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The CEO of the freight-forwarding giant says moving production out of China reduces risks but comes with complications

Companies are making big changes to their supply chains in the wake of the Covid pandemic and rising tensions between the U.S. and China, and logistics businesses are following them to new destinations as they try to clear the hurdles to new manufacturing and distribution strategies.

Marie-Christine Lombard, chief executive of France-based freight-forwarder Geodis, says moving production out of China and closer to markets in Europe and North America isn’t simple. Lombard spoke with The Wall Street Journal about the pressures companies face as they pursue nearshoring and reshoring goals while also trying to reduce carbon emissions.

A podcast of the full interview is available here. Edited excerpts are below.

WSJ: What are the biggest supply-chain lessons companies learned in the wake of the pandemic?

Lombard: The multinationals and everybody else in the chain are looking for less dependency on China. But on top of the pandemic, you have climate change and the imperative to reduce CO2 emissions. To do that, you need to shorten the distances products are traveling. That means more manufacturing closer to consumer markets, which is a big change because all the companies had gone to China to lower production costs.

I don’t know if it’s a good thing, but the crisis has created a focus on supply chain.

Usually nobody was talking about supply chain and how complex that was and the risk of disruption and so on. Today, it’s on everybody’s agenda. It has become a focus. How is our supply chain resilient? Is it sufficiently resilient? Is it dependent on countries, and so on. So yes, there is complexity to move to a more resilient supply-chain system. But once the move’s done, I think it would actually be possible to simplify the situation. It’s the transition that is always complicated.

WSJ: What are the main challenges companies face when they try to bring production to Europe and North America?

Lombard: You need to find the right manufacturers and you need to have raw materials that are close to manufacturing plants. It’s easier said than done because not only do you need to take into account the cost of labor and the capabilities of finding the right raw materials, but you also need to have cheap energy.

What we see today because of the Ukraine war and many other geopolitical tensions is that energy costs have gone up tremendously. If energy costs are going up, you have difficulty attracting back manufacturing.

WSJ: Which countries are companies looking to as an alternative to China?

Lombard: It started before Covid, to be honest. And the pandemic has accelerated the thought. Vietnam was already on the radar. And Vietnam is indeed a potential alternative to China.

Everybody’s talking about India as a potential alternative, but it is not so clear that India can effectively replace China because the transport infrastructure within the country is not very good.

You have to check many boxes. You need to have qualified labor in manufacturing. And you need to have quite big infrastructure, be it ports, airports and road access. And it’s not easy to find this. So India has been looked at by many clients, but no major moves have been made yet.

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Lombard: Transport is changing. As manufacturing moves closer to consumer markets, freight is moving over shorter distances—over land, by road. And if you want to be green, that means investing in green trucks and that’s where the equation becomes even more complex. If you go for a very small van, then most likely you will go for electric vehicles. If you go for big trucks, then how do you make those green? Is it hydrogen? Is it electric? Is it natural gas?

It has to be clean, but it has to be affordable as well.

WSJ: Will some companies look at the complexities of changing their supply chains and decide they’d prefer to go back to relying on a single country like China?

Lombard: The world is becoming more complex because now you see more trade barriers and geopolitical risks. Moving to a more resilient supply-chain system adds complexity. But once the move is done, I think it will simplify the situation.

So I would say actually for us as a logistics company, more complexity is good. Because we are providing solutions to match the dilemmas for our customers, and we are everywhere.

Oligarchs are losing out as Putin courts a new class of loyal asset owners

Russia’s war in Ukraine has redrawn the old deal, driving state-led seizures of lucrative enterprises

Russian president Vladimir Putin’s recent assurances that “there will be no de-privatisation” are as mendacious as his repeated promises not to invade Ukraine. The authorities have moved to seize control of 17 large enterprises this year alone, according to Ilya Shumanov, the former head of Transparency International Russia.

This is not an attempt by some brazen individuals in Russia to line their pockets. It is part of Putin’s effort to redistribute property from people seen as insufficiently loyal to the Kremlin and create a new class of asset owners who owe their fortunes to the president and his inner circle. Members of this new elite, mostly the siloviki (security services) and their business partners, will be the true winners of the Ukraine war — and a bedrock of the regime’s stability. Putin is not getting any younger, and this group will allow his system to reinvent itself even after he departs the political scene.

Towards the end of Putin’s first presidential term in 2004, a formula for peaceful coexistence was forged between the Kremlin and oligarchs who had made their fortunes in murky circumstances after the Soviet Union’s collapse. The state allowed the oligarchs to retain assets accumulated in the 1990s and continue to thrive in exchange for strict non-interference in politics. The oligarchs largely accepted this formula, while the 2003 imprisonment of oil tycoon Mikhail Khodorkovsky demonstrated what would happen to those who disagreed. Thereafter the formula worked relatively well for both sides: Putin amassed complete control over Russian politics, while the oligarchs kept their assets and increased their fortunes thanks to high commodity prices.

The Kremlin was gradually able to impose additional financial demands on oligarchs — labelled “social responsibility” — as a demonstration of loyalty, but the business elite weren’t unhappy. They had learnt how to make money from lucrative state contracts and were assured that, should a disaster such as the 2008 global credit crunch hit them, state banks would help them out. After all, the Kremlin needed the oligarchs too. With their carefully cultivated networks in the west, they were an indispensable tool for Russia Inc, which still wanted to make money as part of the global economy.

Putin’s invasion of Ukraine has completely redrawn the deal with the oligarchs. The August lawsuit of a Russian court to nationalise a company owned by Andrey Melnichenko, one of Russia’s richest men, is the most illustrative case. Melnichenko is under EU sanctions and doesn’t unequivocally condemn the war. Still, even this may be seen as disloyalty in the current environment, and claims by the exiled Russian banker Oleg Tinkov that Melnichenko “hates Putin” (denied by Melnichenko) may have triggered retribution.

Melnichenko is not alone. Last month, a court in Russia nationalised Metafrax Chemical, a large methanol producer. Prosecutors claimed that the 1992 privatisation deal had “undermined Russia’s economic sovereignty and defence capacity” — words increasingly used in Russia to attack opponents. For some, the war ravaging Ukraine is a convenient pretext to nullify prewar agreements and go after lucrative assets. The de-privatisation campaign obviously includes plenty of opportunism, but the Kremlin’s guiding hand is also visible. As early as January, Putin had identified the reassertion of state control over strategic enterprises as a priority for the prosecutor-general’s office.

Previously, Russian oligarchs believed that being under western sanctions offered a form of protection from extortion at home. The Melnichenko case shows that is no longer true. In fact, international sanctions make the oligarchs increasingly useless for the Kremlin as tools for business abroad. Still, there is little to suggest that any of them will turn soon against Putin. Their ability to influence power struggles has diminished.

Western investors such as Carlsberg and Danone were the first to feel the pain of Russia’s new legal environment. Potential investors from Asia and the Gulf in distressed Russian assets, whom the Kremlin is trying to court, should also take note. As for Russians themselves, the Pandora’s box of redistribution opened by Putin’s war won’t just hit the oligarchs, but will ultimately come back to bite the new beneficiaries. The foundations of property rights in Russia, which were fragile long before the war, will become even shakier with the questionable new court rulings.

UK energy company’s renewables arm produces about one-fifth less power for homes and business than expected

UK energy group SSE is banking on windy weather over winter after its renewables arm produced about one-fifth less power for British homes and businesses than expected since April. 

The FTSE 100 company said output from its fleet of wind turbines and hydropower stations was 19 per cent lower than planned during the six months to the end of September due to adverse weather conditions. 

The lower output is one factor behind guidance published on Wednesday of adjusted earnings per share for the period of at least 30 pence, lower than the 41.8 pence it made in the same period last year. 

However, the company is sticking to its guidance of adjusted earnings per share of more than 150 pence for the full year to the end of March 2024. 

“With the key winter months to come, full-year performance remains subject to weather conditions, plant performance and market conditions,” the company said. 

“These risks will be carefully managed through the second half.”

SSE is one of the UK’s largest renewable power companies, with an installed generation capacity of almost 4 gigawatt, capable of powering several million homes, mostly onshore wind.  

That portfolio produced 10,159 gigawatt hours of renewable power in the year to the end of March 2023, up from 9,423 GWh in the previous year. 

The company is building what is set to be the world’s largest wind farm, the 3.6GW Dogger Bank farm off the north-east coast of England, and owns and runs electricity networks. 

It also owns gas-fired power plants and gas storage sites around England.

SSE has set out plans to invest £18bn by 2027, and potentially as much as £40bn over the decade, in clean energy projects and networks, mostly in the UK and Ireland. 

The company benefited last year from surging gas and electricity prices connected to market turmoil following Russia’s invasion of Ukraine and low output from France’s nuclear power stations. 

Its adjusted pre-tax profits for the year ending March 2023 climbed 89 per cent, from £1.16bn to £2.2bn. The bulk of that came from its gas business, which made £1.2bn in operating profits. 

Electricity and gas prices in Britain have since eased, with France’s nuclear output returning and Europe filling up gas storage stocks, although they are still higher than long-term averages before the Ukraine war. 

In its update to the stock exchange, SSE described a “more stable market environment”. 

It expects its gas storage business to report a loss for the first half of the year as it stocks up, which would turn to profit when the gas is withdrawn during winter. 

Gregor Alexander, finance director, said the company’s focus “remains on delivery of our five-year plan out to 2027, which is the platform for up to £40bn of investment in net zero over the next decade”.

He added: “We have reached key milestones in the construction of our flagship renewables projects.”

Shares climbed 1 per cent to £15.30 by lunchtime on Wednesday in London trade. 

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