As part of a six-pronged national strategy to combat COVID-19, President Biden announced last week that all private employers with 100 or more employees will need to ensure that their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before reporting to work. Non-governmental entities and their work forces are expected to have between 50 and 90 days to comply with the order once it is signed off on by the Department of Labor as part of a sweeping mandate that will impact a combined 100 million private sector and federal laborers. 

Biden’s initiative – which is the latest push to get individuals across the U.S. vaccinated – will raise an array of logistical and legal questions for the companies that it applies to. Among them, according to Troutman Pepper attorneys Emily Schifter, Tracey Diamond and Richard Gerakitis: Who will pay for non-vaccinated employees’ COVID-19 tests; whether employers will continue to be required to provide exemptions; whether the mandate will cover remote employees; how employers can verify the vaccination status of their workforce; and how the 100-employee threshold will be determined (the 100-employee trigger will apply on a company-wide basis, rather than on the number of employees at a particular site, per Occupational Safety and Health Administration (“OSHA”) senior advisor Ann Rosenthal, but it remains unclear how things like joint employment will factor in.)

(The impending Emergency Temporary Standard (“ETS”) on COVID vaccinations, which will be drafted by OSHA, will almost certainly bring about court challenges, including from states, employers, and/or labor unions. However, as Womble Bond Dickinson stated in a note this weekend, companies should still prepare for its implementation, with “the Biden administration likely to argue that the OSH Act – which generally gives OSHA the ability to issue an ETS that would remain in effect for up to six months without going through the normal review and comment process of rule making – provides OSHA the authority to issue Emergency Temporary Standards for employee safety.”

Meanwhile, Beveridge & Diamond PC attorneys Mark Duvall, Jayni Lanham, and Heidi Knight expect OSHA to defend the vaccine ETS by pointing to “rising infection rates, particularly among unvaccinated persons; the high transmissibility of the delta variant; and resistance to receiving the vaccine.” They note that the key requirements for an ETS are that OSHA determines that: “(1) employees are exposed to grave danger from exposure to substances or agents determined to be toxic or physically harmful or from new hazards, and (2) such emergency standard is necessary to protect employees from such danger.”)

Beyond purely legal and logistical issues, companies are expected to face potential public relations fall out depending on if/how they respond to the impending mandate. “Even if it does not spark many all-out protests, a company’s decision to ignore the mandate might impact brand image,” data intelligence company Morning Consult determined from a recent survey of 4,400 adults in the U.S. Aside from refusing to adopt the mandate, “The longer corporations wait to comply with the new rule, the more they risk reputational damage,” the survey suggests, with the majority of respondents (59 percent) saying that they support corporations with more than 100 employees requiring their staffs to be vaccinated or enforcing weekly testing. 

While 70 percent of the individuals surveyed stated that they would “not go so far as to boycott companies that ignore the mandate, 30 percent said they would consider taking that action against brands that resist Biden’s new rule.” The survey similarly revealed that roughly 1 in 3 consumers (34 percent) would be “more likely to buy products from companies that adhere to Biden’s plan, compared with 12 percent who said they would be less likely to purchase from those businesses.” In terms of prioritizing companies that abide by the vaccine order and do so swiftly, Morning Consult found that “baby boomers [individuals who are currently between 57 and 75 years old], those who earn more than $100,000 per year, and white-collar employees are especially likely to spend money with brands that abide by the rule.” 

With this in mind, companies are not only encouraged to begin preparing for OSHA’s ETS now, including by determining whether the ETS applies to their workplaces, how to deal with remote workers, how to handle employees who refuse both vaccination and testing, and how to keep records supporting compliance, among other things; they should also consider the role that the risk of bad press will play should they fail to abide by the mandate and implement it in a timely manner, as not only are monetary fines at play (the mandate is expected to carry with it a penalty of $14,000 per violation), potential damage to their reputation is at stake, as well. 

Ningbo-Zhousan may not exactly be a household name, but find something in your house made in China – from apparel and accessories to tech gadgets and homewares – and it was likely delivered from there. Overlooking the East China Sea, some 200km south of Shanghai, Ningbo-Zhousan is China’s second-busiest port, handling the equivalent of some 29 million 20-foot containers every year. As of mid-August, the port had more than 50 ships waiting to dock. This was because the Ningbo-Meishan terminal, which handles about one fifth of the port’s total volumes, has been closed for a week after a member of staff tested positive for COVID. 

While this proved to be a temporary, two-week shuttering of operations, it is merely the tip of the iceberg in shipping. China has eight of the top ten busiest ports in world, and they are running at well below normal capacity because of COVID restrictions. From Shanghai to Hong Kong to Xiamen, ships are in long queues to unload – and the diversions from Ningbo only made this worse. Not limited to China, the U.S. west coast has also seen bad congestion, with many ships anchored in California’s San Pedro Bay, awaiting access to the ports of Los Angeles and Long Beach.

This drove the cost of shipping rates for containers through the roof in recent weeks, with the cost of moving a 40-foot container from China to Europe is currently running at around $14,000 or about ten times what it would normally be. So, how long will this continue, and what will the knock-on effects be? 

The Pandemic and Other Problems

The situation is noticeably different than it was in 2020. COVID restrictions had, of course, weakened the cargo-handling capacity of ports then, but it was less of an issue because global demand for consumer products was so much lower earlier in the pandemic as consumers focused almost exclusively on essential goods as opposed to discretionary products. Now that many countries have vaccinated large numbers of people and their economies are reopening, demand has bounced back with a vengeance. Look for further than the latest revenue reports of luxury goods giants for proof. With consumers shopping again, ports are not coping well.

On top of that, there have been other problems, not least of which was the Suez Canal blockage in March. With ships stuck for a week after the huge Ever Given container ship got stranded, transport companies were under more pressure than usual to return to Asia after they finally reached their destinations in Europe and the Americas. As a result, many did not wait to be fully loaded with empty containers, which, in turn, contributed to a lack of shipping containers in Asia, something that was already becoming an issue because of ships not always calling in at their usual ports during the pandemic because demand was much lower than normal. 

The upshot is that containers have become more expensive, thereby, forcing shipping companies to charge higher freight rates to cover the cost. 

At the same time, weather has caused problems over the summer. Both the southern Chinese port of Yangtian and part of the port of Shanghai have spent periods closed in recent weeks because of typhoon alerts. The backlog has also been worsened by major importers baulking at the shipping costs and chartering their own ships instead. Home Depot, the big U.S. home improvement retailer, was among the companies that did this in June. 

Looking Forward

There was actually a slight decrease in shipping rates in over an almost two-week period in mid-August, which prompted the Freightos Baltic Index – the metric for global container freight rates – to fall from $10,380 to $9,568 per 20-foot container. But this is nothing to get excited about. It broadly reflects the fact that the price of shipping goods from China to the U.S. has come down after many ships diverted to that route to make the most of the high prices. Other routes, such as China to Europe and Europe to the Americas, are still mostly going up in price.

As for whether this will continue, it is extremely difficult to say. Some freight companies have ordered new container ships to help address the shortage, but these vessels take two or three years to build. So, that is not going to make any difference in the short term. 

What matters is future COVID outbreaks and to what extent China and other major port nations have to impose tough regulations to protect their populations. Perhaps, we will be lucky and the situation will steadily improve from here, or perhaps this mismatch between supply and demand will endure for several years. In the meantime, we can expect inflation to rise as importers pass on the costs of shipping to customers. Given that governments and central bankers were already worried about rising inflation for various other reasons, they could do without this extra dimension.

If the problem with shipping rates endures, it is also likely to feed into already-existing boardroom discussions – including among fashion and luxury goods purveyors – about whether it is wise to rely so heavily on China as the manufacturing hub of the world. With relations between China and the west already at a low, and much talk of globalization giving way to regionalization, many companies are already arguing that they should make more consumer goods closer to home – or prioritize “nearshoring,” as it is known in the trade.

But more imminently, one big issue will be putting enormous pressure on retailers: Christmas. All of the ships that diverted from their usual China-Europe route to help serve the U.S. are cutting it close to get back to China in time to restock. The crossing takes about 45 days, and they need to then leave China by about mid-October to make the 35-day crossing to get goods to Europe in time for December. If there is still congestion at the Chinese ports by October, this may not be possible. 

Against this background, many brands are busy preparing for the holiday season with a level of urgency that has not been felt in recent years. New York-based Tapestry, which owns the Coach and Kate Spade brands, has been “stockpiling its handbags and other accessories ahead of the holiday season to ensure it can meet consumer demand amid ongoing delays in the delivery of products from suppliers,” Bloomberg reported last month. 

“We find ourselves in a dynamic where the consumer demand backdrop is strong, while supply chain remains challenging,” Scott Roe, Tapestry’s chief financial officer, said in a quarterly earnings call in August, telling analysts and investors that the group is working overtime to “secure significant expedited deliveries, at an additional cost, in order to mitigate the impact of supply chain disruptions, at least through the holiday period.” 

Stavros Karamperidis is a Lecturer in Maritime Economics at the University of Plymouth. (This article was initially published by The Conversation)

LVMH Moet Hennessy Louis Vuitton’s most recent quarterly results suggest that the sales-specific impact of COVID-19 “is passing,” with strength in “numerous categories from Fashion & Leather goods to Wines & Spirits and across continents implying a broad-based recovery in demand for luxury goods” despite the striking drops in sales that have plagued luxury players as a result of the pandemic. In its Q2 letter to investors, investment management firm Polen Capital says that it is continuing to bet on the Paris-based conglomerate, holding that the group – which reported in late July that it generated $33.7 billion in revenue for the first half of the year (up from $21.7 billion in H1 of 2020) – is “poised to continue growing its total returns to shareholders at a low double-digit rate over the coming five years.” 

Looking specifically at the Bernard Arnault-run group’s top revenue-generating brands within the Fashion & Leather Goods division, Polen stated that both Louis Vuitton and Christian Dior “maintained their leadership [in the market],” which the firm says “suggests that the largest luxury brands are continuing to take market share from smaller competitors,” including privately-held ones, as the luxury market as a whole continues to make gains. This is in line with findings from Jefferies analysts, who estimated last month that LVMH’s share of the global personal luxury-goods market has risen from a pre-pandemic 10 percent to roughly 16 percent, helped along, at least in part by its acquisition of Tiffany & Co. LVMH’s growth comes as the global market for personal luxury goods, as a whole, rose by 5 percent between 2019 and 2021, according to Bain, as reported by the Wall Street Journal

The success of conglomerate-held brands in the midst of the pandemic – and rising costs of competing against them in the digital battle field, where many luxury brands were slow to adapt – has opened the door to a steady stream of merger-and-acquisitions, with Etro, Jil Sander, Pucci, Sergio Rossi, Tod’s, and Christian Louboutin, among others, selling off stakes since the onset of the pandemic. And if M&A chatter is any indication, more deals are likely to come, as a handful of key brands remain in independent hands. 

Addressing LVMH’s acquisition of Tiffany & Co. Polen stated that the famed jewelry company showed “a promising start to the year,” but noted that “management cautioned that turning this recently acquired business around would take ‘years, not quarters.’” 

The Rise & Role of E-Comm

Another key takeaway for Polen was LVMH’s increased reliance on e-commerce, which it says “continues to power results during lockdowns.” In its first half report, LVMH specifically highlighted the role that e-commerce has played within its Perfumes & Cosmetics division, stating that its brands “are benefiting from continued growth in online sales, partially offsetting the impact of the suspension of international travel and the closure of many points of sale.” It similarly pin-pointed the “progress” of online sales on a global basis in connection with its Selective Retailing business group, under which Sephora falls. The cosmetics chain revealed in June that it would further expand its digital reach by partnering with Berlin-based e-commerce company Zalando in order to create “an unrivalled online prestige beauty experience for European customers.” That venture is expected to launch later this year. 

“Despite recent strength [in the e-commerce space],” Polen asserts that “LVMH management believes luxury shopping will be an omnichannel experience, with discovery happening online but purchases happening in stores.” This seems particularly likely for brands like Louis Vuitton, for instance, which has significantly bolstered its online offerings, but still does not appear to offer its entire collection for sale online. Of the 466 handbag styles that appear on Louis Vuitton’s e-commerce site, for instance, only 134 are marked as “available online.” At least some of the items are not listed as available online, as they are “out of stock,” but others require consumers to call for availability. 

In this same vein, it will be interesting to see what approach Phoebe Philo takes when she launches her new LVMH-backed eponymous label early next year. The former Celine creative director adamantly opposed social media and e-commerce when it came to the advertising and sale of her quiet-but-pricey offerings. While that approach may have worked in the past, the new demands that have come about as a result of the pandemic, both in terms of mandated lockdowns and corresponding store closures, and in wavering consumer comfort in shopping in-store as opposed to online, particularly in light of the recent onset of the Delta variant, have forced formerly online-resistant brands to embrace digital shopping experiences for fear of missing out on tens of billions of dollars’ worth of sales. 

Uncertainty in the Chinese Market

What still remains to be seen is how luxury goods groups like LVMH will fare amid impending crackdowns on rising wealth inequality in China, which have the stock market spooked and luxury brands in a potentially problematic position, given their large-scale reliance on Chinese consumers for a huge portion of their revenues and growth. While striking stock drops for the likes of LVMH, Kering, and Hermès, among others, on the heels of Xi Jinping’s August 17 call for wealth redistribution, have stabilized, uncertainty continues to loom in light of the messaging coming out of Beijing.

In a note last week, Jefferies analysts Flavio Cereda and Kathryn Parker stated that they believe that the situation in China “is likely to result in some change in spending habits [for the fast-growing cohort of high spenders], certainly in terms of visibility, and may also tweak the marketing campaign of brands.” In addition to changes in the nature and content of brands’ marketing efforts, the looks of their wares very well may be impacted, as well, with a shift towards less ostentatious uses of logos – and even a move away from pricey materials like exotic skins, etc., which have typically been promoted in heavy-spending markets like China – likely to come into play due to the planned crackdowns on excess wealth. This could prove to be damaging to brands, which rely heavily on the margins of logo-heavy offerings, for instance. 

At the same time, brands will also be notably impacted by any additional taxes that are levied on luxury goods. Although, it is unclear if that is the route that the government plans to take, particularly given its sweeping efforts in recent years to get consumers shopping on the mainland. That effort has been helped along significantly by the onset and enduring effect of COVID, but it is not a given that once borders open again, Chinese consumers will not resume their old ways of buying tens of billions of dollars’ worth of luxury goods beyond China’s borders.

A new mandate in New York City requires that consumers be able to prove that they are vaccinated in order to enter indoor public spaces – from stores and restaurants to movie theaters and gyms, and cities in California are expected to follow suit, with lawmakers in Los Angeles having proposed “a sort of ‘no shots, no service’ vaccine mandate” this month, and legislators in San Francisco, for instance, said to be exploring the introduction of a similar approach, which will take effect this month, as well. Both New York and Los Angeles’ proof of vaccination requirements, the first of their kind in the U.S., are slated to go into effect on August 16. 

“It is an appealing solution for local leaders across the country who are desperately trying to fend off another, more severe wave of cases triggered by the highly contagious delta variant,” NPR’s Vanessa Romo reported. At the same time, however, the new push may put additional pressures on retailers and other businesses that are already working overtime to lure consumers back into stores following a widespread surge in e-commerce sales following the first COVID-19 outbreak last year, including from a logistical standpoint, as the call for vaccine verification will require companies to train employees, and to remain abreast of what information they need to collect and record from customers.

The Benefits of Brick & Mortar

While e-commerce sales enabled retailers to operate during the throes of pandemic lockdowns beginning last year, since strict shelter-in-place rules have increasingly lifted, retailers have been exploring ways to get customers back in stores, whether it be via inherently Instagrammable pop-ups shops and in-store exhibitions à la Tiffany & Co. and Dior, the latter of which is bringing its Dioriviera capsule collection to hotels like the Rosewood Miramar in Miramar Beach, California, or wider arrays of products and new partnerships, such as those being touted by big-box chains like Target and Kohl’s

The impetus behind the quest to get people back into brick-and-mortar outposts? Companies’ bottom lines. “Many retailers – from department store chain Macy’s Inc to essential retailer Target Corp – are grappling with higher expenses related to e-commerce,” Reuters reported last summer, estimating that “typical online orders cost retailers roughly 10 to 15 percent more than purchases in stores, where shoppers do the work of selecting items and transporting them home.” In addition to better margins, consumers generally spend more during in-store shopping trips versus the online equivalent, management consultancy Alvarez & Marsal, a management consultancy, and researcher Retail Economics asserted in its recent “Shape of Retail” report.

And beyond that, brands have a better shot at selling more expensive goods in-store than online, as “higher priced items typically involve more considered paths to purchase, commonly relying on a ‘touch and feel’ experience in-store.”

Still yet, the cost for retailers rises online thanks to returns, which do not only “erode profitability for retailers,” according to Alvarez & Marsal and Retail Economics, they also call for “successful reverse logistics for returned items,” thereby, introducing “a host of additional infrastructure costs, too.” The balance between “providing convenient returns for online orders with the cost of doing so efficiently” is a significant struggle for many retailers, which are “battling to cater to rising customer expectations and the fragmented nature of store and home delivery networks.” 

While retail giants like Amazon and Walmart “can spend heavily on projects like automation and inventory tracking to reduce e-commerce expenses,” Publicis Sapient strategy head Hilding Anderson says that this is not an option for most. As a result, getting consumers back in store helps to alleviate many of these issues. 

The new consumer-focused proof of vaccination push comes as a larger vaccine mandate movement is growing, Marketplace revealed this month, citing “a long list of universities, hospitals and, increasingly, private corporations that are making the move,” with Walmart being one of the biggest names to require corporate employees – as distinct from its store and warehouse staffers – to get vaccinated. Experts anticipate that many companies will follow suit, as guidance from the Equal Employment Opportunity Commission enables employers to require employees to get vaccinated as long as employers make exceptions for employees in need of accommodation.

Vaccination Considerations

With the growing push underway, Baker McKenzie partners Susan Eandi, Benjamin Ho, and Robin Samuel encourage companies that are weighing whether to adopt mandatory vaccination policies – in many cases against the risk of losing employees when there is already a retail labor shortage at play in the U.S. – to consider the following … 

State Law Requirements: If a company has locations in different U.S. states, it will need to validate its vaccine policy for compliance with the laws of each state where employees work. Mandates may be illegal in certain states that prohibit discrimination on the basis of an individual’s vaccination status, such as Montana.

Accommodating Exceptions: Vaccine mandates must allow for disability and religious accommodations. This means companies must review and validate each accommodation request on a case-by-case basis, deciding whether the accommodation can and should be granted. Unless a company is willing to categorically grant all accommodation requests, the individualized review of exemption requests will require the dedication of considerable internal resources.

Disparate Impact: Vaccination requirements may pose a risk of disparate impact discrimination claims. Disparate impact discrimination exists when an employment practice disproportionately excludes a protected group of employees, and either: (i) the policy is not job-related or consistent with business necessity; or (ii) there is a less discriminatory alternative available. Disparate impact discrimination typically is proven through statistics and does not require the existence of a discriminatory motive. 

From a bottom line perspective, just as local governments can mandate that consumers show proof of vaccination in order to enter various types of establishments, they note that private employers in the U.S. “can legally mandate vaccines under federal law.”

While the word “counterfeit” may conjure up images of fake cash and copycat handbags, the pharmaceutical industry – and with it, the fight against COVID-19 – has been significantly affected by illicit goods. In a major operation, Interpol revealed in June that it intercepted global counterfeit rings, closing more than 100,000 bogus online pharmacies, making nearly 300 arrests, and seizing more than $20 million worth of counterfeit items in the process. 

Mainly targeting counterfeit COVID-19 testing kits, this operation followed other examples. These have included the discovery of counterfeit networks in China and South Africa and the production of fake vaccines from simple, widely available ingredients such as saline solution and mineral water. Despite these law enforcement breakthroughs, the world’s fight against COVID-19 is being undermined by a booming trade in counterfeit PPE, COVID-19 testing kits, vaccines, vaccine passports and other products that are contributing to the spread of the virus

The appeal of fake vaccines

Pharmaceutical markets are worth more than $1 trillion annually, making them an attractive target for counterfeiters, who often trade anonymously via online auction sites or pharmacies. Beyond the general lure of this lucrative market, there are many reasons why counterfeit COVID-19 vaccines, in particular, are emerging, including the high and instant demand – which has outstripped supply during the pandemic. 

This has not been helped by the expense of developing vaccines at a national level, which has made access difficult, especially for poorer countries, and which has ultimately led to unequal global access to vaccines, with much of the world’s supply being controlled by the most powerful countries. Meanwhile, the relative ease of producing a fake, which might potentially only be detectable as inauthentic when it fails to protect someone from the virus, means the barrier to market entry is relatively low. 

The consequences of consuming fake products in this context can be significant, and there are many historical cases of fake pharmaceuticals, such as cancer and anti-malaria drugs, causing death. Other than being potentially toxic, the fake versions may not contain any of the active ingredient, or may consist of a diluted amount that fails to have the intended effect. 

For other COVID-related products, such as fake vaccine passports and testing kits, the health implications may be more indirect. There, demand is arguably driven by a desire to get back to “normal” life, despite the potential to infect others and disrupt efforts to reduce COVID-19 transmission. While the impact of counterfeiting on the stubborn persistence of the pandemic is difficult to measure (and is more of a factor in some countries than others), it is likely to be playing a role in new waves of the virus, and having a detrimental effect on the global fight against COVID-19.

Counteracting the threat

Counterfeiters present a shifting threat, and by nature of the fact that they operate in a largely digital capacity, they can be difficult to detect. There are, however, potential countermeasures for dealing with the threats they pose. Some technological developments, such as the rise of vast e-commerce marketplaces, have exacerbated the breadth of counterfeiting activities. However, other advances, such as radio frequency identification tags and blockchain technology, can help to distinguish genuine products and confirm their provenance. Furthermore, just as counterfeiters can present a moving target for prosecutors, genuine producers can make their products harder to replicate by regularly changing product and packaging designs, and by educating consumers on how to spot a fake. 

In many countries, the vaccine rollout is heavily orchestrated and regulated, meaning it should be relatively straightforward to avoid counterfeit vaccines at the point of consumption by sticking to authorized channels, providing they do not infiltrate the genuine supply chain, such as at distribution center level. In late 2020, as vaccination programs began, authorities warned of the threat posed by counterfeiters who were likely to attempt infiltration.

It may, however, be that consumers in some countries are willingly seeking out COVID-related counterfeit products. While it is good news that some of the world’s superpowers are now aiding in the global supply of vaccines, customers need to be educated on the dangers of buying counterfeits. Additionally, the purchasing of counterfeit products often funds other forms of organized crime.

Given that counterfeiters of vaccines and other related products may infiltrate the supply chains of genuine producers, firms also need to take a closer look at their own practices and increase their supply chain vigilance. For example, it may be wise to work with a smaller number of local, trusted suppliers and to limit supplier involvement in product development in order to minimize the risk of design and production knowledge leaking outside the firm. 

Arguably the most effective action against counterfeiting in general will be a collaborative one. This includes supply chain partners, rival firms, consumers and authorities working together to detect counterfeits, share intelligence and consistently prosecute offenders. Just like a global response to the direct threat posed by the virus is needed, a global response to the scourge of counterfeiting is needed. This underworld threat may otherwise delay the world’s return to (new) normality.

Mark Stevenson is a Professor of Operations Management at Lancaster University.