Michael Wurmser



Verticalization is the new globalisation


In our pre-pandemic world, globalisation – although in trouble – was still a big thing. And by that, I mean the flow of people, trade, and capital. When it comes to trade specifically, Covid-19 then ushered in extraordinary chaos: the rising cost of cargo containers; the astronomical rise in shipping rates; the clogging of containers in port yards; the shortage of wooden pallets; the dearth of truck drivers; and the constraints on warehousing capacity. These unprecedented constraints on our global supply chains, on which we’d become so naively reliant, changed the way we do business with other parts of the world irrevocably.

Supply chain dislocations

A recent survey by Make UK (a UK engineering employers’ federation) puts things into perspective. The federation’s insight reveals that the supply chain dislocations of the past two years have ended decades of sourcing components offshore. ‘Offshoring’ has been the trend for western manufacturers for a long time, where supplies are sourced from lower-cost economies like China and southeast Asia. Now a more vertical approach to supply chains – where supplies are being sourced much closer to home, often within the same country – appears to be gathering pace. The war in Ukraine is likely to give further impetus to this trend.

According to Verity Davidge, Director of Policy at Make UK, “For decades manufacturers have used increased globalisation and supply chains to drive efficiency and create lean manufacturing processes that have helped them to grow and remain competitive. We may now be seeing the era of globalisation passing its peak, with disruption and volatility for global trade fast becoming normal. For many companies this will mean leaving just-in-time behind and embracing just-in-case.”

A forced re-think

The whole concept of ‘just-in-time’ global trade, it seems, is now being turned on its head wherever possible – with companies, manufacturers and governments all starting to think more vertically. It’s a forced re-think, but one that will create value chains that, in my opinion, are less susceptible to global vulnerabilities; ones that are resilient and reliable. Savings in time, cost, efficiency, sustainability. It all makes sense.

Under one roof

Sense that Tesla Chief Executive and now Twitter bidder, Elon Musk clearly has. I know I refer to Elon Musk quite frequently, but his actions do encapsulate a few key points of the verticalization narrative. Take his increasing number of Tesla giga factories, for example – of which there are now four (Nevada, New York, Shanghai and Berlin). Under one roof, Tesla can create electric vehicle motors, batteries, chargers and so on. This approach creates economies of scale, innovative manufacturing, and reductions of waste. His production lines are becoming increasingly more centralised, more vertical. Hardly surprising then, in my view, that at the end of April 2022, Tesla’s profits were grabbing the headlines.

But a pivotal development went largely under the radar. According to Reuters: “The U.S. electric pioneer disclosed that nearly half of the vehicles it produced in the first quarter were equipped with lithium iron phosphate (LFP) batteries – a cheaper rival to the nickel-and-cobalt based cells that dominate in the West.”

Supply chain shocks

Why is this important? It comes at a time when there are serious supply concerns about EU Critical Raw Material nickel and cobalt. Russia is one of nickel’s top producers and supplies about 20% of the metal to battery makers. And yet, as mentioned, it’s waging what could be a protracted war against Ukraine. Meanwhile, there’s increasing attention on reports of dangerous conditions at artisanal mines that produce so-called ‘blood cobalt’ sourced predominantly from the Democratic Republic of Congo. In an era where ESG and CSR have become far more than corporate buzzwords, the provenance of raw materials is more important than ever.

‘Vertical’ Norway

On a side note, if others follow Musk’s suit in opting for LFP batteries, then phosphate will be more in demand than ever. Which brings me to Norge Mining’s deposit, which has an abundance of this EU CRM Norway also a history of vertical value chains – such as its silicon one. In the country, more than 100 people work with the extraction of quartz and quartzite, which is subsequently refined to silicon and silicon alloys, through the work of several thousand. Norway, as a producer of several raw materials already used in battery production, is also nurturing a new circular battery industry. These are just a couple of examples of how economic prosperity beckons, in my opinion, for countries that think vertically.

I believe Norway – and subsequently Norge Mining – with its three EU Critical Raw Materials – titanium, vanadium, and phosphate – will be a focal point for more vertical value chains in future, creating and connecting strong networks of like-minded industries and manufacturers (governments even) in the future. Lower transportation costs and turnaround times, reduced disruptions, and quality issues from suppliers, economies of scale and improved profitability. Verticalization is the new globalisation. And it’s here to stay.