Category Archives: Market Intelligence

Infrastructure Damnation 11: Postal Services

While most Supply Chains don’t run on public postal services, and instead rely on private transportation companies for both their freight and package delivery needs, public postal services are still needed. Why?

Without public postal services, there would be an effective private monopoly in mail and package distribution. While there are multiple private options, without a public body to set baseline prices, there is no incentive for the private companies to be competitive. As long as the private companies thought they could charge more, it is very likely that rates would increase across the board, consistently, until the average company switched to independent bike couriers.

More importantly, without public postal services, the average consumer would not be able to afford to shop online as much as she does now, which would likely lead to an across the board decline in sales for many companies, which would, of course lead to a decline in order volumes and Procurement’s negotiating leverage with its suppliers.

And this is looking like a reality in multiple countries right now. As discussed here on Sourcing Innovation over the last few years, The First World Postal Services Are in Trouble and the, US, UK, and Canadian public postal services are all deep in debt and may need to drastically reduce services in the coming years in order to balance the books and keep in business. Consider SI’s recent posts on the US, UK, and Canadian postal services (including, but not limited to, our posts that asked if the U.S. Post Office Can Be Fixed and Too Bad the US Post Office Did Not Follow Royal Mail’s Lead). They are billions in debt (Canada Post is over 1 Billion in debt exclusive of pension liabilities, the recently privatized Royal Mail has a debt to equity ratio of 91% (which puts its debts at over 1 Billion US Dollars, and US is over 100 Billion in debt (cnsnews.com) when underfunded pension liabilities are taken into account, and it’s not getting any better.

While one may think that this will never happen, as Canada has had its own public mail service since 1867, the US has had a reliable public service since the Pony Express started back in 1860, and the UK has had public mail since 1516 — but we could be just a few years away from the day it’s private bike courier for mail and small packages (and we need a Dark Angel for reliable deliveries). It is likely that Royal Mail is only still in existence because it was privatized (and that postal services in North America, if they do not drastically restructure operations, will have to follow suit).
And while you might not see a large impact to your supply chain, since the 3PLs and trucking companies are here to stay, when your order volumes decline and you have to pay double just to send a contract across town, you will.

Economic Damnation 07: The 1%

“The 1%” was coined in 2011 to refer to the US income and wealth inequality where the concentration of wealth among the top 1% is significantly above the national average. On average, the 1% earn well over a million dollars each year (and the bottom 99% all make less than 350K) and control over one third of the country’s wealth, meaning that, on average, their financial influence is 33 times that of an average person. In addition, the roughly 536 Billionaires in the US have a net worth that is over 10,000 times that of the average household net worth in the US (and in a couple of cases, almost 100,000 times).

And the US is not the only country with such a disparate income and net worth inequality. China has 213 Billionaires in US dollars, and the top one percent in China also controls over one third of the country’s wealth. The wealth inequality has widened significantly over the last 20 years.

And similar situations appear to be arising in other developed countries around the world. A recent article in the Guardian called the growing wealth inequality in the UK a ticking time bomb, the Broadbent institute recently published a report that found Canadians vastly underestimate the wealth gap in Canada, and even the Australian Institute is finding that the inequality between those with the most and the least is rising in what was once universally thought of as an egalitarian country.

This is bad, because it’s at the point where a select view individuals can not only single-handedly make life a living hell for a large number of Procurement professionals in a number of disparate companies across the globe (as Extreme Activist Investors, Damnation 64), but can individually cause a number of economic, infrastructural, environmental, regulatory, societal, organizational, and technological headaches all on their own. If a small group of these individuals buys a Fortune 3000 and decides it’s manpower heavy, they can cause 10,000 people to be laid off in a day in a small town and cause a major shift in the local, and even regional, unemployment rate (and the market who can afford the product being built). They can start new airlines to increase competition (and logistics headaches), or buy a competitor just to decrease competition. They can create new sustainability initiatives overnight, or turn the fracking dial up to 11! They can fund entire lobby groups to get their standards and requirements in place. They can single-handedly make your supply chains safer or lobby against worker’s rights to keep costs down. They can replace your entire Sales and Marketing teams overnight. And they can dictate your ERP for years to come.

The reality is that, in today’s world, Money Talks, and when you can buy and sell 99% of the world’s companies with your pocket change, their money talks the loudest. It’s another damnation we’d rather not know exists, but it does, so we need to be as prepared as we can (and always expect that even the best laid plans can be set awry by the whims of one wealthy individual).

The New China – The New Global Meltdown?

Last year, China overtook the US as the world’s largest economic powers measured by PPP — Purchasing Power Parity. This may have received little attention, as most people focus on GDP — Gross Domestic Product — where the US still has a commanding lead, but since PPP measures the relative value of different currencies, this is a significant metric.

As a result, this places China at the centre of the global economy as any economic decline in China will send ripples around the world. As one of the biggest consumers of natural resource, the success of many global economies depends on the success of China and its need for natural resources.

And this decline may be coming. As per this recent article over on Business Spectator that asked “what can we expect from China in 2014”, not only has the country lost some of its lustre as of late, but this tarnish on the silver has not escaped the watchful eye of the World Bank, whose chief Economist went on record last month stating that the global economy is running on a single engine … the American one. This does not make for a rosy outlook for the world.

So why the loss of lustre after almost three decades of growth? Simply put, with rapid growth in an economy comes rapid growth in the growing pains associated with rapid growth, which typically include burgeoning local and national government(s) (as cities, provinces, and federal overseers struggle to keep up with growth), excess industrial capacity (once the tipping point where there is enough capacity to meet demand is reached), and a stagnant real estate sector (once the majority of the market that can afford their own homes have them). China has all of these problems. But that’s not the reason that China is loosing its lustre, as many other countries, including the US, have these problems. The real reason is shadow banking.

There is a significant amount of local government and corporate debt in China as these local governments and corporations have borrowed heavily from both the banking and shadow banking sectors to finance their growth. How significant? Standard & Poor’s estimates that total outstanding corporate debt in China was around $14.2 Trillion US at the end of 2013, compared to $13.1 Trillion US debt held by American corporations at the same time. And while exact numbers are not known, local government debt has increased an average of 20% over the last three years and the total government debt level in China is estimated as about 54% of China’s GDP — and that’s just the official debt. The real debt level could be higher when you consider shadow banking and private lenders.

Now, this is a lot of debt, but as the level of government debt is not yet at the level of US national debt or UK national debt which exceeds GDP, it’s not alarming — yet. But it’s enough to cause the World Bank and International Monetary Fund to think twice about China’s rating and if China decides that it’s time to reign in and get the debt under control and significantly curbs spending across the board, a lot of economies that are currently being boosted by China’s spending spree are going to take a big hit.

This will be good and bad news for your Supply Management activities, depending upon where you are in the supply chain. If a company loses a major China supplier, the power shifts back to the buyer and there will be good deals to be negotiated. However, if you lose a major China client and your demand declines, so does your bargaining power and the power shifts back to the supply base. And then there’s the currency hedging to think about. Is the expected drop in currency exchange good or bad for you? (For more about this issue, refer back to our currency damnation post.)

Nova Scotia is the Greatest Nearshore Location of All and Halifax is Still the Best Place to Do International Business in North America

And if you haven’t caught on to this profitable little secret yet, you should!

What is the doctor referring to?

Way back (but no so far back that one requires the wayback machine) in the beginning, the doctor penned a post informing you that the best place to do international business in Canada is Halifax, Nova Scotia (which he remind you of six years later). The reasons for this were many and included (compared to other major Canadian cities) low operating cost, low cost of living index, low crime rate, low unemployment, an award winning international airport, the Port of Halifax, a perfect time-zone (4 hours ahead of Los Angeles and 4 hours behind London), a lot of culture, even more education, and a plethora of leading and innovating companies to help you get to where you want to go. Moreover, a study a few years ago found that Halifax offers a company the cheapest headquarters location in North America in addition to all of these other benefits (with an average cost 8% below the US low point in the Indianapolis-Carmel-Fishers area and 30% less than one of the the US high points in New York City).

But now it seems that the secret is coming out of the bag, as per this recent post over on the industry leading outsourcing blog Horses for Sources (HfS) that recently publicized that Nova Scotia is the greatest nearshore location of all. (Which means that you’re running out of time to act ahead of your peers and take advantage of all of Halifax has to offer at incredible savings that will go straight to your company’s bottom line.)

According to HfS’ post, Halifax, which exists in a region with 10 universities and 13 community college campuses producing over 10,000 graduates a year, presents a great opportunity for outsourced IT and BPO services (and that’s why IBM hosts its service centre, specializing in data analytics, in Halifax). (And despite the comment, you don’t need a canoe to get around. We have a good transportation infrastructure, but you can keep the canoe if you really want to.)

For cost reductions and efficiency improvements across the board, maybe you should look to the North.

Infographics 101

There are a lot of different ideas out there on what makes a good infographic. However, regardless of what philosophy you ascribe too, there are a few key points that should always be kept in mind if the goal of the infographic is to sell something.

1) Focus on the core points you want to make

The goal of an inforgraphic is to distill a significant amount of information into a simple visual that allows the viewer to quickly understand your intent and the key takeaway of your message without having to do a lot of reading.

2) Include distinctive information

If the goal of the infographic is to convince the reader that the idea or solution being sold is better than the alternative, then make sure the infographic calls out whatever is distinctive about your idea or solution. Otherwise, why should a viewer give it a second chance?

3) Make it clear to a reader of average education

If one looks at the 2009 Census Data, 85% of adults in the United States have at least a high school diploma or GED and 28% have at least a bachelor’s degree, 32% have an associates degree and approximately 60% have 1 or more years of college education without a degree. This says that if the goal is the population at large, you at least want it understandable by someone with only some college, and if the target audience is a professional in the workplace, you may not be safe in assuming your audience will have at least an associate’s degree, depending on the type of professional you are seeking. (If you are targeting doctors, lawyers, engineers, scientists, etc., then you can probably safely assume at least an associate’s degree, but if you are targeting sales, marketing, procurement or operations personnel, where a decade in the trenches is often more valuable than a degree at many companies, you may not be able to make such an assumption.)

In addition to these key points, Sourcing Innovation would also argue that, if you are trying to sell something, then an organization should be careful that they

4) Do Not Oversell the Idea or the Solution

Case in point, here in the great white north, Nova Scotia Business Inc. just released an infographic trying to promote our 360-degree defence and military expertise and our unique ability to support research and development for land, air, and sea projects — being home to 40% of all Canada’s military assets, 65 boat building yards and 26 regional ports (including the Port of Halifax which is situated in the second largest natural harbour in the world and capable of expanding to handle more capacity than any East Coast port if the demand is there), and over 80 defence and aerospace firms including 6 of the top industry leaders.

All of this is true, and Halifax offers, in not just Sourcing Innovation’s view*, an average company the greatest logistics potential of any city in North America right now (especially with CN putting in direct lines to a number of North East and Central US distribution hubs with transit times of only 2 to 3 days) as well as the greatest potential for building new commercial and defence products that capitalize on our world leading expertise in sonar, hydrodynamics, and navigation technology. However, instead of focussing on the huge, untapped potential sitting in the Halifax Regional Municipality (HRM) right now, Nova Scotia Business Inc. in their latest infographic decided to focus front-and-center on the fact that our defence sector generates $1.5 Billion a Year in revenue. So what? The GDP of Canada is about 1.8 Trillion. This means our defence sector contributes less than a paltry 0.1% to the economy from a GDP perspective while the GTA (Greater Toronto Area) area across all sectors contributes about 20% of Canada’s GDP which means that, using industry averages**, it’s defence sector contributes at least 1.2% of Canada’s GDP. In other words, not only would the GTA defence sector contribution break into the full percentile range, but it would be more than ten times Halifax’s contribution. In this light, the HRM looks pretty shoddy, even though it likely represents the greatest potential in all of North America for may of your Supply Chain projects. There’s a reason that Horses for Sources just called Nova Scotia the greatest nearshore location of all.

* More in our next post!

** Overall defence sector in Canada accounts for about 6% of GDP as per a recent AIAC study.