Monday, October 31, 2016

CHINA MANUFACTURING EXPANDING AT FASTEST IN TWO YEARS

Chinese Manufacturing Has Expanded at its Fastest Pace in Over Two Years

A Chinese worker measures pipelines at an offshore oil engineering platform in Qingdao, east China's Shandong province on Sept. 1, 2016. STR/AFP/Getty Images

It’s higher than economists expected.

Activity in China’s manufacturing sector expanded at the fastest pace in more than two years in October, adding to views that the world’s second-largest economy is stabilizing thanks to a construction boom.
The official Purchasing Managers’ Index (PMI) stood at 51.2 in October, compared with the previous month’s 50.4 and above the 50-point mark that separates growth from contraction on a monthly basis.
The reading was stronger than economists had expected and the highest since July 2014. Analysts polled by Reuters had predicted a reading of 50.4, pointing to more modest growth.
China’s economy expanded at a steady 6.7% clip in the third quarter and looks set to hit Beijing’s full-year target of 6.5 to 7%, fueled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.
Factory output accelerated in October, with the sub-index rising to 53.3 in October from 52.8 in September.
Total new orders also showed solid improvement, rising to 52.8 from September’s 50.9.
But new export orders contracted to 49.2, the National Bureau of Statistics said, pointing to persistent sluggishness in global demand that has weighed on Asia’s export-reliant economies for nearly two years.
Despite the apparent surge in domestic demand, manufacturers continued to cut jobs, with the employment sub-index standing at 48.8, compared to 48.6 in September. Cost cutting and higher prices for building materials from cement to steel are brightening some firms’ profit outlook.
Job losses could be rising as the government has pledged broad capacity cuts across a range of industries.
For more on China, watch Fortune’s video:
A sub-index for smaller firms improved, while performance at larger companies fell, a sign that the government’s dependence on big state firms for growth this year might be slowly changing.
A similar business survey showed activity in China’s services sector expanded at the fastest pace since December 2015, with the official reading picking up to 54.0 in October from 53.7 in September.
A measure of the construction industry stood at 61.8, easing marginally from 61.9 in September, but still pointing to solid expansion as the government goes on an infrastructure spending spree to spur the economy and meet its growth targets.
Financial services and the property sector fell, as the real estate market has begun to cool following curbs on property purchases introduced in early October to cool surging home prices.
The services employment sub-index stood at the no-change mark in October, indicating companies have stopped cutting staff.
Beijing has been counting on a strong services sector to pick up the slack as it tries to shift the economy away from a dependence on heavy industry and manufacturing exports.
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IoT, BLOCKCHAIN, AND GLOBAL SUPPLY CHAIN

Serving up a better burger: How IoT and blockchain will reinvent the global supply chain

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global supply chain
Image Credit: jamesteohart/Shutterstock

Say you get served a burger at a restaurant, and something about it isn’t quite right. Do you know what went wrong? Does your server? Does the restaurant? The suppliers? Hard to know. Each part of the sandwich – the beef, lettuce, tomato, bun, condiments, cheese – came together on the plate from separate long and intricate supply chains that go all the way back to a farm.
Pinpointing what went wrong, and where, has been a nearly impossible task. Did the beef get too warm while in a refrigerated truck? Did one of the spices in the special sauce sit too long in a warehouse? Supply chains, sophisticated as they often are, have remained silos of information, making it difficult to access and analyze details.
That’s about to change, driven by the convergence of two emerging technologies: the Internet of Things (IoT) and blockchain. The combination of these technologies creates a permanent, shareable, actionable record of every moment in a product’s trip through its supply chain, creating efficiencies throughout the global economy.
Today IBM is working with businesses across industries to implement IoT Blockchain solutions that bring an entire new level of trust, traceability, and accountability to global supply chain systems. And we aren’t alone, C-Suite executives are taking notice, and industry consortiums are forming to advance blockchain innovation, such as the Hyperledger Project led by the Linux Foundation with members ranging from IBM, Cisco, Intel, and Red Hat to Hitachi, J.P. Morgan, and Samsung.
The first step is the IoT instrumentation of everything. Sensors are being integrated into every aspect of business and logistics. They can be put in trucks and ships, and on pallets, packages and produce, each sensor constantly reading its location and other key factors, such as temperature, moisture, or vibration. Since IoT sensors can communicate wirelessly, they can constantly send their readings over the network to be saved and stored. IoT is already spreading quickly: IDC reports that some 30 billion IoT devices will be in place by 2020, growing to 80 billion by 2025.
Blockchain is how we’ll use that IoT data to revolutionize the supply chain. Essentially, blockchain is a way to put IoT data into a permanent record that tracks every action that happens to the item. This information can then be easily shared across different companies and across borders. And what is extremely important is that the information cannot be changed once in the blockchain, helping reduce fraud and misrepresentation in the supply chain. For example, Everledger is working with IBM using the Hyperledger fabric to implement a blockchain that tracks diamonds from mine to buyer to verify the diamond and reduce the global challenge of verification and fraud in this industry.
For the first time, IoT devices will be able to communicate with the blockchain to update or validate smart contracts. As an IoT-connected item moves along multiple distribution points, information like location and temperature is automatically updated in the blockchain, allowing members to view the status of the item in real time and verify that the terms of a contract are met at each point. If an item needs to be kept within a certain temperature range, for instance, everyone in the supply chain would know if that range was violated, and exactly when and where it happened.
The information becomes part of an unbreakable chain that is a permanent record, viewable by the parties in a transaction. Blockchains shift the lens from information held by an individual entity – the warehouse, the factory, the shipper — to a cross-entity history of an asset or transaction. Relevant information can be shared with others based on their roles and access privileges. And it all happens on a distributed network, which can be in the cloud, making the system flexible and resilient.


That means that if a restaurant company was managing its supply chain using IoT and blockchain, and a problem was found in burgers it was serving, the restaurant could have visibility all the way back through its supply chain to pinpoint and solve the problem. And these kinds of solutions are already being developed. For example, a startup company out of the UK is working on a blockchain solution to track tuna in order to verify that it is sustainably and responsibly-caught – something that is difficult, if not impossible, for a consumer to know with certainty today.
But IoT on blockchain will mean so much more than just visibility. The process would allow companies to recognize and circumvent problems before they impact the customer. It would encourage partners in the business network to immediately adapt their processes or risk financial penalties.
Smart contracts embedded in a blockchain can speed the flow of capital across a supply chain. The way businesses along a supply chain get paid could be made more efficient. Current processes are lengthy, involving letters of credit, bureaucracy, and human judgment. Smart contracts will collect IoT data and automatically release payment as soon as goods have been delivered. Money flows faster. Capital doesn’t get locked up waiting to be released.
And if government regulations are involved, the IoT data on the blockchain can automatically create a permanent and indelible record based on regulatory requirements.
As blockchain-based transactions become more sophisticated, the business network as a whole will achieve greater levels of autonomy, ultimately evolving into self-governing, cognitive business networks. These autonomous organizations will stretch our definition of what it means to be a dynamic enterprise. Down the road, every consumer will benefit as IoT and blockchain reduce costs, increase the speed of getting products to market, and better monitor quality. In an IoT-blockchain universe, the burgers are always perfect.
Harriet Green is General Manager of IBM Watson Internet of Things, Commerce, and Education. She was previously CEO of the Thomas Cook Group, CEO of Premier Farnell, and senior vice president of Arrow Electronics Inc. Follow her on Twitter: @harrietgreen1.
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AMAZON LAUNCHES PRIME IN CHINA

Amazon Prime launches in China

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Comma.ai cancels the Comma One following NHTSA letter

Amazon announced today it’s bringing a version of its Prime membership program to customers in China, which will include free, cross-border shipping from the Amazon Global Store as well as no minimum free domestic shipping, the company says. The service, which will compete with local rivals like Alibaba and JD.com, will cost 388 yuan ($57.23) per year after the first year, a discounted rate.
Unlike the U.S. version of Prime, there aren’t a host of perks for Chinese customers outside of the shipping deals – instead, the main focus here is on increasing Amazon’s footprint in China by making it more affordable to buy foreign products from its site.
Amazon today doesn’t have a significant footprint in China – less than 1.5 percent of the market, according to iResearch. It even launched a store on Alibaba’s Tmall site last year in order to reach Chinese consumers.
Cross-border e-commerce is a growing trend in China, thanks to rising incomes and increased demand for foreign products. According to a McKinsey study from earlier this year, cross-border consumer e-commerce amounted to an estimated $40 billion (U.S.) in 2015, more than 6 percent of China’s total consumer e-commerce. The report also said it’s growing upwards of 50 percent annually.
Chinese Prime members will be able to shop over 4 million international products from the Amazon Global Store – a storefront the company launched in November 2014 to cater to an international audience. The localized store’s millions of products are organized across 30 product categories, including those that appeal to Chinese consumers like apparel, shoes, baby, toys, home, kitchen and beauty.
These international orders are delivered by Amazon fulfillment centers in the U.S. through its global logistics capabilities, says Amazon, and Prime members will receive those packages in an estimated 5-9 days in 82 cities.
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In some cases, orders may take longer. Single orders of over ¥2,000 or total orders for a citizen in a year totaling more than ¥20,000 will be routed through a customs channel which requires additional processing time, the retailer notes.
Meanwhile, Amazon Prime members can also take unlimited free shipping with no minimum purchase on more than 9 million domestic products.
“Launching a unique program designed for our Chinese customers shows our obsession with Chinese customer needs, and demonstrates our long-term commitment to growing our business in China,” said Russ Grandinetti, Senior Vice President of Amazon, in a statement about the launch. “We will continue to innovate for customers in China to deliver more value over time.”
To kick off the launch, Amazon is discounting the Prime membership to encourage signups. Instead of ¥388, it will be ¥188 for the entire first year. A free, 30-day trial is also available from z.cn/prime.
The launch coincides with Amazon’s third Global Shopping Festival, which runs until December 2, 2016, and will include deals on over 70,000 international brands as well as Black Friday deals on the Amazon Global Store.
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K LINE, NYK, MOL TO MERGE

NYK, MOL and K Line to merge container shipping businesses to form world's sixth largest carrier

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Japan’s big three shipping groups – K Line, MOL and NYK – have agreed to spin-off their container shipping businesses into a new joint-venture company with a total capacity of 1.4m teu, which would rank as the sixth largest in the world and have a global market share of approximately 7%.
A joint statement released today said the deal was subject to shareholders’ agreement and regulatory approval with a planned establishment of the new company scheduled for 1 July 2017, and the target for business commencement set for 1 April 2018.
“The three Japanese companies have made efforts to cut cost and restructure their business, but there are limits to what can be accomplished individually,” explained the statement.
It added: “Under such circumstances, we have decided to integrate our container shipping business so that we can continue to deliver stably high quality and customer focused products to the market place.”
The three companies all operate portfolios of diversified enterprises that include: bulk shipping, car transportation, LNG, tankers, offshore, energy heavy lift and air cargo transportation.
It has been agreed that the shareholding of the container line joint venture will be: K Line 31%, MOL 31% and NYK 38%, with a total contribution of Y300bn, including fleets and share of terminals, but will exclude terminal operating business in Japan.
According to vesselsvalue.com, NYK owns the largest container fleet, with 68 vessels providing a total capacity 507,046 teu, valued at $2.33bn; followed MOL, with 35 ships for 307,449 teu, valued at $1.7bn, and third K Line, which owns 31 containerships with a capacity of 240,440 teu and a value of $1.2bn.
Including current chartered-in tonnage the total number of ships operated by the joint-ventrue would equal 256 vessels earning a cumulative annual revenue of Y2.04trn.
And according to Alphaliner data the merger of Hapag-Lloyd and UASC will lift the German carrier to fifth in the world rankings at 1,479,968 teu capacity, behind the merged Cosco and CSCL at 1,560,999 teu, with the proposed Japanese grouping taking the sixth spot with 1,369,728 teu.
A factor in the decision to merge their container activities is that the Japanese carriers will all be members of the new THE Alliance east-west vessel sharing grouping from April next year, which makes the integration significantly less complex.
Moreover, the Japanese shipping groups have a close relationship that stems from their “common corporate culture” with senior executives and operational management naturally familiar with their counterparts at the other companies.
In the past few years container liner shipping has been a problem child for all three of the Japanese trio as they have found themselves increasingly unable to match the economy of scale unit benefits enjoyed by the big three of Maersk Line, MSC and CMA CGM.
Furthermore, the raft of container M&A activity in the past year – with of CMA CGM’s acquisition of NOL, Hapag-Lloyd’s merger with UASC, and the merging of the two Chinese state-owned lines – has widened the gap in this sector and proved a drag on consolidated group results for the Japanese companies.
Indeed, second results for the period April to September were also released today with K Line recording a $499bn loss and NYK reporting a massive $2.2bn deficit after opting to take a huge impairment hit on the value of its ships.
MOL actually managed to record a profit of $158m in its second quarter, but this was mainly supported by one-off gains from the disposal of associate companies.
After the bankruptcy of Hanjin Shipping and the merging of the Japanese trio THE Alliance will be streamlined into three carriers: Hapag-Lloyd, Yang Ming and the newco Japan carrier, thus overcoming the “too many cooks” criticism that has previously been levelled by analysts at the grouping.
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CHANGING LOGISTICS

Global supply chain management revolution is only beginning to redefine logistics and the evolution of supply chain service providers.  Times they are a changin. 

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INVESTOR FRUSTRATION WITH MACY'S

Frustration with Macy's may include flawed omnichannel strategy that seems to emphasize bricks over clicks, Click And Collect over Delivery. 

Starboard frustration mounts after investing in Macy's 'too early'

Author
By
@daphnehowland
•
Published
Oct. 31, 2016

Dive Brief:

  • Jeff Smith, founder and CEO of activist hedge fund Starboard Value LP, told Bloomberg TV that the firm bought into Macy’s “too early” and is growing impatient with the department store retailer.
  • “We are not big fans of wait and see. There is value there. How and when it gets unlocked is still open,” Smith said, stating that Starboard is looking into “unlocking value” from Macy's real estate, and that there’s now a board member and an executive with real estate chops at the retailer. 
  • Starboard disclosed a major stake in the retailer in July 2015 and has since advocated for a spinoff of the department store’s real estate (which it estimates to be worth at least least $21 billion), similar to moves made by Sears Holdings Corp. and Saks Fifth Avenue parent Hudson Bay Co. 

Dive Insight:


Macy's has been facing pressure to reduce its footprint from activist investor Starboard for more than a year, and the hedge fund is impatiently waiting to see action. The Securities and Exchange Commission in July this year dialed up the pressure for Macy’s to make its real estate monetization effort official, writing the company a letter suggesting that investors would be better served if it listed real estate sales as gains in a separate line on income statements, rather than as expense reductions.
Experts have told Retail Dive that Macy’s has too many stores and is likely to end up shuttering even more than the 100 it has planned for closure by early next year. While shuttering stores may be good for Macy’s (and Starboard’s) investors at least in the short term, it is not necessarily good for its long-term growth, or appreciated by customers.
Investors expectations for double-digit returns can leave retail companies little wiggle room to thrive, retail futurist Doug Stephens, author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism and the Retail Prophet blog, told Retail Dive.
“The notion of building a business that really is a great business that serves a defined customer set — I think we have lost sight of that,” Stephens said earlier this year. “We’re seduced by this notion if I’m an investor and I'm not getting double digits I’m not happy. When did 5% growth become a bad thing? It’s greed on the part of markets and the companies, and leads smart people away from making good decisions.” 
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RETAIL VISIBILITY

Visibility is not enough. Retailers, especially omnichannel, need inventory velocity.

As omnichannel needs grow, retailers slowly invest in visibility

By
Jennifer McKevitt
• Oct. 28, 2016

Dive Brief:

  • Increased omnichannel needs are driving retailers to slowly overhaul their in-store systems, although at times discounting digital solutions, according to a recent Retail Systems Research benchmark report.
  • Improved order management and inventory visibility are among retailers' top priorities for 2017, with 46% and 37% planning an upgrade within the next year, respectively. 
  • Additionally, budgets show 1 in 4 retailers will implement analytics to evaluate crosschannel data over the next year, in efforts to understand and optimize omnichannel sales.

Dive Insight:

Precision of accurate, quick visibility is a necessity for retailers and competing without it is impossible in today's demanding market. But perhaps more importantly, improved visibility can serve to increase purchases, according to OrderDynamics CEO Nick McLean.
While delays in access spark customer frustration and disloyalty, high product replacement speed and inventory availability can lead to additional sales: The likelihood of an in-store upsale is about 70%, McLean told Supply Chain Dive. 
"When you have what the customers want, chances are a further purchase will occur," he said. "Retailers that can deliver what the customer wants, when she wants it, will consistently win business. Also, the sooner a return is processed, the sooner it can become available for resale, let alone product replacement by the original buyer."
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MILITARY LOGISTICS AND PROCESS

Military branches can struggle with #logistics by using discrete, separate actions instead of process. Process gaps impact performance.

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Sunday, October 30, 2016

SUPPLY CHAINS--PROCESS GAPS

Many retail omnichannel supply chains struggle by using discrete, separate actions instead of process. The process gaps impact performance.

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IoT AND SUPPLY CHAIN DUALITY

The duality of IoT and Supply Chain Management. IoT creates new supply chain potential and IoT cannot succeed without the New Supply Chain.

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Friday, October 28, 2016

BATTLE-- SUEZ CANAL VS PANAMA CANAL

The tale of two canals – game theory in action

October 28th, 2016 Americas, Containers, Middle East, Operations, Opinion 0 comments 
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What comes to your mind when you think about the Suez and Panama Canals? Marvels of engineering? An exotic waterway thousands of miles away? Revenue cash cows for two nations?
Whatever you might think about them, these two man-made canals play a very strategic role in international shipping and trade. And they do produce revenue for their owners to the tune of approximately $6bn in the case of the Suez Canal and nearly $2bn in the case of Panama Canal. That is some serious cashflow and any moves that affect how this revenue is generated are closely scrutinised by national treasuries and the companies that use the canals to transport cargo between far-flung markets.
Even though separated by thousands of miles, the two canals are in fierce competition with each other. In their battle for customers, they employ the tit-for-tat strategy familiar to all students of economics and business. In case you are wondering, the tit for tat mathematical game theory relates to a game called Prisoner’s Dilemma. In general terms, the strategy involves cooperating the first time and after that always repeating your opponent’s last move. The weapon of choice for the canals playing this game: infrastructure improvements and pricing.
The loudest salvo on the infrastructure front came from the Panama Canal. By deciding to enlarge their locks, Panama Canal attempted to change the economics of shipping goods from Asia to US East Coast. It also opened better routes for oil and gas transports leaving the US for energy hungry markets in Asia. After the dust settles, the Panama Canal will be capable of handling ships up to 14,000 teu (in practice less, as there are draft limitations). That is still smaller than what the Suez can handle, but nonetheless, it offers better economics to the carriers, than the old Panama passage.
The Suez Canal appeared unperturbed on the infrastructure front. In 2014, it committed itself to spend $4bn on dredging and widening the waterway to allow two-way traffic on the entire length of the canal. This will offer efficiencies to ultra large container vessels and making the passage faster and more efficient.
The pricing component of the tit-for-tat strategy got even more interesting. In preparation for the increased traffic, the Panama Canal offered the carriers a carrot in the form of a simple loyalty program: carry cumulative capacity of over 1.5 million teu over 12 consecutive months and receive a 14% discount from the base rate. For the carriers unable to get up to 1.5m teu, there were two lower thresholds offering lesser savings, but savings nonetheless. All in all, annual savings to the carriers could be in the range of $4m to $10m annually.
The Suez’s response came swiftly. It decided to blunt the incentive carrot offered by the Panama Canal. Coincidentally, it already had an incentive scheme offering deep tariff discounts to discourage carriers from testing going around the Cape and skipping Suez all together. While such a strategy would require the carriers to add one more vessel to their rotations, the threat of doing so was sufficient for the Suez to keep the discounts for much longer than originally intended.
The longer term pricing strategy became clearer over the last few days, as Suez entered into negotiations with major carriers on the stored value account scheme. Users of public transport are quite familiar with programs like Oyster card in London or Octopus card in Hong Kong. You put your money into the account up front and every time you take the journey, a fare deduction is made from the stored value card. Once it drops below a certain minimum, the account must be topped up. In exchange for your money up front, you receive some discounts on fares, thus making everybody reasonably happy.
In the case of Suez, such stored value accounts would equal the estimated cost of carrier passages over a three or five year period. To sweeten the deal, the Suez reportedly offered carriers discounts of about 3% on passage tariffs. Since the Suez’s tariffs collected from the three largest container carriers amount to about $1.5bn per annum from the total of about $6.3bn, the 3% represents substantial savings. An obvious benefit to the Suez as a result of such a deal is cash in the bank up front. If the move is associated with protection from any rise in tariffs, it could represent an even stronger financial incentive for the carriers.
While the scheme appears to be a no-brainer, there is more to it than meets the eye. The carriers have to decide on two things. First question relates to their cost of capital. Should they put 3-5 years of money’s worth into Suez’s piggy bank, or should they keep it in their bank or invest and earn some dividends, while eschewing the discount? The second question relates to having flexibility in network redesign. 3-5 years is a long time for the network and allocation of vessels to the rotations. After all, the Panama Canal could be the game changer and the cargo flows could render US East Coast deliveries through Suez inefficient. That would force the Suez to keep the tariff discounts in place for much longer than envisioned by Suez.
The ball is now in Panama’s court. Will they sweeten the loyalty deal to carriers, or will they defend the current program and insist that the carriers are already getting a good deal in shorter transit times and more efficient passage reservation system? Could they work out new loyalty scenarios that could tie pre-payment deposits in Panama Canal accounts? After all, cash today is more valuable than cash tomorrow. I don’t think we will have to wait long for the answer to this vexing question.
The pricing tit-for-tat played by the canals have impacts reaching further afield to the transhipment-oriented ports, especially the ones located in the Gulf of Mexico. Their ongoing investment splurge has already created transshipment overcapacity and kept ports’ revenues and margins under pressure. Further expansion of the existing ports and the arrival of new player in form of Cuban investment in development of Mariel could only deepen the cut throat competition.
As you see, the consequence of the pricing decisions taken by Suez and Panama needs to be carefully watched by both carriers and ports, as each will benefit, or suffer, differently. As for us, the junkies of mathematical games and mathematical optimisation on plans and decisions, we will rejoice in the study of the strategies employed by the canals and the results that follow.
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AMAZON TAKES HIT AS COSTS SURGE

Are analysts correct? Or is it a failure to understand what Amazon is doing and building? 

Amazon Takes Hit as Costs Surge

Results disappoint as retail giant invests heavily on warehouses, trimming delivery times

Amazon is targeting new growth markets like fashion and beauty, where analysts expect quick gains due to its relatively small market share. ENLARGE
Amazon is targeting new growth markets like fashion and beauty, where analysts expect quick gains due to its relatively small market share. Photo: Ross D. Franklin/Associated Press
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Amazon.com Inc. posted its lowest quarterly profit in a year as it invested heavily to meet consumer demand for more orders delivered faster.
The online retail giant said Thursday that opening new warehouses and shipping items with shorter delivery times caused its costs to soar in the third quarter. The company predicts heavy investments will continue through the rest of the year. Amazon opened 23 warehouses world-wide to fill orders since July, after opening just three in the first half of the year.
Adding those warehouses “was a big undertaking,” said Chief Financial Officer Brian Olsavsky on a media call Thursday. But he said it puts the retail giant in a good position to handle the flood of holiday orders in the fourth quarter.
The company’s shares fell more than 6% in after-hours trading on concerns about the higher spending, as well as a holiday outlook that fell short of expectations.
The results show “Amazon is still in investment mode, and the Street should not necessarily expect linear growth in profitability,” said Robert W. Baird & Co. analyst Colin Sebastian.
The company has been pushing its $99-a-year Prime membership program to broaden its base of loyal shoppers who often spend double their non-Prime counterparts on the site, analysts estimate. Prime promises free, fast shipping on millions of items on its site and access to video content and other perks. As the membership grows, Amazon is getting more items to the front door in as fast as an hour, increasing its shipping costs 43% in the third quarter to $3.9 billion.

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“We acknowledge that’s expensive,” Mr. Olsavsky said. But “customers love it.”
The retail giant has started laying the groundwork for its own shipping business to add more delivery capacity for the holidays, with the grander ambition of one day hauling and delivering packages for itself, other retailers and consumers, according to people familiar with the matter.
It is leasing 40 planes to carry goods and buying branded truck trailers, but the investments it is making to build its own logistics operations generally break even or save on costs, Mr. Olsavsky said. “We want to control our own destiny,” he added.
Amazon accelerated its investments in its own transportation capabilities after the major delivery carriers during the 2013 holiday season failed to deliver all its orders in time.
This year, Amazon has added delivery capabilities of its own, as well as arranging capacity with its partners, Mr. Olsavsky said on an analyst call.
Amazon also is shipping more units because it has expanded a program to handle third-party seller merchandise, Fulfillment by Amazon. The company has been adding warehouses in part to accommodate that increase.
ENLARGE
The quarter marked Amazon’s sixth consecutive of profit after seesawing in and out of the black since its stock market listing nearly 20 years ago, despite reporting robust sales increases.
In all, its earnings rose to $252 million in the third quarter, or 52 cents a share, from $79 million, or 17 cents a share, a year earlier. Analysts surveyed by Thomson Reuters expected earnings of 78 cents a share.
Sales of $32.7 billion were nearly eclipsed by operating expenses which climbed 29% to $32.1 billion. The investments caused Amazon’s operating margin to come in at 1.8%, below the second quarter’s 4.2%.
Other areas where Amazon significantly increased its spending include promoting its video content. It is also building out teams for its Amazon Web Services cloud-computing division, and its Echo speaker device and Alexa artificial-intelligence assistant, as well as investing in its operations in India.
AWS, which has become a major factor in Amazon’s profitability, increased sales by 55% to $3.23 billion. Chief Executive Jeff Bezos has said he expects AWS, which rents computing power to a variety of startups, government agencies and other corporations, to reach $10 billion in sales this year, even amid competition from Microsoft Corp. and Alphabet Inc.
Amazon issued revenue guidance of $42 billion to $45.5 billion for the fourth quarter, when holiday sales—and its ability to deliver those orders on time—are critical to its success. Analysts were looking for $44.6 billion, according to Thomson Reuters.
Amazon reported a loss of $541 million for its international segment, steeper than its loss of $208 million a year ago. On the conference call with analysts, Mr. Olsavsky attributed that to spending on expansion, including in India, something that should continue into the fourth quarter. “By far, the biggest individual thing [affecting margins] is the investment that we continue to make,” he added.
Write to Laura Stevens at laura.stevens@wsj.com
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Thursday, October 27, 2016

GLAXOSMITHKLINE WANTS TO SECURE POST-BREXIT SUPPLY CHAIN

GlaxoSmithKline lays plans to secure post-Brexit supply chain

Weak pound helps third-quarter sales surge 23%
© Bloomberg
by: Gonzalo Viña
UK drugmaker GlaxoSmithKline is drawing up contingency plans to secure its supply chains after Brexit, prompted by concerns over disruption as a result of any trade settlement between Britain and the EU.
During a call to discuss GSK’s third-quarter results on Wednesday, outgoing chief executive Sir Andrew Witty said the terms on which the UK leaves the EU would have a “fundamental effect” on the company’s operations. But he did not spell out the steps the group might take.
“It is too early to make a definitive choice but we are spinning up the various responses that we would have to take under whichever scenario ultimately plays out over the next few years,” Sir Andrew said.
GSK’s chief executive, who is due to step down early next year after a decade at the helm of Britain’s biggest pharmaceuticals company, said he has fewer concerns about controls limiting the ability to hire staff from the EU.
“I remain optimistic that ultimately there are going to be some pragmatic decisions made here which ensures that companies are able to really access the best talent,” Sir Andrew said.
Despite concerns over Brexit, GSK posted third-quarter results showing that its recovery is continuing as it benefited from the slide in the pound.

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Group sales surged 23 per cent higher compared with the same period last year to £7.54bn, ahead of analyst expectations of £7.27bn. At constant exchange rates, the rise was a more modest 8 per cent.
Core operating profit for the three months to September 30 rose 35 per cent, or 12 per cent at constant currencies, to £2.3bn.
The strong growth came across all three divisions at GSK, “but primarily from the momentum of new pharmaceutical and vaccine products”, Sir Andrew said.
The drugmaker is emerging from a difficult few years in which sales and profits were hit hard by the decline of its blockbuster drug Advair, a treatment for severe asthma.
GSK has identified 11 new products that it says will bring sales of £6bn a year by 2018. It said on Wednesday that new drugs including — Tivicay for treating HIV and the Menveo vaccine for meningitis — now account for a quarter of pharmaceutical revenues, up from 14 per cent in the same period last year. Revenues from new drugs and vaccines rose 79 per cent in the quarter to £1.2bn.
Core earnings per share at 32.2p were up 12 per cent at constant exchange rates compared with the same period last year, and well ahead analysts’ consensus of 29.4p.
The drugmaker confirmed its target for full-year core earnings per share growth of 11 to 12 per cent at constant currencies.
GSK said its consumer healthcare division, which includes “power brands” Sensodyne and Voltaren, posted sales of £1.9bn, a 5 per cent increase year on year in a market that Sir Andrew said was growing at about 3.5 per cent.
Analysts at Hargreaves Lansdown said that although at current rates the pound would boost full-year EPS by 21 per cent, there was a “dark side” to the currency swing because GSK borrows in dollars as well as pounds, increasing debt costs by £1.4bn.
Shares in the group closed slightly down at £16.26.
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CHINA YUAN FALLS TO SIX YEAR LOW

China Steps Up Yuan Rhetoric as Currency Falls to Six-Year Low

Bloomberg News
Updated on
  • Volatility gauge most muted in year as officials show support
  • Previous verbal intervention attempts achieved limited success
Chinese officials and state-run media stepped up efforts to curb yuan depreciation concerns, talking up the currency as it traded near the weakest level in six years.
The exchange rate isn’t likely to drop much more because a rally in the dollar is close to an end, according to a report Thursday in the Financial News, a central bank publication. The article follows comments from People’s Bank of China Deputy Governor Yi Gang that the nation will keep the exchange rate stable and that there’s no basis for persistent declines. Ma Jun, chief economist at the PBOC’s research bureau, added his voice to the defense, saying that the yuan’s depreciation in October has been driven mainly by the greenback’s advance.
“China is sending a signal that they are watching the yuan level closely and they want to make investors more cautious in building positions betting against the currency," said Ken Cheung, a foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong. "The impact of the rhetoric will be limited as they just repeat previous comments, and the yuan was driven by dollar strength. Such comments won’t reverse the greenback’s move."
A gauge of the dollar’s strength has climbed 2.1 percent since the end of September as investors speculate that the U.S. Federal Reserve is readying an interest-rate increase. The speed of the yuan’s recent tumble will slow, and policy makers will step in to squeeze out speculators if bearish bets increase, according to a Bloomberg survey of 21 foreign-exchange traders and analysts this month, with the median forecast seeing the yuan declining to 6.8 per dollar by year-end.
Previous rounds of verbal intervention have preceded an escalation of meddling in the currency market. In January, the PBOC was suspected of starving the offshore market of yuan soon after a central-bank arm said there was no basis for depreciation. Still, officials have also proven themselves capable of surprises. On Aug. 13 last year, the PBOC cut its fixing by 1.1 percent a day after saying there’s no reason for a persistent drop.
The Chinese currency’s one-month implied volatility, which is used to price options, dropped 13 basis points to 3.61 percent as of 4:40 p.m. in Hong Kong. That’s the lowest since August last year. The currency traded in Shanghai’s spot market fell 0.1 percent to 6.7789 a dollar, taking its decline for the year to 4.2 percent. The offshore rate was trading near the weakest level in data going back to August 2010.
“The PBOC wants investors to know there’s no point to panic and if volatility surges, it will take measures to stabilize sentiment," said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “The comments and a more transparent fixing have helped push volatility lower.”
The case for limited depreciation in the yuan has been buttressed by its Oct. 1 entry into the International Monetary Fund’s Special Drawing Rights, which is expected to draw capital inflows. The Chinese currency’s share of global payments surged to 2.03 percent in September, the highest since January, according to data from the Society for Worldwide Interbank Financial Telecommunication. The increase is partly due to China’s capital controls limiting companies’ ability to raise yuan, which resulted in more yuan transactions, said Zhou Hao, an economist at Commerzbank AG in Singapore.

Retaining Control

While China has eased access to onshore bond markets and scrapped the need for quotas for an inbound investment program, it retains control of the currency mainly through a daily central bank reference rate that limits moves to 2 percent on either side. It has also been suspected of intervening in the market to slow declines, the most recent bout being in the weeks before a Group of 20 meeting in September and ahead of the SDR entry. While a weaker yuan will help efforts to boost exports, any speedy increase in volatility risks spurring capital outflows.

"The strategy of buying short yuan options blindly will fail, because expectations for a one-time devaluation are receding and the volatility won’t surge any time soon," said Frank Zhang, Shanghai-based head of foreign-exchange trading at China Merchants Bank. "There’s no basis for the market to panic as the PBOC has built credibility for itself -- investors trust the fixing mechanism and China’s capability to keep the yuan stable."
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