Posts Tagged ‘exports’

China’s New Growth Sector: The Internal Logistics Market

Wednesday, August 8th, 2012

The country’s economy — still powering along at 7.6% GDP growth in the second quarter, even after a much-talked-about slowdown — and especially its gradual shift toward domestic consumption and a burgeoning e-commerce market, is fueling a long boom in the sector.

China’s industrial sector has fallen to an 8-month low.  The Purchasing Managers’ Index (PMI) dropped to 50.1 from 50.2 in June, official data showed. A reading above 50 indicates an expansion in activity, while below 50 means a contraction. Exports also contracted.  While China’s slowdown was inevitable given its reliance on exports to an ailing European and American economy, all of the news need to be placed in context: China’s GDP still grew by an annualized 7.6% in the last quarter (it’s a 3 year low for them but all of us on this side of the Pacific would take those numbers gladly)

Furthermore, while exports have taken a tumble, logistics are still important because domestic retail demand is becoming more important; with sales up over 14% year on year in the first half of 2012 (e-commerce is a key driver). Global Logistic Properties Ltd., one of the market leaders in Chinese logistics space, said it sees significant opportunities in extending supply chain lines from Chinese coastal cities to serve the rapidly growing inland economies.  The transportation market is highly fragmented, with tens of thousands or even hundreds of thousands of small businesses conveying freight in different parts of the country, according to KPMG. As domestic production picks up, we should start to see consolidation with opportunities both for 3PLs and industrial developers.

Peter Zhang, director of industrial consulting in China at Cushman & Wakefield, estimates that 60% to 70% of companies no longer do logistics functions in-house. Still, the real estate stock is uneven.  There remains a long way to go in replacing basic warehouses, designed for manual handling, with state-of-the-art storage space. The China Association of Warehouses and Storage estimates that the country has 7.4 billion square feet of warehouse space, 10% less than the U.S., while 75% of facilities do not meet modern standards.

Is Hard-Hit Ireland Resolving It’s Economic Crisis?

Wednesday, February 8th, 2012

Ireland was one of the nations that was hardest hit by the Eurozone crisis, but now it’s being seen as leading stricken nations in their efforts to turn their economies around.  International Monetary Fund (IMF) and European Union (EU) officials are impressed by its austerity measures, imposed after the massive 2010 bailout.  For the average Irish person, however, the gain is hard to see.  Public services have been slashed, and housing prices have declined 60 percent.  Approximately 1,000 young Irish people emigrate every week, and there’s extensive cynicism whether economic medicine being taken by the once-mighty Celtic Tiger actually works.

Ireland’s unemployment is currently upwards of 14 percent.  At the start of Ireland’s second year of austerity, there have been tax rises, wage freezes, layoffs and more.  This is being supervised by the so-called Troika, the European Commission (EC), the European Central Bank (ECB) and the IMF.  These entities bailed out Ireland after the property bubble burst and its banks collapsed.

Larry Elliott, economics editor of The Guardian, describes Ireland as “the Icarus economy.  It was the low-tax, Celtic tiger model that became the European home for US multinationals in the hi-tech sectors of pharma and IT.  Ireland was open, export-driven and growing fast, but flew too close to the sun and crashed back to earth.  The final humiliation came when it had to seek a bailout a year ago.  In a colossal property bubble, debt as a share of household income doubled, the balance of payments sank deeper and deeper into the red, the government finances become over-reliant on stamp duty from the sale of houses and the banks leveraged up to the eyeballs.

During the time running up to the bubble bursting, Elliott says that “A series of emergency packages and austerity budgets followed as the government sought to balance the books during a recession in which national output sank by 20 percent.  In November 2010, the Irish government asked for external support from the EU and the IMF.  Again, it had little choice in the matter.  The terms of the bailout were tough and there has been no let-up in the austerity.  The finance minister, Michael Noonan, plans to put up the top rate of VAT by two points to 23 percent.  At least 100,000 homeowners are in negative equity, and welfare payments (with the exception of pensions) have been slashed.  In recent quarters there have been signs of life in the Irish economy, but the boost has come entirely from the export sector, which has benefited from the increased competitiveness prompted by cost-cutting.  The best that can be said for its domestic economy is that the decline appears to have bottomed out.  At least for now.

“Around a third of Ireland’s exports go to Britain, which is heading for stagnation, a third go to the eurozone, which is almost certainly heading for recession, and a third go to the United States, which will suffer contamination effects from the crisis in Europe.  That’s the bad news.  The good news is that the supply side of the Irish economy is sound.  Much attention is paid to Ireland’s low level of corporation tax, which has certainly acted as a magnet for inward investment, but that is not the only reason the big multinationals have arrived.  There is a young, skilled workforce and Dublin does not have London’s hang-up about using industrial policy to invest capital in growth sectors.  Ireland had a dysfunctional banking system, but most of the multinationals — which account for 80 percent of the country’s exports — don’t rely on domestic banks for their funding.  The problem is that you can’t run a successful economy on exports alone, no matter how competitive they might be.”

In fact, Ireland’s prime minister, Enda Kenny, recently called for even deeper budget cuts.  Kenny outlined savings of up to €3.8 billion needed to slash its national debt under the terms of 2010’s EU/International Monetary Fund bailout.  Kenny appealed for understanding from the Irish people and stressed that the nation may have to endure a further two or three harsh budgets to put the country’s finances in order. He said on Saturday that the Republic “was in the region of €18 billion out of line”.

“It is the same old story with Ireland in our view — doing good work and will continue to do so,” Brian Devine, economist at NCB Stockbrokers in Dublin said.  “But the country is still extremely vulnerable given the level of the deficit.”  The anticipated adjustments total approximately eight percent of Ireland’s economy, and follow spending cuts and tax rises of more than €20 billion since the economy began to decline in 2008.

And how are the Irish people dealing with austerity? “We’re squeezed to the pips,” said Tommy Larkin, a 35-year-old mechanic changing tires and oil on the double in northside Dublin.  “I never had to watch my money in the good times, but that’s all I do with my money now.”

Wages for middle-class families have been cut around 15 percent, while the nearly 15 percent unemployed have seen welfare and other aid payments cut.  The government recently imposed a new household tax, and is planning new water charges next.  Driving a car can mean an annual fee of anything from $205 to $3,045, while recent fuel-tax increase haves taken gas upwards of $7.25 per gallon.

Bernanke: No QE3

Wednesday, October 5th, 2011

Federal Reserve Chairman Ben Bernanke, in a long-awaited speech in Jackson Hole, WY, announced no new steps the Fed will take to prop up the shaky U.S. economy.  Rather, he expressed optimism that the economy will continue to recover, based on its inherent strength and from assistance provided by the central bank.  Bernanke restated the Fed’s determination to keep the federal funds rate “exceptionally low” for a minimum of two years.  He did not say what many had been hoping to hear: that the Fed would begin another round of quantitative easing – usually referred to as QE3.

 Bernanke said that he expected inflation to remain at or below two percent.  Additionally, he acknowledged that the recent downgrade of the nation’s AAA credit rating had undermined both “household and business confidence.”  He implied that there was only so much more the Fed can do to stimulate the economy, and that the time has come for Congress and the Obama administration to create “policies that support robust economic growth in the long term,” to reform the nation’s tax structure and to control spending.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.  We discussed the relative merits and costs of such tools at our August meeting.  We will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September,” Bernanke said.  He went on to clarify the Fed’s guidance about how long interest rates will remain exceptionally low.  “In what the committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.”

As Bernanke delivered his remarks, the government cut its estimated 2nd quarter GDP growth to a paltry rate of one percent, a revision from the 1.3 percent previously reported.  The revision was expected and primarily due to weaker exports.  In more positive news, private spending and investment in April through June were slightly higher than initially estimated.  The GDP grew by an annual rate of just 0.4 percent in the 1st quarter.  The 2nd half of 2011 is expected to be somewhat stronger, but a major driver of the economy — consumer spending — remains weak amid slow hiring and sluggish income gains.

“This economic healing will take a while, and there may be setbacks along the way,” Bernanke said.  “Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.  Although important problems certainly exist,  the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

“Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” said Keith Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management.  Although Bernanke said the Fed has stimulus tools left, “the threshold to utilizing them is going to require fairly different conditions than what we have today,” such as lower inflation or a return of financial instability, Hembre said.

Bernanke also used the occasion to scold Congress for its tardiness in resolving the deficit debate. “The country would be well served by a better process for making fiscal decisions,” Bernanke said at the Federal Reserve Bank of Kansas City’s annual economic symposium.  “The negotiations that took place over the summer disrupted financial markets and probably the economy, as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”  Bernanke implied that a return to economic prosperity is at stake.  “I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome,” he said.  The budget process, according to Bernanke, would be more effective if negotiators set “clear and transparent budget goals” and established “the credibility of those goals.” 

Bernanke reassured investors that United States prospects for growth are sound over the long term and that the Fed has tools to aid the recovery if needed, even though he is not planning another stimulus at this time.  “What no action will do is give confidence to investors that things are not as bad as many people perceive, otherwise he would’ve acted,” Keith Springer, president of Springer Financial Advisors in Sacramento, CA, said.  “Investors will eventually see the positives.”

Economy Reaches Stall Speed

Tuesday, August 23rd, 2011

The American economy expanded at a snail’s pace of just 1.3 percent in the 2nd quarter, according to a report from the Department of Commerce. Growth in the first three months of 2011 was reduced to 0.4 percent from an earlier reading of 1.9 percent.

“Today’s first look at GDP in the 2nd quarter confirms what we already knew:  The economy isn’t growing as fast as it needs to,” said Commerce Secretary Gary Locke.  “Experts have repeatedly warned that if this uncertainty continues, our economy will pay the price.  We can’t afford to return to the same failed policies that brought us here.  We must build on the progress we’ve made over the last two years and reach a balanced compromise that will reduce our debt and at the same time strengthen our job-creating ability and global competitiveness for the future.”

Soaring gas prices and meager income gains caused consumers to limit their spending in the spring.  The abrupt slowdown means the economy in 2011 will likely grow at a slower pace than in 2010.  Additionally, economists don’t expect growth to pick up enough in the 2nd half to cut the unemployment rate, which rose to 9.2 percent In June.  Economists originally thought that a Social Security payroll tax cut would spur adequate growth to reduce the unemployment rate.  Unfortunately, the lion’s share of that money was spent filling up gas tanks as gas prices soared.  In an unfortunate twist, employers pulled back on hiring because Americans spent less.  Thanks in part to high gas prices, consumer spending was virtually flat throughout the spring.  It grew a mere 0.1 percent, after experiencing 2.1 percent growth in the winter.  Spending on long-lasting manufactured goods — primarily autos and appliances — declined 4.4 percent.

Usually reliable government spending fell for the 3rd consecutive quarter.  State and local governments also slashed spending, the seventh time in eight quarters since the recession officially came to an end.  Corporate spending on equipment and software grew 5.7 percent in the 2nd quarter, down from the 1st quarter’s impressive 8.7 percent pace and below 2010’s double-digit gains.  Additionally, American incomes are not growing.  After-tax incomes, adjusted for inflation, rose just 0.7 percent, similar to the 1st quarter and the weakest numbers since the recession ended.

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said the poor new data could push the American economy back into recession.  Although she said that the chances of that are still low. “Anemic consumption, still declining state and local government spending, tepid business investment, and soft housing activity all combined to offset some strength in exports,” she said.  “Concerns about the weak labor market and rising food and energy prices continue to weigh on consumer confidence.”  In June, the Federal Reserve cut its estimate of economic growth for the year.  The Fed now thinks that the economy will grow between 2.7 percent and 2.9 percent, down from an April estimate of 3.1 percent to 3.3 percent.

The economy is struggling to recover from the recession that lasted from 2007 to 2009, a time when the GDP contracted.  According to a government report, the recession was even worse than originally estimated.  Between the last few months of 2007 and the middle of 2009, the economy declined by 5.1 percent.  That is one percentage point more than previous estimates.

Writing in the Washington Post’s “Political Economy” column, Neil Irwin says that “But even if the number comes in somewhat higher than economists are expecting, it will be no cause for celebration.  The U.S. economy is capable of growing at about 2.5 percent a year over the longer term, as the population increases and workers become more productive.  But when the economy grows at that rate, the labor market can only tread water — accommodating the rise in the labor force, but unable to put the millions of Americans still unemployed back to work.  So, what happens to employment when the nation’s economic growth stays below that 2.5 percent rate, as it has in the 1st half of this year?  The U.S. jobless rate has risen for three months straight.  Among the major culprits in keeping job seekers out of work are the financial struggles faced by state and local governments that are cutting tens of thousands of jobs and billions of dollars in spending each month to balance their budgets.  State and local government cutbacks subtracted 1.2 percentage points from 1st quarter GDP, the Commerce Department has estimated.  Friday’s GDP release shows the amount of drag in the 2nd quarter.  States were able to delay those cutbacks when they received hundreds of billions of dollars from the federal government in 2009 to ride out the recession.  That money has all been spent, and now states are being forced to slash spending and raise taxes to comply with balanced-budget requirements.  Congress has given little serious consideration to reviving the stimulus program.”

Some economists see the light at the end of the tunnel.  “The pace of fiscal retrenchment is likely to pick up in coming years,” said Jan Hatzius, Goldman Sachs’ chief economist, “and this year’s experience confirms our view that this adjustment is likely to weigh on GDP growth.”

Chinese Companies Face Branding Dilemma

Wednesday, August 5th, 2009

Over the last 30 years, China has become the world’s factory floor, offering a massive and highly mobile workforce, fast turnarounds and low production costs.  The “Made in China” label can be found on virtually any product sold across the globe, from shoes and clothing to power plant components and process control systems.  Even products labeled “Made in USA” — such as medication — are frequently born of Chinese-made components.

Most Americans are now well-acquainted with Chinese-made products, for better or for worse.  Yet how many Americans can name a single Chinese brand?  Lenovo might come to mind, or perhaps Tsingtao, one of China’s favorite libations.  But any list of the top global brands is invariably devoid of Chinese names.  How is it that a country of 1.3 billion people with the world’s third-largest economy has not produced any true international brands?

Newsweek offers up a few possible explanations. Their recent article on China’s branding dilemma focuses on Huawei, one of the world’s largest electronics and telecommunications firms and “the best company you’ve never heard of”.  Huawei,20090202_made_in_china_label_18 founded in 1988, is so substantial that they are “poised to overtake Nokia Siemens as the world’s second-largest maker of telecom hardware, after Ericsson.”  In fact, “one out of six people on the planet use Huawei hardware”, but most consumers outside of China can barely pronounce the name, let alone recognize the company’s products.  Huawei’s problem?  According to Newsweek, the firm sells few products directly to consumers, does not engage the public, and spends little effort or capital on marketing.

Meanwhile, the branding challenge appears to be systemic in China.  Newsweek names four key forces that are preventing Chinese brands from emerging on the world stage:  “cutthroat domestic competition”; tough cost pressures from foreign brands; “weak protection for intellectual-property rights”; and, of course, a bad reputation for quality after the perpetual product recalls and safety violations.  After all, it was Chinese-made products that helped familiarize the average consumer with melamine in the wake of the massive Chinese milk scandal.

Branding remains an unfamiliar concept in China, so Chinese firms attempting to sell to the international consumer face an uphill battle.  Chinese firms expend quite a bit of energy copying foreign brands rather than investing in innovation.  Many of China’s major companies grew using technology or branding “borrowed” from established foreign multinationals.  Of more consequence, the Newsweek article fails to point out Huawei itself allegedly stole quite a bit of Cisco Systems’ source code.  Cisco filed suit against Huawei  in 2003 for IP infringement, a case that was settled when Huawei agreed to alter its product line.

Already, there is a major push in China towards value-added industry and innovation.  After all, China can’t rely on cheap exports forever, especially when faced with the decrease in consumer spending in traditional export markets.  As such, the branding dilemma is likely to play a major role in debates about the future of the Chinese economy.  China’s success or failure at creating international brands will have huge repercussions for the global economy.

Richard Gould is AlterNow’s China correspondent.  He is manager in the Guangzhou office of CBI Consulting, Ltd.,
Investigations, and Brand Protection in Greater China. which also has offices in Shanghai and Taipei, Taiwan.  CBI is a leading provider of Business & Competitive Intelligence,

Chicago Economists Say 2009 Is a Year of Challenge

Tuesday, February 17th, 2009

The economic forecast for 2009 is bleak, although it’s possible that recovery will begin mid-year. This is the opinion of William Strauss and Rick Mattoon, senior economists with the Federal Reserve Bank of Chicago. “We are predicting that 2008 will yield real GDP of 0.2 percent and that 2009 will be 0.7 percent,” Strauss said. “This will be the slowest two-year growth period since 1981 – 1982, an 18-month recession that will be deeper than the 2000 and 1990 – 1991 recessions.”

Although some economists believe that the unemployment rate will hit double digits this year, Strauss and Mattoon optimistically predict that it will level off at approximately nine percent. Real income growth will be flat, and might even decline. The key to recovery is a thaw in the credit markets so that their performance improves.

Trade is holding its own; exports are still in positive territory. Strauss warns, however, that exports can’t be relied upon to drive to the economy, because the global recession means that foreign buyers will purchase less than they previously did.

Given their relative optimism, I wonder if Strauss and Mattoon agree with President Obama, who warned that failure to pass his $800 billion economic recovery package “could turn a crisis into a catastrophe”? Considering the bad review that Wall Street gave to Treasury Secretary Geithner’s preliminary plans for the use of the remaining $350 million of TARP money, it will be interesting to see how the markets react to the House-Senate conference committee’s compromise bill.

High Costs Could Impact Shipping Routes

Wednesday, September 24th, 2008

Two trends in international trade worth highlighting:

American exports are booming, thanks to the dollar’s current weakness.  This considerable increase in volume has made it virtually impossible for U.S. manufacturers to get space on container ships within a four-week window, especially for products shipping from the ports of Los Angeles or Long Beach to any Pacific Rim destination.  To illustrate the scope of the change, container space from these ports was available on demand just one year ago.  And, according to a recent Reuters article, waiting times for cargo space have jumped from two days to three weeks on the East Coast.

Fast-rising transportation costs that are a direct result of the cost of fuel is another important logistics trend – one that could negatively impact globalization.  According to an August 2 article in the International Herald Tribune by Larry Rohter, shipping a single loaded 40-foot container from Shanghai to the United States has soared to as much as $8,000 per unit, compared with just $3,000 earlier in the decade.  Additionally, there are cost add-ons, primarily in the form of fuel surcharges and government-mandated fees.  To save on fuel costs, container ships have shaved their top speeds by nearly 20 percent, which means it takes longer for products to reach their intended markets.

Shipping to and from Prince Rupert in British Columbia is slightly less costly, because the distance to Asian ports is shorter than from Los Angeles or Long Beach.  Still, space amounts to several thousand dollars per container.

“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of The United States and the World Economy and a director of the Peter G. Peterson Institute for International Economics in Washington.  “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”

A far better alternative could be to ship to and from Asia from the southern border regions, where the going rate is approximately $800 per loaded container.  That price differential could potentially lure companies to move production facilities to Mexico or the Southwestern United States – primarily Texas.  This would give them the opportunity to leverage the more attractive shipping rates through the growing Mexican ports of Lazaro Cardenas and Punto Colonet.