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Weekly Roundup - Lancome’s Involvement of Child Labor, Boeing’s Negative Free Cash Flow and Airbus Parts and Labor Shortages

Yulia Fedorova

31 May 2024

The recent surge in attacks on ships navigating through the Red Sea has necessitated a significant rerouting of vessels, primarily around the Cape of Good Hope, leading to extended travel distances and a consequential spike in carbon dioxide emissions. This development adds a new layer of complexity for companies already contending with challenges posed by the COVID-19 pandemic, extreme weather conditions, trade protectionism, and escalating freight costs in their efforts to manage and reduce climate-warming emissions linked to their operations.

Source: ShipsGo

Notably, the diversion of shipping routes has resulted in a considerable increase in Scope 3 emissions, which encompass supply chain and distribution activities, compelling businesses to explore strategies to mitigate these emissions to maintain customer loyalty, investor interest, and compliance with emerging shipping taxes. Economic repercussions are evident as firms like Arla Foods and Nestle grapple with heightened shipping expenses, prompting some to adopt more environmentally detrimental transport alternatives such as air or truck freight. In response, the shipping industry is adjusting by aligning expected journey times with the elongated routes, while some companies are turning to nearshoring, sourcing from suppliers in closer proximity to reduce emissions and supply risks. This crisis underscores the intricate interplay between global supply chains, emissions, and the pressing need for substantial adjustments in logistics and environmental policies to address the challenges at hand.

Source: ShipsGo

A BBC investigation has revealed the involvement of child labor in the jasmine supply chains catering to major beauty companies Lancôme and Aerin Beauty. Despite their parent companies, L'Oréal and Estée Lauder, asserting zero tolerance for child labor, economic pressures in Egypt, a major source of the world's jasmine, compel families to engage children in jasmine picking. Low wages, worsened by inflation, push these families below the poverty line, making child labor a necessity for their survival. The investigation also uncovered flaws in the auditing systems intended to ensure ethical practices, highlighted by the UN Special Rapporteur on contemporary forms of slavery, Tomoya Obokata. Furthermore, a significant disconnect between the companies' promises of ethical sourcing and the reality was observed, with industry insiders pointing out that the pressure to reduce costs from the top of the supply chain results in the exploitation of workers at the bottom. The findings prompt a call for greater corporate accountability and systemic changes to safeguard vulnerable workers, underlining the urgent need for meaningful reforms in the perfume industry to eliminate child labor and ensure fair wages.

In 2024, Boeing is facing significant financial and production challenges, as highlighted by CFO Brian West, who forecasted a negative free cash flow for the year, a stark contrast from earlier predictions of positive cash generation. The company's aircraft deliveries are not expected to see an improvement in the second quarter, continuing the trend from the first quarter, primarily due to ongoing manufacturing issues and regulatory scrutiny following a January incident with a 737 Max 9. This has led to a dramatic slowdown in jet production and has disappointed customers due to supply chain and production constraints. In response to these challenges, Boeing has made executive changes, including the planned departure of CEO Dave Calhoun by the end of the year. Regulatory reviews, particularly by the Chinese Civil Aviation Administration concerning cockpit voice recorder batteries, have further delayed deliveries to China. Despite these setbacks, West remains optimistic, projecting that the company will return to positive cash flow in the second half of 2024. As a result of these announcements, Boeing's shares dropped significantly, contributing to a nearly 32% decline in the company's stock value so far this year.

Airbus is currently facing significant pressure on its production ramp-up for passenger jets due to persistent parts and labor shortages. Industry sources have indicated that the assembly of several dozen jets could be delayed in the second half of 2024, though it is unclear if this will affect the overall delivery target of 800 airplanes for the year. Despite these challenges, Airbus plans to increase its output to 75 narrowbody planes per month by 2026, although the buffer for delays is shrinking. The supply chain, which provides up to 80% of the content for Airbus jets, has seen lead times for some parts, like forgings, double to as much as two years. Suppliers are experiencing regular deferrals in Airbus's monthly requests, indicating further delays in aircraft assembly. However, Airbus remains optimistic about receiving certification for its A321XLR passenger jet by the summer, with expectations to showcase it at the Farnborough Airshow in July.

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Dive deep into research

"Large language models for supply chain optimization" by Li, B., Mellou, K., Zhang, B., Pathuri, J. and Menache, I. (2023)

"Reducing emissions from production and distribution in three-echelon supply chains" by Abu Hashan Md Mashud, Ripon K. Chakrabortty, Omar K. Hussain and Tsan-Ming Choi (2024)


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