit of pre-market engagement, and effectively fire the starting gun for the competition.  A competition that will no doubt follow OJEU procedures, which will give an advantage to EU companies used to complying with them.  But it will remind them that there are competitors.  Competitors who now will have time to consider whether they would like to be involved when the time comes.  And whether a Chinese company could actually win.  The Chancellor must hope to convince them that they can... whilst fervently (and powerlessly) hoping that they don't.

Politics, eh?  Give me Procurement anyday.