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On December 1, 2017, AS commented on Kansas City Southern Railroad Blues :

This is a really interesting article. I like your proposal that KCS diversify the revenue of its Mexico business through pursuing domestic Mexican contracts. I think the company should employ the same strategy in the U.S. in order to de-risk the operations of that business as well. That said, KCS should not abandon cross-border traffic altogether. These cross-border contracts are likely with large customers that could represent a material portion of KCS’ revenue. KCS must continue to serve the demands of these customers as long as the regulatory/trade environment allows. And, as a long-term operator along this corridor, KCS is invested in cross-border trade irrespective of the current uncertainty.

To de-risk its Mexico operations, KCS may also consider acquiring another railroad in Mexico. Doing so would bulk up the Mexico operations, perhaps making them viable as a more “standalone” business. Additionally, building on your suggestion that KCS invest in projects where it can share risk, the company may consider partnering with the Mexican government to invest in projects that support domestic businesses. These projects may include shared investment of the upfront capital (reducing the amount of cash KCS has to invest in the project) or a sort of guaranteed revenue stream similar to the Sasol project you mentioned (de-risking the cash flows from the project).

The Mexican government may find such projects attractive as they would promote economic growth within the country, and KCS benefits through growing its Mexico business with domestic customers.

Thanks for the interest article. Goodyear’s strategy of producing tires in the regions where it sells them is beneficial from two perspectives. First, it makes them closer to their customers, thus reducing freight costs significantly and increasing customer touch points. This allows Goodyear to more effectively compete in these tire markets where products have low value density. Secondly, the strategy functions as a hedge against isolationist movements globally. By locating production with different countries, Goodyear is able to avoid tariff complications.

Goodyear’s management should lean into this global strategy and communicate the following to its U.S. unionized workforce:
1. Goodyear is committed to continuing to produce tires for the U.S. market in the U.S., thus protecting its factories located here and the jobs of its unionized workers
2. Goodyear’s practice of locating factories abroad helps it reach global markets in a low-cost, sustainable manner, benefitting profitability and growth for the overall company in the long-run

Goodyear’s U.S. workforce should be receptive to this strategy provided that the company continues to produce domestically.

Thanks for the interesting article. I agree with your view that the CEO needs to take more significant action to address the impact of climate change on OneHope’s business in the short and medium term, and I agree with Graham’s comment that the initiatives likely need to be “natural” or “organic”.

However, I’m not convinced that wine drinkers are going to suffer in this new, warmer, environment. Although wineries in existing wine producing regions may be at risk from climate change, wine production is increasing in other regions as a result of climate change [1]. The global mix of grape varietals may change, and the global mix of wine producing regions may change, but demand for wine likely will not change significantly. As new and different supply comes online, consumers may have to adapt their tastes, but I doubt they will see a negative impact in their wallets. If anything, producers in new regions may be incentivized to come into the market at lower prices in an effort to gain market share. Existing wineries in vulnerable regions like OneHope will have to adapt their supply chains to combat both climate change and these new entrants to the market.

[1] Business Insider, “Climate change is turning these unexpected regions into the next wine hotspots,”, accessed November 2017.

On November 30, 2017, AS commented on Tesla: Building the Machine that Builds the Machine :

Thanks for the thoughtful essay.

There is no doubt that Tesla has sky high potential as a disruptor at the forefront of electric vehicle technology. However, I am concerned that the company is too focused on investing in automating its factories and this focus threatens its long-term viability. Some level of digitalization and automation is likely table stakes to compete in the automotive industry today. However, Tesla’s obsession with “building the machine that builds the machine” is unnecessary, and it’s causing the company to miss its production and financial targets.

Investing in automation in supply chains should improve efficiency and lower the cost of vehicle production. Good manufacturing companies should always be looking for opportunities to make incremental investments in automation. However, Tesla is trying to make a giant leap that likely is not required to compete effectively in the market today. By seeking perfection in automation rather than simply producing best-in-class electric vehicles, Tesla is actually failing to meet demand in the market, and it is risking losing the confidence of its investors.

Tesla may eventually earn an attractive return on all of the capital it is spending to automate its factories, but if it doesn’t start actually producing more vehicles, it risks losing in the marketplace. That said, there is no denying that Tesla stands to gain significantly if it can actually pull off the home run of “building the machine that builds the machine.”

On November 30, 2017, AS commented on Digitalization in the pharmaceutical industry: Pfizer :

You’re right to point out the obvious cybersecurity risk that exists in this case, particularly given the sensitivity of information and the high cost of failure of pharmaceutical products. However, I would think the opportunity to digitalize the supply side of the equation outweighs the cybersecurity threat. Automating and streamlining raw material sourcing, inventory flow and production would bring drug costs down. As you mention, R&D remains the biggest cost in the system, but drugs are expensive in general, particularly in the U.S., and both consumers and manufacturers will still benefit from more efficiency and lower costs on the manufacturing side. To prevent issues and maintain trust with patients and providers, significant investment in cybersecurity defenses will likely be required. As will robust quality assurance testing. If these safeguards can be put in place, I agree that digitalizing the manufacture of these drugs should benefit the entire ecosystem.

I think the demand side is a little trickier. Consumer drug usage data is highly sensitive information. Typically, this information is only shared with health care providers and insurers. Consumers generally trust their healthcare providers and provide information to insurers out of financial necessity. Consumers have little to no relationship with drug companies like Pfizer. Asking consumers to share sensitive demand information – health condition, drug usage data, etc. – with Pfizer and its competitors on a mass scale seems difficult. It’s sensible for Pfizer to seek to gather this information and produce drugs that match demand. But they likely lack trust with consumers, and consumers likely don’t care about Pfizer’s manufacturing costs when insurers are paying for the drugs anyway. Perhaps there is a middle ground where Pfizer could obtain anonymized patient data from providers. Even if a path like this is pursued, additional information safeguards will need to be erected throughout the information chain.

Either way, this is exciting innovation in the pharma space. Thanks for highlighting this ongoing trend.

Your essay clearly outlines that Ecolab is combating climate change on two main fronts: 1) by developing water treatment products which help customers reduce water usage (through less waste) and 2) committing to reduce greenhouse gas emissions in its own operations. The first approach absolutely creates value for shareholders. Ecolab is the largest provider of water treatment products in the world [1]. This is one of the company’s core businesses and is, therefore, integral to how it creates value for shareholders.

Water treatment has been necessary since long before people were concerned about climate change. There are several demand drivers which Ecolab stands to benefit from. Customers may demand water treatment products for safety/health reasons, to reduce costs through more efficient use of water or to reduce their own environmental impact. Furthermore, if water supply is negatively affected by climate change going forward, water treatment products will likely command an even greater premium. Ecolab should continue to innovate here to create value for shareholders.

Ecolab’s second approach to combating climate change – reducing its own emissions – is perhaps less compelling for shareholders, or at least does not clearly maximize value for shareholders. That said, for a company which makes products that have sustainability applications, a commitment to sustainable operations is consistent with its own strategic vision. To the extent Ecolab’s customers care about this than Ecolab’s shareholders are forced to, even if they may not be concerned otherwise.

This all relates to your final question on global companies’ responsibilities to mitigate climate change. A company’s responsibility is to its shareholders. If shareholders demand that a company take action to mitigate climate change, then it should do so. Ecolab’s actions suggest that its shareholders do care about this, and so it should continue to press forward with these efforts.

[1] NALCO Water, An Ecolab Company, “About NALCO Water,”, accessed November 2017.