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/
An official from the International Monetary Fund has warned China's slow overall growth will have a strong impact on other countries in the region.The Shanghai Composite Index gained 0.4 percent to 3,388 points yesterday but the Hang Seng Index turned lower, slipping 0.6 percent to 22,819 points. Investors awaited the release of growth targets in China's 13th Five-Year Plan.
Wall Street was volatile overnight, ending sharply higher thanks to Apple Inc.
Fund manager Schroders believes in the medium term, global economic growth prospects remain reasonable.
China's slowdown will hurt the global economy. But there is still reasonably good growth in developed countries. Lower oil prices can stimulate consumer spending in the United States and Europe while real wages rise.
Right now, I like Bank of China (Hong Kong) (2388). The stock, with a 4.4 percent dividend yield, is at HK$25 25 percent below its peak reached in May.
Why did China Shipping do this, given the consolidation and current financials for the industry? Does it mean a SOE can waste money?
CSCL to lease up to 11 ships with capacity for 21,000 TEUs each
Chinese liner giant China Shipping Container Lines pointed to the cost and environmental benefits of ultra-large large containerships as the primary reasons for the new order.
China Shipping Container Lines Co. Ltd. may acquire up to 11 container ships with 21,000 TEUs of capacity. In a deal with a complex structure, CSCL said a Hong Kong based subsidiary has entered into bareboat charters to lease six 21,000-TEU ships for 12 years from China Shipping Nautigreen Holdings Co. Ltd, described as an “indirect wholly owned subsidiary of China Shipping.” There is also an option for five more similar size vessels. In a filing with the Hong Kong Stock Exchange, CSCL noted larger ships are being favored by the industry because of “optimization of fleet structure, economies of scale and fuel cost reduction.” CSCL also said the new ultra-large containerships “adhere to low-carbon environmental protection initiatives.”
[SINGAPORE] Shipping company Neptune Orient Lines Ltd (NOL) said on Friday its third-quarter net loss widened from a year earlier to US$96 million, due to weak freight rates.
NOL, controlled by Singapore's state investor Temasek Holdings, reported a revenue of US$1.2 billion for the third quarter, which fell 28 per cent on the year. "The absence of the traditional third-quarter peak season in Europe and North America led to severe freight rates erosion in major trade lanes," said NOL Group President and CEO Ng Yat Chung in a statement.
REUTERS
Freight Investor Services LEADING THE
WAY IN FREIGHT AND COMMODITY DERIVATIVES
Weekly
Commentary Oct 30th, 2015
Hapag-Lloyd fails to float on time.
Rates from
Asia to North West Europe jumped a whopping $757 to $988 per TEU on the
back of the November 1st GRI, representing the highest level
on the route for 13 weeks. With capacity adjustments seemingly
supporting the latest increase, including the idling of a Maersk
Triple-E vessel, the extent of the customary post-GRI declines is a
little uncertain at this stage.
Despite the latest increase, rates still remain 25% lower than the same
period of 2014. In fact, weekly rates on the route haven’t been above
their corresponding period of 2014 at any point this year, reflecting
the fundamentally poor market conditions.
Elsewhere this week saw the news that Hapag-Lloyd has both delayed and
lowered its IPO offer price due to what it calls continued market
volatility. Previously the German line had announced plans to offer
shares in the region of EUR 23-29 per share, however this has
subsequently been lowered to EUR 20-22. This is on top of lowering its
proceeds target by 40% to USD 300m, having previously planned to raise
USD 500m when the IPO was first confirmed in September.
The downgrade may well be a reflection of nervousness from investors
following the announcement from Maersk Line downgrading its full year
underlying forecasts by some 30%. It looks like the timing of the
announcement from the Danish carrier has been somewhat unfortunate for
Hapag-Lloyd.
Trading of the Hapag-Lloyd shares on the Frankfurt Stock Exchange is
now expected to commence on November 6th, pushed back from
the initial float date of October 30th.
Last week also saw the announcement from the Baltic Exchange that it
will launch its very own container freight index, based on transacted
rates executed on Ningbo’s e-trading platform. The index will cover
rates ex-Ningbo to both European and Middle Eastern destinations and
will be published weekly every Friday at 4:00pm Beijing time.
US container trades also saw an increase this week, although not of the
same magnitude as in the European trades. Rates to the USWC
jumped $197 to $1,363 per FEU, although still remain 31% lower than the
same period last year.
Target offering free shipping and returns in new threat to Walmart
The e-commerce wars are going to get ugly
Target TGT0.07% unveiled a new weapon in its holiday season e-commerce battle with Walmart WMT0.56% : free shipping and returns.
From November 1 through Christmas Day, Target said on Thursday it is once again waiving any minimum order size requirement to qualify for free shipping as well as offering free returns, moves that could give it an edge over its larger rival during the ultra-competitive Christmas period.
Walmart said earlier in the day it would only offer free shipping on orders of at least $50, adding that it offered free in-store pick up at thousands of locations and that, in any case, most orders were big enough to qualify for the waiver. Though Walmart gets a higher percentage of its U.S. sales online than Target, the rate of growth at Target is much higher.
Target sees free shipping during the holidays as a necessary cost to win shoppers. (Best Buy BBY-0.72% is also waiving its order minimum during the season.) But Walmart appears to be betting that steering shoppers toward in-store pickup will lead to more impulse purchases.
Though Target closed the last of its Canadian stores earlier this year, it is returning to that market, in addition to about 200 others, including China and Brazil, starting this holiday season by shipping items ordered on its U.S. site for a fee.
Chinese Shipping Group Cosco Planning Regular Trans-Arctic Sailings
Declining Arctic sea ice may make shorter route to Europe viable
ENLARGE
The Hong Kong-flagged Nordic Barents, carrying 40,000 ton of iron ore, leaves Kirkenes in the north of Norway on its way to China via the Northern Sea Route linking Europe and Asia via the Arctic ocean. Photo: Helge Sterk/Agence France-Presse/Getty Images
Chinese cargo-shipping giant China Ocean Shipping (Group) Co. plans to launch the first regular Asia-to-Europe sailings through the Arctic, shaving two weeks off the travel time via the Suez Canal as rising temperatures make the icy route increasingly viable.
“The group is actively studying the feasibility of operating regular services on the northern route,” a spokesman for the company, known as Cosco, told The Wall Street Journal. “We are considering to buy secondhand ships or build new ships for the potential routine services.”
Cosco made its plans public after two successful test runs of its Yong Sheng general cargo ship, one back in 2013 and the second this month. The vessel is the only one in the Cosco fleet equipped with an icebreaking hull.
Europe is China’s biggest trading partner, and Chinese state media have described the 3,400-mile Northern Sea Route as the “most economical solution” for China-Europe shipping. Moscow actively advertises the Russian-controlled NSR as an alternative to the Suez route, and Prime Minister Dmitry Medvedev has said he expects more than 10 million tons of cargo to be shipped annually over the next decade. So far, the NSR’s record volume was in 2013, when 1.4 million tons of cargo went through on a total of 71 ships.
Cosco officials said they would probably lay out their plans for an NSR fleet by the end of the year.
Advertisement
The crossings dropped to around 50 in 2014 and this year. Bjorn Gummarson, managing director of the Northern Sea Route Information Office, said that while weather conditions were relatively mild, Russian icebreakers that open up routes through the ice for safe navigation have been mostly chartered by Russian gas major OAO NovatekNVTK-3.42% to help with the construction of a Siberian port where Novatek is developing a giant natural-gas project along with France’s Total SATOT-0.29% and China National Offshore Oil Corp.
“The Cosco plan shows the potential of the NSR, but a lot more needs to be done to turn it into a major sea route,” Mr. Gummarson said. “The ports along the route need to be developed to handle more cargo, along with plans to tackle oil spills and search-and-rescue operations. As temperatures get warmer, navigation becomes easier, but ice-class ships are expensive to build and in parts of the passage the waters are quite shallow, allowing only medium-sized vessels to pass through.”
Shipowners agree it will take years to determine whether the route will become commercially viable. “The NSR will never seriously rival the Suez but, if temperatures continue to rise, it will certainly become much busier,” said a Greek owner who charters container vessels to Chinese companies trading with Europe.
ENLARGE
Analysts estimate that in 2021 about 15 million metric tons of cargo will be transported using the Arctic route. That would remain a fraction of the 900 million tons now carried annually on the Suez Canal.
The NSR, at around 8,100 nautical miles, is about 2,400 nautical miles shorter than the Suez Canal route for ships traveling from Shanghai to Rotterdam, Netherlands, according to the NSR Information Office.
“The Arctic route can cut 12 to 15 days from traditional routes,” Mr. Gummarson said. “The travel window opens in July and closes in November, with September and October where there is very little ice across the route.”
Current Arctic ice concentration is around half of what it was in 1979, according to the U.S. National Snow and Ice Data Center. “What we have seen this summer reinforces our conclusions that Arctic sea-ice extent is in a long-term decline and that we are headed for a seasonally ice-free ocean,” said Mark Serreze, director of the center.
The benchmark Asia-to-Europe shipping route accounts for 15% of the global total. When sailing the NSR, ships from China sail across the Bering Strait, through the East Siberian Sea and the Vilkitsky Strait and then on to European ports.
China has made no secret of its interest in the Arctic passage. In 2013, Beijing obtained “permanent observer” status at the Arctic Council, which consists of eight countries with territory in the region.
People talk outside a Wal-Mart Pickup-Grocery test store in Bentonville, Arkansas, June 4, 2015.
Reuters/Rick Wilking
Wal-Mart Stores Inc (WMT.N) said it would offer fewer "this weekend only" short-term deals during the holiday shopping season while discounting thousands of items for 90 days as it seeks to entice customers by being more consistent on pricing.The retailer also said it was launching a new mobile application to reduce waiting times for in-store pickup of online orders as part of an effort to expand a service in which it believes it has an advantage over rivals, like Amazon.com Inc (AMZN.O), which lack a bricks-and-mortar presence.
The moves were announced in a media briefing to outline its strategy for the November to December holiday shopping season, a crucial time for retailers during which they earn an outsized portion of their annual profits and sales.
The decision to offer fewer short-term discounts comes at a time when Wal-Mart is seeking to burnish its reputation for low prices amid relentless competition online from Amazon.com, supermarkets and dollar stores. It said customers were frustrated by "gimmicks" and wanted more consistent pricing.
"We will not be beat on pricing this holiday," said Steve Bratspies, chief merchandising officer for Wal-Mart's U.S. operations, noting its policy of matching rivals' prices at its stores. "If we need to react we will."
Wal-Mart said that it would have more "rollbacks", or discounts that last for 90 days, than the 20,000 offered last year, although it did not give an exact figure. Bratspies said the discounts would be across all categories.
Wal-Mart also said it was introducing a "mobile check-in" function to its mobile phone application that would allow shoppers picking up online orders to easily notify the store when arriving to cut down on waiting times.
Wal-Mart said that it was focusing on in-store pickup as a way to take advantage of its 4,500 stores in the U.S. It has recently expanded curbside pickup for groceries ordered online to 23 markets, with plans to add 20 more early next year.
Several major logistics and transportation company stocks have fallen sharply this week amid lower-than-expected earnings announcements and concerns of weak demand going into the fourth quarter.
Several major logistics and transportation company stocks, including UPS, FedEx, and C.H. Robinson have fallen sharply in the past week in response to some lower-than-expected earnings announcements and concerns of weak demand going into the fourth quarter. Shares of UPS had fallen 3.9 percent to $102.63 as of close of business Wednesday compared to last Friday’s closing price of $106.84. The parcel and logistics giant reported flat revenues and lower package volumes in the third quarter of 2015 compared with the same period the previous year. Stock in FedEx, UPS’s primary competitor, dipped 2.8 percent, from $159.63 per share on Friday to $155.24 per share at Wednesday’s close, despite projecting a 12.4 percent year-over-year increase in seasonal package volumes in the fourth quarter. Third-party logistics provider C.H. Robinson’s shares were down 6.6 percent to $67.99 during the same time period, but have rebounded slightly in early morning trading after posting positive earnings results yesterday. The company reported profits grew 11.6 percent to $139.4 million in the third quarter, despite revenues falling 1.4 percent to $3.4 billion compared to third quarter 2014. Other notable losers included acquisition-heavy 3PLs XPO Logistics, which closed down 11 percent to $25.21 per share on Wednesday, and Echo Global Logistics, which was down 23.2 percent to $16.65 but rebounded in early morning trading today as it opened at $20.79. Several major U.S. railway stocks have dropped over the course of the week as well, including CSX, down 3.8 percent to $27.30 per share, Union Pacific, down 7.1 percent to $90.10, and Kansas City Southern, down 2.9 percent to $83.59, as of Wednesday’s close. The U.S. Census Bureau announced Tuesday new orders for manufactured durable goods, considered a key indicator in the transportation sector and the overall U.S. economy, fell for a second straight month in September. U.S. durable goods orders fell 1.2 percent to $231.1 billion for the month following a revised decrease of 3 percent in August. New orders for transportation equipment, also down for the second consecutive month, were a primary driver in the overall decrease, dropping 2.9 percent to $75.5 billion after a 5.8 percent decline the previous month. The Dow Jones Transportation Average, a U.S. stock market index that calculates a running average of the share prices of twenty major transportation corporations, has slipped 2.75 percent from Friday, closing at $8,068.92 Wednesday. The DJTA is oldest stock index still in use and the most widely recognized gauge of the American transportation sector.
Another sign of the pending Maritime Financial Tsunami. And throw in possible uncertainties of accounting rules compliance may mean that the situation could be worse than indicated.
Chinese shipping companies report third quarter losses
COSCO ships moved fewer containers in the third quarter than it did in the same period last year and terminals run by subsidiary COSCO Pacific handled fewer boxes as well.
China COSCO Holdings Co. Ltd. and China Shipping Container Lines Co. Ltd have reported third quarter losses. COSCO said its container business saw a slowdown in the third quarter ending Sept. 30. During the third quarter, volumes for the group’s container shipping business reached 2,490,596 TEUs, a decrease of 0.5 percent as compared to the third quarter last year. The company posted a net loss of 1.4 billion Chinese yuan renminbi or RMB (U.S. $219 million) in the third quarter of 2015 compared with a profit of 1.6 billion RMB in the third quarter of 2014. COSCO reported revenues of 14.1 billion RMB in the three months ending Sept. 30 compared with 17.5 billion RMB in the same 2014 period. The results stand in stark contrast to the first three quarters of this year, when volumes totaled 7,284,542 TEUs in aggregate, representing an increase of 4.18 percent compared to the corresponding period in 2014. COSCO has a fleet of 183 container vessels with aggregate capacity of 865,972 TEUs, and has 10 ships on order with capacity of 111,960 TEUs, according to the company. The group’s container terminal business, run by subsidiary COSCO Pacific, had a throughput of 17,651,269 TEUs for the quarter, an increase of 0.3 percent compared to the same period the previous year. That is also weaker than the first two quarters this year. In the first nine months of 2015, the total volumes of the group’s terminal business were up 2.8 percent to 51,483,104 TEUs compared to the first three quarters of 2014. COSCO said container volumes at its Bohai Rim terminals grew 2.3 percent to 6.46 million TEU in the third quarter, and 1.2 percent at Pearl River and southeast coast terminals to 6.39 million TEUs. Volumes fell 4.3 percent at Yangtze River delta terminals to 2.42 million TEUs, however, and 2.7 million TEUs at its overseas terminals to 2.38 million TEUs. COSCO’s dry bulk shipping business saw volumes drop 2 percent on international routes to 32.7 million tons and 28 percent on domestic coastal routes to 6.2 million tons. The company’s container shipping arm is reported to be in merger talks with China’s other major container shipping company, China Shipping Container Lines (CSCL) and their stocks have been suspended since Aug. 10. Neither COSCO nor CSCL Ltd., which also reported third quarter results Thursday, have supplied more than oblique references to those to those talks. CSCL, for example, said in a filing with the Hong Kong Stock Exchange Thursday, “The relevant matters are still under intensive planning at this stage. However, due to the complicated nature of such matters, which may involve asset reorganization, they are currently still in the process of further study and discussion, including discussion with each intermediary about the details of the transaction and communication with regulatory authorities in respect of the relevant matters, among others.” CSCL Ltd. posted a net loss of 1.05 billion RMB in the third quarter of 2015 compared with a profit of 209 million RMB in the same 2014 period. Revenues stood at 7.86 billion RMB in the third quarter 2015 compared with revenue of 9.21 billion RMB in the third quarter of 2014. Meanwhile, a speech given by Xu Aisheng, described by London’s Financial Times newspaper as “director of the Communist party disciplinary inspection officer” at COSCO, has been widely publicized even as censors have ordered it deleted in China. A report in the Financial Times said Xu “laid into Chinese mergers and acquisitions for failing to address politics alongside practicalities.” During his speech, Xu “recounted how he had recently upbraided Ma Zehua, chairman of COSCO, and Xu Lirong, chairman of another large state-owned shipping company, China Shipping, during a meeting to discuss a possible merger,” according to the article. “I asked Comrade Ma Zehua: ‘When you and Xu Lirong, these two big bosses, drafted this plan, did you remember that you have another identity as party secretary?! Did you remember?" Xu reportedly said. "The plan doesn’t have a single word about how to strengthen the leadership of party committees and party organizations. Not a single word. What kind of reform is this?’” China Digital Times said an account of the leak was published on the “Capital news” WeChat account of Beijing Daily and that government authorities issued censorship instructions ordering its removal shortly thereafter. Another account of the leak in the South China Post, said Xu complained “high rents of ships and other major investment mistakes had caused huge losses for the state-owned shipping operator, and made it party to illegal activities.” Xu is also reported by the South China Morning Post to have railed against “golfing and unnecessary travel by company bosses, irregular hiring and delayed retirement.” “Japanese dry bulk shipping lines are facing the same difficulties, yet they can make money, why can’t you?” Xu reportedly said at the meeting.
The withdrawal of services during the winter slack season will, in the next few weeks, propel laid-up cellular capacity past the million-teu watershed to its highest level since the financial crisis began, said Alphaliner this week.
Its latest data shows 263 idled containerships, totalling 934,700 teu and representing 4.7% of the total global fleet. This includes 23 ships of 7,500 teu or more.
And the list includes one Maersk Line Triple- E 18,000 teu vessel, which the Danish carrier will anchor for at least six weeks as a consequence of the 2M alliance’s blanked sailings programme between Asia and Europe.
Alphaliner said that idling a Triple-E evidenced how serious the oversupply situation had become on the tradelane, not least because carriers normally endeavour to keep their largest ships and most expensive assets active.
It suggests that, given the current market conditions affecting all trade sectors, Maersk was left with no choice but to consign the Triple-E to lay-up.
It represents a change of strategy by Maersk, coming after the carrier’s parent was obliged to issue a profit warning last week due to an unexpected $600m shortfall in the container line’s full-year profit forecast, which it blamed on a “significant drop in rates”.
Maersk Line is understood to be working on further service cuts to its network to mitigate the collapse of freight rates on the Asia-Europe route, from which it derives 40% of its business, and is expected to be announced ahead of its third-quarter results due out on November 6.
During an analysts call on Friday, Maersk Group chief executive Nils Andersen promised a “more detailed” response to the dramatic downturn. He also confirmed that for surplus vessels there was no other option than to return ships to owners at the end of time charters, and for owned tonnage to enter lay-up in the interim.
Meanwhile, the crisis plaguing container liner services has hit the charter market very hard across all sizes of ships.
“Disillusion is besetting the charter market as more size segments are affected by the current slump in demand, while oversupply becomes a chronic ailment,” said Alphaliner.
The long-suffering panamax market had witnessed a “substantial increase in the supply of spot tonnage” in recent weeks, against a background of receding demand, said the consultant.
But these owners are not alone in suffering sleepless nights worrying where their next charter is coming from. In the post-panamax sector, “demand has virtually evaporated” said Alphaliner, with seven ships of 7,900-8,800 teu, as well as 35 vessels of between 5,300 and 7,500 teu, currently seeking fixtures.
Any business today is being fixed on historically low daily hire rates and on extremely favourable terms regarding positioning and options.
Interestingly, the hitherto stronger demand for fuel-efficient tonnage is also fading as sustained low fuel costs of around $200 per tonne of heavy fuel oil have reduced the cost advantage of the eco-ships.
Trade Facilitation Agreement Could Boost Exports by $1 Trillion Per Year, WTO Says
Thursday, October 29, 2015
Sandler, Travis & Rosenberg Trade Report
The Trade Facilitation Agreement that World Trade Organization members concluded in 2013 “is global trade's equivalent of the shift from dial-up Internet access to broadband” and could have a bigger impact on international trade than the elimination of all remaining tariffs, according to the WTO’s annual World Trade Report. The TFA will take effect once it has been ratified by two-thirds (approximately 126) of the WTO’s 191 members, and Pakistan recently became the 51st to take this step.
The TFA aims to standardize, streamline and accelerate customs processes around the world, thus helping to expedite the movement, release and clearance of goods and thereby significantly lower the costs of trade. Specific disciplines in the TFA relate to the publication and availability of information, the opportunity to comment before entry into force of new and amended laws and regulations, advance rulings, procedures for appeal, non-discrimination and transparency, fees and charges, the release and clearance of goods, border agency cooperation, the movement of goods, import/export/transit formalities, freedom of transit and customs cooperation. WTO Director-General Roberto Azevedo said the majority of TFA benefits will accrue to developing and least-developed countries and also provides them with the flexibility to tailor their commitments and implementation schedules according to their specific needs and capacities.
According to the report, full implementation of the TFA could reduce WTO members’ trade costs by an average of 14.3 percent, including 18 percent for manufactured goods and 10.4 percent for agricultural products. Goods exports could rise by up to $1 trillion per year, including $730 billion for developing economies alone, resulting in the creation of between 20 and 30 million new jobs. Perishable agricultural goods and intermediate manufactured goods are likely to see the biggest boost.
The report also highlights previously unseen benefits of the TFA, especially for developing and least-developed countries. One is economic diversification, with the number of new products exported increasing by as much as 20 percent for developing countries and 35 percent for LDCs. Access to new markets could increase by 30 percent for developing countries and 60 percent or more for LDCs. Improvements in trade facilitation structures may also help these countries improve their participation in global value chains, attract more foreign direct investment, reduce the scope for corruption and increase the amount of revenues collected.
The battle between ports and container lines on mega ships makes little sense considering the financial fragility of lines. Where is statesmanship to find new ways of doing business and to get through the crisis?
Drewry has almost halved its global growth forecast for container shipping this year, down to 2.2% from 4.3%, and its 2016 forecast downgraded to 3.3% from 4.9%, reflecting the “significant nature” of the global slowdown in the past few months.
At the launch of its latest Global Container Terminal Operators Annual Review & Forecast report, Drewry ports and terminals director Neil Davidson said the downgrade came after the demand outlook dramatically worsened.
“The revised demand forecast will inevitably have an impact on the capacity forecast for terminals,” said Mr Davidson, although he added it would take time to assess the difference this would make to terminal expansion projects. For some, it would be “like turning around a supertanker”, given how far advanced they are, while others may be delayed.
Mr Davidson said this illustrated the differing natures of demand and supply, with the former prone to quick and dynamic changes, while capacity comes in large chunks which are almost impossible to adapt.
He added that international port operators’ strategy of focusing on emerging markets for expansion projects and in greenfield locations continues, while “opportunistic” M&A activity such as APMT’s recent acquisition of established Spanish operator Grup Maritim TCB would take place regardless of market status.
But by far the biggest challenges facing the ports and terminals today are the larger ships and bigger alliances that have led to lower frequency of services but higher peaks in throughput.
Maintaining margins for terminal operators in this environment has become more challenging because big ships and big alliances push up operating costs and compel operators to expand to accommodate their customers’ new requirements.
Terminal operators could respond by increasing quay crane handling rates, although Mr Davidson admitted this would be unlikely to succeed in the current climate.
However, he also argued that ports and terminals should look at taking a leaf out of their customers’ books by forming strategic alliances and collaborating more with the shipping lines to mitigate rising costs and resolve bottlenecks.
The Northwest Seaport Alliance between the US west coast ports of Seattle and Tacoma is an example of port collaboration, although some might find regulatory authorities raising objections.
One wonders how much sympathy carriers are willing to extend to the ports they use, given that the sector continues to be highly profitable – and generally enjoying a far higher return on investment than their carrier customers – as well as holding valuable long-term assets.
Hutchison remained the leading container terminal operator in 2014, based on throughput at 80m teu, followed by APMT at 71m teu, PSA at 65m teu, Cosco at 64m teu and DP World at 58m teu.
The International Monetary Fund staff are set to give the all-clear for China's yuan to be included in the lender's benchmark currency basket, laying the groundwork for a favorable decision by policymakers, people familiar with the discussions said in Washington DC.
The IMF's executive board is scheduled to decide in November on putting the yuan on a par with the dollar, yen, euro and pound sterling. A key factor will be its performance against a checklist of technical criteria, as assessed by IMF staff. Three people briefed on the discussions said a draft report from staff reached a favorable conclusion on including the yuan.
"Everything is on course technically, and there is no obvious political obstacle. The report leans clearly towards including the yuan in the [basket], but leaves the decision for the board," one of the officials said.Two other officials said staff would recommend the yuan join the basket.
"There is no real discussion, no obstacles, all seems on course," a second official said. REUTERS
Big firms to post first decline in both earnings and sales since the recession
ENLARGE
Railroad operator CSX is scaling back some operations in response to declining coal shipments as power plants switch fuels.
Photo:
Patrick Semansky/Associated Press
Quarterly profits and revenue at big American companies are poised
to decline for the first time since the recession, as some industrial
firms warn of a pullback in spending.
From railroads to
manufacturers to energy producers, businesses say they are facing a
protracted slowdown in production, sales and employment that will spill
into next year. Some of them say they are already experiencing a
downturn.
“The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co., told investors and analysts earlier this month. A third of the top
100 customers for Fastenal’s nuts, bolts and other factory and
construction supplies have cut their spending by more than 10% and
nearly a fifth by more than 25%, Mr. Florness said. Caterpillar Inc. last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M Co., whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares.
The weakness is overshadowing pockets of growth in sectors such as aerospace and technology.
Advertisement
Industrial
companies are being buffeted on multiple fronts. The slump in energy
prices has gutted demand for drilling equipment and supplies. Economic expansion is slowing in China and
major emerging markets such as Brazil, which U.S. companies have relied
on for sales growth. And the dollar’s strength also has eroded overseas
profits.
The drag on earnings and sluggish growth projections for next year
come as the Federal Reserve considers raising interest rates for the
first time in nine years, and could add momentum to those in favor of
postponing any rate increase until next year.
Profit and revenue
are falling in tandem for the first time in six years, with a third of
S&P 500 companies reporting so far. Analysts expect the index’s
companies to book a 2.8% decline in per-share earnings from last year’s
third quarter, according to Thomson Reuters.
Sales are on pace to
fall 4%—the third straight quarterly decline. The last time sales and
profits fell in the same quarter was in the third period of 2009.
At some companies, foreign-currency effects hurt results significantly. Consumer-products maker Kimberly-Clark Corp.predicted that currency swings would slash earnings by 25% this year, while Johnson & Johnson said that the dollar’s moves would reduce sales growth by almost 7
percentage points this year, even without further fluctuations.
This week, another third of the S&P 500 are expected to report their results, including such giants as Apple Inc.,United Parcel Service Inc. and Exxon Mobil Corp.
Much of the anticipated decline stems from the hard-hit energy industry,
where sales are expected to drop by more than a third from a year
earlier and profits are likely to plummet 65%, Thomson Reuters says,
based on analysts’ estimates. Basic-materials companies face a 17% drop
in profits, and industrial sales are expected to decline more than 5%.
ENLARGE
United Technologies Corp., which makes Otis elevators and Carrier air conditioners, said it
expects profits to be flat or down in three of its four operating
segments next year, despite strength in its U.S. operations. Chief
Financial Officer Akhil Johri told investors last week that the Otis
division’s sales in China fell 19% in the third quarter as commercial
construction slumped.
Other companies voiced similar concerns.
“If you look at kind of the broad industrial-production index, you see
industrial production sequentially coming down,” said Fredrik Eliasson, chief sales and marketing officer at railroad operator CSX Corp.
CSX is scaling back some operations in response to declining
coal shipments as power plants switch fuels, eliminating nearly 500
jobs in Corbin, Ky., and Erwin, Tenn. In the current quarter, the
company plans to reduce its average head count by 2% from the
third-quarter level.
U.S. manufacturing production rose in
September at its slowest pace in more than two years, the Institute for
Supply Management reported earlier this month. Economic activity at 11
industries tracked by the group contracted during the month, while just
seven reported growth. Meantime, manufacturers told ISM that customer
inventories remained high, contributing to a slowdown in new orders.
Some
investors and analysts worry that companies accustomed to boosting
earnings by cutting costs, repurchasing shares and refinancing debt will
soon have to face the reality of worsening sales. “The ability of
corporations to take a 1% to 2% revenue line [gain] and turn it into 5%
to 6% profit growth is waning,” said Charlie Smith, chief investment
officer of Fort Pitt Capital Group. “They’ve run out of rabbits to pull
out.”
Still, cost-cutting continues. Companies from Twitter Inc. and Biogen Inc. to Wal-Mart Stores Inc. and Monsanto Co. have announced job cuts in recent weeks. That could boost the U.S.
unemployment rate, which ended September at 5.1%, its lowest point since
April 2008.
“Things are definitely a bit shakier than they were
several months ago,” said Joseph LaVorgna, chief U.S. economist at
Deutsche Bank. But, he added, “the U.S. is fundamentally in decent
shape.”
Indeed, low fuel prices have boosted U.S. car sales and
buoyed airlines’ results, and the U.S. construction market remains
robust. And, even among manufacturers, the aerospace industry is doing
well. Technology giants Amazon.com Inc. and Microsoft Corp. posted strong results on Thursday, as did Google parent Alphabet Inc.
Such
strength suggests that the broader economy is unlikely to succumb to
the industrial sector’s gloom, especially given robust profit margins,
said Jeremy Zirin, chief U.S. equity strategist for wealth management at
UBS. “The broad mosaic of data suggests that the U.S. economy is still
doing OK,” Mr. Zirin said. “This isn’t a very bullish view, it’s just
saying things aren’t as bad as feared.”
Others worry that the
slowdown is spreading to consumer businesses. Wal-Mart recently warned
its sales this year are likely to be flat, down from projection of as
much as 2% growth, and cut its earnings forecast for next year as it
raises wages.
And truckload carriers have warned that they aren’t
witnessing the usual uptick in retailer demand as the holiday season
approaches, thanks to stubbornly high inventories, said Alex Vecchio, a
transportation analyst at Morgan Stanley. “Transportation companies are
typically a leading indicator, and our data is not good,” Mr. Vecchio
said.
