Supply Chain Management and Logistics Blog. Posts are about end-to-end supply chain management and logistics in a time of challenging disruption.
Tom provides leading supply chain management and logistics consulting and advisory assistance based on real-world experience.
He brings authority and domain expertise to clients.
Email Tom at: tomc@ltdmgmt.com
Check Tom's profile at: https://www.linkedin.com/in/tomcraig1/
Will the economic fallout ripple to the logistics sector? From The Economist---
Dubai’s stockmarket
Shifting sands
More upheaval in an accident-prone statelet
Close
Save this article
Click this to add articles to your Timekeeper reading list. Learn more »
Striking the same place twice
UP LIKE a rocket, down like a stick. Dubai’s stockmarket is living up to that old investing saw: having been one of the best performers in the world since the start of 2013, it has fallen by 25% in the past two months. Volatility is par for the course. Back in 2009, the emirate ran into financial trouble and had to be rescued by its neighbour, Abu Dhabi.
This time the trouble relates to a specific company, Arabtec. The construction group, which helped to build the Burj Khalifa (pictured), has parted company with its chief executive officer, chief operating officer and chief risk officer; meanwhile Aabar Investments, a company almost entirely owned by the government of Abu Dhabi, has reduced its stake. With confidence duly shaken and with little information to guide them, investors have headed for the exits: the price of Arabtec’s shares has fallen by more than half. There must now be questions about the feasibility of a $40 billion deal to build houses in Egypt that Arabtec signed in March.
As Arabtec’s shares plunged, local investors who had borrowed money to buy them were forced to sell other holdings to meet margin calls. That was a problem for a fairly illiquid market dominated by a few stocks. Property makes up 31% of the Dubai index and financials more generally 78%.
Property prices in Dubai rose by 30% last year, a reminder of the bubble that undermined the emirate five years ago. But Neil Shearing of Capital Economics says that investors should be wary of drawing too many parallels. “Crucially, the recent rise in property prices has not been fuelled by a rapid expansion in credit this time around,” he says. Bank lending is up by around 10% this year compared with annual gains of 20-50% between 2005 and 2008.
The equity market’s recent woes could be put down to simple profit-taking. Share prices may well have been ramped up earlier this year by investors anticipating the promotion of the United Arab Emirates (of which Dubai is a part) from frontier- to emerging-market status, a move that was confirmed by MSCI, an index provider, last month. Local investors clearly hoped that promotion would spark buying by international investors, both from those who are simply tracking the index and from those who shy away from frontier markets. To invoke another market adage: buy on the rumour, sell on the news.
Amazon has been tipped to launch a local services marketplace this year to rival the likes of Thumbtack, Angie’s List and Yelp. Now one part of that effort looks like it’s about to go live: the company is now rolling out a food takeout service, a direct competitor to GrubHub, Seamless and DeliveryHero.
The offering is initially going to be part of Amazon Local, the company’s Groupon-style service and app that offers people daily deals, coupons and discounts from merchants in their neighborhood. The service, which was scheduled to launch first in Seattle and on iOS, was quietly turned on the app last night but taken down again. It should go live again soon.
We have reached out to Amazon spokespeople to confirm the details of the service, but here is what we know: it will eventually go global, but much like Amazon’s Fresh delivery service for groceries, it will be a “VERY gradual expansion unless things go gangbusters,” says someone familiar with the situation. That’s a reference to the service seeing a slow rollout from Seattle eventually to parts of California.
But the company is very ambitious nonetheless. From what we understand, Amazon is also weighing the possibility of acquiring companies to expand in services.
Acquisitions are unlikely to be of bigger companies like Postmates, which covers deliveries of food but also of any local store. But among those that have been floated are food delivery companies Caviar and Peach, and a left field suggestion — Truffle, the Seattle-based dating service that starts by arranging meetings in cafes before suggesting other places for people to go together.
“That kind of thing could change at any time now that the product is live,” he says.
It’s all about more traction with local merchants
The broader idea here — as with Amazon’s other efforts in local commerce such as its Register project that includes the acquisition it made of mobile payments technology and product/team Gopago, as well as a possible peer-to-peer payments service – is for the online sales giant to get further into the business of helping local merchants.
Our source confirms what Reuters originally reported earlier this month about the services business: “Restaurants and the register product are the start, they’ll be going live with other verticals, and deeper features in the coming months.”
Which verticals? Travel is one option — following what e-commerce counterparts in other parts of the world like Ozon in Russia have been investing in, as well as Groupon. There is already a travel tab in the Amazon Local app.
Deeper features, meanwhile, could include, potentially, other services for existing verticals. So one example could be reservations for restaurants, creating a service akin to OpenTable, which has recently been acquired by Priceline for $2.6 billion.
The basic logic appears to be based on the same economies of scale on which the company has built its bigger business: when and if Amazon gets a strong enough critical mass in any one vertical, it will build it out.
This is also likely where potential drone-based delivery services would also sit, although it looks like it may take years before this idea flies (literally and figuratively).
As Panama Canal Expands, West Coast Ports Scramble to Keep Big Cargo Vessels
Photo
The Port of Tacoma is spending $22 million to shore up its Pier 3 so it can support the monstrous cranes required to unload the cargo ships of the near future.Credit Matthew Ryan Williams for The New York Times
TACOMA, Wash. — As construction crews 5,000 miles away are working to widen the Panama Canal to allow much larger ships to sail straight to the East Coast, this historic port city and others along the West Coast are doing everything they can to avoid becoming superfluous.
The Port of Tacoma is determined to keep up its rich import business, which can be traced to the 1880s when chests of tea from Asia arrived at its docks and headed to the East Coast by rail. Port officials know that by the time the Panama Canal opens in 2016, an even newer, larger fleet of cargo ships will be plying the oceans and will be so big they will not be able to squeeze through even the wider channel.
So Tacoma, Seattle and other ports are spending billions to be ready to receive the ships and keep themselves competitive in the overall scramble for foreign trade.
“The ships continue to get bigger, the cranes need to get bigger, and the docks need to be able to handle them,” said Trevor Thornsley, senior project manager for the Port of Tacoma, as he stood along the jagged rebar and broken concrete of a $22 million renovation to shore up the port’s Pier 3.
Photo
Trevor Thornsley is senior project manager at the Port of Tacoma.Credit Matthew Ryan Williams for The New York Times
The work in Tacoma, a major port in this state that likes to call itself the most trade-dependent in the nation, is among dozens of projects being completed in port cities across the United States in response to major changes in the world of container imports from Asia.
“Everybody in the supply chain from the manufacturer to the end consumer — that entire supply chain is changing,” said Tay Yoshitani, chief executive of the Port of Seattle. “The port industry is trying to make adjustments.”
Traditionally, America’s West Coast ports have been the gateway to the rest of the country for the growing supply of goods from China and Hong Kong. The ports in Tacoma, Seattle, Oakland, Los Angeles, Long Beach and elsewhere offer much shorter sailing times than Gulf Coast and East Coast ports. But for shippers of some goods, the web of logistics, including trucks and railroads, ends up being less expensive if they go through the Panama Canal.
Even though the West Coast ports are viewing the project to widen the Panama Canal as a major threat, it may not be their biggest challenge, said John Martin, who works as an economic consultant for several ports.
Most imminently, officials at the West Coast ports are concerned about negotiations underway for a union contract, which expires on Tuesday and affects nearly 20,000 dockworkers at 29 ports. In 2002, during contract negotiations, talks broke down and resulted in a bitter battle that shut down shipping along the West Coast for 10 days and sent cargo ships to other ports of call, some of them permanently.
Craig Merrilees, a spokesman for the International Longshore and Warehouse Union, said that contract talks were positive and on track. John Wolfe, the chief executive of the Port of Tacoma, said that while port officials did not have a role in the talks, he, too, was optimistic. “We’ve been down this road before,” Mr. Wolfe said. “We’re all in this together.”
Photo
“Everybody in the supply chain from the manufacturer to the end consumer — that entire supply chain is changing,” said Tay Yoshitani, chief executive of the Port of Seattle.Credit Matthew Ryan Williams for The New York Times
Besides the union concerns, ports are bracing for an onslaught of changes in the shipping world.
While the widened Panama Canal will allow an all-water route for big ships to the East Coast, the project — originally scheduled to open this year — has been plagued with construction delays. And the authorities have yet to announce toll charges for passing ships. In the end, it might be too expensive for some ships to use.
It is also possible that railroads that move goods from West Coast ports could lower fees to make it more economical for ships to avoid the Panama Canal route.
“The uncertainty as to what’s going to happen with rates is huge,” said Mr. Martin, the consultant, who is president of Martin Associates.
At the same time, sailing patterns may shift as Asian manufacturing continues to move from China to countries to the south, like Singapore and Vietnam, which are actually closer by sea to East Coast ports through the Suez Canal than to West Coast ports across the Pacific.
A new competitive threat has emerged 500 miles north of the United States border with Canada. Tacoma and Seattle are losing market share to the Port of Prince Rupert in British Columbia, just six years old and already doing brisk business with goods headed for the Midwest United States. While the port is nearly at capacity, the Canadian government continues to make major investments in it and is also pursuing a plan to build an export facility for liquefied natural gas that would tap a gas pipeline that is in the works.
Photo
Construction crews are working to widen the Panama Canal to allow much larger ships to sail straight to the East Coast.Credit Rodrigo Arangua/Agence France-Presse — Getty Images
For trade with China, Prince Rupert’s appeal is proximity. Prince Rupert is two to three days closer than the western coast of the United States, helping ships cut fuel costs. Another major factor is that Canada’s railroads are offering bargain rates to ship goods from Prince Rupert to Midwestern cities, analysts said. While the railways and truck lines in Canada have a history of labor instability, cargo carriers sailing into the country can avoid taxes levied by the United States government.
Here at the Port of Tacoma, the biggest threat in the past has been the port just 30 miles away in Seattle. The two ports have fought back and forth for decades over shipping business. But the new competition from Canada and elsewhere has brought an unusual alliance.
This year, the two ports for the first time sought permission from the Federal Maritime Commission to share information on operations and rates without violating federal antitrust laws. The ports now are coordinating lobbying tactics as well as construction projects to make sure they’re not duplicating efforts, officials said, and are researching other ways to cooperate.
“In the past 60 years we’ve truly been cutthroat,” said Stephanie Bowman, a commissioner for the Port of Seattle. “We’ve been able to work together and put aside our historical competition.”
In Seattle, the port’s facilities already have undergone $1.2 billion in upgrades through 2012 and plans have been approved for an additional $5 million to upgrade Terminal 5 to get ready for big ships. Tacoma’s Pier 3 project will make it sturdy enough to handle the monster cranes needed to reach across wide berths and unload the big ships.
The expenditures are a gamble. No one knows for sure whether enough of the big ships will come to Seattle and Tacoma to offset the investments in the ports. But Steve Sewell, economic development director for Washington State’s maritime industry, said the preparations were worth it.
“You have to make some investments,” Mr. Sewell said, “and take some risks.”
UPS has added a full containerload rail service to two of its China-Europe routings. The new option, which officials say is 50-percent faster than ocean shipping, is available on freight traveling between Chengdu, China, and Lodz, Poland, and from Zhengzhou, China, and Hamburg, Germany. Officials also added the rail program costs 70-percent less than air service. “We are excited to add our rail option for our customers in one of the world's largest freight lanes to complement our existing ocean and air freight and package capabilities,” said Keith Andrey, UPS’ vice president of ocean freight and multimodal services. “This gives customers access to a broader transportation portfolio to better meet their business needs
The economy expanded by 7.4% year on year in the first quarter of 2014, down from 7.7% in the previous three months. Economic activity will pick up in the second quarter, but real GDP growth is still set to come in at just 7.3% in 2014 as a whole, the weakest since 1990. The president, Xi Jinping, has emerged as a confident and powerful leader, but his dominance could make him vulnerable to attacks from vested interests opposed to his economic reform and anti-corruption agenda.
Every so often, you hear about the threat to reclassify payables on a buyers balance sheet due to supply chain finance programs.
Most readers will be bored by this stuff, yea, like, accounting who cares, but accounting matters. Since 2003, when the SEC first commented on these programs, the debate around threatening re-classification of the payables on the buyers balance sheet is real. Why this matters is that if a corporate is required to reclassify $500 million of trade payable debt to bank debt, it impacts their loan covenants, their leverage, and their access to additional credit.
The crux of the issue is if the Buyer is confirming to the financial institution that it will pay at maturity of the invoice regardless of trade disputes or other rights of offset it may have against the supplier, then it is giving a higher commitment to pay to the financial institution than it owes to the supplier and this may be construed as a bank financing and not a trade payable on its books.
Most corporates have been educated (by other corpoates, accountants, and banks and vendors pitching them programs) of some of the criteria that are important in keeping these programs as trade debt. For example:
Keep the initiatives of separating extended payment terms and the discounted early payment as two separate events. Therefore, if the supplier declines joining a program he is still stuck with the extended payment terms!
Do not have tri-party agreements – It is very important to keep these programs with independent agreements – ie, no tri-party agreements between buyer, seller and funder.
Always pay on the maturity date stated on the invoice i.e. no early payments with discounts shared with the bank and no prolonged payment terms with interest payments to the bank.
No kick backs from the bank – and I know this is becoming increasingly popular on the market with different kind of fees to the Buyers for services provided.
Buyers cannot dictate who funds the program – keep hands off.
Some will argue that independent platform providers (ie, not banks) provide a good way to ensure no reclassification, but I do not believe that is the case. There are many programs run by banks. Banks/platform providers make all their profit on financed volumes and not platform fees.
There are many other considerations besides the above, but this is a good start.
Unfortunately, there is no clear guidance from the IFRS in regards to reclassification of trade payables to debt. This is something of paramount importance, as large corporates will continue to be conservative. While not a show stopper, this issue does slow down these programs and make the set up costs more expensive by enriching accounting firms. In fact, I’ve had people tell me auditors in the same office can disagree on the bank debt versus trade payable issue.
No wonder confusion reigns.
- See more at: http://spendmatters.com/tfmatters/supply-chain-finance-payable-reclassification-issue-dead-or-alive/#sthash.W0rWy2KM.dpuf
Those who implement omnicommerce with traditional supply chains will struggle to achieve maximum benefit. Using
old supply chain ideas with a new business model is shortsighted. Companies using the new supply chain paradigm will dominate omnicommerce.
Maersk has announced several general rate increases:
• Rates for Far East Asia to Middle East and Indian Subcontinent will increase $100 per TEU, FEU and 45-foot container, effective July 1. • Rates for Far East Asia to East Coast South America will increase $750 per TEU; $1,500 per FEU; $1,500 per 40-foot, high-cube container; and $750 for non-operating reefers, effective July 7. • Rates for Japan to North Europe will increase $100 per TEU; $200 per FEU; and 200 per 45-foot container for dry containers, with rates going up by $100, $200 and $200 for respective reefer containers, effective July 1. • Rates for Japan to Mediterranean will increase $250 per TEU; $500 per FEU; and $500 per 45-foot dry container, with rates going up by $250, $500 and $500 for respective reefer containers, effective July 1. • Rates for Japan to Syria will increase $239 per TEU; $350 per FEU; and $350 per 45-foot dry container, with rates going up by $250, $477 and $477 for respective reefer containers, effective July 1. Cosco will increase rates for Far East to South America East Coast by $750 per TEU, and $1,500 per FEU and 45-foot container, effective July 7.
SCFI Analysis.
Richard Ward and Ricky Forman of Freight Investor (UK) provide weekly analysis and insight into the Shanghai Container Freight Index.
This week saw the SCFI fall on NWE by $14 to $1,106 per TEU. Early in the week, market feedback had suggested that capacity was relatively tight, although space was still achievable. Therefore, expectations for this week were for, perhaps, a slight increase to reflect the planned GRI for July; however, with no jump materializing, perhaps the increase will be less strong than carriers would have hoped. The latest reports suggest that some carriers have pushed back the increase until July 8-15, with rates of between $2,600-2,800 per FEU being reported. The delay from the July 1 could be a reflection of those carriers who lack the strong utilization seen by other lines. Despite the uncertainty surrounding July year-to-date, rates to NWE have been, on average, 26-percent higher than they were during the same period last year, which will offer carriers some relief. However, not being able to push through an increase planned for July 1 in full, supposedly peak, season does not reflect well for carriers. Contracted rates for the third quarter are still being agreed at below $1,000 per TEU, which is most likely to be in loss-making territory for most carriers. As the third quarter develops, these lower contracted rates will place downward pressure on any increases that carriers can achieve in the spot market during the three-month period. Savvy carriers could instead use FFA's to secure their net income at around $1,300 per TEU — well above where traditional contracts are being agreed. Alternatively, carriers can continue to offer deals at levels below break-even. On the USWC, rates have increased by $49 to $1,769 per FEU due to the planned GRI. The market will be waiting to see if a further increase is reported next week or whether carriers have failed to push up rates by their intended $400 per FEU. This week, the FFA market has been trading Q1 2015 USWC at levels of around $2,100 per FEU. Those carriers concerned that rates could be lower than this during the New Year are able to secure their spot income today at the aforementioned levels.
Striking the same place twice
Amazon has been 
UPS has added a full containerload rail service to two of its China-Europe routings.
