How the “Project X”-riot in Haren, The Netherlands, could cost Facebook dearly.

Sometimes you can see an accident happen well before it actually happens. Still, the consequences of such an accident could be mindboggling.

This happened in a small Dutch suburb called Haren, in the province of Groningen. Last Friday, September 21,  this wealthy ‘estate town’ was hit by a hurricane of violence, due to a Project X-party, ‘fueled by Facebook (FB)’,  gone awry.

The riot involved hundreds of extremely aggressive youngsters, who were fighting with inhabitants of Haren, demolishing cars, looting and ruining shops and were wiping everything of the map that was not made out of concrete or massive steel. Often they did so, while smiling at every camera that was present at the party: “We’re having a ball! Yeah, cool!”.

Dozens of normal police agents and special riot control units (aka ME or Mobile Unit in The Netherlands) had to battle for hours and hours to regain control over the crowd-gone-berzerk. In the end, two people were severely injured; one of them was an old man of 83, who had been beaten with a brick on his head. A few policemen were injured too and four youngsters were arrested. There was a total damage of more than a million euro and many inhabitants of Haren were traumatized by what happened that evening. The violence that had been exposed, could only be compared with football hooliganism of the worst kind.

While football violence can often be predicted, due to the presence of two hostile supporter groups, this Project X-party started very innocent and naive.

Merthe, a typical Dutch girl-next-door, decided to organize a ‘sweet sixteen’ party and invited her real friends via Facebook. What she did forget, however, was to tag her party as ‘private’.

Due to the fact that Facebook – in case of a public (i.e. non-private) party –  allows invited people to invite people themselves, the number of people, planning to go that doomed birthday party, grew by the hour. When some popular radio stations in The Netherlands heard the word on the street about the party and started to broadcast the details, the party gained momentum and a domino effect came into action.

Poor Merthe, who discovered her mistake after the publicity machine started working, informed the police and the municipality about her invitation and the unintended consequences of it. Her family, as well as the mayor of Haren tried to convince the general public that the original birthday party was cancelled and the city didn’t allow a Project X-party to be organized in Haren.

Alas, Merthe had through Facebook opened the Box of Pandora and party-people all over the country and the public and social media gave the Project X-party so much airtime, that litterally thousands of people were meeting in Haren on Friday, 21 September.

What started as a kind of joke, turned very quickly into a violent war between the youngsters and the police.

Of course the authorities in Haren, the inhabitants and the insurance companies are trying to find the persons liable for the caused damage among the party people. This job will probably not be too hard, as ample footage and pictures of the events are available and some youngsters were even so stupid to put pictures and texts concerning their actions on the social networks Twitter and Facebook.

Already after a few days, fifty people had (involuntarily) turned themselves in at the police, after the police had fired a warning shot in the national media.

What might be most surprising for unaware people, but should not be for people that have read before on the topic of hooliganism, was the ‘breed’ of the hooligans at the party.

That breed was no such thing as:

• Common criminals and notorious fighters with a police record of three feet long;
• Unemployed, low educated and/or mentally challenged people;
• People from low-class, ‘white trash’ families;
• People from immigrant-minorities in The Netherlands.

To the contrary: most hooligans were youngsters from (upper-)middleclass and high-class families, that had good jobs or (successful) studies and had no police-record at all. In other words, the UNusual suspects.

Already in the eighties and nineties, the heyday of football hooliganism in Great Britain, Germany and The Netherlands, researchers had noticed that most footbal hooligans had succesful dayjobs and a very good income and just went to a football game to rumble and fight and have a ball, while using extreme violence against their adversaries in the process.

People could argue whether this kind of violence is a result of social acrimony, due to the economic crisis that we are going through, or the result of the virtually risk-free, overly controlled, ‘no frills’ society that we are living in. Some people go basejumping, others go hooliganing.

However, where is wide consensus about in The Netherlands and the countries of the European Union is the controversial role of Facebook in this Project X-party:

• The fact that it is so easy to make a mistake like Merthe did: the tag, indicating a private party, is always switched ‘off’ and must me switched on manually;
• The fact that such a mistake cannot be undone anymore: the Box of Pandora is opened and cannot be closed;
• The fact that already earlier this year Project X-parties, fueled by Facebook, took place in Germany, Australia and the US, causing (smaller) riots and lots of damage too;
• The very doubtful privacy policy of Facebook is also not speaking in its favor; 

Therefore I would not be surprised when the European Union within a few months comes with new regulations, forcing Facebook ‘at gunpoint’ to change its privacy policy and other controversial settings, like the ‘private party-tag’.

If not, vast penalties could be expected for this company that is already operating like a punch-drunk boxer lately. What might be a bad omen for Facebook, is the fact that the Dutch Euro-commisioner for telecom and internet business is Neelie Kroes, the former Euro-commissioner for Competition. Sometimes Bill Gates, the former Microsoft CEO, wakes up in the middle of the night in a pool of sweat, having dreamt of Neelie Kroes.  

Small fight at Foxconn culminates in a massive brawl of 2000 desperate workers against the security guards. Foxconn: "it's probably not work-related!" Really!

I have written more than once about one of the main suppliers of Apple: Foxconn. This Taiwanese / Chinese electronics company is the largest manufacturer of electronic components in the world and it manufactures many products that are famous worldwide: iPad, iPhone, iPod, Kindle, PlayStation 3, and Xbox 360. Also it delivers many building blocks for the personal computer industry, like motherboards and videocards. However, these are not the characteristics that put Foxconn on the road to fame.

Unfortunately, the company has become notorious for the apparent total lack of care for its workers that it displayed, leading to multiple suicide attempts and labor conditions that could best be described as modern slavery.

Read for instance:

• Western companies still neglect their workers in the low-wage countries
• Foxconn finds ideal solution to prevent their personnel to commit suicide

In these articles you will find links to two other articles about this company.

In the meantime Foxconn promised ‘to behave’ and Apple gave lip service to improving labor conditions for the Chinese workers that were putting the brand’s iPhones, iPods and iPads together. However, while Apple is celebrating its new flagship telephone, the iPhone 5, it seems that little has changed for the workers of Foxconn.

Today proved that even the most polite, timid, loyal and patient workers, the Chinese, can get in a state of outrage, where they don’t care anymore about keeping their job and receiving their hard-earnt money. So it could happen that a small fight between a worker and a few aggressive security guards ended in 2000 Foxconn workers battling with paramilitary, armed troops. Fortunately, the situation didn’t run out of hand like a few weeks before in South-Africa, where a mine workers’ strike for wage increase ended in a bloodbath with more than 30 miners killed.

Still, it is a tell-tale signal that the labor conditions at Foxconn were so bad that even the smallest spark was enough to let hell break loose.

The Daily Telegraph wrote about the mass brawl that happened today. Here are the pertinent snips:

2,000 Foxconn workers involved in mass brawl at China factory

Armed paramilitary police had to be called in to quell a 2,000-man brawl at the troubled Foxconn factory in Northern China that makes parts for Apple’s iPhone 5, among other products.

Around 40 workers were hospitalised in the riot, which began at around 11pm on Sunday night in one of the factory’s dormitory blocks.

What started as a dispute between a worker and aggressive security guards in one of the factory dormitories spiralled out of control as thousands of workers streamed off their shifts and joined the fray against the plant’s 1,500 security guards.

It took four hours for the police to bring the situation under control, according to a statement from Foxconn, the owners of the plant in Taiyuan, Shanxi province.

“The cause of this dispute is under investigation by local authorities and we are working closely with them in this process, but it appears not to have been work-related,” Foxconn said.

The hi-tech plant […] has had a troubled history. Workers went on strike in March over pay, and in the run-up to the release of the iPhone 5, a Chinese newspaper exposed a series of poor working practices.

The Shanghai Evening Post sent one of its reporters undercover into the Taiyuan factory, where he trained for seven days and then spent three days on the factory floor assembling the new iPhone’s metal “back plates”.

He wrote: “The whole dormitory smells like rubbish when I entered.

There was uncleared rubbish outside every room. Cockroaches crawled out from my wardrobe and the bedsheets are dirty with ash. All the windows are barred.”

He reported that workers were fired if they were found to be carrying any metallic objects, and that workers had to sit still while working.

 “An iPhone 5 back-plate passed in front of me almost every three seconds. I had to pick up the back plate and mark four points using the oil-based paint pen. Every ten hours, I had to finish 3,000 back plates. After several hours, I had terrible neck pain,” he wrote.

Foxconn admitted to the Shanghai Evening Post that “the working environment on the production line can be improved” and promised to investigate the problems. “We are not perfect but we are improving every day,” it added.

I can understand that Foxconn hopes that nobody will make the link between the labor conditions and the massive brawl (first red and bold paragraph). According to Foxconn itself, Foxconn is well on its way to improve labor conditions: “we are not perfect, but we are improving every day” (second red and bold paragraph).

I have a message for Foxconn: when labor and living conditions are so closely connected as at the Foxconn factory and when these conditions are so far below those that we consider to be normal in the west, EVERYTHING has to do with labor conditions. You can’t simply wash your hands clean of that.

It is an audacity that Foxconn dares to say: “we are not perfect...”. People at Foxconn work at least 60 hours per week, but often more and stay at the factory premises almost all year, in dirty rooms without any kind of privacy, behind barred windows like prisoners and with the cockroaches walking freely around their dormitories. These circumstances can deliver so much stress, aggression and anxiety to people that the even the littlest argument between people can turn into a chaos.

This brawl ended without any fatalities, but the next one might not. As long as Foxconn will not drastically change its labor circumstances, working there will smell like modern slavery. These kinds of riots are a logical consequence of it!

Is this what it takes to become a successful airliner: flying on kerosene fumes and skipping as much maintenance as possible? When so, it is just waiting for a deadly accident to happen.

If an unprejudiced reader would have read European newspapers during the last six months and he would have looked for news concerning aviation incidents, the name Ryanair would have been etched in his memory.

Ryanair, that was founded in 1984 by Tony Ryan and two companions, started as a small Irish low-cost carrier with a few planes and a few routes. In spite of the growing number of passengers that the airliner transported in the eighties, it was not sufficiently profitable to have a prosperous future ahead. That changed in 1991 when Michael O’Leary entered the company as a turnaround manager.

O’Leary indeed proved himself to be ‘the man with the plan’ and especially since 1997, when a deregulation of the aviation industry was carried through in Europe, the low-cost carrier prospered and grew strongly. In the meantime, Ryanair set a new standard to the word ‘pricefighter’.

Ryanair started with ticket-prices that almost seemed to good to be true, using a system that can be explained as ‘being early with buying your ticket is cheap, being late is more expensive’. If you were early, you could indeed fly 800 miles for the price of a midrange train-ticket.

The company achieved this by flying from very small airports in the middle of nowhere  that were ‘within close range of an important city’ (i.e. within 100 km or 60 miles). Ryanair neither serves free drinks nor food and also seems to put more chairs in a Boeing 737 than any other airliner, making a flight only comfortable for people below 165 cm or 5ft 5’’. It tries to exchange passengers at lightning speed in order to be airborne again within 45 minutes after landing.

Besides that, it uses a system of surcharges for everything: for extra heavy people, for all luggage except small handbags, for making a reservation, for paying by creditcard, for not paying by creditcard. A ticket that seems extremely cheap initially is often not so cheap anymore in the end, due to the surcharges. Still, the ticket-prices are lower than those of most other airliners and if you don’t mind the lacking comfort, Ryanair brings you from A to somewhere in the neighborhood of B.

Anyway, I have flown with Ryanair twice and it was a slightly uncomfortable, but  amusing experience that was finished with the famous sentence: ‘and yet another flight has been finished on time by Ryanair, the airliner with the least delays…’. Therefore I don’t have anything against Ryanair personally.

Nevertheless, although Ryanair has grown into one of the most successful airliners when it comes to passenger numbers and autonomous growth, it suffers from what you could call ‘the airliners disease’: a lack of structural profitability that enables operating an airliner profitably, in spite of the current high kerosene prices, increasing environmental costs and increasing safety and security regulation.

That this lack of structural profitability among airliners has a grim and dangerous side to it, became perfectly clear during the last six months, when we look at Ryanair.

My attention was drawn to Ryanair when on the 26th of July three aircrafts of this company had to make an emergency landing in Valencia, caused by fuel shortage, after the planes had to divert from Madrid due to bad weather.

Although Ryanair did its best to downplay the situation and emphasize that ‘it not had been true emergency landings’, while accusing Spain of a witch hunt against Ryanair, the truth seems not to speak in favor of Ryanair.

On August 16, the Belgian (online) newspaper Het Laatste Nieuws (www.hln.be) writes:

Ryanair puts pilots under pressure to save fuel

The Irish low-cost carrier Ryanair puts ‘heavy pressure’ on its pilots to save fuel. This is stated by the German Aviatior Union ‘Cockpit’ after three aircrafts of Ryanair had to make an emergency landing in Valencia at the end of last month, due to fuel shortage. ‘Ryanair puts heavy pressure on its pilots by making lists of their fuel consumption during flights’, according to Jörg Handwerg, spokesman of Cockpit.

The amount of kerosene that an airplane should have loaded, is set in aviation regulations. However, a pilot can always decide to take an extra amount on top of the minimum quantity, for ‘security reasons’, especially when very busy airports have to be visited and there is a considerable chance for delays while being in the air.

Handwerg emphasizes that fuel is ‘a very important expense for the low-cost carriers’ and in general ‘many airliners’ give instructions to their pilots to use less fuel. “The rights of pilots are violated and they cannot take their responsibilities anymore’.

After an investigation, the Irish Aviation Authority IAA concluded in a preliminary report that the Ryanair airplanes ‘had enough fuel  on the day of the Valencia incident, but the company should still review their its policy’. Here are the pertinent snips of a Reuters article from September 20.

Ryanair planes had enough fuel-Irish watchdog

Three Ryanair aircrafts that made emergency landings in Spain in July were carrying more than the required level of fuel, but the company should still review its policy, the Irish Aviation Authority IAA.L said on Thursday.

The recommendation came after Irish and Spanish aviation officials met in Dublin this week following comments by Spanish authorities about incidents in their airspace involving Europe's largest budget airline.

Spain has called for tighter safety regimes at low-cost airlines, while Ryanair has accused the Spanish aviation authorities of falsifying information on incidents involving its planes, an accusation Spanish officials have rejected.

In a preliminary report made public by Ryanair (RYA.I), the IAA found that the three planes that departed for Madrid were carrying fuel in excess of requirements. Having to divert to Valencia with fuel close to the minimum diversion level likely presented challenges to the crew.

It recommended that Ryanair review its fuel policy and consider issuing guidance to crew with respect to fuel when flying into busy airports, particularly in poor weather conditions when diversions were likely.

You have two kinds of ‘enough’ in this particular situation:

• Enough, according to the rules for the minimum amount of fuel that a plane has to carry on a certain flight;
  
• Enough, in the meaning that you are able to divert to another airport without any problems, if it is impossible to approach your destination airport for any reason whatsoever;

It seems clearly that Ryanair met the first bullet, but failed at meeting the second one. This can be read in the concealed advice of the IAA (see first red and bold paragraph): ‘next time, take a few gallons more, boys!’

The fact that Ryanair starts to accuse the Spanish aviation authority of falsifying information, is not a recommendation in my humble opinion.

Besides that, this was not the only thing bothering Ryanair these last six months. After the third plane of Ryanair in four days had run into trouble on September 16, the Belgian newspaper Het Laatste Nieuws made a list of incidents involving Ryanair. Although none of these incidents led to an accident fortunately, it is a very disturbing list:

Troublesome messages on the safety of Ryanair

According to the Spanish newspaper El Mundo, more than 1201 investigations have been opened between January and July on safety incidents involving low-cost carrier Ryanair. During 41 inspections by the AESA, the Spanish aviation authority, 51 defects have been found of which 15 were evaluated to be ‘very serious’. According to Ryanair CEO Michael O’Leary, there ‘is a conspiracy against Ryanair’. However, the facts are not speaking in his favor. The number of incidents with Ryanair aircrafts is mounting. Only last week: three times in four days a plane of the Irish low-cost carrier had to make a stopover. Yesterday, a plane had to land on the Madrid airport Barajas, due to technical problems.

On the mentioned list of 1201 investigations, the ‘highlights’ are: cabine air pressure problems, emergency landings due to fuel shortage, refusals to cooperate at unannounced inspections of the air safety services, diversions of flightplans, illegal refusals to board the plane.

Especially the fuel-policy of Ryanair is worrisome. The repetitive incidents with Ryanair planes forced the Spanish Ministry of Traffic to urge EU Commissioner for Traffic Siim Kallas and the Irish Aviation Authority IAA to improve airtraffic safety.

Unions and organizations of aviators in Ireland, Germany and Spain accused Ryanair this year, that the company forced its policy to fly with as little fuel as possible so vigorously on the pilots that these are ‘afraid to ask for extra fuel when they feel it might be necessary’.

Next to the incident on Madrid airport Barajas, there had been a second incident within the same 24 hour. A plane that had left from Bristol to the Catalan city of Reus, had to make an emergency landing, due to a damaged engine. Last week there had been two incidents concerning the air pressure in the cabin during Ryanair flights to Spain, forcing the planes to return to the airport of departure.

On August 30, a plane that flew from Barcelona to London Stansted had to make an emergency landing twice. First in Nantes, after a passenger had detected smoke and a weird smell of fire in the cabin. After a checkup in Nantes the same problem occured above the UK and the plane had to make an emergency landing at Gatwick.

On August 21, a plane had to make an emergency landing at Weeze after it got into trouble shortly after take-off at Magdeburg/Cochsted.

Another peculiar incident: during a landing in Dublin one of the motors of a Boeing 737-800 hit the runway. According to a report of the Air Accident Investigation Unit, that investigated the incident, the nacelle (hull) of the motor got damaged. This had only been found out after the plane had executed three other flights. There has been another, similar incident: at the end of July, a Ryanair plane ran into an American Airlines plane on the airport of Barcelona during taxiing. During this event the Ryanair plane got a big dent in its wingtip. Although passengers alarmed the cabin crew, the Irish pilots just resumed their take-off procedure and flew with this dent to Ibiza and afterwards to Barcelona.

This is where I stop quoting this article, but the list goes on and on. This article is a must-read for everybody that wants to fly with a low-cost carrier like Ryanair or is just interested in airline safety. People that speak Dutch can use the original text and others can use Google Translate or another translator.

After reading it, the article made me doubt if I would ever step in a low-cost carrier plane again.

On the other hand: please remember that Ryanair never experienced a fatal accident yet. Ryanair flies thousands and thousands of flights per year and although the list of incidents in this article seems very long, the chance that you are involved in such an incident is still very, very small from a percentual point of view. However, it only has to go wrong once, to have a fatal incident of major proportions, due to the high numbers of passengers in Ryanair planes.

One more thing: please notice that this article is about Ryanair, but that it without a doubt is applicable to other cheap airliners too. When you offer flights for the lowest price in order to stay competitive, but have to deal with increasing expenses for fuel, environmental surcharges and safety / security regulations, something’s got to give in the end. That something seems to be passenger safety, at least at Ryanair and probably at other low-cost carriers too.This is one of the reasons that I, when having a choice, prefer taking the car above the airplane.

This article reflects my personal opinions, unless quotes from other sources have been used. Where sources were printed in Dutch, I did my very best to translate those as accurate as possible.

It’s good to have an enemy to distract your citizens from the internal political and economic situation in your country. Is this concept a driving force behind the recent riots in the Middle-East and China?

Watching the people get lairy

It's not very pretty I tell thee

Walking through town is quite scary

It's not very sensible either

Kaiser Chief’s – I predict a riot

The last ten days were laden with riots in two very important areas of the world: the Middle-East and China.

The riots in the Middle-East started in Egypt and Libya and supposedly led to the disgraceful murder of American ambassador Christopher Stevens and three other American diplomats on Wednesday, 12 September, during their attempts to release the American consulate in Benghazi, Libya. Subsequently, the riots spread all over the Arabic world and some Western European countries that are home to large groups of Muslim people.

The massive outburst of outrage was reputedly caused by an obscure and poorly made movie, called “The innocence of Muslims”, that was very insulting for the islam. The trailer of this movie had been put on Youtube, were it was picked up by people shortly before the riots started.

The fact that the film had been made in the United States probably made the outrage much larger. As often in these kinds of situations, the film was just a spark that fired up the resident anger and resentment against the United States that lives among certain groups in countries like Pakistan, Libya, Egypt and Iran. This made the incident a thousand times bigger than it would normally have been. In the meantime the director and actors in the film have gone into hiding, probably cursing themselves for their naivety and/or bluntness.

However, a few days after the murderous attack on Christopher Stevens in Benghazi, the word was spread that this had been a deliberate assault, by a group linked to Al Quaida. Reputedly, the riots in Benghazi had been not much more than a smoke screen to enable this attack. Of course, I don’t know if this is indeed true.

In the meantime acrimony was percolating in China against their (former) archenemy and neighbor Japan. A dispute on the ownership of a group of uninhabited islands in the East-Chinese sea, led to tens of thousands of angry Chinese citizens raiding on Japanese property, like the Japanese embassy and consulates and offices and factories of Japanese companies, like Sony, Panasonic, Toyota and Nissan. This violence caused many Japanese companies to temporarily close their doors and suspend their activities.

The acrimony started when the news was spread that the Japanese government had bought the Senkaku/ Diaoyu islands from a millionaire and it subsequently became clear that the islands could be laden with natural resources, like oil and minerals. China furiously protested against the Japanse purchase agreement, as it claims the ownership of these islands.

Here are the pertinent snips of this story from an article in Business Week (www.businessweek.com) on this story:  

Anti-Japanese Protests Flare in China Over Disputed Islands

“Never forget the national humiliation,” and “Protect China’s inseparable territory,” read some. More disturbing: “Let’s kill all Japanese,” and “Nuclear extermination for wild Japanese dogs.”

Those are some of the sentiments irate Chinese are displaying on protest banners across the country, as demonstrators in more than a dozen cities including Beijing, Shenzhen, Guangzhou, and Nanjing take to the streets, angry about Japanese control of the disputed Senkaku islands—known as Diaoyu in China—an uninhabited but possibly resource-rich atoll in the East China Sea.

The protests have been sparked by the Japanese government’s announcement that it intends to nationalize the privately owned islands. China has sent six patrols boats to the waters near the islands in recent days.

Fires broke out in a Panasonic (PC) electronics parts plant and a Toyota Motor (TM) dealership in the coastal city of Qingdao after protests there, the companies said on Sept. 16. To date, there has been no confirmation as to who set the blaze. Both have shut operations temporarily.

Equally alarming has been the bellicose rhetoric in China’s state-controlled press. After China carried out combined land, air, and naval exercises involving jet fighters, ships, and amphibious tanks, Chinese media pointedly wrote that they should serve as a warning to Japan.

“These kinds of assault and defense exercises give a clear warning message to Japan that China is prepared for and confident about protecting the Diaoyu Islands,” said Hu Siyuan, a Beijing-based strategy, according to government website China.org on Sept. 12. “China is not worried about a potential showdown over the disputed islands,” Hu continued, despite the fact that exercises on this scale must have been planned months in advance.

Although I’m the last person to doubt the true feelings of shock, outrage and resentment among the people in the Middle-East and China, I would ask my dear readers to read between the lines, concerning these riots and governmental anger:

The Arabic world went through ‘the Arabic Spring’, which turned into a year of (very violent) acrimony in Morocco, Tunisia, Libya, Bahrein and Egypt. This acrimony led to regime-change in three of these countries and culminated in the ongoing civil war in Syria, which is not going to end soon, unless a miracle happens.

After the regime change, the situation has been far from stable in Tunisia, Egypt and Libya. The danger of a civil war in these countries is still imminent, as a consequence of the struggle between factions on ‘who is in charge and who will own the money and properties that the expelled regimes left behind’. Besides that, the current silence in countries like Bahrein, Iran, Saudi Arabia and Oman is probably only temporary.

Although the situation in Iran for instance is currently much more stable than a few years ago, it is a public secret that a large and growing part of the Iranian youngsters is fed up with the regime and wants more freedom, more women’s rights and less corruption and religious repression. The same is probably true for Bahrein, Oman and Saudi-Arabia.

China, on its behalf, has been suffering from a continuing soap opera, starring the designated successors of president Hu Jintao: Bo Xilai and Xi Jinping. Hu, who served a ten year stint as official leader of the Communist Party, is planning to resign at the next congress of the Party, which is planned for October, 2012.

Involuntarily, the succession of Hu became the talk of the town during the last months: former candidate Bo Xilai has fallen into disgrace after his wife supposedly plotted and executed a murder attack on a British businessman. Xi Jinping, the other crown prince,  disappeared without a trace for a two-week period, cancelling at least three official meetings with foreign officials, including Hillary Clinton, only to resurface last weekend without any further explanation or comments. This led to an enormous flow of speculation outside China, that didn’t stop yet.

Due to the opacity and secrecy of the Chinese presidential elections and the enormous (economic) importance of the Chinese leadership for the country itself and the rest of the world, these elections can be a snake-pit of plots, betrayal, violence and candidates that fall into disgrace with the Communist Party, while other candidates suddenly can come up like a rocket.

Already for thousands of years, the whole officialdom surrounding the Chinese central government has been like a swamp wherein people could easily disappear. Things were no different in the times of the great Chinese emperors and their court circle. Everybody who read the wonderful books on the historical Chinese justice ‘Judge Dee’, knows what I’m talking about. These books were written by the late Dutch ambassador and novelist Robert van Gulik and they are situated during the T’ang dynasty (AD 600–900). Little has changed since then.

This brings me to the following conclusion: governments in both the Middle-East region and China may not have caused these riots and outbursts of public rage in their countries, but I can imagine that the unrolling events were not unfavorable to those governments.

There is no betters means than public outrage aimed at a foreign enemy, to distract the people from the internal political and economic situation in their country. It could be that the leaders in China and the Middle-Eastern countries understood this lesson very well and used it to their advantage lately. This thought did also come up with Dexter Roberts, the author of the aforementioned must-read Business Week article:

Given the curious timing of the latest explosion of anti-Japan feeling, some are wondering whether there is any connection to the ongoing once-in-a-decade leadership transition, with a key Communist Party Congress expected to open as early as next month. A still-unexplained two-week-long disappearance by Vice President Xi Jinping, presumed to be the country’s next leader, sparked concern over his health and set off speculation. (A smiling Xi resurfaced on Sept. 15 at the China Agricultural University in Beijing, where he was shown examining ears of corn.)

The top theory is that China’s leadership may be encouraging the nationalist outpouring to distract attention from continuing dissension at home, including debates over who will ultimately be named to China’s nine-member reigning body, the Politburo Standing Committee. Many expect the final cut to include only seven people, with the Committee reduced in size.

I couldn’t agree more.

Dutch housing market in a nutshell: more optimism, but not much to be optimistic about!

It’s been a while ago since I last wrote on the Dutch housing market. Since then there has been a dramatic change in The Netherlands, although it is not clear what the direction of this change eventually will be.

The elections of Wednesday, 12 September, for the Dutch 2nd Chamber of parliament showed a clear victory for the liberal-conservative party VVD of PM Mark Rutte (41/150 seats) and the Dutch labor party PvdA (38/150 seats).

All other parties ended up with clearly fewer seats and the disappointment among especially the socialist SP, the right-wing PVV of Geert Wilders and the Christian-Democrat party CDA was big, as all three lost many seats when compared to respectively the latest prognoses (PVV, SP) and the latest elections (CDA).

Although the VVD was the clear winner of the elections, the voter made a second stint of the dreary and lackluster cabinet VVD-CDA(-PVV), aka Rutte I, de facto impossible as all three parties combined are still lightyears away from the required 76 seats in the 2nd Chamber. That is the good news.

The bad news is: with the VVD in a new government, it is still implausible that structural policy changes are applied to the Dutch housing market and especially the Mortgage Interest Deductability (MID), that – together with the extremely low interest of the last 15 years – created a housing bubble of epic proportions in The Netherlands.

Dutch houseowners are slightly less gloomy (source: www.bnr.nl)

The consumer trust at the Dutch housing market seems slowly recovering. The market indicator of the home-owners association Vereniging Eigen Huis (VEH) and the Delft Technical University rose to 57 points in August. In June and July the indicator didn’t exceed 54 and 53 points respectively. Slightly better, but still extremely low when compared to the 90 points of summer, 2007.

VEH-housing consultant Bob Maas states that more potential house-buyers now understand that a low mortgage interest has a positive effect on the housing supply. ‘They feel it is now time to strike in order to avoid political decisions on reduction of the MID’.

It were people like Bob Maas that made me start my blog. The man is clearly clueless: the Dutch housing prices are still skyhigh, due to the relatively low mortgage interest rate and the MID. 

Since the moment of peak housing prices, the housing prices didn’t drop by much more than 10-15%, while the government failed to run the gauntlet concerning the Dutch housing market. 

The result is that the Dutch housing market is still firmly locked. Wise people that can afford to wait, should wait until the housing prices dropped further, unless they really need their desired new house and can easily afford to buy it.

5% of the Dutch houses are currently vacant (source: www.ad.nl)

Almost 5% of the houses in The Netherlands is vacant, according to the Central Bureau of Statistics.

Totalled up, 375,000 of the 7.2 million houses in The Netherlands is vacant. With 75,000 of the houses, this vacancy is caused by usage of the house as a practice, studio or second house. The rest is really vacant.

Over 15% of the vacant houses is built after 2000. Two-third of all vacant homes is a rental house. According to the CBS it is improbable that vacancy will increase in the coming years, as the supply of newly-built houses has dropped, while the number of households has increased at the same time.

So far for Bob Maas: 300,000 houses are really vacant of which 100,000 owner-occupied houses. Many older rental houses are vacant, because of renovation or demolition, but that is not true for the vacant owner-occupied houses.

If the housing market would be on its way to recovery, you would expect this number to drop, taking into consideration that the number of newly-built houses dropped sharply. Instead, the number of vacant houses is stable over the last two years. 

And what to think of the 15% vacant houses that have been built after 2000; there is clearly something wrong with these houses. Either these houses are too expensive, not suitable for the distinct groups of people looking for a house or in a impopular neighborhood. Summarized, the problems are far from over and the vacancy is there to prove it.

Less houses and mortgages sold in August 2012 in The Netherlands Y-o-Y; M-o-m sales shows a slight improvement (source: www.kadaster.nl)

This is to rub it in once more.

Year-on-year sales of houses in August 2012 dropped by 16.2%: to 8,384 sold houses from 10,009 in 2011M08. Month-on-month sales increased by 12.5% from 7,451 houses.

The number of registered mortgages in August dropped by 24.3% y-o-y: to 14,446 from 19,082 in 2011M08. M-o-m, there is a drop of 0.5%.

The m-o-m sales data show indeed a slight improvement that could be caused by the effect that Bob Maas earlier described. However, compared to the y-o-y drop, this monthly increase is peanuts and I’m sure that the (seasonal) effect will be short-lived. The drop in mortgage sales by 0.5% m-o-m shows too that everything is not hunky-dory yet in the Dutch housing market.

Number of foreclosures increased in August 2012 by 18% Y-o-Y (source: www.Z24.nl)

The number of houses that has been foreclosed, has soared y-o-y by 18.1%: to 170 from 144. The increasing number is remarkable as protests against foreclosures have been mounting. The auctions would not be executed fairly in general, which leads to higher residual debts for the former owner than deemed necessary.

On a total housing stock of 7.2 million houses, the number of 170 foreclosures is still extremely low. This is not so much a sign of health of the Dutch housing market, as it is that foreclosure is a step-of-last-resort that all parties (homeowners, realtors and banks) desperately avoid.

One of the reasons for this evasive behavior is that the Dutch SIFI (systemically important financial institution)-banks (ABN Amro, ING bank and Rabobank) absolutely not want that the true value of the Dutch housing stock will get at their balance sheet, knowing that many mortgages will be underwater in many years to come. 

The banks rather kick the can down the road for some extra months, while hoping for a miracle. A miracle that won’t come.

Local municipalities got stuck with massive excess ground positions (source: www.romagazine.nl)

For more than 10,000 hectares (24,711 acres) of community-owned building ground, there is hardly any demand from the owners, according to an investigation executed by the Kadaster and engineering agency DHV. For the whole country, the municipal ground reserves have been compared to the CRE and RRE (commercial/residential real estate) demand until 2025. The excess ground represents a value of €1.1 bln.

Municipal ground-owning companies are in dire straits currently. A lot of ground has been bought during the last 20 years. As a consequence of the economic crisis and the stalled housing market, these supplies weigh heavily on the municipal balances. Losses are huge: varying from €2.9 bln (Deloitte) to €3.2 bln (Professional council Municipal Finances) for all Dutch communities.

The CRE/RRE crisis made the problems at the ground-owning companies visible and reinforced these effects. The Dutch housing market is locked, there is an excess of industrial/commercial zones and (structural) vacancy on the CRE-market is still mounting.

Inquiring minds that speak Dutch or use a good translator, read the whole report, as this is a must-read document. Even if the real estate crisis and the economic crisis would not have happened, the kamikaze behavior of communities concerning ground-ownership and the development of excess industrial/commercial zones would have led to the current anyway, albeit a few years later. 

The crisis sped up the process, but didn’t cause it. The communities themselves caused it. Unfortunately the Dutch municipal tax-payers (we all are) must foot the bill for this erratic behavior.

Summarized, it puzzles me that the Dutch home-owners are slightly less pessimistic, but I’m happy about it. To be honest, they don’t have a good reason to be this optimistic, in my humble opinion.

Great Britain considers to introduce a ‘fast-lane’ through customs for wealthy passengers and people that are ‘important for the country’. Why not leading the other lane straight back to the plane?!

A lot of people that travel to the UK via Heathrow know the problem: long queues for the British customs and frustrating minutes (sometimes even hours) of waiting before you can finally enter the country.

As the British are very aware of this problem, they put their smartest thinkers on it and came with an original solution: a fast-track lane through the customs service ‘for wealthy people and other people that have added value for Britain’. Of course, the less loaded and/or high potential visitors don’t mind to stand in line for hours.

The Guardian writes on this story. Here are the pertinent snips:

High value' air passengers may get fast-track passport checks

UK Border Agency working on plans for priority passport lanes for rich travellers at Heathrow and other British airports

The UK Border Agency has disclosed that it is working on plans for fast-track passport lanes for rich travellers at Heathrow and other British airports so it can avoid a repeat of the two-hour queues witnessed this year. Brian Moore, the departing head of the UK Border Force, told MPs that "high-value" people who were considered valuable passengers by the airlines or valuable to the British economy would be given priority treatment at immigration control under the plans.

It would be an extension of a priority queueing system tried out this year at Heathrow, under which passengers from Australia, Canada, the US, New Zealand and other mainly "old Commonwealth" countries who do not need a visa to enter Britain would be fast-tracked.

Moore told the Commons home affairs select committee: "It is an idea that officials are discussing with port operators. It will then go back to ministers for them to consider whether and how it is going to be progressed. It is an idea that is being pursued."

Keith Vaz, the committee chair, pressed Moore as to whether it meant the super-rich would have a fast-track into Britain. Moore said it would cover people who were "valuable to the economy and were valued by the airlines". He said the move was intended to demonstrate that Britain was "open for business".

The super-rich from outside Europe have already been offered a fast track to settle in Britain under immigration rule changes proposed last year. Overseas "super-investors" who are willing to keep £5m in a UK bank account are to be given the right to stay indefinitely in Britain after only three years, two years faster than the five-year wait imposed on every other migrant. An overseas investor who is willing to deposit more than £10m will be able to stay after an even shorter period: two years.

This contrasts sharply with the new minimum income threshold of £22,400 a year introduced in July for a British citizen wanting to bring an overseas spouse and child into the country to live with them.

I have a much better idea. As it is not simple enough for the British Border Service to be understood when written down, I made a drawing of my idea:

Drawing made by ernstseconomyforyou.blogspot.com
Click to enlarge 

It is a bad drawing… and a bad joke. However, that is the idea of the British Border Service too. It is preposterous and it shows that Britain seems to be on its way to become a two-caste society again, with a rich and wealthy caste that can do and afford anything, as long as they pay for it. The remaining caste of Dalits (untouchables) doesn’t have any rights and should gather the breadcrumbs that the other caste is throwing at them.

The last paragraph is an indication of this development: it is not allowed to live in Britain with an overseas spouse, if you don’t earn at least £22,400 a year. As I have an overseas spouse myself, I consider it an inalienable right of people to marry the man or woman they love.

It makes sense that new citizens in a country should not directly apply for a welfare subsidy. Therefore it also makes sense that the people who invite them to live in Britain should earn a decent salary. That is the part that I understand. 

However, €22,400 is more than a decent income. According to Wikipedia, the median income in Britain in 2007 was $25.168 or £12,584. Today the median income will hardly be much higher, I presume. This means that marrying the man or woman you love is not a right for every Briton anymore, but only for a happy few that can afford it.

At least, until the grandson of Neil Kinnock stands up and fights his grandfather’s battle all over again. I wish him luck with this battle.

New Apple iPhone 5 gets an indifferent reception after its presentation. Did the magic of Steve Jobs indeed vanish from Apple, leaving ‘just another brand’ behind?

Over the last ten years Apple (AAPL), the Cupertino, California-based electronics company, has been the brand with the most devoted, almost religiously inspired followers: people that worshipped the design and marketing genius of Steve Jobs and treasured their iPads, iPods and iPhones like it were family jewels.

People also, that were willing to pay more than $700 for a smartphone without contract and $500 for a tablet-computer that generally did the same as a $400 smartphone and a $300 tablet from competitors like HTC, Acer and Samsung. It seemed that Apple had invented the ‘goose with the golden eggs’.

However, already in one of my first blogs Steve Jobs and the ‘cult of personality’ from January 18, 2012, I warned for the dangerous side-effects of the strong dependency from Apple on Steve Jobs:

You could conclude that Steve Jobs and Apple Inc. are both victims of the Cult of Personality: Apple without Jobs is just another electronics firm with fierce competition in all markets where they operate, but with Jobs it is a company with divine status and an unbeatable track record.

And on Thursday, October 6, 2011 I wrote immediately after Steve Jobs passed away:

I’m convinced that the brand will survive this terrible blow. The drop of the exchange rate of 3% yesterday seems to point out that the investors also keep their trust in the brand.

But still the brand will never be the same without its founding father. And the products might have lost a little bit of their uniqueness and charisma, now their creator is not around anymore. Apple will become a brand a little bit more ordinary.

It might be coincidence, but the presentation of the desirously anticipated iPhone 5 on September 12, 2012 was somewhat of a disappointment, to say the least. The iPhone 5, the first new iPhone after the death of Steve Jobs, got an indifferent, not to say disappointed reaction from the professional critics. The Financial Times wrote upon it:

Launch of thinner iPhone lacks surprises

Apple has launched its most important new product since the death of co-founder Steve Jobs with the unveiling of a thinner and lighter iPhone that the tech group hopes will trigger a new wave of sales as demand for its predecessor flags.

The iPhone 5 builds on the legacy of Mr Jobs rather than opening a new chapter in Apple’s long history of innovation.

The iPhone 5 trades heavily on Apple’s powerhouse branding and customer loyalty to its App Store and iTunes services, while its availability in more than 100 countries before the end of the year is likely to guarantee a blockbuster final quarter’s sales.

The hardware specifications of the iPhone 5 are largely in line with what industry experts had expected, and match, rather than exceed, those offered by rivals such as Samsung’s Galaxy SIII, which runs Google’s Android software and has sold 20m units since its launch in the spring.

Yet Mr Cook stressed the value of Apple’s integrated hardware and software, highlighting improvements in the iPhone’s maps and photography features, and the way the device works with other Apple products and services, including an improved iTunes and iPod line-up.

“What places Apple way out in front of the competition is how they work so well together,” Mr Cook said. Almost a year after the death of Mr Jobs, Mr Cook said Apple’s employees “are doing the best work of their lives”.

But analysts said Apple had not succeeded in providing the “one more thing” that some had hoped for. “The surprise was that there was no surprise,” said Adam Leach, analyst at Ovum. “It is an incremental product upgrade, which is showing how mature the product is.”

Although the critical reception has been moderate, I still expect the iPhone 5 to be an immediate sales monster that will probably bring a very good Christmas season for Apple. Apple has wealthly and extremely loyal customers that want to be seen with the latest products from this powerhouse brand. What could go wrong, you would ask?!

Nevertheless, it seems that the true magic in Cupertino has gone. Just like I already predicted in 2011, ‘Apple has become a brand a little bit more ordinary’.

The deadliest remark on the new iPhone 5 was that of Adam Leach: “the surprise was that there was no surprise” (see second red quote). Tim Cook’s desperately optimistic words “What places Apple way out in front of the competition is how they work so well together[…]" (see first red quote), suddenly seem nothing more than cheap marketing babble.

Does this mean that the iPhone 5 is “just another smartphone” and Apple “just another brand”? In a sense, yes. People, to start with the critics, expected a miracle from the new Apple iPhone, but received a beautiful and probably very well-built smartphone with a number of new features. But a miracle?! No way, sir.

I expect the aura of magic to slowly disappear from Apple in the coming years. Tim Cook seems definitely not a magician like Steve Jobs was. The good news is that the brand will survive, without a doubt. The bad news could be that the shareholders might have to accept a lower future stock rate for their $669 Apple shares.

This article reflects my personal opinions and should not be treated as an investment advice!

The dark side of cheap labor and production facilities in the South-East Asian manufacturing industry

Today, there was confronting news for all western companies that purchase low-priced textiles, garments and footwear in South-Asia and mainly watch the financial bottom line during their ponderings on the ethics of doing business in the low wage-countries.

Today, in a horrific coincidence, there were deadly factory fires in the two biggest cities in Pakistan: a garment factory in Karachi and a shoe factory in Lahore burnt to the ground, claiming the lives of respectively 289 and 25 people until now. The final death toll might be far worse, as not all victims are salvaged yet.

Although the cause for the fire in the garment factory in Karachi is not clear yet, the true reason for the gruesome death toll were the terrible and criminally unsafe labor circumstances: emergency exits and one entrance door that had been locked, windows that had metal grilles, sprinkler installations and smoke detectors that did not work or were not present at all. People were trapped like rats and were smothered to death by the smoke and sometimes even burnt beyond recognition.

The fire in Lahore was probably caused by a technical malfunction of a generator, but also here the extremely high death toll seemed to be caused by the unsafe labor circumstances.

Here are the pertinent snips from the story as written by Associated Press for the Chicago Sun-Times

Deaths in factory fires in Pakistan up to 314

The death toll from a pair of devastating factory fires that broke out in Pakistan’s two biggest cities rose on Wednesday to 314 people, many of whom perished because they were unable to escape buildings that lacked emergency exits and basic safety equipment such as alarms and sprinklers.

The horrific toll highlights the atrocious state of industrial safety in Pakistan, where many factories are set up illegally in the country’s densely populated cities, and owners often pay officials bribes to ignore safety violations.

The more deadly of the two blazes, which both erupted on Tuesday night, was at a garment factory in the southern city of Karachi, the country’s economic heart.

The death toll there rose to 289 people Wednesday, as firefighters battled the flames for hours, said senior government official Roshan Ali Sheikh. It was one of the worst industrial accidents in Pakistan’s 65-year history, and Sheikh said the death toll could rise because rescue workers were still pulling bodies out from the site in Karachi.

Most of the deaths were caused by suffocation as people caught in the basement were unable to escape when it filled with smoke, said the top firefighter in Karachi, Ehtisham-ud-Din. There were no fire exits, and at least one of the main doors leading out was locked, he said. It’s unclear what caused the fire.

Workers on higher floors of the five-story building struggled to make it out of windows that were covered with metal bars. Many were injured when they jumped from the building, including a 27-year-old pregnant woman who was injured in the fall.

“There were no safety measures taken in the building design. There was no emergency exit. All the people got trapped,” said senior police official Amjad Farooqi.

The factory’s managers have fled and are being sought by police, said Sheikh, the senior government official in Karachi. Authorities have placed the name of the factory’s owner on a list of people who are not allowed to leave the country, said Sheikh.

A fire also swept through a four-story shoe factory in the eastern city of Lahore on Tuesday night, killing 25 people, some from burns and some from suffocation, said senior police officer Multan Khan. The factory was illegally set up in a residential part of the city.

It broke out when people in the building were trying to start their generator after the electricity went out. Sparks from the generator made contact with chemicals used to make the shoes, igniting the blaze. Pakistan faces widespread blackouts, and many people use generators to provide electricity for their houses or to run businesses.

One of the workers, Muhammad Shabbir, said he had been working at the factory for six months along with his cousin. He said all the chemicals and the generator were located in the garage, which was also the only way out of the building. When the fire ignited, there was no way to escape.

There are a number remarks that I want to make concerning this shocking and saddening story:

a.    I don’t have any clues (yet) that western companies did business with these particular companies. This means that I cannot state that western companies could have had influence on the labor circumstances in these two factories;

b.    At one hand I consider it quite distasteful to write a moralistic story over the heads of the grieving families in Pakistan, who lost their loved ones or still have to live in uncertainty, unaware of their relatives’ fate;

c.    On the other hand: unfortunately, the events in Pakistan are not particularly new. In the past we heard more horror stories from China, India, Vietnam and almost all other low-wage countries. We know these events happen and we know that there is definitely a positive correlation between the low prices of their products at one hand and the lacking safety and  bad and unhealthy labor circumstances at the other;

d.    We know that people in these factories and sweat shops in the low wage-countries often have been treated like cattle, or to state it more modern: like simple, replaceable means of production that have no additional value for the company than the value of their (manual) labor;

e.   We know that some of the most famous, rich and respected multinationals, like Apple, Nike, Adidas and C&A know these circumstances too. Although all of these companies pay lip-service to improvement of labor circumstances in the low-wage countries and some of these companies are even going through the motions for improving these circumstances, in the end the financial bottom line seems to win… too often;

f.     One thing is certain: consumers should not decide with their mouths, concerning brands and companies that do business with factories and sweatshops in low wage countries where the most basic safety and labor rules are neglected, but with their feet and mousehand;

May your feet and your mousehand decide wisely in the near future.

Albert Heijn unilaterally raises its payment discount by 2 per cent. Suppliers are shocked by this extortion-like practice and ponder on countermeasures.

Very large companies have great and sometimes almost unlimited power over their suppliers. These companies can make or break them and sometimes mean the difference between healthy profits and large losses in one year for these suppliers. 

In economic good times, when everybody earns his daily bread quite easily, this power is seldomly abused. However, these are not good times, so everybody plays for keeps, including the large companies. Suffice it to say that the large companies not always play by the rules, but sometimes abuse their powerful position.

The latest protagonist in this range is Albert Heijn (AH), the largest supermarket chain in The Netherlands with a domestic market share of 33.5%, according to research bureau Nielsen. Albert Heijn is part of Ahold, an internationally active behemoth in supermarkets and convenience stores with €33 bln in net sales and a balance value of €14.9 bln for 2011.

Today, the Dutch financial newspaper Het Financieele Dagblad wrote that Albert Heijn unilaterally raised – by 2% –  the payment discount it receives from its suppliers. This step was announced in a letter that Albert Heijn wrote to all its suppliers. Here are the pertinent snips of this story.

Albert Heijn lets suppliers pay for its own expansion

Albert Heijn unilaterally increases the payment discounts that it normally receives from its suppliers and manufacturers of groceries and non-food articles.

By doing so, the largest supermarket chain in The Netherlands forwards the bill of its own expansion plans to its suppliers. This is disclosed by a letter that Albert Heijn wrote to its suppliers and that is in possession of Het Financieele Dagblad. The letter is confirmed by various suppliers of the supermarket chain.

It is the first time that Albert Heijn unilaterally establishes a raise of the discount it receives from its suppliers, being a very large customer. The retailer raises the discount by 2%, effective on Monday, September 17.

An insider points out that this measure is especially targeting small suppliers/manufacturers of food products. “This is crazy. You don’t want to know how many telephone calls of outraged suppliers I received. Family businesses that are supplying Albert Heijn, have an average margin of 1 or 2%. These companies immediately enter into red figures after this measure.

From a legal point of view Albert Heijn has no case at all, according to Edgar du Perron, professor in Private Law at the University of Amsterdam. “But you can always try it and look how the counterparty reacts. Seemingly, this is the kind of power that AH has got”.

“It is very rude from a business point-of-view to make such a statement”, according to a supplier that wants to stay anonymous, as he is entering negotiations for 2013 with Albert Heijn very soon. “As a matter of fact, there is an agreement. You can’t just push that to the side at will”.

Albert Heijn sees this differently: ” The market is dynamic”, according to a spokeswoman, “changes in the meantime are sometimes necessary”.

Last year, when the company was negotating the prices and terms of delivery for 2012, it was yet unknown that Albert Heijn would take over 78 C1000-supermarkets in The Netherlands. Besides that the company invests plenty of money in its expansion in Germany and Belgium. As this will lead to acceleration of growth, the company thinks that it may pass parts of the bill to its suppliers. “As a supplier you grow with us, for instance by volume growth”, according to AH in its letter to its suppliers. “To facilitate this growth, we find it appropriate when you share a part of the burden”. The company doesn’t want to disclose how much money this measure should deliver”.

In 2011, Ahold had net sales of €10.5 bln in The Netherlands, of which I presume that approximately €8 bln is supplied by Albert Heijn alone. As Ahold operates on a margin of 6.3% in The Netherlands, this means approx. €7.5 bln in purchases. When AH could reduce these purchases by 1% due to this extra payment discount, this would mean €75 mln in extra margin. That is IMO more than enough to open at least 3-4 new supermarkets.

I don’t know if my calculations are right, but I’m certain that these payment discounts mean a multi million Euro business for Albert Heijn. From their point of view I understand that the company wants to reduce its purchase costs. However, the margins in the food and small household appliances business are in general very small. I believe the anonymous commenter in the FD-article who states that giving away 2% in extra discount to Albert Heijn could mean red figures over the year for some manufacturers.

What I don’t like is the way in which the company tries to achieve this reduction in purchase costs. Especially for small suppliers and manufacturers of food products Albert Heijn is of utmost importance. Losing this company as a customer would mean a disaster for many of these companies. This is the reason that Albert Heijn can choose for this kind of extortion-like strategy and it is the same reason that most suppliers probably bite their tongues in public, but complain at their peers in private (see the red, italic text in the article).

A nasty side-effect is that when Albert Heijn gets away with this, other large supermarket chains and central buying organizations will try to do the same trick (Jumbo, SuperUnie).

Currently the suppliers are pondering on countermeasures, like writing an angry letter to AH, in which this unilateral measure is rejected. However, frankly I’m not very optimistic on their chances. What Albert Heijn wants, happens in general. The company is just too big and powerful to have an argument with it as a supplier. Most suppliers of AH understand this very well, unfortunately.

The straight, non-italic text reflects my personal opinion.