How vulnerable is our supply chain?

Hosted by Christina Ruffini and Sir Richard Dearlove

Guest

Brian Wenck

Brian Wenck is the CEO of Flat World Global Solutions, a global supply chain and logistics firm.

Episode Summary

The global supply chain has taken a battering since COVID. But it’s not just about how long you have to wait for your Playstation - the disruption to global trade has illuminated how dependent we all are on other countries for necessary goods. It’s a reality that could also have national security implications, as many countries in Europe who rely on imported gas from certain hostile counties in their neighbourhood, are swiftly finding out. Brian Wenck, the CEO of Flat World Global Solutions, a global supply chain and logistics firm, walks us through the butterfly effects of supply chain disruption - why China shipping PPE to Africa and America meant that Europeans couldn’t get their electronics for months. And co-host Sir Richard Dearlove joins us to explain why all of the above should give us concerns for our national security too.

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Transcript

INTRODUCTION

Mcfarlane: You're listening to One Decision. I'm your host, Julia McFarlane. Many of us may have never spared a thought for the complicated and intricate system that is our global supply chain until, of course, that fine day in spring last year when a tanker ship called the Ever Given got stuck in the Suez Canal. That one incident sparked a chain reaction, causing devastating interruptions felt around the world. The perfect illustration of how delicately balanced that complex web of trade and transportation powering our modern life really is. The supply chain has taken a battering these last two years. As economies started to reopen after COVID and consumers slowly returned to some of their old patterns, global production struggled to meet the demand. China, the world's workshop, is still hamstrung by lockdowns, shuttering factories and businesses. The explosion in remote working, demand for electric cars, and the devices that got us through lockdown has caused unprecedented demand for electronic chips. And if you thought this was a crisis that just meant you couldn't get your son his PlayStation 5 for Christmas or you have a ludicrous eighteen month wait for your new electric car, I have what may be alarming news for you. This crisis has national security implications too. Perhaps influenced by how much chaos global trade is currently suffering, lawmakers in the US have now voted to block a possible strike by railway workers that could have potentially devastating impact on the US economy as we enter the run up to Christmas. That bill now heads to the senate for approval. Well, someone who knows all about the supply chain crisis is Brian Wenk. He's CEO of Flat World Solutions, a global supply chain and logistics company. He sat down with us at One Decision to talk us through exactly why the supply chain is in crisis mode and what it means for all of us.

INTERVIEW WITH BRIAN WENK

Mcfarlane: I want to get right to it and ask you firstly about the destabilization of COVID. I just wanna read you something from the New York Times last December. The turmoil has revealed how the need to ship surgical masks to West Africa from China can have a cascading effect on Ford's ability to put backup cameras in its cars at factories in Ohio and delay the arrival of Amazon Prime orders in Florida in time for the holidays. I wanna note, I found it very interesting that the New York Times, they didn't even have a logistics reporter before COVID, and now they do, given how this issue has really come into the forefront. So Brian, to start off with, give us an upsum, an illustration from your point of view of what the pandemic did to supply chains around the world.

Wenk: It's a great question. So a supply chain by definition is a chain. Right? And it's the lengths of activity that make something that gets done over here actually become valuable or have an impact over here. For many, for most companies or organizations, it's a single length of chain. So if something gets made over here, all these activities take place, and it gets utilized over here. But in the economic sense and certainly in the global sense, that chain is actually a big loop. So your article speaking to how one thing happening over here impacts whether or not my wife gets her Amazon packages on time for Christmas is so accurate because all the links in that chain are used continually. Right? The containers or the planes or whatever they are from here to here. But that plane's coming back with something else. And so if all of a sudden it stops like it did with the pandemic and things stop, the dependability of having access to a plane or a train or a truck or a boat, if all of that stops, the cascading effect of that impacts everything. We were importing an FDA regulated good every day from England, from Heathrow, and it would come into the US. It would be cleared through customs, and we would do the sort. We would do everything and get it direct to the customer the next day. And the process was extremely streamlined. The organization that we were working with and ourselves had done everything we could to lean it out to be as cost effective, as timely, as dependable as could be. But here's the kicker. It was all flying in the belly of a passenger plane that took off every night from Heathrow coming into Chicago. The day the pandemic stopped those flights, the day that people stopped traveling, there was no need for that flight to happen. And suddenly, all the people that relied on Flat World to process and get those FDA regulated goods in, there was no plane to do it, and they didn't have the goods. And the impact of that down the road, now that we're two years later, is that client no longer operates in that manner. They now have near shored their facility to take care of those goods, being manufactured, processed, and created here in the US. And it's just become much more cost effective for them to get the variability of that whole supply chain from UK to the US out of the mix and do it locally. So getting back to the whole impact of the supply chain on a global basis, it all continues to move. And if one of those links stops or is unavailable, the ratchet effect down the road just continues.

Mcfarlane: That's so interesting. I mean, just one point from that is I had no idea actually that passenger planes were used for commercial transport. I just assumed cargo planes were what ferried goods from country to country, but passenger planes also take trade goods between nations.

Wenk: Absolutely. I won't say all that. I would say the majority, the far majority of the belly space on at least Transatlantic, Transpacific passenger planes are actually carrying cargo, parcels, some mail, whatever it might be. But it's cargo in there, not just suitcases for passengers. Had you and I run into each other at a cocktail party in the middle of the pandemic, that may be something I'd be sharing with everybody too because all of those flights just stopped. They just didn't happen. I'll give you a different example. We were importing direct to consumer goods from Asia that totally relied on us finding the best available flight, whether it was United, whether it was Delta, whoever it was who had space available, that probably happened two, three times a week. Well, those flights dried up. That entire way of doing business has sort of been put on hold because when those flights came back, there was such limited capacity that now everybody's fighting for that capacity. The price point is so high that it makes it no longer viable for that particular client to use that particular solution anymore. So there is certainly a ton of, not to use that as a pun, but a ton of traffic that moves on cargo planes and charters. The largest plane in the world, and I think we chartered that five times over the last eighteen months, I think it actually is a Ukrainian plane, the Antonov, but I do believe it was the Russians who ended up blowing it up. So it was at an airport that was attacked by Russia, and nobody will be using that plane anymore, unfortunately.

Mcfarlane: Gosh. Everything is interconnected. I'm struck by your use of a loop in order to sort of illustrate the supply chain. And something that struck me when I was reading on this topic was how profound the crisis over shipping containers were during the COVID pandemic. And that was due to the fact that China was the biggest exporter of PPE, of personal protective equipment. And of course, every single country in the world had unprecedented demand for face masks, for gloves, for all of those things at the same time. And so China began exporting PPE everywhere at the same time, and that led to a huge shortage of shipping containers in China, because that had sent these container loads of PPE everywhere, including to countries that it does very little trade with such as parts of West Africa. So until all those containers started coming back, China had no shipping containers with which to send even more of its goods. There's also been the issue of truck drivers is another global shortage that is causing huge amounts of delays. The fact that a lot of truck drivers are retiring and not being replaced by younger workers, because it's quite grueling work and has been historically quite low paid. What are the bottleneck stresses that concern you the most at the moment, whether it is the shortage of shipping containers or delivery drivers? What would you say at the moment is the weakest links in the chain that give you the biggest headaches at the moment for your firm?

Wenk: You know, it's interesting. I was raised overseas. I actually, I went to high school in Singapore. So my first job out of high school in Singapore was accounting administrative clerk to just really count how much, we call them crosses, but they were a part in the automotive industry to hook the drive chain together. They were made in Malaysia, brought into Singapore, and then they were shipped out via container. And my job back then was just to make sure they had the right amount in them for the right weight. But what always struck me was those containers were going from Johor Bahru through, where you get on a ship in Singapore, and it would end up somewhere in a manufacturing facility in Iowa, which was where I ended up ironically going to university. But so I always kind of paid attention to how that worked. But that container then would be put back on a train, returned back to get all the way back at some point to Malaysia where it was refilled again and sent out again. Your point about the PPE, that's very valid. One of the biggest causes was there was no situation where people were prepared to receive that PPE to distribute those goods in many, many, many countries. Right? But the hiccup in the chain is people. If all of a sudden that container gets to a facility, a distribution network that's been shut down for seven days because of COVID, now that container is gonna have to sit and wait to be unloaded for seven days. And while that might not seem like a lot bigger, that puts it seven days farther back from being available to be filled by something else to go somewhere else to ultimately get back to Asia. And so while we were dealing throughout all of COVID with the stopping of economic activity either because of the COVID itself or maybe government regulation, i.e. China's current no tolerance policy, they just shut things down. The truth is, when it got back up, there wasn't enough people wherever it was going to to get cleared. There weren't enough truck drivers to get it all off the Port of Long Beach and to get it over to the railroad and to the drayage. And then when it finally gets to the rail yards wherever it's going, those railroads were so backed up that it was all backed up. This took literally eighteen months. We're still unraveling some of this. And then just frankly, one of my conflicts today has been we were worried about having a rail strike, which was gonna compound it even worse. Right? So what we did learn, and you asked me a question about what's our greatest issue today. What we did learn is we do have the ability to pivot and to figure out how to handle these things and to get past them.

Mcfarlane: That's really, really interesting. Something that has got a lot of attention is chips, the international chip shortage. Taiwan is the overwhelming provider of all the world's chips, whether it's the chip that goes in a computer or a PlayStation 5, which I think is probably doing very well on the black market, given that you can't just go into a shop and buy one, even though it's been more than a year since it launched, which is crazy in this day and age. And also cars, the delay for buying electric cars at the moment, we were looking at possibly switching our car for an electric model a few months ago. And we were told that there was an eighteen month waiting time. One car salesman who also moonlighted at Land Rover told us that he had just sold a fully specced up Range Rover to a man who had paid more than £200,000 for his car. And by the time he would eventually get it, there would be another newer model and it would have immediately been dated. Talk to us about the global chip shortage and how that's affected you, if it's had any crossover with any of your business and what you think is gonna happen in the near future if it's going to be resolved anytime soon.

Wenk: It's interesting. I mean, the chip shortage has not impacted any part of anybody's economy or business right now. 87% of semiconductor market comes from China, Taiwan, or South Korea. That's 87% of the semiconductor chips that go in everything from your iPhone to the cars you reference to the washing machine to the computer printer, whatever it is. It's all coming from those three locations, those three global entities. Right? And that's why we're all part of this global supply chain that we've gotta deal with. So I mentioned to you about the auto manufacturer where we were bringing in product to be used in their just in time manufacturing of the autos, but then they had to shut down. Well, now they're back up and running. And the majority, there are fleets. If you ever go to Dearborn, Michigan to the auto manufacturing area, there are fleets of cars sitting out there that have been built, are totally ready to run off the line, but they're waiting one or two small pieces of which one is probably a chip. So the plants have continued to go. People have actually bought them. Your friend has purchased a vehicle. Right? And it could already be manufactured. Tires on it, painted, ready to go, looks sharp, but it still can't go out the door because they don't have the chip. That's happening everywhere. And I think the latest thing I heard about the iPhone is now that they're migrating and having those manufactured in India where they're gonna have chips made in India as well. So that's just part of us being a global economy. We spent the last, I've said it twice now, but spent the last twenty five, thirty, fifty years becoming a global economy. And when something happens on the other side of the globe, it's gonna impact everything around it. So that example of how things have just completely changed overnight.

Mcfarlane: You mentioned earlier that something that you are having to factor in is things like rail strikes, and you've also mentioned countries that have zero tolerance policies such as China, and of course, the zero COVID policy has resulted in a huge amount of disruption because it's put so many factories and manufacturing plants on hold in China, and that of course has had huge impacts everywhere. Will we likely see more demand for manufacturing and supply chain businesses in more stable nations? And yet, while asking you that, I don't really know what counts as a stable nation these days because Europe is having a rocky time. The UK has had Brexit and a very harsh COVID experience that resulted in a lot of protracted lockdowns compared to other countries. And also right now, we are racked with civil disobedience left, right and center because there's a lot of strikes across our industries. It's causing a lot of disruption. There's rising protest movements everywhere. So you mentioned that a lot of companies are trying to onshore a lot of their processes. You mentioned Texas is trying to start building towards having the ability to manufacture their own chips. Do you think that that is a pattern that we might start to see coming forward?

Wenk: I think it's one of the options. We talked earlier about risk and risk mitigation, and I think that all organizations are looking how to mitigate the risk within their supply chain. I think near shoring is also important. Cost differentials are not nearly as much as they used to be between around the globe versus just in Mexico. And so I think there are many things that are being done to minimize that risk. Higher inventory levels, you touched on inventory before, that's kind of what I was speaking to when it comes to our investment in DCs near ports, figuring out how to regulate and have multiple manufacturing or supplier vendor locations, which might cost a little bit more. You're not buying them maybe as big in bulk, but you now have alternate sources of goods coming in. So I think I would agree with you that reshoring and near shoring are both parts of the strategy, but I think, and I do this with our own business, to be honest with you, there's never just one answer to replace the answer that didn't work. You always need to look beyond that and say, maybe there's multiple viewpoints we should be looking at on how we address this issue, or this gap, or this failing that we had. It's not just supplanting one for the other.

Mcfarlane: Fascinating. Fascinating. That was a really interesting conversation, and it's so great to have a firsthand account of the scale of the issues. I hope you're in for a smoother ride as the months and years come. Although I don't hold out hope that our world is gonna be any more relaxing, given the current trajectory of recent events.

Wenk: While it's been stressful as hell, I will tell you that it's been a pretty exciting time because for a long time, people didn't really think about the global economy. I mean, it was always a cool topic, but it never really came as much to people's right in their face as with the pandemic. And suddenly, they were faced with what does it mean when somebody in Asia or somebody in Hong Kong can't do their job, and how does that impact, to your point, the person who's trying to get their Amazon packages in Florida? And so while it's stressful, it's pretty cool to be part of it.

ANALYSIS WITH SIR RICHARD DEARLOVE

Mcfarlane: We turn now to my cohost, Sir Richard Dearlove, who knows all too well that disruption to our just in time supply chain can cause pandemonium if any of the links in the chain fails. With a country like the UK, an island that imports almost half of the food it consumes, any disruption to this delicate operation can very soon go from a logistics crisis to a political and even security crisis as well.

Dearlove: Well, it certainly occurred to me because I think I had sort of experience professionally of being aware of the extraordinary vulnerabilities and our dependence on complex networks which globalization created. And the other point, which I think is crucial in looking at these problems, is that so many industries, so many of the basics of life are built around just in time supply chains. What I mean by that is there's virtually no redundancy. There's very little storage. And even where there is storage, there are huge problems of maintenance, durability, keeping them up to date. And we live in a world where we've taken this hugely for granted, and we haven't really been forced to consider how quickly they can break down. I mean, I can give you an example, which I think is a very good one, which some people will remember. It was certainly when I was in my previous career. The tanker drivers strike where the whole supply system for gasoline and diesel and heating oil completely broke down because there's an effective tanker driver strike and then an effective picket on the points of distribution. And it turned very, very quickly into a major domestic emergency. It happened whilst Blair was prime minister. And it was a taste of the absolute chaos that can be caused very, very quickly when essential supplies in particular are not rolling.

Mcfarlane: That was, I believe, that was in the year 2000, and the headlines are quite cataclysmic. NHS put on emergency footing, army ambulances deployed, post, banks, buses, food threatened, Britain grinds to a halt as Blair's pleas are ignored. Now it's said that he refused to rule out the use of troops or the recall of parliament. I mean, how much could this sort of thing constitute a risk to national security?

Dearlove: Well, I think it's exactly what it does. Well, all I'm gonna say is that one had to put together teams of people who had the ability to think creatively, to try to compensate for the disruption. Although it was nothing to do with my job at all because I was not involved in, as it were, domestic issues. But I did in that instant get sucked in and had to literally help number 10 put together all sorts of emergency arrangements, which worked reasonably effectively in mitigating the major impact. But it was a very, very good illustration of just how desperately sensitive these supply chain issues are. But I mean, I think looking back on my life, because you should see this in perspective, I was brought up in a village in which there were basic supplies available, but none of the infrastructure that one later in life took for granted was there. There was one telephone box in the center of the village. No one had telephones, there was certainly no information technology to communicate with. A lot of food supplies based on swap and subsistence with local farmers and local producers. Food was largely seasonal. And what was interesting about that type of situation is you were very vulnerable to outside interventions because the community had learned how to live on its own. And, for example, most houses baked their own bread, there was a lot of butchering done on the farms. It was just a different lifestyle. I think people forget how recently our lives became so complex and sophisticated, and certainly during, let's say, the high point, the high tide of globalization, we've depended massively on just in time supplies which are containers, as you so correctly put it, arriving and delivering the goods and going back to their point of destination to fill up again, and they are loops. And the moment that loop's broken, things start going desperately wrong.

Mcfarlane: You paint such a bucolic, nostalgic picture of World War Two subsistence. But going back to what you were saying earlier about your previous parish, that's really interesting because as you say, wouldn't have thought that MI6 had anything to do with those kinds of domestic issues. But was it more all hands on deck kind of thing because it was such a crisis?

Dearlove: It was all hands on deck. I had a close personal relationship with the prime minister, and he basically said help. And I think we all anted up people who we knew were capable, who could help and could stitch together sort of emergency arrangements. And that's what we did. It had nothing to do with my professional responsibilities at all. It was just that I was in a group of people who, well, everybody was so affected by that. And I can't think of a more, well, apart from COVID, I can't think of a more disruptive industrial event in terms of the day to day life of everybody because everyone was so dependent on fuel supplies.

Mcfarlane: Right. So that's interesting. COVID was accidental, more or less. The strikes that you mentioned, they were not accidental, but perhaps the damage caused by them was a byproduct of the strikes. So the question I have for you is how would one, in theory, go about deliberately attacking a supply chain? And we've seen recently the Nord Stream attacks. Earlier this month, the Swedish prosecutors came out with a statement saying that traces of explosives had been found at the sites of the multiple leaks from the gas pipelines, and that that happened back in September. But this month, the Swedish prosecutor said that they could now confirm those leaks were the result of sabotage. And, of course, we don't know who did it, but everyone suspects it was the Russians. We also saw earlier in the Ukraine Russia war, something that we talked about with Brian Wenk, the world's largest plane, the Antonov AN-225, a huge, monstrous plane. It was blown up by Russian airstrikes as it was sitting in an airfield near Kyiv, and the Ukrainian foreign minister accused the Russians of being behind the strikes and of deliberately blowing up an important symbol of Ukraine and Ukrainian exceptionalism. The Ukrainian state defense company that managed the plane said that the aircraft had been totally destroyed and it would be rebuilt at a cost of, I think it was 3,000,000,000 US dollars over a period of five years. So how would one, particularly as we've seen so much of this damage in recent years, how would any hostile actors, non state or state actors go about weaponizing this kind of destruction?

Dearlove: Well, I don't want to give people ideas. So it is quite a sensitive subject in a way. But you look at a country's critical infrastructure and you look at the key points for vulnerability and you look at how well protected they are. And, of course, there are all sorts of ways and means now of taking them down. Okay. You're watching the war in Ukraine. You can see the Russians trying to take down Ukraine's power and water infrastructure and hitting the substations and knocking out towns and cities and all sorts of ways and means. And, of course, the other thing now is that most bits of critical infrastructure are cyber controlled. So you're going to look at people's cyber defenses and whether you can actually get inside their systems and if they haven't got good security then you can cause chaos pretty damn quickly. And there are lots of famous incidents where one is seen accidental or natural events. I mean, there was a famous ice storm in New England which took out massive amounts of the critical infrastructure. And for example, everything pretty much shut down because barcode readers wouldn't work, bank machines stopped paying out, and that lasted for four or five days. It was one of the, because it took down so many of the power lines, so many of the substations were knocked out. And there was another incident, I think, in New Zealand where the main power cable to Christchurch, I think it was, one of the cities in New Zealand was cut in a manner that was difficult to repair, and that caused absolute chaos. So you've only got to look at nodal points and critical points, but I think that in response now a lot more attention has been paid nationally to protection of critical infrastructure and for example in the UK we have a much more developed system than we used to for protection of critical infrastructure and GCHQ's protection of the nation's cybersecurity, particularly as it relates to the operation of critical infrastructure. So I think these issues are pretty well known and understood. And you probably may not recall this, but the IRA or the provisional IRA during their bombing campaign started looking at things like gas works and bridges and other sort of nodal points in the economy, not to kill people so much, well they didn't seem to care much whether they did or not, but to take out critical infrastructure and therefore have massive sort of knock on effect over very large numbers of people.

Mcfarlane: Richard, how can we protect global supply chains from attack, not just in terms of cybersecurity? Is it a case of, as described to us in the course of the interview, more firms onshoring parts of their production and manufacturing process and moving everything closer to home so that there isn't this long chain of vulnerability managed by all of these digital systems which are vulnerable to cyber attack as we've been talking about.

Dearlove: Well, I think the lessons of COVID and the lessons of, let's say, a more adversarial relationship with China and with Russia are that when you get to bits of the economy which are critical to national security or national survival, then you're probably going to onshore. And I think the days have passed when you are willing to depend on a supply chain from a country which isn't necessarily an enemy, but certainly isn't a natural ally because that increases your vulnerability and we've seen how that can operate. I think it creates huge difficulties. And I'm sure that in the United States there's a lot of onshoring and recently you will have seen that chip company in Wales owned by, I think it's Nexperia. Two years ago I wrote to the government about my concerns of that being owned by a Chinese company and okay, now at long last we have an outcome and it's not going to be owned by a Dutch company with a majority Chinese shareholder. So it's going to remain in the UK hands, which I think is incredibly important. And we've seen this happen obviously, the whole business of 5G in terms of the national infrastructure for the mobile telephone network. That was an incredible example. I just can't believe that we ever got so far in planning it and would have allowed it to be a contract handled by Huawei. But people came to their senses, which is very reassuring.

Mcfarlane: I just wanna go back to the UK. We in the UK, we're an island, so we can't really onshore a great deal of what we need and what we consume and what we rely on, whether it's medical supplies or groceries, electronics, energy, even our work force. We need all of that from overseas. So would you say the UK is especially at risk from hostile interventions when it comes to our supply chain? And do you think, given what you know and understand about how our government works, that we are really at speed with the risks and the mitigation we need to take in order to secure our supply chains? I mean, there were headlines of Michael Gove carrying out these sorts of war game scenarios where Brexit might have caused some of our ports to shutter to a halt, and what the ramifications of our just in time supply chain, what the consequences could be if it were ever disrupted or blocked. Is there a government department that is responsible for wargaming or hypothesizing or predicting what happens when, let's say, our national grid goes offline, or if air traffic control gets shut down, or if all the systems which govern our ports and airports, if they get taken offline. What government department is in charge of looking at, first of all, what happens when that happens, and what are the subsequent knock on impacts of that? And what are the backup, get back online sort of protocols and scenarios?

Dearlove: It's interdepartmental because those problems are complex. So what you're looking at is a role for the cabinet office, and the cabinet office, which let's face it, is the prime ministerial department in government, which is staffed by seconded civil servants from all sorts of different parts of government. And if there's an emergency like that or if there's a growing emergency, growing concern, it's going to be a COBRA, which stands for the cabinet office briefing room, whatever it is, we'll come together. And, I mean, obviously, during the Cold War, there was a whole infrastructure that existed, which could be wheeled out in the threat of war. I don't know. A lot of that really was dismantled and went by the board. It's interesting to speculate now with war in Ukraine and nuclear threats being made by Putin, whether some of that's being put back in place. But we have neglected over years the sort of Cold War infrastructure, which was emergency government and where you went and when there was a threat of nuclear war, and it was all very highly secret and highly classified. I think a lot of it now has come out in the public domain. There are books written about it, and people have visited the installations that were built and all of that sort of thing. But it's been run down and it hasn't been used. But I wouldn't be at all surprised if there's a government committee now sitting and considering what might need to be recreated or what might need to be put back in place.

Mcfarlane: I think that's really fascinating. I'm sure the queen has a, oh, god. We can't say that anymore, can we? I'm sure the royal family have their doomsday scenario plans, but the rest of us need to get to grips with it as well. I think that's really intriguing, interesting thought, if a bit gloomy to end on.

Dearlove: Well, once upon a time I was part of all of that in my previous life, but it didn't interfere. Maybe once or twice a year something happened which reminded you that all this stuff was there. The probability now is that it's been dismantled, but I would say there's probably some consideration about recreating something.

Mcfarlane: That's it for this episode of One Decision. If you enjoyed this conversation, why not subscribe to our podcast so you never miss an episode? We have new drops every Thursday. From me and the team, thank you so much for listening. See you next time.