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Project Dory Monitoring 14 August 2017
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North Korea factories humming with 'Made in China' clothes, traders say
Aug 13, 2017 | Reuters
By Sue-Lin Wong and Philip Wen
Chinese textile firms are increasingly using North Korean factories to take advantage of cheaper labor across the border, traders and businesses in the border city of Dandong told Reuters. -
Teen stops in Dandong during six weeks in China
Aug 13, 2017 | StarNews
By Robbie Greenspan
For three days in July, 11th grader Harry Shaheen was the honored guest of a Chinese city. He visited Dandong, one of Wilmington’s four sister cities. -
China's Xi Seeks to Calm North Korea Tensions in Trump Call
Aug 12, 2017 | Bloomberg
By Min Jeong Lee and Takashi Amano
China’s President Xi Jinping moved to calm growing tensions over North Korea, telling U.S. President Donald Trump in a phone call that all sides should maintain restraint and avoid inflammatory comments. -
Trump Finds Tackling China Trade Is Harder Than It Sounds
Aug 13, 2017 | Bloomberg
The White House is stepping up pressure over perceived intellectual-property abuses, and the administration has in recent days proposed fresh duties on imports of China’s aluminum foil products. -
Beijing Warns U.S. Over Navy Patrol in South China Sea
Aug 11, 2017 | The New York Times
By Chris Buckley
As the Trump administration pressed China to curb North Korea, Beijing issued its own warning over another festering dispute on Friday, saying that American naval operations in the South China Sea would only force it to deepen its military buildup there. -
Disruption is Coming to the Shipping Industry
Aug 13, 2017 | Maritime Executive
By Frank Coles
As I sit at my desk, I find myself shaking my head asking myself why so many in maritime do not “get it.” I can only conclude that while people happily read about impending transformation of our industry, they do so in the misguided belief it will only affect others – and that they somehow remain insulated. -
Asia-Europe spot rates flatten ahead of mid-August GRIs
Aug 11, 2017 | Journal Of Commerce
By Greg Knowler
Solid peak season volumes and reports of tight space from shippers have not been able to push up the AsiaEurope spot market, with freight rates declining slightly this week in advance of yet another round of increases on Aug. 15.
Port Mentions - There are no relevant clips to report at this time.
City/Province Mentions
Competitor Mentions - There are no relevant clips to report at this time.
US - China Relations
Industry News
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North Korea factories humming with 'Made in China' clothes, traders say
Aug 13, 2017 | Reuters
By Sue-Lin Wong and Philip Wen
DANDONG, China (Reuters) - Chinese textile firms are increasingly using North Korean factories to take advantage of cheaper labor across the border, traders and businesses in the border city of Dandong told Reuters.
The clothes made in North Korea are labeled "Made in China" and exported across the world, they said.
Using North Korea to produce cheap clothes for sale around the globe shows that for every door that is closed by ever-tightening U.N. sanctions another one may open. The UN sanctions, introduced to punish North Korea for its missile and nuclear programs, do not include any bans on textile exports.
"We take orders from all over the world," said one Korean-Chinese businessman in Dandong, the Chinese border city where the majority of North Korea trade passes through. Like many people Reuters interviewed for this story, he spoke on condition of anonymity because of the sensitivity of the issue.
Dozens of clothing agents operate in Dandong, acting as go-betweens for Chinese clothing suppliers and buyers from the United States, Europe, Japan, South Korea, Canada and Russia, the businessman said.
"We will ask the Chinese suppliers who work with us if they plan on being open with their client -- sometimes the final buyer won't realize their clothes are being made in North Korea. It's extremely sensitive," he said.
Textiles were North Korea's second-biggest export after coal and other minerals in 2016, totaling $752 million, according to data from the Korea Trade-Investment Promotion Agency (KOTRA). Total exports from North Korea in 2016 rose 4.6 percent to $2.82 billion.
The latest U.N. sanctions, agreed earlier this month, have completely banned coal exports now.
Its flourishing textiles industry shows how impoverished North Korea has adapted, with a limited embrace of market reforms, to sanctions since 2006 when it first tested a nuclear device. The industry also shows the extent to which North Korea relies on China as an economic lifeline, even as U.S. President Donald Trump piles pressure on Beijing to do more to rein in its neighbor's weapons programmes.
Chinese exports to North Korea rose almost 30 percent to $1.67 billion in the first half of the year, largely driven by textile materials and other traditional labour-intensive goods not included on the United Nations embargo list, Chinese customs spokesman Huang Songping told reporters.
Chinese suppliers send fabrics and other raw materials required for manufacturing clothing to North Korean factories across the border where garments are assembled and exported.FACTORIES HUMMING
Australian sportswear brand Rip Curl publicly apologized last year when it was discovered that some of its ski gear, labeled "Made in China", had been made in one of North Korea’s garment factories. Rip Curl blamed a rogue supplier for outsourcing to "an unauthorized subcontractor".
But traders and agents in Dandong say it's a widespread practice.
Manufacturers can save up to 75 percent by making their clothes in North Korea, said a Chinese trader who has lived in Pyongyang.
Some of the North Korean factories are located in Siniuju city just across the border from Dandong. Other factories are located outside Pyongyang. Finished clothing is often directly shipped from North Korea to Chinese ports before being sent onto the rest of the world, the Chinese traders and businesses said.
North Korea has about 15 large garment exporting enterprises, each operating several factories spread around the country, and dozens of medium sized companies, according to GPI Consultancy of the Netherlands, which helps foreign companies do business in North Korea.
All factories in North Korea are state-owned. And the textile ones appear to be humming, traders and agents say.
"We've been trying to get some of our clothes made in North Korea but the factories are fully booked at the moment," said a Korean-Chinese businesswoman at a factory in Dalian, a Chinese port city two hours away from Dandong by train.
"North Korean workers can produce 30 percent more clothes each day than a Chinese worker," said the Korean-Chinese businessman.
"In North Korea, factory workers can't just go to the toilet whenever they feel like, otherwise they think it slows down the whole assembly line."
"They aren't like Chinese factory workers who just work for the money. North Koreans have a different attitude -- they believe they are working for their country, for their leader."
And they are paid wages significantly below many other Asian countries. North Korean workers at the now shuttered Kaesong industrial zone just across the border from South Korea received wages ranging from a minimum of around $75 a month to an average of around $160, compared to average factory wages of $450-$750 a month in China. Kaesong was run jointly with South Korea and the wage structure - much higher than in the rest of North Korea - was negotiated with Seoul.WORKERS IN CHINA
Chinese clothing manufacturers have been increasingly using North Korean textile factories even as they relocate their own factories offshore, including to Bangladesh, Vietnam and Cambodia.
"Wages are too high in China now. It's no wonder so many orders are being sent to North Korea," said a Korean-Chinese businesswoman who works in the textiles industry in Dandong.
Chinese textile companies are also employing thousands of cheaper North Korean workers in China.
North Korea relies on overseas workers to earn hard currency, especially since U.N. sanctions have choked off some other sources of export earnings. Much of their wages are remitted back to the state and help fund Pyongyang's ambitious nuclear and missile programmes, the U.N. says.
The new U.N. sanctions imposed on North Korea this month ban countries from increasing the current numbers of North Korean laborers working abroad.
China does not disclose official figures for the number of North Koreans working in factories and restaurants in China, although numbers are down from a peak period two to three years ago, according to Cheng Xiaohe, a North Korea specialist at Beijing's Renmin University.
"It's a hassle to hire North Korean workers though," the Korean-Chinese businesswoman from Dalian said. "You need to have the right set-up. Their living space has to be completely closed off, you have to provide a classroom where they can take classes every day. They bring their own doctor, nurse, cook and teachers who teach them North Korean ideology every day."
One clothing factory that Reuters visited in Dandong employs 40 North Korean workers. They fill smaller orders for clients who are more stringent about their supply chains and expressly request no production inside North Korea.
North Korean factory workers in China earn about 2,000 yuan ($300.25), about half of the average for Chinese workers, the factory owner said.
They are allowed to keep around a third of their wages, with the rest going to their North Korean government handlers, he said. A typical shift at the factory runs from 7:30 a.m. to around 10 p.m.
The workers - all women dressed in pink and black uniforms - sat close together behind four rows of sewing machines, working on a consignment of dark-colored winter jackets. The Chinese characters for "clean" and "tidy" were emblazoned in bold blue lettering above their heads and the main factory floor was silent but for the tapping and whirring of sewing machines.
https://www.reuters.com/article/us-northkorea-labour-china-insight-idUSKBN1AT00Q
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Teen stops in Dandong during six weeks in China
Aug 13, 2017 | StarNews
By Robbie Greenspan
Dandong city officials sent a small contingent to meet Harry Shaheen at the airport and paid for everything while he stayed.
WILMINGTON -- For three days in July, 11th grader Harry Shaheen was the honored guest of a Chinese city. He visited Dandong, one of Wilmington’s four sister cities.
After planning a six-week trip to China for the summer, Shaheen realized he would be close to Dandong and reached out to the city.
“We talked and communicated, and they said, ‘Come and we will pick you up and accommodate you,’” Shaheen said.
Dandong city officials sent a small contingent to meet Shaheen at the airport and paid for everything while he stayed in the city.
“They were very generous the whole time,” Sheehan said. “I was very moved.”
Over the three days they enjoyed local cuisine and explored different areas of the city, including the easternmost portion of the Great Wall of China.
Shaheen spent a total of six weeks in China, from May 27 to Aug. 8, visiting cities, provinces and friends. He also taught English for a month in Inner Mongolia, a Chinese autonomous region.
His interest in Chinese culture started two years ago, after meeting students from China who attended Cape Fear Academy with him.
“I became part of their circle of friends and got acclimated to their culture and I began studying the language,” he said.
Shaheen spent three weeks in China last summer with one of his new friends and loved the experience.
“At that point, I had been studying the language for three months so I got a really big passion for the language and the culture during that time,” he said. “When I returned home, I continued studying the language and the culture and I really wanted to go back because I fell in love with the place.”
Shaheen’s continued studies helped him become conversationally fluent in Mandarin, and pushed him to go back to China. In looking for a way back over, he came across Dandong, Wilmington’s sister city.
Sister cities are cities from different countries that have some aspects in common and agree to start a partnership. Both Wilmington and Dandong are port cities with azaleas as their city flower.
According to the Sister Cities Association of Wilmington, there was a teacher exchange program for several years between the cities with students from University of North Carolina Wilmington going to Dandong for yearlong assignments.
Wilmington’s other sister cities are San Pedro, Belize; Bridgetown, Barbados; and Doncaster, England. Learn more about the program at www.scawilmington.org.
Shaheen hopes to return to China again in the future, potentially even to attend college. He is also trying to set up a visit for representatives from Dandong to visit Wilmington in the fall.
“Language is a tool for communication,” he said. “People are people wherever you go.”
http://www.starnewsonline.com/entertainment/20170813/teen-stops-in-dandong-during-six-weeks-in-china
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China's Xi Seeks to Calm North Korea Tensions in Trump Call
Aug 12, 2017 | Bloomberg
By Min Jeong Lee and Takashi Amano
Two leaders reiterate commitment to denuclearization of Korea
White House says Xi-Trump relationship ‘extremely close’
China’s President Xi Jinping moved to calm growing tensions over North Korea, telling U.S. President Donald Trump in a phone call that all sides should maintain restraint and avoid inflammatory comments.
Xi’s comments, reported by China’s CCTV, came shortly after Trump added to his recent aggressive tweets by saying that U.S. military options were “locked and loaded” if North Korean leader Kim Jong-Un acted unwisely. China is North Korea’s main benefactor, providing most of its food and fuel.
The White House said that Trump and Xi agreed that North Korea must stop provocative behavior, reiterating their mutual commitment to rid the Korean peninsula of nuclear weapons. It also said that Trump looked forward to visiting China later this year, calling the relationship between the two leaders “extremely close.”
The warm words exchanged Friday night in the U.S. masked underlying tensions between Beijing and Washington over how to deal with the errant regime in Pyongyang. Trump has often used sharp words to argue that China isn’t doing enough to rein in North Korea, and has threatened punitive measures on trade if Xi fails to act.
China, on the other hand, is reluctant to put so much pressure on the regime that it risks collapse. While North Korea is testing the patience of its longtime benefactor, such a scenario could lead to a unified Korea and push U.S. troops right up to its border.
China’s dilemma was on display in an editorial published on Friday by the Communist Party-affiliated Global Times. The newspaper said that Beijing should stay neutral if North Korea provoked Trump into war with a missile attack. At the same time, it said that China would intervene if the U.S. and South Korea sought to attack North Korea and topple his regime.
China agreed to harsh United Nations sanctions earlier this month even while calling on all sides to take a step back and negotiate a solution. Formal talks on North Korea’s nuclear program collapsed in 2009, and Kim has accelerated his efforts to obtain the ability to strike the U.S. with a nuclear weapon.
The Trump-Xi phone call came as Japan set up a missile-defense system in western areas of the country, following a threat by North Korea to fire missiles over Japan toward the U.S. territory of Guam. The deployment of four Patriot interceptors was expected to be completed Saturday, a spokesman for Japan’s Ministry of Defense said by phone. He asked not to be named.
Japanese Prime Minister Shinzo Abe told local media earlier on Saturday that he would “do his best” to protect the lives and property of his fellow citizens.New Phase?
South Korea hopes the talks between Trump and Xi will be an opportunity to ease the high tensions and shift the situation into a new phase, South Korea’s presidential Blue House was quoted as saying by the Yonhap news agency.
The European Union’s Political and Security Committee will meet Monday in an extraordinary session called by foreign policy chief Federica Mogherini to discuss “possible next steps” on North Korea, according to an emailed statement.
Trump has stepped warnings that Kim’s regime would face a devastating military strike if it continued threatening the U.S. On Friday, he said that if Kim makes any “overt threat” or strike at a U.S. territory or ally “he will truly regret it and he will regret it fast.” Trump also said the U.S. was considering tighter sanctions against North Korea.
“Hopefully it will all work out,” he told reporters in Bedminster, New Jersey. “Nobody loves a peaceful solution better than President Trump.”Brink of War
North Korea’s state-run Korean Central News Agency accused Trump earlier of moving the Korean Peninsula “to the brink of a nuclear war.” The U.S. hasn’t taken any public steps to prepare for hostilities such as evacuating Americans from Seoul, which is within range of North Korean artillery, or moving ships, aircraft or troops into position for an imminent response.
After a week of tumult, financial markets began to stabilize on Friday. The S&P 500 Index rebounded from its steepest drop since May, and the CBOE Volatility Index dropped 3.3 percent, after Thursday’s 44 percent spike.
Terence Roehrig, a national security affairs professor at the U.S. Naval War College in Newport, Rhode Island, said Trump’s posture suggested he was trying to dissuade Kim from further provocations rather than setting the stage for a U.S. military strike.‘Not Suicidal’
“The president’s rhetoric could be aimed at China, but largely it is aimed at North Korea, trying to deter,” Roehrig said. “North Koreans are not suicidal. They may continue launching missile tests but they don’t want a war, and the U.S. doesn’t want military action either. ”
Jamil Jaffer, founder of the National Security Institute at George Mason University’s Antonin Scalia Law School in Arlington, Virginia, said Trump’s “muscular response” to North Korea was “the exact type of resolve we need to force the hand” of Pyongyang’s “Chinese patrons.”
Trump’s “firm break with 20-plus years of failed American policy on North Korea represents the one chance we might have to forestall a massive conflict on the Korean peninsula,” said Jaffer in an email. He added that China and North Korea understand that Trump “is actually prepared to use military force -- credibility that prior administrations simply lacked.”
https://www.bloomberg.com/news/articles/2017-08-12/trump-and-xi-say-north-korea-must-stop-provocative-behavior
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Trump Finds Tackling China Trade Is Harder Than It Sounds
Aug 13, 2017 | Bloomberg
IP probe, alufoil measures seen with doubtful effectiveness
Citi analyst says ‘there’s no need to have a trade war at all’
President Donald Trump may be finding out that taking on China over trade is harder than it looks.
The White House is stepping up pressure over perceived intellectual-property abuses, and the administration has in recent days proposed fresh duties on imports of China’s aluminum foil products. But gaining real leverage is proving elusive, as deep trade links mean that bold sanctions risk backfiring and targeted ones may end up yielding little.
The bid to use trade probes as a weapon may turn out to be less effective than using the tools of the World Trade Organization. Landing a blow against China would also be more complicated if the U.S. chooses to target sectors where the countries are connected along global supply chains, which make up a most of their bilateral trade.
"Trump really doesn’t have many cards in his hand," said Tu Xinquan, dean of the China Institute for WTO studies at the University of International Business and Economics in Beijing. He said the two economies are so closely linked that it’s difficult for the U.S. to find a specific industry to assail without triggering repercussions from China.
On Saturday, administration officials said Trump will direct U.S. Trade Representative Robert Lighthizer on Monday to consider investigating China’s IP policies, especially the practice of forcing U.S. companies operating in China to transfer technological know-how. If China is found to be flouting rules, the administration’s options include imposing import tariffs, officials said. If USTR moves forward, the investigation could take as long as a year.
Read More: Trump Is Said Ready to Turn Up China Heat Over IP Transfers
The latest move, opening a new front of trade friction even as the countries try to work together to contain North Korea’s nuclear threat, would possibly end up as just another example to show how trade policy isn’t as simple as it sounds.
Chinese media poured cold water on the Trump administration tactics. Economic Daily, a state-run news paper under China’s State Council, the cabinet, said in a Monday editorial that the intellectual-property probe will do more harm than good, whether it is being used as a new policy approach or negotiation tactic. It argued the two sides should explore new trade territory through negotiations to address the imbalance.
Trump’s move to link trade with the North Korea issue will only "exacerbate the country’s economic woes, and poison the overall China-U.S.relationship," the state-run English newspaper China Daily wrote in a commentary titled "Trump asking too much from Beijing on peninsula issue" on Monday.
Stick Waving
The timing of the IP probe announcement was interesting, as it came after the phone call between Xi and Trump on North Korea, Jiang Shan, a former U.S. trade official at the Ministry of Commerce, said by WeChat. "Trump is again waving the stick to push for his ’deal’, testing how China would respond. In the end, the two sides would go back to the negotiation table as always, both stepping back a little, and finding a way to pass this phase."
Liu Li-gang, chief China economist at Citigroup Inc. in Hong Kong, said the countries are complementary in many sectors, especially those related to technology. Trade restrictions in such areas, whether higher tariffs or intellectual property probes, would therefore hurt American companies and the country’s economy, he said.
Meanwhile, the Trump administration blames China’s excess capacity of the metals for a global glut that’s undermining U.S. producers. Yet steel and aluminum industries are hardly weak points for China, where most production is sold at home. Steel and aluminum shipments make up only 3.5 percent of total exports, and account for just 0.7 percent of gross domestic product, according to Fielding Chen, an economist at Bloomberg Intelligence in Hong Kong.
Even if the Trump administration "does decide to impose tariffs on steel and aluminum, the most widely discussed measures, the impact on China’s growth would likely be limited because they make up only a sliver of China’s exports and GDP," Chen wrote in a recent note.
The U.S. aluminum foil production industry accounts for $6.8 billion in economic activity annually, according to a statement from the Aluminum Association, a trade group. That works out to less than 0.0004 percent of GDP.
The U.S. said last week it would seek to impose duties on aluminum foil imports from China, arguing that subsidies for the domestic industry unfairly disadvantage American producers. China can turn to the WTO after Commerce delivers its final ruling on the case in October.
A bigger risk for Trump might be that after the rhetoric and potential sanctions, China’s economic momentum continues chugging along undisturbed.
In a worst-case scenario of full trade war, China’s exports to the U.S. would drop, but that would shave off just 0.1 percentage point from China’s economic growth rate, according to China International Capital Corp. The shock would be even smaller should China redirect trading to other nations, CICC analyst Liu Liu in Beijing wrote in a report Wednesday.
Instead of trade war, leaders of the two largest economies should instead solve problems by increasing trade and investment, according to the Institute of International Finance in Washington.
Like China, the U.S. benefits more from bilateral trade ties. Growth of U.S. exports to China has been twice as fast as imports from there, and triple the growth of total exports, IIF chief China economist Gene Ma wrote in a recent report.
"The U.S. could be the biggest beneficiary of China’s consumption rise," Citigroup’s Liu said. "If you think long-term from this angle, there’s no need to have a trade war at all."
https://www.bloomberg.com/news/articles/2017-08-13/trump-trade-push-on-china-faces-challenges-as-ip-takes-spotlight
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Beijing Warns U.S. Over Navy Patrol in South China Sea
Aug 11, 2017 | The New York Times
By Chris Buckley
BEIJING — As the Trump administration pressed China to curb North Korea, Beijing issued its own warning over another festering dispute on Friday, saying that American naval operations in the South China Sea would only force it to deepen its military buildup there.
The warning came after a United States Navy destroyer, the John S. McCain, passed Thursday near Mischief Reef, which China claims as its territory. These freedom of navigation operations near contested islands and reefs across the South China Sea are meant to show that the United States does not accept that China or any other claimant can legally challenge an American naval presence in the area.
But in separate statements, China’s Ministry of Foreign Affairs and Ministry of National Defense accused the United States of stirring regional conflict and suggested that such operations bolstered China’s case for building military facilities across the sea to defend its claimed territory. Vietnam, the Philippines and other governments also claim islands and adjacent waters in the sea.
“We strongly urge the United States to immediately mend its ways and end illegal provocations in the name of so-called freedom of navigation,” Senior Col. Wu Qian, a spokesman for the Chinese Ministry of Defense, said Friday on its website. “The American military provocation will only induce the Chinese military to further build up various defensive capacities.”
The loud, swift denunciations by the Chinese government stood in contrast to its muted public response to tensions over North Korea. Pyongyang vowed this week to fire missiles near Guam, an American territory, after President Trump warned of unprecedented “fire and fury” if it threatened the United States.Continue reading the main storyRELATED COVERAGETrump Doubles Down on Threats Against North Korea as Nuclear Tensions EscalateAUG. 10, 2017Trump Threatens ‘Fire and Fury’ Against North Korea if It Endangers U.S. AUG. 8, 2017U.S., Hardening Line on China, Approves $1 Billion Arms Sale to Taiwan JUNE 29, 2017Tribunal Rejects Beijing’s Claims in South China Sea JULY 12, 2016
Mr. Trump has pushed China to use its influence to compel North Korea to stop its missile tests and nuclear weapons development. On Thursday, he suggested that he might spare China trade penalties if it did more to curtail North Korea. “If China helps us, I feel a lot differently toward trade,” he said.
The Chinese Foreign Ministry has not commented about the escalating crisis on its website, and its regular news briefings are in summer recess. Chinese leaders have also not commented publicly.
But Beijing’s reaction to the latest American naval operation has underscored that China has its own geopolitical sore points with the White House, including weapons sales to Taiwan and the repeated freedom of navigation operations in the South China Sea.
American officials told Reutersthat the John S. McCain passed within 12 nautical miles of Mischief Reef, which is part of the Spratly Islands. The reef is about 150 miles from Palawan, the nearest major Philippine island, and more than 650 miles southeast of Hainan, a Chinese island-province that reaches into the South China Sea.
A spokesman for the Foreign Ministry, Geng Shuang, said in a statement on its website late Thursday that the passage by the John S. McCain violated Chinese and international law and “did serious harm to Chinese sovereignty and security.”
The United States and its regional allies have accused Beijing of inflaming tensions in the South China Sea by expanding islands and reefs into military installations, refusing multilateral negotiations over overlapping territorial claims and spurning a ruling last year from an international tribunal that rejected the legality of China’s claims to much of the sea.
Mischief Reef is controlled by China but also claimed by the Philippines, Vietnam and Taiwan. China has used dredged sand to expand the original reef into an artificial island big enough to hold an airstrip.
Under international law, countries can claim territorial sea up to 12 nautical miles from islands under their sovereignty. But low outcrops and reefs do not create such a right, nor do artificial islands built on them. The passage by the John S. McCain sent the implicit signal that the United States does not accept any territorial sea claims around Mischief Reef, regardless of who claims sovereignty.
China has been ambiguous about its precise territorial claims around such artificial islands. But Mr. Geng said the United States was the culprit in threatening peace in the sea.
“Certain external forces are swimming against the current and continuing to stir up trouble under the pretext of ‘freedom of navigation,’” Mr. Geng said. “This clearly shows just who doesn’t want to see stability maintained in the South China Sea, and who is the biggest factor in pushing the ‘militarization’ of the South China Sea.”
https://www.nytimes.com/2017/08/11/world/asia/south-china-sea-trump-navy-patrol.html
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Disruption is Coming to the Shipping Industry
Aug 13, 2017 | Maritime Executive
By Frank Coles
As I sit at my desk, I find myself shaking my head asking myself why so many in maritime do not “get it.” I can only conclude that while people happily read about impending transformation of our industry, they do so in the misguided belief it will only affect others – and that they somehow remain insulated.
This year’s Nor-Shipping was abuzz with an assortment of technological jargon and concepts, many promising operational savings that verge on the magical. Veteran observers and members of the industry, of course, were rightfully skeptical of such snake-oil claims.
But it’s no wonder people are confused. On top of the technical innovations aimed at boosting operational and navigational efficiency there are environmental solutions being pushed on to shipowners to satisfy the whims of the industry’s regulators. Then there are more remote and autonomous ship proposals and development projects than even Elon Musk could shake a stick at. We have numerous start-ups and venture companies all rushing to offer digital widgets or applications that promise to break the status quo in the chartering business and rewrite the rules of engagement for transporting goods over water.
My view, however, is that the industry is in denial. Most players are either failing to see what is coming, or are pretending not to see it in the hope it won’t happen. The market for maritime assets, aka ships, has run out of steam. Recurring stints of oversupply reveal an industry that is unable to manage itself, unable to modernize, or make real progress despite the technological revolution happening around it. So, it is going to be disrupted.
The business model has to change and it will be painful. Innovation can be described as the improvement that occurs from within. Disruption, on the other hand, is change imposed from outside. The former is incremental, while the latter rips up the present model and starts again from scratch.
Amazon has a missile aimed at the global shipping industry. Last year it put into action the ‘Global Supply Chain by Amazon’, a blueprint for a global shipping and logistics operation, which leverages the power of vertical integration to take ownership the total value chain. Its logic is that such ownership is necessary to deliver the speed, convenience and the lowest possible prices that are the core strengths of its business model.
In Amazon’s own words, it will be a “revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.” If this comes about, the world’s largest e-retailer will have its own logistics and distribution hub, challenging not only land-based shippers such as FedEx, UPS and DHL, but also the middlemen handling paperwork and cargo associated with shipping worldwide.
Amazon is already partnering with third-party shipping carriers to advance its global operations. Once it has mastered the shipping model and achieved the necessary scale, it will jettison its existing partners and run it on its own.
Another example of Amazon’s Pac-Man personality of gobbling up markets is its aggressive position in cloud computing services. This vital back office service started quietly as an internal project. After opening the platform up to the market, it quickly expanded to become the company’s fastest growing and most profitable business.
Colin Sebastian, an analyst at the financial services and investment banking firm Robert W. Baird & Co, has described the e-retailer’s global supply chain ambitions as a classic Amazon move. “They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market,” he wrote in Forbes. In his view, Amazon’s ambitions could translate into a $400 billion business.
So, what happens to maritime? If other transport industries are any indication, Amazon and its ilk will want a technologically advanced, highly efficient ship, built for purpose, and preferably unmanned or autonomous. Today’s tonnage will not make the grade; neither will today’s operational or management practices.
Shippers themselves, then will drive change, not the industry’s regulators or the vessel owners struggling to shave an additional percent or two off their costs. The whole environment within which manufactured goods are delivered could change forever, going on to radically reshape the business of shipbuilding and affect the sort of technology on board ship. This could even prompt the demise of some insurers, some classification societies, freight forwarders, and many other third-party businesses that support the operation of maritime assets and the carriage of cargo.
In the meantime, the hyperbole surrounding cyber-security, Internet of Things and bandwidth is largely irrelevant. All industries face these challenges and are stepping up to address them – so why can’t maritime? Vessel navigation and operation will adapt and evolve to fit in with these new norms.
Most commentary on the state of the industry, its adoption (or not) of technology and the regulatory pressure it is under is framed in the context of today’s business model. My fear is that remaining within the walls of today’s maritime space simply ignores the fact that the industry is about to be disrupted by a Trojan horse.
Frank Coles is CEO of maritime technology firm Transas.
https://maritime-executive.com/editorials/disruption-is-coming-to-the-shipping-industry
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Asia-Europe spot rates flatten ahead of mid-August GRIs
Aug 11, 2017 | Journal Of Commerce
By Greg Knowler
Solid peak season volumes and reports of tight space from shippers have not been able to push up the AsiaEurope spot market, with freight rates declining slightly this week in advance of yet another round of increases on Aug. 15.
The spot rate from Shanghai to Rotterdam slipped $4 to $931 per TEU, while the China-Mediterranean rate was down $10 to $849 per TEU, according to the Shanghai Shipping Exchange’s SCFI. JOC.com’s Market Data Hub ) tracks the weekly rate movements on the major trades.
CMA CGM has announced a rate increase on the Asia-Mediterranean trade, where the carrier is asking for a rate of $1,100 per TEU. This is an increase of $251 per TEU and in the unlikely event it is fully successful would take the rate to a level that has not been seen in well over a year. As high as that is, Hapag-Lloyd has set its FAK rate level on the Asia-Mediterranean trade at an interesting $1,750 per TEU.
CMA CGM previously announced its FAK rates for Asia-Europe would be set at $1,150 per TEU from Aug. 15. Also from mid-August, Maersk Line is looking for $1,125 per TEU from Shanghai to Rotterdam, while Hapag-Lloyd is seeking $1,200 per TEU on Asia-Europe and APL is after $1,300 per TEU, a wildly optimistic $369 per box increase that if achieved will reach a level that has not been seen in a long time.
Drewry’s World Container Index also shows that the rate increases softened this week and consequently, headhaul rates on the Asia-Europe and trans-Pacific trades declined marginally, with rates on the ShanghaiRotterdam route down by $50 to $1,751 per FEU.
However, the pattern of asking for large increases and settling for a small rise in rates has been relatively successful in that rates have not plunged to the low levels recorded in the first half of 2016. Carriers have also managed to be more disciplined with capacity deployment this year and have resisted getting involved in a rate war. These measures, combined with improving demand, have pushed up profitability at some of the carriers.
OOCL turned around its 2016 losses with a first half net profit of $53 million, and the three Japanese carriers improved their profitability in the first six months of the year. Even debt-plagued Hyundai Merchant Marine managed to show an improved result, although it is still deep in the red with a first half loss of almost $800 million.
The rising container volumes on Asia-Europe are leading carriers deploying extra loaders to cope with the cargo demand. Alphaliner reports that Maersk is sending the 5,041 TEU Elise and the 8,586 TEU SM Savannah to work the Asia-Europe trade, while Hapag- Lloyd is deploying the 9,030 TEU CCNI Andes. The analyst said it expected more extra sailers to be dispatched in the coming weeks.
Reports of congestion are also being received from shippers. The Asia-based supply chain director of a major UK retailer said vessels were being delayed in Shanghai, with ships calling at the port running at least 24 hours behind schedule.
http://www.joc.com/maritime-news/trade-lanes/asia-europe/asia-europe-spot-rate-flattens-out-ahead-mid-august-increases_20170811.html
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