Commercial Awareness Update – W/C 15th November 2021

Global Supply Chain Crisis

Many large companies such as Poundland, Dunelm, Ikea, Dominos, Next and Apple have warned of stock shortages, cost-saving methods, and inflationary pressure due to supply chain issues.

Supply chains are struggling to keep up with high levels of consumer demand caused by the buying spree as lockdown restrictions have eased in many countries alongside the high demand caused by the Christmas period. At the start of the supply chain, many raw materials and goods are struggling to be supplied to the manufacturers.

For instance, China (the world’s largest exporter of goods since 2014) is suffering from power shortages as it is trying to be less reliant on using coal as its main source of power. Consequently, goods from China are not being produced and are not being exported to countries around the globe at the usual rate. Additionally, outbreaks of Covid-19 have caused factories to shut, for example, Apple has warned of iPhone 13 shortages due to a recent outbreak of Covid in Vietnam, where the camera for the iPhone is developed.

Additionally, there are supply disruptions due to transport issues which mean raw materials cannot be delivered to manufacturers. For instance, there are shipping bottlenecks in many ports around the world, such as Los Angeles, due to the increase of online shopping and shortages in transport staff. The UK, for example, has a truck driver shortage as millions of EU citizens have gone back to Europe due to Brexit, and the Pandemic has persuaded UK citizens to retire or stay in education. Overall, the struggle of raw materials and goods at the beginning of the supply chain to be delivered to manufacturers and supply disruption further down the supply chain causes supply to fall even further behind the high levels of demand.

The main impact of the supply chain crisis is that prices start to rise as there are more demand goods and raw materials that need to be transported around the globe. Consequently, the cost of transporting the goods increases. Sending a single 40ft container from Asia to Europe currently costs £12,480, which is a greater than ten-fold increase compared to a year ago when it cost £1,101. As businesses soak up high transport costs, they must increase the cost of their goods and services to be able to make a profit. This means price rises for the consumer (the end-user of the chain).

This rise in price alongside the supply chain has contributed to high levels of inflation, and consumer prices in the food and hospitality sector have increased between 14 to 18%. The consumer will take the hit as producers increase their prices to protect their margins as their costs are rising. Another consequence is that there is a shortage of goods as delays in the supply chain mean goods and services cannot be provided, and those that do are purchased quickly due to the large consumer demand. Finally, supply chain issues can hold back recovery because bottlenecks hold back production in factories which in turn holds back sales which stifle profits made by companies.

To minimise delays, reduce costs and get goods quickly, businesses may look at local providers or other businesses that can supply the goods they need. This will lead to new commercial contracts with which commercial lawyers can help give advice and negotiate. Additionally, larger businesses may acquire other companies which supply the goods to them, so the cost of transporting goods is both certain and cheaper. The acquisition of businesses up and down the supply chain will involve M&A lawyers. Finally, to deal with the increased demand and labour shortages, suppliers will employ more individuals whom employment lawyers can advise.

It is not certain when the supply chain crisis will end, but to resolve the problem, either demand needs to decrease, or producers need to increase their supply, and bottlenecks need to be relieved so goods can flow quickly down the supply chain to the consumer.

Written by Ben Pattinson

The Nubank in New York

The Deal

The Brazilian digital bank, Nubank, is set to go public at the start of 2022 in its proposed initial public offering. After a $50bn valuation, they have told regulators that they could raise $3 billion. Nubank has its eyes fixed on the New York Stock Exchange for next year.

The Company

Founder David Velez is backed by Warren Buffets’ Berkshire Hathaway, who led an investment round of $750 million in the company back in June 2021. The company was founded in 2013 with a goal to disrupt the traditional banking sector in Brazil. After eight years of continuous growth, the fintech start-up is now hitting the big time.

The Significance 

The significance of this deal cannot be understated. Nubank is considered one of the pioneers of the neobanking boom that is threatening the incumbent banks. With a valuation of $50 billion, they are worth more than many of the traditional banks. Nubank demonstrates that despite the sheer cost of budling a neobank at scale, they are leading the way. 

The Law

In June, U.S. outfit, Davis Polk, continued to advise Nubank after guiding them through their Series – G financing. Pinheiro Neto Advogados will pass upon matters of Brazilian law. The legal complications should be limited, with the primary contentious issue being the U.S. Federal Income Tax Considerations. Despite their global influence, the bank only offers services in Latin America, which means they will not need to overcome U.S. Business Law impediments.  

Nubank is paving the way for the new age of digital banking. With Gen Z opening their first bank accounts over the next few years, how long will the traditional banks withstand this movement? 

Written by Avishai Marcus

‘No Time to Prime’ Amazon Cloud Services Strikes Deal with UK Spy Agencies. 

Amazon’s cloud services, Amazon Web Services (AWS), has struck a reported deal in the region of £500m to £1bn with English secret services MI5, MI6 and GCHQ. The deal has come under much scrutiny due to the US cloud provider’s unanswered authority over the handling of sensitive information held by the secret services.

Supporters of the deal say that the information will be stored more efficiently, aiding the fight against terrorism and other domestic and international crime. They look to the $600m deal struck between AWS and the CIA in 2013 and question why the UK is so far behind the US counterparts, with whom they work closely through the Five Eyes intelligence-sharing service. The risks to the deal have also been described as “manageable” by former GCHQ director Sir David Omand.

Opposition to the deal says that the risk within the deal does not justify the potential benefits. With cyber-attacks doubling over the past year, there is the argument that one provider operating all of the cloud technologies for the UK’s three largest intelligence agencies makes AWS a target for hackers and lowers the UK’s cyber resilience.

Additionally, whether Amazon has access to this information or how it can be prevented from accessing the data remains unclear. Furthermore, in the event of a leak, who will be liable and in what jurisdiction, US or UK? This remains unanswered because the sovereignty of the information stored is not yet known and is further complicated. The UK law for cloud technology and artificial intelligence is still being developed and therefore subject to potential change. Finally, the nationalistic view is why a UK cloud service provider cannot hold the answer? However, supporters would look at the superior sophistication of the cloud technologies from the US tech juggernauts.

To conclude, from Amazon’s perspective, the deal positions them at the forefront of cloud service providers for world intelligence services, but this leaves them at potential risk for future conflict of interests.

You can find out more here, here and here.

Written by Harry Gadsby

Facebook’s Woes

The Competition and Markets Authority has fined Facebook £50.5 million following a probe into the tech giant’s £290 million takeover of the GIF-sharing platform, Giphy, and provisionally finding competition concerns.

Concerns were initially raised over whether the acquisition would allow Facebook to deny other social media platforms access to Giphy’s images while also centring around the power Facebook may gain from being able to force other platforms to hand over user data by changing the terms of access for GIFs. The deal could also see the removal of a crucial competitor to Facebook in the UK display advertising market, and, thus, the deal brings with it the capacity for Facebook to further entrench its already powerful position in several ways.

The fines the CMA imposed come after Facebook allegedly failed to comply with its obligation to provide updates and information regarding how it is observing the CMA’s “initial enforcement order”, ignoring previous warnings and committing a “major breach” – allegations that Facebook denies.

Written by Theo Budgen