[Tlc] T-economics/politics

[justinm at ucr.edu]

Forwarded from Jennifer Gampell.
Thank you,
justin

http://www.bangkokpost.com/031208_Business/03Dec2008_biz39.php
 
The Perfect Storm

CHRIS CATTO-SMITH

The events leading up to the blockade of Suvarnabhumi and Don Mueang airports underline how bizarre it is that a national economy, import and export supply chains and their trade partners can be so willfully damaged for the sake of political (and personal) ideologies and power.

The damage done: International news media have documented the posturing and occasional violence of the warring political mobs exhaustively, but what is now emerging is the deep and possibly irreparable damage done to the reputation and economic future of Thailand. From my view (as a normally discreet "guest" living in Thailand), the crippling of air (and now sea) cargo imports has and will continue to felt by the millions of Thais who depend on maintaining safe and reliable trading links with the world.

The perfect storm: The combination of a global economic downturn, adverse weather curbing farm activities, diminishing confidence in Thailand's logistics credentials, the airport blockade and now the Customs import lockdown of fresh produce by sea (more on that later) has created the conditions for a Perfect Storm of economic destruction.

Vital link now broken: When a vital link in any complex supply chain is broken (as is the case now) things cannot return to normal. It is not a case of easily recovering lost cashflow of the many businesses being forced into bankruptcy. No matter how quickly the political impasse can be rectified or how soon the airports are reopened, a vital trade link is broken and the internal capabilities and goodwill required to fix things have disappeared.

Blind to what is happening? Given the fierce global competition, it seems that recent governments have been oblivious to what has to be done to organise, develop and protect the fragile economic future of this country. The viability of the precious agro- and horticultural export supply chains that contribute so importantly to the economy are not decided by governments. It takes years to build a high-quality supply chain in the food industry - and only a week to destroy it. I know - it has also happened to my business.

Little confidence or cashflow to continue: I have spoken with several retail agronomists based in Thailand by their respective European supermarket employers, and they have painted an even more bleak picture for the future. This should have been a month of peak trading for Thai exporters into Europe.

Thailand normally exports more than 300 tonnes of fresh produce daily as air cargo - including highly acclaimed Thai asparagus and baby corn - primarily to the lucrative UK and European markets. Thai orchids are normally sold in huge quantities prior to Christmas at starting prices of 300 baht per stem or more. The industry estimates it makes 30% of its yearly sales in December.

This month one UK supermarket had ordered more than 100,000 stems per week on an ongoing basis. The orchids are now flowering and being left unpicked. Having suffered over three months of failed crops, an economic downturn and rejected exports last week many farmers don't have the confidence or the cashflow to replant their fields for next month's harvest.

In the meantime, retail buyers who had just placed their high-volume orders with Thailand have been forced to switch to the likes of Ethiopia, Ghana and India. Once these new contracts are in place, it will be difficult to go back to sourcing from an "unreliable" Thailand.

Sea freight imports also blocked: Another vital supply chain link has been broken by the action of the airport blockade. Under the free trade agreement with China, Thailand imports temperate fresh produce not normally grown here. A vital step is that a Certificate of Origin Form E must be certified by Royal Thai Customs before clearance to gain exemption from duties and taxes of up to 40% (unsustainable for many retailers).

Thai Customs had located this vital process at Suvarnabhumi Airport and the person responsible has not been at work since last week. For one retail importer alone, 23 full containers (more than 400 tonnes) of time- and temperature-sensitive fresh produce are rotting at Laem Chabang port with no one available at Suvarnabhumi to endorse the vital Form E. Sad but true!

Pharmaceuticals and health care at risk: Also little publicised are the daily shipments of critical medicines, vaccines and biomedical products that support the health-care and pharmaceutical industries. Every day shipments of time- and temperature-sensitive medicines and raw materials come into the airport - the products are expensive and easily ruined even if exposed to slight changes in temperature or if they exceed their shelf life. So far more than 50 tonnes of critical biopharma products have been held up, threatening manufacturing lines and hospital drug inventories.

My own story: Two years ago I set up a value-added logistics service (http://www.freshport.asia) to help Thai exporters reduce costs and prevent damage due to poor handling and lack of temperature control for fresh produce. Over the last week several of my key customers (shippers) now face extreme financial challenges - they have contracts with farmers to buy products that can't be sold. Not only do they lack a method to get their products to market, their importers are turning elsewhere.

I am lucky, I diversified into a new business line two months ago - the demand for interim and turnaround logistics consultants is high now and we have more work than ever. The millions of Thais involved in the export industries that have been damaged by the latest events have not been as fortunate.

Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals; we welcome all input, questions, feedback and news at:

bjelliott at abf1consulting.com

cattoc at cmcthailand.org 

______________
Dr. Justin McDaniel
Dept. of Religious Studies
3046 INTN
University of California, Riverside
Riverside, CA 92521
951-827-4530
justinm at ucr.edu