Although the aforementioned incidents have pushed responsible sourcing back into the spotlight, remedying violations appears easier said than done. It’s an issue that can’t be ignored either, as Germany’s Supply Chain Due Diligence act could see firms fined several million euros.
In light of this, how can shippers take action? According to an expert on responsible sourcing who recently spoke to trans.iNFO, vertical supply chains and blockchain could be the answer.
How recent events have thrust responsible sourcing back into the spotlight
In the aforementioned Oxfam report, it was claimed that four major German supermarkets had sourced fruit from suppliers who subjected staff to abject pay and conditions.
Among other things, it was alleged that one supplier regularly dropped fertiliser from a light aircraft onto its workers in the field below. In another case, it was said that labourers in Costa Rica were being paid as little as 50% of the national minimum wage. It was also reported that workers based in Ecuador were not paid for overtime.
The report adds that although the supermarkets received certifications that their suppliers were compliant with accepted standards, the reality was often somewhat different.
One labourer told Oxfam: “Certification companies like Rainforest [Alliance] come here and only take lies and falsehoods with them. They certify the company and say it meets the requirements and that is false, it’s a lie. The company avoids all obstacles, but does not comply with the rules set by the buyers.”
As Oxfam explains, there could be consequences for this apparent lack of responsible sourcing. The charity has submitted a complaint to BAFA (Germany’s Federal Office of Economics and Export Control) regarding human rights violations pertaining to the country’s Supply Chain Due Diligence act.
Violations of this law can’t be underestimated; they could see companies issued a fine as high as €8m euros or 2% of annual turnover.
What the German authorities are doing to monitor supply chains
Recent comments made by BAFA President Torsten Safarik indicate that the authorities are taking alleged violations of the Supply Chain Due Diligence Act seriously.
In an interview Safarik did with German trade union Verdi, published on Monday, it was revealed that a number of actions are taking place concerning compliance with supply chain laws.
A case in point is the meeting BAFA has planned for January 2024, which will work towards issuing clear guidelines for the road transport industry to avoid violations.
The motivation for the meeting is of course the saga involving the drivers of Polish haulage firm Agmaz. The drivers, mainly from Eastern European and Asian countries, staged two strikes in a Gräfenhausen lorry park earlier this year after claiming they had gone several months unpaid.
According to trade union representatives from Germany and the Netherlands, an investigation led to the discovery that Agmaz was transporting goods to big names like Red Bull, Porsche, Audi OBI and IKEA. The unions also said that DHL and Dachser were implicated.
Reacting to the above, a DHL spokesperson admitted to German newspaper Bild that its subcontractor had subcontracted to Agmaz against its knowledge.
“There is still no direct contractual relationship with the Mazur Group. In April, after the allegations became known, we immediately put the company on a group-wide blacklist in order to rule out future orders. According to our present knowledge, a transport company commissioned by us has, contrary to our supplier code of conduct and contractual agreement, outsourced an order without our absolutely necessary prior consent, in which a part load was then consolidated, i.e. combined with the goods of other forwarders.”
Will such an excuse be acceptable in the future? According to Safarik’s recent interview with Verdi, it appears not:
“The Supply Chain Care Act is not just about the direct contractual relationships, but also about the depth of the supply chains. The companies concerned are obliged to carry out regular, ad hoc investigations. Such an occasion for this could, for example, have been the first strike at Gräfenhausen in April. Based on the shipping documents, we determined that the Mazur [Agmaz] trucks were loading goods from 58 companies covered by the Supply Chain Diligence Act. That’s 5% of all companies to which the law applies – a surprising number! There are also around 70 companies that have fewer than 3,000 but more than 1,000 employees. The law applies to them from January 1, 2024.”
Regarding how the law will policed, the BAFA President had the following to say:
“We scan the media landscape to identify possible violations. You can also submit complaints to us. If we suspect that human or environmental rights are being violated, we can require companies to provide us with information. We can also check their books on site. And if the worst comes to the worst, we can impose fines of up to €8m euros or 2% of annual turnover.”
Safarik did nonetheless add that BAFA’s goal is “not to impose sanctions, but rather to support companies in improving the situation.”
When challenged during the interview about whether the Supply Chain Due Diligence Act is largely being ignored, Safarik also issued an emphatic denial:
“The Supply Chain Due Diligence Act is on everyone’s lips and most companies are taking the law seriously. This year alone I have been to over 50 events that dealt with this topic. So there is a lot of movement there – not just since the law came into force at the beginning of 2023, but since its adoption in the summer of 2021. Many companies have prepared intensively for this during this time. Some have long been concerned with ensuring the protection of human and environmental rights. Others still need a push to get better here.” said BAFA’s President.
Not just a German issue
Naturally, shortcomings with responsible sourcing are not merely a matter for German companies. In another high profile case that emerged in the media this week, UK online fashion retailer Boohoo was accused by the BBC of failing to fulfil its pledge to source more responsibly.
During a documentary programme that involved undercover journalists, staff were filmed and recorded pushing clothing suppliers to accept rock-bottom prices – even after deals had already been agreed.
The report by the BBC comes after Boohoo launched an “Agenda for Change” programme in 2020, which itself was a response to reports that the company’s UK factory workers were paid below minimum wage and endangered by an unsafe working environment.
In reaction to the documentary, a Boohoo spokesperson told the Independent:
“Boohoo has not shied away from dealing with the problems of the past and we have invested significant time, effort and resource into driving positive change across every aspect of our business and supply chain. We work in a constructive way with our suppliers to deliver great value for our customers. Our suppliers pay at least national minimum wage where they operate. The majority of our suppliers have worked with the Boohoo group for a number of years, something that would not be possible if the work was not profitable.”
Why there are still many shortcomings when it comes to responsible sourcing
Given the reputational damage caused by these media reports, not to mention the threat of huge fines in Germany due to the Supply Chain Due Diligence act, one would expect responsible sourcing to be a priority.
However, Professor Gary Mortimer of the University of Queensland, an expert on responsible sourcing, food retailing, retail marketing and consumer behaviour, has told trans.iNFO that the reality is somewhat different.
During a recent interview with trans.iNFO, the respected academic explained how the behaviour of consumers is a key factor hindering the drive to rid human slavery from supply chains.
“People are economically bound and constrained,” Professor Mortimer told trans.iNFO. “There’s not a great deal of consideration on where that product was produced, or where it’s come from,” he added.
According to Mortimer, although consumers may say they are prepared to pay extra for responsibly sourced goods, people often convince themselves of the opposite when actually making a purchase:
“We tend to be conditioned to almost create excuses to justify the purchase we’re about to make. And we often fall down to that voice. Someone might think to themselves that any job is better than no job, and that 50 cents a piece is better than nothing. They might think that the living costs are much lower where the factory is and justify it in that way,” said Professor Mortimer.
One of the reasons this occurs, according to Mortimer, is the distance between the supplier and where end products are sold:
“The other reason is the psychological distance that exists between the factories and the clean environment of a supermarket where a pile of new clothes have just come in. When inside a lovely, air conditioned and brightly lit store, psychologically we just don’t understand how those products are made, or where they’ve come from. They’re completely disconnected. Imagery, of course, tends to help – but only to a point I guess.”
We also quizzed Mortimer about the outsourcing issue, and whether it could indeed be a legitimate excuse for having a supply chain marred by human rights abuses.
Interestingly, he offered a more nuanced opinion compared to BAFA President Torsten Safarik:
“On one hand, one would say it’s convenient for them to say that’s not our bit of the chain, we can’t control it. However, I think there’s actually a legitimate argument here too. A company could have gotten so big with a chain so long that it can only physically control elements of that chain up to a point.”
Explaining further, Mortimer added:
“When you’re dealing with the horizontal chain, which might involve raw goods and sourcing through to manufacturing through the wholesaling, through the distribution, through the retailing and all the nodes in between, it can get quite complex.”
What can shippers do to best eliminate human rights violations in their supply chain?
Given the complexity Mortimer refers to, how can shippers ensure they are not caught out?
One solution is to move from a horizontal to a vertical supply chain, a change that a few high-profile retailers in Australia have already put in motion.
“Kmart, for example, they’ve got rid of all of their brands. They used to have Revel, Sanyo and Sony, and they’ve just created their own brand called Anko. They now contract factories to produce the product for them. They’re aware of the transportation companies, from those factories to the ports. They’re aware of the ports and the ships that go from the ports down to Australia, and then into their own distribution centres. So really, the whole chain is now quite vertical and controlled,” explained the Professor.
Digital tools and technology, including blockchain, also have the potential to help according to Mortimer. He told trans.iNFO of how he had been part of a project that was using blockchain technology to legitimise where products were coming from. The system was designed to confirm legitimate indigenous art.
“All the way through that process, you could stop and get an overview of the artist, the country, and a video clip of the product being made. That same type of technology can probably be used for transport too,” said Mortimer.
Photo: Streunerich, CC BY-SA 4.0, via Wikimedia Commons