Hong Kong Dockworkers Strike is Over!

  

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The 40 day strike by the dockworkers slowing international shipping at the Kwai Chung cargo terminals in Hong Kong has come to an end.

In the last blog I wrote about the strike drawing near an end, I looked at the weakening position of the strikers. Originally, they were seeking a pay rise between 17 and 23 percent. As it didn't look likely they were going to achieve that kind of raise, Lee Cheuk-yan, the general secretary of the Hong Kong Confederation of Trade Unions said the subject was open to discussion but the dockworkers still wanted a pay percentage rise in the double digits.

I asked the natural question. Would they accept an offer of only a 10 percent pay rise at that point?

The answer turned out to be yes. In fact, they even settled a little below that 10 percent mark.

On Friday, they were offered a raise of only 9.8 percent. That turned out to be enough and as of Saturday, the strike is over.

The Wall Street Journal reported:

"We think that it's a victory for the workers to have successfully secured a pay rise with quite a good percentage increase—and that after our strike we got something—and also the union is strengthened," Confederation of Trade Unions organizing coordinator Chan Chiu-wai said on Monday.[1]

But either the strikers original demands were intentionally inflated, giving a great deal of room for negotiation or they simply weren’t able to come close to getting the kind of results they’d hoped for.

The South China Morning Post called everyone a loser after the end of the Hong Kong dock strike.

They highlighted not only the workers getting less than half of the kind of pay rise they were looking for but the impact on the port and port operator Hongkong International Terminals (HIT).

HIT’s estimates that around 100 vessels avoided their terminals during the strike, wait time for vessels that did arrive went from the normal wait time of 3 hours to 20-25 hours, and the strike cost HIT millions of Hong Kong dollars per day.

HIT has not said how much this strike has cost them, but The South China Morning Post also recapped the estimates HIT made during the strike. During the first week, they said the strike was costing them HK$5 million a day and then a week later that amount fell to HK$2.4 million a day.

By my calculations, if those numbers are accurate, the strike cost HIT around HK$114.2 or over 14.7 million US dollars.

Potentially, there could be a much bigger loss in the future.

Apart from monetary losses, [Dr Paul Tsui Hon-yan] said the walkout had dealt a blow to the company's image overseas. "If HIT wants to run more ports in other countries, the governments there may reject it because of its record," he said. [2]

In the end, this strike is nothing that HIT will have trouble surviving. However, Global Stevedoring Service (Global), one of HIT’s contractors that had employed about 130 of the 450 striking dockworkers, did not. That company shut down last week, leaving the dockworkers who were employed by them unemployed after the strike.

The people left without jobs after a long, difficult strike process are the ones who are really hurt by this.

Despite headlines like the one from The South China Morning Post that call everyone a loser at the end of the strike, those strikers did not strike in vain.

Public awareness and support for the dockworkers was raised not just locally, but globally and an increase in wages and improvement in working conditions was achieved.

Whether it sounds fair or not, the raise that was won through the strike will be for workers at the dock who went on strike and those who did not, which is ultimately a good thing.

And Lee Cheuk-yan, a lawmaker with strike organiser Confederation of Trade Unions said “…it had made dockers and the public better understand their rights. The workers would now have more bargaining power in future talks over pay rises.”[3]

As for those 130 dockworkers now without jobs:

He [Lee] said he had asked the [Labour] department to press HIT on how many former Global dockers could be hired by other contractors. He insisted that HIT must ask the contractors to offer jobs to all former Global dockers. [4]

Our prayers here at Universal Cargo Management go out to those workers and their families. May all their jobs be restored with the better pay and working conditions for which they fought so hard.

Is the Hong Kong Dockworkers Strike Almost Over?

  

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It’s been over a month since dockworkers at the third largest port in the world went on strike, affecting import and export operations at the Kwai Chung cargo terminals in Hong Kong. Is it going to come to an end soon? If the Hong Kong government has anything to do with it, yes.

The Hong Kong government is making efforts to bring the parties back to the negotiation table and bring the strike situation to resolution.

Yesterday, the Hong Kong government invited the Union of Hong Kong Dockers to talks where the contractors who hired them to work on the docks will be present.

Hongkong International Terminals (HIT), the company owned by Li Ka-shing—Hong Kong’s wealthiest man—that operates the Kwai Chung cargo terminals where the strike has taken place will not be part of the negotiations.

As the workers on strike do not work directly for HIT but for contractors HIT hired, it has been HIT’s policy to stay out of the strike negotiations, though they did send a representative as an observer to previous negotiations.

The dockworkers on strike have been demanding a pay raise of between 17 and 23 percent. Contractors offered a 7 percent increase (2 percent of that coming in the form of benefits such as lunches for the workers) in the previous negotiations.

Not having had a pay raise over the last decade, the dockworkers turned down the 7 percent offer with feelings of not being taken seriously.

Bloomberg reported that the dockworkers are willing to drop their earlier demand of a 23 percent pay increase. Lee Cheuk-yan, the general secretary of the Hong Kong Confederation of Trade Unions, said, “It’s open to discussions,” but also added dockworkers would still want a pay percentage increase in the “double digits”.

Does this mean they would accept an offer of only 10 percent from the contractors?

It’s hard to speculate, but despite their impressive feat of keeping a strike going for over a month, the position of the dockworkers is weakening.

Bloomberg reports, “…an April 1 court order prohibited workers from demonstrating at the docks, [Canning] Fok [chairman of Li’s Hutchison Port Holdings Trust (HPHT)] said yesterday. The port operator has received interest for jobs at terminals from outsiders, said Gerry Yim, Chief Executive Officer of Hutchison Port Holdings Trust. (HPHT)”

Strikers had been taking their complaints to the offices of Li Ka-shing, but Bloomberg reported on that account, “Li’s Hutchison Whampoa (13) won a court order barring the workers from entering Cheung Kong Center to demonstrate, according to a company statement and RTHK. The court will hear arguments on May 3 over the workers’ right to protest in and around the building.”

Perhaps the signs they carried with pictures of Li with devil horns was a poor choice.

But probably the worst thing for the striking dockworkers is this third piece of information reported by Bloomberg, “Contractors at Li’s terminals in the world’s third-busiest container port hired workers to cut the waiting time for ships on average to 20-to-25 hours last week, compared with about 60 hours when the strike started.”

 So now it seems we’re getting close to seeing how this is all going to end.

One can’t help but root for the underdog dockworkers. But as the port has returned to 90 percent operation, is shrinking the delays caused by the strike, and the contractors are finding workers to replace those on strike, it is harder and harder to imagine the strikers getting a big win at the negotiation table.

The end does seem near and we’ll be watching to see how it turns out.

What are your thoughts on the Hong Kong dockworkers strike? How do you think it will end? Let us know in the comments section below.

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Main Source: http://www.businessweek.com/news/2013-04-29/hong-kong-invites-li-s-dockers-for-talks-to-end-port-strike

Will May Container Line Contracts Spell Shipping Success for 2013?

  

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May 1^st is a big day for international shipping carriers’ eastbound trans-Pacific container lines.

Bill Mongelluzzo, Senior Editor for the Journal of Commerce (JOC) compares it to a race, calling May 1^st the finish line for the container lines to sign service contracts with their customers.

It’s hard for me to think of the container lines with their slow steaming ships crawling across the ocean to save fuel (and reduce their carbon footprint) as a race when there used to be a very literal race in the international shipping industry. In the1800’s, cargo vessels literally raced each other across the ocean to be the first to deliver their cargo of tea between Britain and China.

Check out our blog on “the Great Tea Race of 1866”.

The winner of the international shipping race back then received larger profits for beating the rest of the competition. While it doesn’t hold the visual excitement of ships sailing across the ocean at their top speeds, giving everything they’ve got to beat all the other cargo vessels, the race Mongelluzzo describes also holds a prize of increased profits at the finish line.

The victory carriers’ eastbound trans-Pacific container lines are looking for are increased contract rates, even if modest, from 2012.

Getting increased contract rates is “critical this year because carriers suffered from rates that barely broke even or, worse, lost them money,” says Mongelluzzo.

These contracts, it’s important to note, are with the “big boy shippers”. We’re talking your Walmart types, who ship in such high quantities that they deal directly with the carriers.

Most international shippers who ship trans-Pacific, importing and exporting goods between China and the U.S. west coast, don’t deal with the carriers themselves. Instead, most shippers deal with non-vessel-operating common carriers (NVOs).

Included among NVOs are freight forwarders like Universal Cargo Management.

Medium to small international shippers importing and exporting on container lines through NVOs are in the spot market. This is where the carriers made their money last year.

Carriers coordinated a series of freight rate increases last year, raising spot rates as high as $1,000 more per FEU than what the “big boys” were paying from the contracts they signed in May of last year.

Still, profits for the carriers were modest in 2012 and going back to 2011, they lost money in the billions.

Container lines using the spot market to make up for losses from their contracts with the big shippers made 2012 a tough year for NVOs. Some of the container lines even went after the medium sized shippers that are the real bread and butter for NVOs.

If negotiations go well for the container lines and they can bring a modest increase to the contract rates for the big shippers, 2013 should be a more equitable year for freight rates and a hopefully a more profitable one for both the container lines and NVOs.

Don’t get me wrong. The medium and small shippers will never get the kind of rates the big shippers get; but, if the container lines aren’t losing money over their contracts with their big shippers, the pressure to increase rates so much in the spot rate market won’t be so high. That would be good news for small and medium shippers and for NVOs.

According to Mongelluzzo’s JOC article, carriers have a cautious optimism about how the contracts will turn out here in May:

Our general read is that while the marketplace remains competitive, we are seeing increases in rates in our contract negotiations, said Ken O’Brien, senior vice president for the trans-Pacific at APL.

He said APL’s focus in contract negotiations this spring has been to increase contract rates in order to narrow the gap with the spot rates. While it is still too early to forecast the final outcome of this year’s negotiations, we are optimistic that we will achieve improvements in our 2013 contracting as we work to bring our trans-Pacific pricing back to a compensatory level commensurate with continued investment in the business and a return to our shareholders, he said.

That certainly sounds good, but there is much in favor of the big shippers getting rates every bit as good as they received last year.

Everyone knows there’s an overcapacity issue on the waters. Overcapacity put pressure on rates to go way down and was a key factor in the carriers losing billions of dollars in 2011. Now megaships are hitting the ocean and increasing the overcapacity problem for carriers.

Mongelluzzo’s JOC article went from APL saying they’re seeing rate increases in their contracts to this:

Retailers, however, are reporting that in their confidential negotiations, most, though not all, carriers are coming to them with contract offers at least as favorable as what they had last year. This is especially true for contracts to the West Coat, where the impact of larger vessels will be felt the most. Carriers are already scrambling to fill the vessels in order to achieve the economies of scale inherent in big ships.

So the drama over the volatile freight rates of the international shipping industry and whether or not carriers will be profitable continues.

That almost makes it feel like a soap opera. Join us next time on All My Carriers. Should I have gone with One World to Ship? Either way, we’ll keep posting blogs that update you about the things that are affecting international shipping and freight rates.

As always, Universal Cargo is ready to give you free freight rate pricing for your international shipping.

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Main Source: http://www.joc.com/maritime-news/trade-lanes/trans-pacific/may-1-nears-pacific-carriers-fight-higher-rates_20130423.html

Sudden China Trade Deficit Gives Shipping Companies Profit Outlook

  

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The last few years have been tough on carriers in the international shipping industry.

Rate wars and overcapacity were large factors for hurting the bottom line of the companies that own and operate the ocean freight ships which handle the transport of import and export shipping containers.

The debt crisis in Europe and the fragile recovery of the U.S. economy from our great recession caused the big shipping companies to face serious demand challenges in a major market downturn.

It doesn’t help that while the markets were booming, carriers were investing in megaships, costing large amounts of money and increasing capacity. Now as these huge ships hit the water, booming is certainly not a description of the market and filling the ships is a major problem.

Largely due to problems of overcapacity (yes, there’s that concept again), carriers lost billions of dollars in 2011.

In 2012, they were able to fare better largely due to several coordinated freight rate increases they placed upon the market. It was a major turnaround that carriers were able to see profits at all, slim though those profits might have been.

“The global container shipping industry barely broke even last year with an operating profit of $280 million,” according to the Journal of Commerce. “… after a profitable third quarter, many carriers lost money again in the fourth quarter. [1]

That doesn’t exactly sound like the kind of momentum that would bolster confidence for 2013 to be a profitable year.

Momentum is hugely important in sports, as you know if you watched March Madness last month. Momentum is also important in business, though it doesn’t work quite the same way. However, just like in sports, sudden momentum shifts do happen in international business, which can change the game.

NCAA basketball wasn’t the only madness of March.

Unexpectedly, China posted a trade deficit in March. Being the exporting juggernaut China is, we’re used to seeing month after month of trade surplus in the billions of dollars from the country.

There is much talk about what this sudden deficit means. I expect you’ll see their normal type of surplus reported for this month so I wouldn’t read too much into the talk of this being a turning point in China’s economy. However, this does spark great hope for carriers’ 2013 bottom lines.

“China's imports jumped by 14 percent from a year earlier in March,” says Hellenic Shipping News and say that’s what led to the $577 million trade deficit for the country.[2]

Often, China has a month early in the year when they post a deficit due to stocking up on raw materials and having a slowdown from the Chinese New Year when many businesses shutdown to celebrate.

In 2012, February saw a $31.48 billion deficit in China’s trade. Then, of course, it bounced back to having a surplus in the billions every month until here in March, a year and a month later.[3]

Still, China IS increasing its imports.

Economists say the Chinese government plans to develop its economy by increasing domestic consumption according to Hellenic Shipping News.[4]

More imports to China could be a big piece of the solution for carriers to end up with a profitable 2013.

Certainly, countries are making moves to increase their trade with China. For example, Vietnam is working on decreasing the trade deficit they have with China by upping trade with their neighbor.

In fact, “Vietnam and China are aiming to boost annual two-way trade to $60 billion by 2015 from $41 billion in 2012,” according to the Vietnamese government.[5]

We just posted a blog on Australia making a currency deal with China that would allow them to directly convert Yuan to Australian dollars (and vice-versa) which could have a serious impact on their exports to China, not just their imports from China.

Yes, increased imports in China is big for carriers. It certainly may be the difference from a year of financial loss and a year of marked profit increase. However, it’s all going to come down to how the carriers manage their business.

Rate wars, introduction of megaships, overcapacity… We’ll have to watch and see how well the big shipping companies do at keeping their costs below their take.

How do you think the carriers will fare? Share your thoughts in the comments below.

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[1] http://www.joc.com/maritime-news/container-lines/drewry-forecasts-container-industry-profit-2013_20130408.html

[2] http://www.hellenicshippingnews.com/News.aspx?ElementId=415ec340-ce0c-4ceb-a848-36bcbd55609f

[3] http://online.wsj.com/article/SB10001424127887323550604578413462672017082.html - articleTabs=article

[4] http://www.hellenicshippingnews.com/News.aspx?ElementId=415ec340-ce0c-4ceb-a848-36bcbd55609f

[5] http://www.4-traders.com/news/Vietnam-Government-Seeks-to-Boost-Trade-Cut-Deficit-with-China--16767976

Justice League Rises to Aid Hong Kong Strike at Superman's Inaction

  

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As the dockworkers of the Kwai Tsing dock in Hong Kong continue their strike efforts to get the attention of Li Ka-shing, the richest man in Hong Kong, they have garnered global attention.

Li Ka-shing gained the nickname of Superman because of his business prowess. With his wealth and position of owner of Hongkong International Terminals (HIT), operating the Kwai Chung cargo terminals, he is the one man who could swoop in and solve the working conditions and pay issues that have the dockworkers on strike.

With Superman not taking action, valiant support efforts have come from elsewhere for the dockworkers.

A delegation from the Maritime Union of Australia flew to Hong Kong to join the striking Kwai Tsing dockworkers.

With the working conditions, such as no toilet or washroom for crane operators working break-less 12-hour shifts talked about in our last blog, the Maritime Union of Australia calls it “akin to slave labor".[1]

Being in Hong Kong and working with the dockworkers in their strike efforts says a great deal about the organization and character of the members of the Maritime Union of Australia.

The Maritime Union of Australia’s Mick Doleman told Radio Australia that the union use its international influence at the negotiating table to get better conditions for the dock workers.

In Mr. Doleman’s words, and the sentiment that unions should be founded on, the mission for the Hong Kong dockworkers is "To garner decent treatment in their work place, decent wages and conditions relevant to their own economy and to be treated appropriately by their employer."

The Australians are not the only ones wanting to see justice for the Hong Kong dockworkers.

The International Transport Workers' Federation (ITF) has put together a two-day meeting in London for union leaders from around the globe to discuss what can be done for the Kwai Tsing dockworkers.[2]

The largest British union group, Unite the Union, issued statements showing solidarity with the striking workers in Hong Kong.

Perhaps action where Unite the Union members work at Britain’s largest port, that of Felixstowe, which is owned by HIT’s mother company, Hutchison Port Holdings will help get Superman’s attention.

It seems in the absence of Superman taking action, a Justice League of unions from around the world is stepping in to help solve the inequities at the third largest port in the world.

But the real heroes in this situation are the dockworkers striking at Kwai Tsing. Continuing to stand up to gain the rights they deserve, demanding better pay and working conditions at risk to their livelihood, takes bravery.

And the strikers have been able to affect import and export activity at the port of Kwai Tsing cargo terminals in Hong Kong, costing HIT hundreds of thousands of dollars every day to make their presence felt.

This is not a case of unions which have become powerful demanding more of their employers than can be afforded. In fact, strikes in China and developing Asian nations are almost unheard of and in some cases illegal.

Yet, as the dockworkers strike, the local community supports them, students march in protest, and money and food is raised to keep the strikers going.

Hopefully, the struggle of these workers in Hong Kong will help bring rights to workers throughout China and Asia.

If the government in Hong Kong did try to shut down the strike, I think the local and international outcry would only swell to levels impossible to be quieted.

But what do you think?

Let us know your thoughts on the strike in Hong Kong, unions, or Superman and the Justice League in the comments section below.

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[1] http://www.radioaustralia.net.au/international/2013-04-16/australian-union-supports-striking-hk-dockworkers/1117104

[2] http://www.scmp.com/news/hong-kong/article/1211685/uk-union-discuss-support-hong-kongs-striking-dockers?login=1

Striking Hong Kong Dockworkers Can't Use Toilet During Negotiations

  

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Imagine your workday was a little different than it is. Imagine spending twelve-hour shifts in a cramped space. You don’t get to leave for breaks to eat or even use the bathroom.  You have to urinate out a window, defecate on a newspaper and roll it up so you can take it with you to throw away later. No sink to wash up. If you’re hungry, you’d better have brought a sandwich with you to that human-waste smelling workplace. Imagine.

The dockworkers at the Kwai Tsing dock in Hong Kong don’t have to imagine. That’s a description of the work conditions of their crane operators. That's why they're trying to slow the import and export operations at the Kwai Tsing dock.

And those are just some of the reasons dockworkers at the Kwai Tsing dock went on strike on March 28^th.

The striking workers’ grievances also include over a decade of dedicated, hard work with barely a rise in pay. They are demanding a 17 to 24 percent pay rise.

On the 11^th, talks with the contractors who hire the dockworkers broke down after an offer of only a 7 percent rise (with 2 percent of that being in benefits like buying meals) was offered.[1]

The representatives of Global Stevedoring Service, one of the contractors, walked out on the negotiations while the strikers were on a bathroom break. I guess they’re serious about not allowing their workers the right to use a toilet.

It's like they're saying you can't have a toilet break at work or in negotiations.

That's a negotiations fail.

But the strikers are serious too. Seeing that their demands are not being taken seriously, the dockworkers who are on strike say they will take further action.

"We will escalate our action if there is no meaningful outcome from the next meeting with the subcontractors,” said Stanley Ho Wai-hong of the Confederation of Trade Unions.[2]

60 of the strikers took their protest directly to the offices of billionaire Li Ka-shing. Li owns Hongkong International Terminals (HIT); it’s the subsidiary of Li’s Hutchison Whampoa conglomerate and operates the Kwai Chung cargo terminal.[3]

HIT doesn’t employ the striking workers directly. In fact, the direct employees of HIT who work on the docks are not on strike.

Still, most feel—and properly so, I would think—that HIT has a responsibility to the dockworkers/employees hired by the subcontracting companies they’ve hired, which employ the dockworkers.

The hope in raising banners and chanting at the Cheung Kong Centre in Central will get Li and HIT's attention to do something about the situation.

HIT has sent a representative as an observer to the negotiations, but has not stepped in as of yet.

The working conditions of the dockworkers have garnered sympathy globally and gotten unions to step in from other countries.

Try imagining the working conditions described above happening in the United States. Try imagining workers in the U.S. allowing this to go on for years and years. Preposterous, right?

Shoot, at the docks of Los Angeles and Long Beach, we had the Office Clerical Unit (OCU) workers, who are the highest paid clerical workers in the whole country, go on strike last year.

However, the strongest union support from outside of China for the striking workers in Hong Kong is not coming from American unions, but from the British and Australian unions.

But more on the global support Hong Kong dockworkers are receiving in Thursday’s blog…

 

 

 

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[1] http://www.scmp.com/news/hong-kong/article/1212497/contractors-offer-7-pc-pay-rise

[2] http://www.scmp.com/news/hong-kong/article/1214711/dock-strikers-threaten-more-action

[3] http://www.scmp.com/news/hong-kong/article/1212947/dockers-take-their-protest-port-owners-office

Hong Kong Dockworkers Strike!

  

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It's the rainy season in Honk Kong, but that's not stopping dockworkers and crane operators from camping out in the cold. They're striking at the Kwai Tsing Container Terminal in the Port of Honk Kong.

The Journal of Commerce reports,“large volumes of container traffic are being diverted away from the world’s third-busiest container port as ships face delays of up to 60 hours for unloading.”[1]

Just when you thought we were done talking about strikes at ports with the ILA contract negotiations on the East and Gulf Coast ports of the U.S. reaching resolution, here we go in Hong Kong.

Tents are sitting on wooden pallets as dockworkers and crane operators demand better working conditions and nearly a 20% pay increase.

This Hong Kong strike that began on March 30^th is approaching the two-week mark and so far, no negotiations are in sight.

Hongkong International Terminals (HIT) has said that this strike is costing them $644,000 a day. Still, they do not negotiate with the striking workers because they are hired by subcontractors and are not directly employed by the port operator.  Because of this, HIT says it cannot negotiate with the striking workers.[2]

According to the labor unions, HIT directly employed over a thousand workers until it outsourced through subcontractors to save money in the late 1990’s.

Certainly, the impact of this strike is much larger than just costing HIT hundreds of thousands of dollars a day.  The Hong Kong government, seeing the high stakes and the public concern over the situation, said in a statement, “the Labour Department continued to actively assist all parties concerned to agree on the conciliation meeting arrangements with a view to enabling direct dialogue to resolve the issue.”[3]

Despite the tense of that sentence, I think the Honk Kong government is saying they are continuing to work toward getting all parties to a negotiating table and resolving the issue.

Huge public support is being shown to the dockworkers, who struggle to feed their families as they strike. Food and money has been donated to keep them going. Donations have reached the sum of $450,900 or 3.5 million Hong Kong dollars, organizers say according to the Wall Street Journal.

Resentment is growing in Honk Kong over the city’s widening wealth gap. Sound familiar?  Occupy Movement… 99% versus 1%...

“While income grew 60% among the city's top 10% of earners from 2001 to 2010, it dropped by 20% among those in the bottom 10%, according to figures released by the nonprofit Better Hong Kong Foundation,” reports the Wall Street Journal. [4]

Li Ka-shing is the richest man in Hong Kong.

Yes, I do find it interesting that a man, whose net worth—according to Forbes—is $31 billion, has a name that is strikingly similar to ka-ching.

Mr. Li owns Hutchison Whampoa Ltd., which holds a 70% share of port-handling volumes in Hong Kong.

The Wall Street Journal describes the following scene in Honk Kong of the people vilifying Mr. Li, despite his generous giving of more than $1.66 billion mainly to education and health-care initiatives in Hong Kong and mainland China:

Over the weekend, thousands of protesters marched through downtown Hong Kong, carrying photographs of Mr. Li defaced with devil's horns and the Chinese character for "shameless" written across his forehead. Organizers estimated that 4,000 demonstrators turned out Sunday, while police put the figure at 2,800 at its peak. [5]

This situation may not see resolution quickly. As time continues, a very real impact could be felt by shippers who import from China.

Universal Cargo Management continues to import and export from and to China with very little impact. In the meantime, we will keep an eye on the situation and keep you informed.

We think it is important to note that through the diverse cultures and vast geographic locations of the world, inequities stir up for people feelings in common; people around the globe share more likenesses than differences.

Share your feelings and thoughts on the Hong Kong strike in the comments section below.

China Australian Deal Good for Aussie Shippers, Bad for U.S. Dollar

  

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Australia is working on a currency deal with China that would allow the Australian dollar to be directly converted into the Chinese yuan, bypassing the U.S. dollar (USD).

When it comes to international trade and the import and export of goods in the Land Down Under, Australian's top trade partner is China.  The Department of Foreign Affairs and Trade of the Australian government has a table on their website that ranks country’s in terms of international trade with Australia. China has more than twice the share of two-way trade with Australia as the U.S. at 19.9% vs. 8.9% respectively.[1]

That chart was actually for the year of 2011. Since then, it seems China’s share of international business with Australia has done nothing but grow. According to zerohedge.com, currently 30% of all Australian exports are to China and the country is China’s fifth-biggest source of imports.[2]

Navigating the information superhighway, I’ve stumbled across those silver and gold websites that are always shouting alarms about the deterioration of the USD. Generally, I ignore them as alarmist to get people to invest in gold and silver. But could using the USD as the world’s reserve currency be on its way to being as outdated as using the phrase “navigating the information superhighway”?

BBC News had an article in January of 2011 that opened with:

“Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a ‘product of the past’.

“Mr Hu also said China was taking steps to replace it with the yuan, its own currency, but acknowledged that would be a ‘fairly long process’.”

Here we are a couple years later with a deal between China and Australia that would cast aside the use of the USD as a reserve currency being used as a go-between.

“At present, [Australian] companies doing business with China must pay the added cost of converting their Australian dollars into US dollars or yen, and then into yuan.

"Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: ‘The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs.’”[3]

This is certainly good news for international businesses in Australia that import from and export to China. But you know those silver and gold people are ringing those alarm bells.

U.S. shippers, importing and exporting goods from and to China can go about their international business as usual; however, this is significant news that could create major change in the world trade picture. Zerohedge, under the guise of Tyler Durden, puts is like this:

“…while previously the focus was on Chinese currency swap arrangements, the uniqueness of this… news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia's footsteps…”[4]

The USD being reserve currency in so many places around the world does provide a benefit of marginally lower rates that U.S. shippers pay for goods from around the world and adds to the importance and value of the dollar in international business and maybe the shifting away from the USD as reserve currency is happening. Maybe China will succeed in replacing the USD with the yuan as the “world reserve currency”.

But for years people have talked about the USD losing its reserve status.

Back in 2009, Helmut Reisin raised the question of “Is the renminbi the next global reserve currency?” in an article called Shifting wealth: Is the US dollar Empire falling? He pointed out:

“While the US has been enjoying the spoils of reserve currency status, this is by no means assured for the future. As emphasised by Avinash Persaud (2004):

‘…reserve currencies come and go. They don't last forever. International currencies in the past have included the Chinese Liang and Greek drachma, coined in the fifth century B.C., the silver punch-marked coins of fourth century India, the Roman denari, the Byzantine solidus and Islamic dinar of the middle-ages, the Venetian ducato of the Renaissance, the seventeenth century Dutch guilder and of course, more recently, sterling and the dollar.’”[5]

Don’t let the alarmists worry you.

Will the USD lose its world or global reserve status? Eventually, it probably will; however, there will be a long transition period.

The dollar won’t stop being held as reserve currency anytime soon. And just because Australia is joining the U.S. (and Japan, by the way) in being able to directly convert their currency to yuan, it doesn't change the ability of international businesspeople from the U.S. to convert their dollars directly to yuan.

What are your thoughts on this deal and the direction of the USD? Let us know in the comments section below.

China is Shipping Through the Arctic!

  

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We recently blogged about shipping through the Arctic Ocean. Research showed that by midcentury, there would be significant increases to shipping through the Arctic using various routes along the Northern Sea Route (NSR), even the ability to go right through the North Pole.

China isn't waiting for midcentury.

At a conference about the Arctic in Oslo, Huigen Yang, Director General of the Polar Research Institute of China announced that a Chinese shipping company is planning the country's first commercial voyage through the NSR this year.

The shipping company will be cutting through the Arctic en route to Europe and the U.S., saving considerable time and distance.

Huigen Yang also said that by 2020, 5-15% of China's international trade would be using the Arctic route.

This means that pretty soon, the cargo containers of goods you're importing from China could be getting here via the Arctic. Shipping through the Arctic has been highly coveted, all the way back to the 1500s. Going through those dangerous, icy waters shorten routes by 30-40%! 

That could lead to significant savings for international shippers.

Those kinds of savings have caused explorers and shippers to do the dangerous work of forging routes through the Arctic.

In August of 2012, we blogged about China's ship Xuelong or the Snow Dragon. This ship was a tanker and an icebreaker, but it did have some cargo on it as it broke through ice and traversed the North East Passage through the Arctic.

The Snow Dragon was more of a research vessel than a cargo vessel. But since its voyage, China has been encouraging shipping companies to start sending cargo vessels through the Arctic.

Their excitement over a shipping company planning to send a commercial voyage through the Arctic here in 2013 is palpable.

How long will it be until you can get your cargo imported or exported through the Arctic? When will Universal Cargo Management offer ocean freight shipping through the Arctic?

These are good questions. The exact answer is unknown, but it's probably sooner than you think.

Here at UCM, we are always working with carriers and our agents around the globe to get you the best shipping options for your cargo.

As shipping through the Arctic should lead to greatly increased efficiency and quite possibly lower freight rates, we'll be keeping a close eye on the benefits it could offer our customers, the availability of space for shipping containers on Arctic cargo ships, and the safety of these voyages.

With the melting ice caps from global warming happening in the Arctic, there is a rush to get up there for the rich resources like oil and mineral deposits and to send ships through. We won't get caught up in the rush, but will keep our focus on what is best for the shippers entrusting their cargo importing and exporting execution to us.

Sources:

http://rt.com/business/china-ship-15-percent-trade-through-arctic-430/

http://barentsobserver.com/en/arctic/2013/03/china-starts-commercial-use-northern-sea-route-14-03

Top 5 US Imports and Where They're Imported From

  

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I hit up the 3rd St. Promenade in Santa Monica, CA with my wife and baby boy last week for some good-old-fashioned consumerism. Little did I know I was about to experience 4 of the top 5 US imports all within a 3-block radius. The promenade  - it turns out  - is like a little microcosm of US consumerism. I suppose this is true of most shopping centers, but it struck me in a way I had never felt before.

First we trotted on down to Old Navy to redeem a gift card my wife received months earlier. Not having been to Old Navy in a while (and not since we had a baby), I was pleasantly surprised to discover:

a) how big the store was (a whole upper floor I did not know existed) and

b) how much baby apparel they carried.

We promptly purchased a couple baby items and some of their can’t-beat-them-for-price flip- flops for my wife (I think that officially means summer is a’comin). My wife got a bit ghetto and bit off the price tag of one item right in front of the horrified store clerk immediately after my purchase. She was a bit embarrassed after doing so, but excited to put the item on our son.

The newly-tagless item was a little hat for our 10-month-old. It was cute, our son is cute, and him wearing the hat = cuteness x 2. Immediately, comments from strangers on how cute he looks in his new hat started coming in. 

Such compliments are par for the course when we're out with our son, but my wife definitely enjoyed an extra recent-purchase-induced warm-fuzzy consumer feeling at the compliments from the new hat she picked out.

Now that blog-time has swung around again, I find myself reflecting on how our recent shopping experience at the 3^rd St. Promenade paralleled my blog research. The top 5 US imports were all there: