customer service

 

Is it time to sound the death knell of customer service as we know it? In this hyper-connected, digital, and mobile world that we live in, the bar for customer service success has been set higher. With the advent of new communication technologies, patience is dwindling among customers and their sensitivity to interactions with businesses is rising. The brands that will win the future know how to seize this moment and soar.

 

Of course, some things will stay the same.

 

Time is of the essence.

Freight forwarding used to be a business that was conducted with phones and faxes. Digital technology today makes it possible to communicate information and decisions about shipments in a few keystrokes. With the technology we have, we can’t afford to waste a day or two. So the question to ask is: how timely are your freight forwarding representatives’ responses to you? It should ideally be within the hour, and not stop on weekends. If you call your rep about a shipment to China on Sunday and they do not respond until Monday, it will be Tuesday in China before any action can be taken. If you call your rep about shipping with a vessel right before the cutoff time for inclusion on the sailing, you will have to wait another week for your shipment to sail if the freight forwarder’s representative does not give you an immediate response. In addition, since customer expectations are changing fast, they are expecting faster responses and automated reports whenever possible.

 

Human-to-human is key.

With some companies, it may be difficult or nearly impossible to get in touch with a real person. Their business strategy simply may not include human-to-human interaction because of cost or scale reasons. To you, your cargo is not just a shipment of goods. It’s a literal moving target of revenue and profit that’s sensitive and priceless. You have many questions about your shipments as they leave the origin, go through customs, or reach the destination. Conveying that knowledge through a real customer service representative jumpstarts a learning process that defines a true partnership. Let’s say there’s a port strike that may affect your shipments. Are you being kept up-to-date on the latest information from insider sources or are you relying on news reports to stay in the know?

 

Attitude means millions.

International shipping is a complex endeavor that requires the coordination of many moving parts. Should a problem arise with one part of the journey, it needs to be resolved before it can affect the entire supply chain. Are your agents tenacious? Do they have the grit and determination to solve a problematic situation as it comes up? Do they have a sense of urgency? If they don’t personally have the answers, do they know where to find them and how to get them? Knowledge and experience is important, but tenacity will be the deciding factor that enables your freight forwarder to move your shipments forward through every logistical and bureaucratic hurdle.

 

Customer service has always been the bedrock of logistics. While customer service is a cornerstone in any industry, it is something that cannot be compromised in logistics. The urgency of global shipping makes it a critical component of every freight forwarder’s operational excellence and efficiency.

 

But the experience wins the future.

Ultimately, customer service is about flexibility and comfort in fast-moving world where there is constant change and immense complexity. The modern company grasps the key insight that every customer relationship is different. There is no one-size-fits all solution; customer service must be sensitive to the small differences that make a big impact. Customer service is now more personal, intimate, and complex. We now have an array of different types of tools and platform to communicate with. It’s about tailoring the right tools to the right person at the right time depending on personal preferences. B2C companies are delivering unforgettable customer experiences already. These are the same customers who will be using logistics services. The expectations have already been set. The logistics companies that are most in tune with customers build their service philosophy on the foundations of traditional thinking, but are also empowered enough to drive forward the new mindset of customer service in B2B industries: creating personal experiences that educate, engage, and amaze.

How will customer service transform in the 21st century?

Photo: CWCS Managed Hosting

 

 

 

 Logistics Lowdown
 
Brought to you by AGWorld.
 
We give you the skinny in the big bad world of logistics. Read this curated collection of articles every month to learn about the latest developments and most pressing problems facing our fast-changing industry. 


 
1.
NEW ENTRANTS TO SHIPPING SLOW CORRECTION OF MARKET
Shipping giant Maersk has stated their optimism about the gradual correction of overcapacity by 2022, but new entrants to the container trade with global ambitions may be an impediment to the restructuring of the market. New players such as Korea Line have signaled their intention to buy new ships amid low shipbuilding prices. The South Korean market is also keen on propping up its ailing shipping industry by proposing a state-supported ship financing vehicle with initial capital of $1 trillion won ($851 million). Although we are seeing shipping lines scrap more ships, new entrants eager to seize market share will pose a challenge to the market correction.

2.
TIGHT SPACE IN WAREHOUSING TO CONTINUE INTO 2017
2016 has been another year in which the demand for warehouse space has outpaced supply - particularly in the urban areas near key seaports. The Los Angeles basin saw 0.9 percent vacancy; Chicago is at 3.9 percent; and Central New Jersey is at 3.4 percent. Warehouses near the West Coast ports have the tightest space and this trend will continue into 2017. However, industry analysts say that signs in the market do not point to a real estate bubble, instead calling it a "disciplined" market.
 
3.
NY-NJ PORT LOSING MARKET SHARE ON EAST COAST
The Port of New York and New Jersey's share of the East Coast container trade has declined to less than one-third this year, following previous years of decline. Both the port's share of imports and exports on the East Coast have fallen. There has been a migration of business from north to south, as the costs of real estate, labor, tolls, oversight and many other aspects of shipping are lower in ports further south such as Savannah. Port congestion and slow turn times have contributed to this dilemma for NY-NJ.
 
4. GROWING ALLIANCES PROMPT HONG KONG TERMINALS TO JOIN FORCES
Hong Kong International Terminals (HIT), COSCO-HIT, and Asia Container Terminals (ACT) at the Port of Hong Kong have entered into a collaborative agreement, bringing all three under the same management. The move is a response to the growing shipping alliances that dominate the container trade. Transshipment hubs are competing fiercely to be put on the route of these alliances; once an alliance choose a transshipment hub, it will be difficult to change given the larger size of the alliance. The agreement would create more capacity at the port by increasing flexibility in planning yard operations.
 
5.
WHITE HOUSE PREDICTS NEARLY ALL TRUCKING JOBS ARE AT RISK
A new report from the Executive Office of the President finds that 80-100% heavy duty trucking jobs are at risk of loss due to automation, along with most parcel delivery and Uber driving jobs. Adoption of self-driving trucks will depend not only on technological advancement but also pricing, availability of infrastructure, and the industry's willingness to change, which may delay self-driving trucks from dominating trucking even if the economic benefits become more visible.

 

3PL Warehouse Social Media

Warehousing is in high demand. Some of the most coveted real estate in the country is currently warehouses. The price for prime warehouse space increased by double digits in a number of urban areas in 2015; nationwide it was up by 9.9 percent. Prime warehouse space is in such short supply near critical West Coast ports such as Los Angeles-Long Beach that developers have been forced to renovate lower grade properties or build inland in less desirable areas.

The modern warehouse is no longer just a place for storage. Today, it is an increasingly dynamic supply chain center that takes on an array of complex responsibilities, providing the systems, tools, and processes to fuel the growth of companies.

With a growing need for specialized expertise, many companies are turning to 3PL warehousing and distribution services. The growth of 3PL and warehousing has been driven in large part by the rapid rise of e-commerce. Internet sales in the United States now account for an estimated 8% of total retail sales compared to just 3% in 2006, while experts predict that online sales could make up 12.6% of retail sales by 2020. E-commerce customers expect their products to be delivered fast, making it necessary to store inventory closer to where they are. E-commerce is not going anywhere, and the 3PL industry is innovating and iterating to meet the expectations of e-commerce customers.

The demands of e-commerce customers change rapidly with the introduction of new products, trends, and promotions. At the same time, customers expect speedy and convenient delivery that they can control as much as possible, at a low cost. Whether for e-commerce or another industry, sophisticated 3PL services employ all of the tools at its disposal to receive, store, and distribute goods in the most effective manner. As important as the efficient movement of goods, 3PLs specialize in defining and executing the flow of information from suppliers to end customers. On the demand side, the Warehouse Management System can be integrated into the customer’s ERP to directly receive information about orders and automate the process of fulfilling those requests. On the supply side, a purchase order management system can create and track purchase orders to multiple suppliers and monitor their performance to identify inefficiencies.

By prioritizing end-to-end supply chain visibility, 3PLs strive to constantly improve overall operational processes through rigorous tracking and analysis of data. For example, the 3PL will lead the collection and analysis of critical data on product sales that will inform decisions about where to locate bestselling products for easy retrieval. Through the inventory management system, a 3PL partner will inform customers when to reorder products and which products are not selling quickly, providing the information necessary to forecast future sales and improve the planning of inventory. Parcel shipments can be tracked and analyzed to gather the insight necessary to negotiate rates with carriers and enhance performance. All of this crucial, real-time data should be accessible by the client online 24/7 to assist them in making informed, data-driven business decisions.

At the modern warehouse, products are also transformed with value added services. From assembling product kits for faster and more efficient shipping of items that are often bought together, to packing and repacking using quality controlled processes, to testing and inspecting returned or damaged goods and serving as a second level of quality control, warehouses can “finish” the shipments from suppliers.

In a market where an efficient supply chain is increasingly complex, and increasingly important to business growth and profitability, small and large businesses alike can benefit from outsourcing their warehouse, distribution, and related logistics to a 3PL partner. Especially for new companies that are not venture or investor funded, outsourced 3PL services offer a great deal of flexibility. There’s no need to invest in warehouses, hire and train staff, create quality-driven processes, integrate a variety of technologies, and face the constant pressure to adapt in the face of changing demand. Businesses will forego the capital cost, share the overhead costs of warehousing, and easily scale up or scale down as needed.

AGWorld 3PL designs customized logistics programs that combine warehousing, distribution, transportation logistics and value-added services and couples it with best-in-class customer service that will give you peace of mind. We operate C-TPAT certified warehouses with the capacity to serve customers with a range of requirements. Get in touch your local AGWorld representative to learn how about how we can plan the journey for your cargo.

Photo courtesy of Selka

 

Logistics Lowdown 

Brought to you by AGWorld.

 

We give you the skinny in the big bad world of logistics. Read this curated collection of articles every month to learn about the latest developments and most pressing problems facing our fast-changing industry. 

 

1.

THERE WILL BE OCEAN FREIGHT RATE VOLATILITY IN 2017

The three alliances (2M, Ocean, THE) that dominate the container shipping industry are very closely matched in capacity on the two most significant trade routes, Asia-Europe and trans-Pacific. Due to this dynamic, Alphaliner forecasts that keen competition for market share between these alliances will fuel volatile freight rates in 2017 – similar to the cutthroat price competition that defined the first half of 2016.

 

2.

STATE AID UNDERMINING SHIPPING INDUSTRY RECOVERY?

Taiwan recently approved at $1.9 billion aid package to help out the country’s major container shipping lines, including Evergreen and Yang Ming. This wouldn’t be the first time a state has offered assistance to shipping companies to help them weather tough financial stress. Look no further than China, which has given out $1.75 billion to Cosco Shipping and China Shipping between 2009 and 2015. Or Germany and France’s loans and investment in Hapag Lloyd and CMA CGM. Industry analysts say all of this state aid will prolong the survival of weak players and delay the much needed restructuring of the shipping industry.

 

3.

WHY ARE SPOT TRUCKLOADS RATES RISING?

The DAT Freight Index rose 27% year-over-year in October. Flatbed rates increased 11% from September while dry-van and refrigerated volumes dipped slightly, but rose in comparison to 2016. There could be several reasons for the gain, including: large carriers cutting capacity, the resurgence of activity in the Southeast after the disruption caused by Hurricane Matthew, an above average fall harvest, and the rush move delayed cargo out of the West Coast ports after Hanjin’s collapse. On top of all these factors, the rise of e-commerce has lengthened peak freight season from September/October to January as customers redeem gift cards and retailers continue to move their products to distribution centers.

 

4.

PHILIPPINES WILL BUILD A SECOND PORT AT CEBU

The Philippines has recently approved a plan to construct a second container port in Cebu at a cost of $186 million. Funded jointly by the Philippine government and South Korean government, construction will begin in the third quarter of 2017. It will be located 5 miles from the current Cebu Port Authority, in an area with a deeper harbor. Set to open in 2020, the 500,000 TEU capacity port will focus exclusively on the container trade.

 

5.

LA/LB PORTS CONSIDER ALTERNATIVES TO PIERPASS

The Ports of Los Angeles and Long Beach are reviewing the success of PierPass, a program that diverts about half of truck traffic at the port to night and weekend hours by charging cargo owners a fee for using regular hours. Three alternative plans are under consideration: 1) dynamic and variable pricing depending on how congested terminals are, 2) a “peel off” system in which cargo owners will inform the carrier what day of the week they would like to pick up the container, and whether it will be during peak hour, 3) charging a lower flat fee but requiring appointment for all truckers.

 

The Ports of Los Angeles and Long Beach are reviewing the success of PierPass, a program that diverts about half of truck traffic at the port to night and weekend hours by charging cargo owners a fee for using regular hours. Three alternative plans are under consideration: 1) dynamic and variable pricing depending on how congested terminals are, 2) a “peel off” system in which cargo owners will inform the carrier what day of the week they would like to pick up the container, and whether it will be during peak hour, 3) charging a lower flat fee but requiring appointment for all truckers.

MOL

Japan’s big three shipping groups – K-Line, MOL, and NYK – have made public that they will be integrating their businesses in the near future, setting aside a century old rivalry to survive in tough market conditions. If the merger is approved by regulators, the three container lines will establish a joint venture by July 2017 and commence joint services by April 2018.

MOL, NYK, and K-Line are currently ranked No. 11, No. 12, and No. 15 respectively by Alphaliner in terms of capacity deployed. After the merger, their container vessel fleet capacity would be approximately 1.4 million TEU, making it the sixth largest shipping line in the world with around 7% market share. Together, they would own approximately 256 vessels.

Unfavorable market conditions led to the decision to merge. A joint statement issued by the three lines reiterated what has now become common knowledge in the industry: only with economies of scale can shipping lines cut costs effectively and compete with larger container lines that dominate the trade. For the first half of the fiscal year ending March 31, 2017, NYK and K-Line reported net losses of billions.

This is the latest in a trend of mergers and consolidations in the container shipping industry. Hapag-Lloyd will merge with the UAE’s United Arab Shipping Company. France’s CMA CGM has recently completed the acquisition of Neptune Orient Lines, which owns APL. Two major container shipping lines in China merged earlier this to year to create China COSCO Shipping.

According to a PIERS analysis reported by the Journal of Commerce, the newly merged Japanese lines would be the dominant mover of cargo from Asia to the U.S. if they started joint operations today.

There’s much debate over how this will affect prices and the industry as whole. AGWorld will continue to keep you updated on new developments relevant to this issue, giving you the context you need to make informed decisions that align with your business strategy.

Photo courtesy of Matthew Simantov

 

Logistics Lowdown 

Brought to you by AGWorld.

 

We give you the skinny in the big bad world of logistics. Read this curated collection of articles every month to learn about the latest developments and most pressing problems facing our fast-changing industry. 

 

1.

PEAK SEASON SURGE: LATE TO ARRIVE, BUT HERE

Market trends seemed to indicate a low-key peak season this year, but the rise in prices for containerized imports from Asia to the U.S. this past week signals that a late peak season surge is currently underway. With space on vessels tight – at least until products are on the shelves for Black Friday - importers who exceed the amount of freight they had signed for in service contracts with vessels will have to pay extra.

 

2.

WAREHOUSE SPACE TIGHT NEAR WEST COAST PORTS

The lack of available warehouse space near major West Coast ports is pushing developers to move inland into less desirable areas and to take up Class B and B- properties that require significant renovation. Demand is outpacing the supply of warehouse and distribution properties nationwide; vacancy levels have dropped to a 16- year low. The industry expects to see 4-5% annual growth in rental rates for the next few years and shippers may have to absorb higher transportation costs to move cargo farther inland.

 

3.

WILL MANILA DEFEAT PORT CONGESTION WITH TECH THIS HOLIDAY SEASON?

The Port of Manila is seeing triple the productivity in the yard after launching a new terminal appointment and booking system this year. Port officials have great expectations. Operating at a speed of 25 – 30 moves per hour compared to 10 moves per hour during periods of congestion, officials are optimistic the port will be able to handle the increase of volume leading up to the Christmas season.

 

4.

MEGASHIPS “BUNCHING” CREATES A BUNCH OF PROBLEMS FOR PORTS

When multiple large vessels call in close succession from one another, ports on the East and West Coast scramble to deploy the equipment and labor needed to unload them, causing productivity problems on the docks. Many variables can complicate this situation: whether a vessel is making a first call, when it’s arriving, how high the containers are stacked, and the need to lash containers for the voyage. Vessel bunching, as it is called, strains port resources both during and after the calls.

 

5.

CHINA EXPORT GROWTH TO SLOW, IMPORTS TO RISE

Contrary to the popular perception that higher wages are causing the manufacturing sector to slow down in China, it’s the entrance of Vietnam to the WTO and its improved infrastructure that is posing a rising challenging to China’s manufacturing might, says a senior economic at IHS Markit. China’s exports will continue to slow while Vietnam leads the pack of Asian nations, including India, Indonesia, and ASEAN, down a road of faster growth. On the flip side, imports will rise as China’s domestic consumption grows from one-third of consumption in Asia to two-thirds over the next two decades. 

 

Hanjin 2

What is the state of Hanjin Shipping’s unraveling? The announcement of the bankruptcy is only the tip of the iceberg. The ensuing battles over payments owed have drawn the ire of many different parties, each fiercely protecting their interests. In doing so, they’ve created a logistical nightmare that continues on.


Cargo: Caught in the Middle

It’s safe to say that after the Hanjin crisis, the everyday occurrence of ships docking at ports can no longer be taken for granted. Even after the U.S. court handling the Hanjin bankruptcy case granted protection for ships from being seized by creditors, terminals still needed to see that Hanjin had raised the funds to pay for their services before allowing them to call. Although delayed, a handful of Hanjin ships have successfully docked at East and West Coast ports since then. On Friday, the Hanjin Bremerhaver arrived at the Port of New York and New Jersey after being arrested three times on its journey to the U.S.

Once the ships are docked, there is still the problem of releasing the cargo. Not helpful are some of Hanjin’s own tone-deaf actions. Hanjin has been exercising liens over some containers for which the freight charges had already been paid, in order to demand payment on other debts by the beneficial cargo owner. This is permitted under maritime law, but Hanjin is treading on dangerous waters given the vast amounts of cargo that has been delayed because of stranded and arrested ships. SchenkerOcean sued in court, and Hanjin was ordered to release all cargo for which a beneficial cargo owner has already paid the freight charges.

In another major dispute, a well-known furniture retailer is refusing to pay Hanjin for services it says Hanjin failed to deliver. If this retailer is allowed an “administrative freeze” on payments by the court, will there be a domino effect for other customers? This is a major scare for the carrier, which claims that their entire accounts receivable is at risk. And in turn, their ability to successfully reorganize.

The Hanjin situation has gotten ugly fast. It’s clear that for all business interests involved, the goal is now to aggressively minimize losses. In the process, cargo can become a casualty.

Inviting Buyers

Fortune reports that Hanjin owes $5.4 billion to creditors, who are now lining up claims. To pay its debts and reorganize, the carrier has put up its most important assets for sale, including the entire operations of its Asia-US routes such as manpower systems, five container ships, and 10 overseas businesses.

Will there be a rush to buy Hanjin’s assets? Industry analysts are skeptical.

Alphaliner predicts that the interest will be underwhelming among existing trans-Pacific operators because of redundancies. Drewry Financial Research Services added, “Why would one pay for a ghost network when the credibility of that network has been under threat?”

Freight Rates Stay Up

Hanjin accounted for 7% of the Asia-US trade, meaning that its sudden departure from the route has created tight capacity in the peak shipping season when demand for space is high and other vessels are already operating at 90-100% capacity. We saw spot rates jump more than 50% after the announcement of Hanjin’s bankruptcy. Carriers on the trans-Pacific eastbound route implemented a General Rate Increase for September and October. Ocean freight rates for the Asia-US route typically face strong upward pressures in September and October as shippers are moving merchandise in the largest volumes. Hanjin’s exit from the Asia-US route means that freight rates will remain higher than usual in November and may last until the end of the year.

Hanjin’s collapse will continue to create complications for shippers, vendors, and the container shipping industry. AGWorld will keep you updated about the state of Hanjin and its impact on the current ocean freight market.

Photo courtesy of Matthew Simantov 

 

Manila Office

 

The Philippines of recent years has witnessed a spectacular turnaround. Over the past decade, the country has averaged 5% GDP growth each year. Sound economic fundamentals - such as declining debt and low inflation - and a workforce that is young, diverse, educated and English-speaking has made the Philippines a rising star poised to seize the opportunities of the global economy.

The new administration, elected in May, has professed its commitment to the further liberalization of trade through free trade agreements. Its eagerness to join the mega-regional TPP is palpable. "The new government is one that will keep the policy of maximizing foreign trade agreements participation,” Trade Secretary Ramon Lopez said in August.

When the ASEAN Economic Community was established last year, the Philippines also joined nine other nations to form an enormous market of $2.6 trillion and 622 million people. Together, they are the third largest economy in Asia and the seventh largest in the world.

The United States is the Philippines’ third largest trading partner, and gives the Philippines preferential duty-free access to U.S. markets under the Generalized System of Preferences. $16.5 billion worth of goods was exchanged between the two countries in 2015. Looking forward, we can expect the United States and the Philippines to continue its tradition of robust trade.

 

Hot Exports

Filipino exports are driven by the manufacturing sector. A labor force that is hardworking and highly educated gives the country a competitive edge in manufacturing. If you take a look at the top 10 exports from the Philippines in 2015 - which accounted for 83.5% of exports - eight are manufactured goods.

PH Top Exports

*export value in billions of dollars

From wood products to transport equipment, manufactured goods of all shapes and sizes come out of the Philippines. By far, the hottest manufacturing export is electronics - and that subsector is dominated by semiconductors. Electronics was easily the biggest export in all five of the largest destination markets for Filipino goods: Japan, U.S., China, Hong Kong, and Singapore. We should also mention that the Philippines is one of the top seafood exporting countries in the world, particularly tuna. Even so, the Philippines is far from producing seafood at its highest capacity given its long coastline and inland bodies of water, which means that there is plenty of untapped potential for this export in the future.

Booming Imports

The growth of imports into the Philippines since the beginning of 2016 is fueled by increases in consumer demand, capital goods, and new construction. In spite of the downturn in the global economy, consumer confidence is high in the Philippines. Consumer goods, which comprise 17.9% of imports, increased 47.2% year-over-year in May. Consumer spending in the Philippines has buoyed the economy, rising from 63% of GDP a decade ago to three-quarters today. This phenomenon is underpinned in part by remittances from 2.3 million strong Filipinos who work abroad and further propelled by the explosion of foreign tourists – many from China - spending money while traveling in the Philippines. The country’s young population will be a driving force for domestic demand in future years as well.

PH Top Imports

 

*import value in billions of dollars

 

The Bottom Line

Favorable demographics will continue to help the Philippines become a destination for manufacturing.  As exports grow and the spending power of Filipinos rise, imports will continue on an upward trajectory – both because of consumer demand and the need to bring in raw materials for processing. The Philippines was once called “the sick man of Asia” because of poor economic policies that kept the country from taking off. Today, it’s well on its way to resuming its coveted position as a hotspot in global trade.

 

AGWorld: Open for Business in the Philippines

To meet the growing demand for international and domestic freight forwarding in the Philippines, AGWorld has opened a Manila office. We will focus on air and ocean freight (import and export), customs, and domestic trucking services. Our Manila outpost will also offer value added services that many local forwarders lack, including tracking capabilities that give our customers visibility into shipments at all times. AGWorld staff in the Philippines boast 50+ years of experience in the logistics industry. If you need help with shipments to, from, or within the Philippines, get in touch with us!


Tel: +63 2-560-5814

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Photo: Travel Oriented

 

Logistics Lowdown

Brought to you by AGWorld.

 

We give you the skinny in the big bad world of logistics. Read this curated collection of articles every month to learn about the latest developments and most pressing problems facing our fast-changing industry.

 

1.

THE COLLAPSE HEARD ‘ROUND THE WORLD

There was a lot of chaos on the seas this month. The seventh largest container line, Hanjin Shipping, decided to file for bankruptcy after being turned down for additional funding from its main creditor. Ports around the world started to refuse Hanjin ships because they were not sure the shipping line could pay; authorities seized several at the request of creditors. As Hanjin and its parent company scrambled to come up with the funds to get their ships docked and unloaded, $14 billion worth of cargo was left in limbo, including $38 million from Samsung alone. (Not a great month for Samsung!) Read the article on the AGWorld blog.

 

2.

HANJIN’S DEMISE: THE OMENS

The Korean shipping line’s bankruptcy is not a shock for industry watchers. There have been signs pointing the way for years. Omen #1: The container shipping industry lost $15 billion during the global financial crisis and has never truly recovered from the loss. Omen #2: China’s economy has slowed and shows no sign of recuperating back to previous levels of double-digit growth. Omen #3: Global ship orders rose 100% in 2015 despite overcapacity in the market. What was the final nail in the coffin for Hanjin? View the timeline.

 

3.

MAERSK SPLITS UNDER MARKET PRESSURES

Amid record low freight rates and oil prices, Danish company A.P. Møller-Maersk has been forced to split into two separate divisions focused on transport and logistics (which will include Maersk Line) and energy. With profits slipping due to the lagging growth of global trade and overcapacity in the shipping industry, the reorganization will free up capital for Maersk Line to grow market share by making acquisitions."There is a wave of consolidation in container shipping," said CEO Soren Skou. "This is an inflection point in the industry.” Read the article.

 

4.

ELECTRONIC LOGGING DEVICES: UNCONSTITUTIONAL?

By 2017, the federal government will require all truck drivers to log their hours using an electronic logging device, which is meant to ensure that drivers are not on the road for so long that it becomes dangerous. Truckers are very divided over the issue. It’s supported by the American Trucking Association but strongly opposed by the Owner Operator Independent Driver Association, which is now suing the government. Are ELDs a form of illegal search and seizure and a violation of drivers’ fourth amendment rights? Read the article.

 

5.

THE WAREHOUSE WORKERS OF THE NEAR FUTURE

When a new generation of workers is no longer interested in warehouse work, robots may be a better, cheaper, and cooler alternative. Not too long ago, it was beyond the capacities of a robot to do even simple tasks such as picking products off a shelf and assembling odd-shaped containers on a pallet. Today, one reclusive billionaire has sold Target on fully autonomous robots that can pick and stack goods untethered at up to 25 miles an hour using sensors and a wireless network. Hello, brave new world. Read the article.

 

 

Trucker Appreciation

It’s National Truck Driver’s Appreciation Week and we’d like to take this time to celebrate our dedicated drivers. No one is more deserving of honor than America’s truck drivers. Truckers carry out with skill and commitment what is consistently named “One of the Most Dangerous Jobs” in the country. Our own drivers are showing their amazing dedication right now during this peak shipping season as volumes of freight have risen and customers are requesting it at the break of dawn. Thank you, highway heroes!

Here are some interesting facts about trucking:

  • There are about 3.5 million truckers in the country, including 200,000 female long haul truckers
  • If you stacked the number of trucks in the United States (15.5 million) from end to end, it would reach the moon!
  • 72% of freight is hauled by trucks in the United States
  • Trucks need the approximate length of a football field to come to a full stop from 65mph.
  • A semi-truck with a full trailer can weigh up to 80,000 pounds.
  • 90% of the trucking industry is comprised of small businesses with less than 10 trucks.
  • If you’d like watch some highway heroes on the big screen, check out Duel (1971), Smokey the Bandit (1977), Breaker! Breaker! (1977), Convoy (1978), and Black Dog (1998)

Stay tuned for more as we profile our very own AGWorld truckers in our “Man Behind the Wheel” series. As far as we’re concerned, every week is National Truck Driver Appreciation Week.

 

Hanjin Bankrupt

 

On August 31, Hanjin Shipping filed for bankruptcy protection in South Korea after creditors rejected its proposal for continued funding. Though this is the biggest bankruptcy in container shipping history, Hanjin’s demise comes as no surprise for industry watchers. A symbol of an industry in pain, Hanjin Shipping is burdened with $5.5 billion in debt and has been operating at a loss for the past four or five years.


Hanjin’s impending bankruptcy has sparked a logistical nightmare in the shipping industry. $14 billion worth of goods are currently stranded, many of those items headed to the shelves of U.S. retail stores in preparation for the upcoming holiday season. Hanjin is the seventh largest container shipping line with 300,000 containers currently in voyage and another 230,000 already on land. At least half of its fleet - 49 ships - has deviated from scheduled routes because of this development.


Concerns about Hanjin’s ability to pay for services have led ports around the world to refuse Hanjin ships. In the cases where ships have been allowed to dock, terminal operators are taking a varied approach to Hanjin’s cargo, with some passing the handling fees Hanjin is typically responsible for onto shippers and refusing to accept export loads. Other port authorities are exercising a lien over containers, meaning that they are being held until Hanjin’s debt is paid. This is especially problematic as Hanjin does not own the cargo that its containers hold.


Hanjin ships have already been seized in the United States, China, Singapore, and Australia. The company has filed Chapter 15 bankruptcy in the United States. Last Friday, a federal judge in the U.S. granted Hanjin protection from vendors taking legal action against it, and the possibility of authorities seizing more vessels. Additionally, the Wall Street Journal reports that "Hanjin plans to file for court protection in about 10 countries, including Canada, Germany and the U.K., this week, and later expand that to 43 jurisdictions to protect its ships and other assets from being seized by creditors.”


The South Korean government has requested domestic shipping lines to send 20 ships to rescue Hanjin’s cargo. Hanjin’s parent company, the Hanjin Group, pledged $90 million last week to resolve the cargo crisis. Over the week, Hanjin Group’s flagship company, Korean Airlines, agreed to lend Hanjin Shipping $54 million, which was followed today by an infusion of $36 million of cash from Hanjin Group Chairman Cho Yang-ho’s personal wealth. On Friday, the Wall Street Journal reported that a South Korean court has authorized the company to pay to unload cargo on four U.S.-bound ships, drawing from a U.S. bank account holding $10 million. So far, two Hanjin ships have been allowed to dock at the Port of Los Angeles and Port of Long Beach.


Hanjin’s bankruptcy has agents canceling bookings on Hanjin ships and searching for alternative vessels to load their cargo. The tighter capacity created has prompted ocean carriers to raise spot rates by more than 50% and implement the General Rate Increase for the Trans-Pacific eastbound for September and October. This development will continue to send ripples through the shipping industry. We’ll monitor the situation and provide you updates on how this will affect shippers.

 

 

Photo: Courtesy of kees torn 

 

 

 

Brought to you by AGWorld.

We give you the skinny in the big bad world of logistics. Read this curated collection of articles every month to learn about the latest developments and most pressing problems facing our fast-changing industry.
 
1.
WHERE HAVE ALL THE TRUCK DRIVERS GONE

An increasingly short supply of truck drivers has become a weak link in the supply chain. Inflation has raced ahead of trucker wages since the 1980s, diminishing the benefits of a profession that calls for an unconventional lifestyle. Coupled with an ongoing image problem, and it’s no surprise new drivers are leaving almost as soon as they start. The shortage is reaching crisis levels – potentially 200,000 drivers short in the next decade. Read post on the AGWorld blog.
 
2.
THE NEW PANAMA CANAL IS HERE

In a time when megaships are becoming the definitive vessel, the Panama Canal is striving to cement its relevance by a historic expansion that permits ships carrying up to 14000 TEUs. With U.S.-Asia trade patterns predicted to shift, how will this intensify the competition between East Coast and West Coast ports? Read post on the AGWorld blog.
 
3.
SELF-DRIVING TRUCKS: THE REALITY BEHIND THE HYPE

How close are we really to a world where driverless trucks rumble down the highway? Despite the recent media hype, there are still significant limitations to the autonomy of self-driving trucks and some experts, like Steven Shladover at UC Berkeley’s PATH program, believe the self-driving truck will never truly be driverless. Read more about the mechanics of self-driving trucks and what capabilities we’ll see in in the near future.  
 
4.
A FUTURISTIC SOLUTION FOR PORT CONGESTION

Elon Musk envisioned the Hyperloop, a magnetic levitation train inside a low pressure tube, to be a supersonic transporter of people that would leave railroads in the dust. Today, the Port of Dubai is eyeing the invention for possible transportation of freight from ship to inland hub. Allowing freight to bypass the docks would open the docks for other activities, alleviate port congestion, and pave the way for more shipments to pass through the port. Does this invention have a place in the shipping industry? Read more about Dubai’s exploration into the Hyperloop.
 
5.
THE U.S. WANTS TO SLOW DOWN TRUCKS

The dilemma between safety and efficiency continues to play out on America’s highways. In an effort to reduce the number of accidents, federal regulators have proposed a new rule that would curb the speed of trucks by requiring the installation of speed limiters at the factory. When the rule comes into effect, it will reduce the number of miles that truckers will be allowed to travel per day, and make it necessary for trucking companies to hire more drivers or take other measures. This will hit small trucking companies the hardest, and the Owner Operator Independent Drivers Association has come out forcefully against it, though they are giving a different reason for their opposition…. See what.
 
See you next month!

Trucks

Do a quick search for a Class A Truck Driver on the popular job hunting site Indeed.com. I guarantee you’ll find a plethora of ads that make it obvious whoever wrote them was desperate for drivers to click. In capital letters, they’ll scream of perks and benefits well before even describing the responsibilities of the job.

 

Welcome to the truck driver shortage crisis.

 

Analysts estimate the industry is short anywhere from 35,000-40,000 truckers every year. That number could balloon to an incredible 200,000 by the next decade if the problem is not solved. Given that 68 percent of freight tonnage is moved by trucks, this could definitely increase the cost of shipping freight.

 

Why is there such a shortage? What gives?

 

Reason #1 - New drivers are calling it quits

 

One stunning statistic gets to the heart of the issue. Over 380,000 CDLs were issued in 2014, but fully half of those drivers left the profession within six months. The nature of the job calls for long grueling hours on the road, leaving home for days or weeks at a time, and living life at rest stops. It’s truly a lifestyle rather than a job. For some, it works and becomes a point of pride. “Just me and the open road.” But it’s not for everyone. Increasingly for the younger generation, it doesn’t work. Just the solitude itself can be something that convinces young drivers to quit---almost as soon as they start.

 

And that’s a troubling trend because truckers are older. The truck driver profession is among one of the oldest in any sector, at an average age of 49 years old. Once the Baby Boomers retire, the industry will be left with an even bigger shortage if we can’t attract younger drivers into the profession.

 

Reason #2 - Pay has not kept pace with inflation

 

It’s always been an unconventional life for the trucker, but at least in the ‘80s and ‘90s when the “trucking generation” started on their careers, the pay was higher. In 1980, truckers earned an average of $38000 per year, which adjusted for inflation would be $111,000 today. Wages have not kept pace with inflation. What once probably made the trucker lifestyle easier to get used to is no longer a benefit. Especially when there are other comparably compensated blue collar jobs that don’t require leaving home for weeks at a time, potential truckers are seeing more attractive opportunities elsewhere. Some companies are already trying to entice good drivers into their ranks with higher wages, generous benefits, and sign-on bonuses, but freight rates are at all time lows right now, meaning that trucker wages will likely remain depressed for some time. This is a sign that the shortage hasn’t become a crisis yet. In the case of a crisis, the laws of supply and demand will adjust itself more boldly and higher wages will be passed on to higher freight rates.

 

Reason #3 - Federal regulations don’t help

 

By the end of 2017, federal regulations will mandate each driver to have an Electronic Logging Device that broadcasts his speed and location to the shipper. The mandate is wildly unpopular with independent truckers, with many saying that they’ll leave the business if it were to be implemented. Although the law is meant to regulate hours on the road, it represents a loss of freedom for the trucker. As one unhappy trucker told The Washington Post, “The industry is going to lose a whole section of very safe drivers who could work for a few more years and are just going to call it quits.”

 

The ELD regulation has the potential to drive truckers out of the profession, but another regulation is making it less likely for younger workers to join the profession. Currently, federal law only allows people 21 years and older to hold a Class A driver’s license that would allow them to haul freight across state lines. Since most people who become truckers don’t attend college, it’s critical for the industry to capture the interest of high school graduates at the time that they finish school. By the time they are 21, they have probably already found another profession in the construction or service industries. Both these federal regulations are intended to improve safety, but are also inadvertently obstacles to attracting and retaining truckers.

 

How to attract people into the industry


Aside from the obvious pay raise, one important task is to attack the image problem of the trucking industry. Trucking used to be a more respected profession. When the “trucking generation” started their careers, truckers were seen as “cowboys of the highway.” The rugged individualism of the profession certainly helped draw in a generation of young men. Nowadays, truckers have to battle with negative stereotypes - the dirty and foul-mouthed, overweight man who is hopped up on drugs.  With more freight on the roads than ever, we will be needing as many new truckers as possible. With an image like that, the industry is losing out on a broad swath of population who will never even seriously consider the profession.

 

 

PanamaCanal 

The COSCO Shipping Panama navigated through the Panama Canal this past Sunday, June 26, 2016, marking the inaugural passing of a megaship through a new lane that can now accommodate ships carrying up to 14000 TEUs.

 

This is a poignant moment reflecting over 100 years of change in shipping. When the Panama Canal was completed in 1914, it was hailed as one of the greatest achievements of the 20th century - becoming an emblem of American ingenuity. Today, we live in a vastly different world. China has replaced the U.S. as the world’s largest trading nation and megaships will become the future of shipping. The United States is still the Panama Canal’s most important user, but it was a Chinese megaship that made the first official transit through the revamped canal this Sunday.

 

What hasn’t changed is that the Panama Canal is still significant to world commerce. About 5 percent of the world’s shipping traffic passes through, and 70 percent of that cargo is going to and from the U.S. By expanding the Canal and building new locks for post-Panamax megaships to pass through, the Panama Canal is once again about to influence the patterns of global trade.

 

West Coast = Best Coast?

 

Let’s first turn our attention to U.S.-Asia trade, one of the most important sources of business for the Panama Canal. Now that megaships embarking from Asia will be able to pass through the Panama Canal and go straight to the East Coast, it has intensified the competition between the East Coast and West Coast ports.

 

The West Coast attracts approximately 65 percent of container shipping volume from Asia, which is unloaded at the terminals and then sent on its way through railways or roads. In 2014-2015, drawn out labor strife on the West Coast led to the flight of cargo volume eastward. Much of the business transitioned back to the West Coast after the disputes were settled, but not all: the East Coast has already chipped away at the West Coast’s market share.

 

It takes 18 days to ship goods from Asia to the densely populated U.S. East Coast through West Coast ports. It will take 22 days for cargo to reach the same destination by sea through the Panama Canal. For goods that are not time-sensitive, the new maritime route for megaships to travel from Asia to the East Coast through the Panama Canal presents a cheaper, albeit slower, alternative.

 

The Boston Consulting Group and C.H. Robinson estimate that 10 percent of cargo from Asia could transition to the East Coast route with the expansion of the Panama Canal. Some analysts, though, are not convinced about an immediate or significant shift of cargo volume to the East Coast. The industrial real estate brokerage CBRE says that while some carriers are considering the option, it’s a complex calculus to make the switch and that East Coast ports are simply not ready to handle the bigger ships. But, once they catch up to the West Coast on infrastructure, there will be a gradual shift toward East Coast ports.

 

Ports up and down the East Coast have already been investing in infrastructure that will enable them to accept post-Panamax ships. The Port of New York and New Jersey has initiated a project to raise the Bayonette Bridge. It has been delayed more than once, but is now slated to be complete by late 2017. Meanwhile, the Port of Charleston is planning to dredge its 45-feet-deep harbor to a depth of 52 feet by 2020. But getting ready for bigger ships also means deploying taller cranes and increasing access to railroads, among other things. We will have to wait to see how the U.S.-Asia trade plays out and whether East Coast ports will be able to wrest away a larger share of the market from the West Coast.

 

The Suez Canal: A Competition of Global Proportions

The trade from Asia to the U.S. East Coast travels on only two major sea routes, either eastward through the Panama Canal or westward through the Suez Canal in Egypt. In recent years, the Suez Canal has been gaining market share over the Panama Canal, from 30 percent of the Asia - U.S. East Coast trade in 2009 to 42 percent in 2013. By 2015, the Suez Canal had captured about 50 percent of the Asia - U.S. East Coast trade. 

The Suez Canal embarked on a “Great Egyptian Dream” project in 2014, spending $8 billion to widen and add more depth to the canal in order to attract bigger ships and create capacity for two-way traffic. Despite the lofty rhetoric of Egyptian officials, however, the uplift in revenue hasn’t materialized the way that they had imagined. And now, the newly expanded Panama Canal will likely recover market share from the Suez Canal.

Conclusion: The Era of Megaships

As the competition between the Suez Canal and Panama Canal as well as the West Coast and East Coast ports illustrates, the ocean shipping trade at the present moment is about paving the way for megaships. It’s a scramble to complete the infrastructure projects that will service bigger and bigger ships; the alternative is to risk becoming irrelevant. The Panama Canal, in expanding its waterways, has endeavored to place itself on the right side of history.


At AGWorld, we will continue to keep up on the latest developments on the Panama Canal and how it will affect shipping from Asia to the U.S. Don’t hesitate to contact your local AGWorld representative to discuss the most optimal shipping route for your cargo.

Photo courtesy of Lyn Gateley

 

 ContainerShipSOLAS

 

The new SOLAS regulation requiring shippers to declare Verified Gross Mass (VGM) of their containers and cargo contents goes into effect worldwide on July 1, 2016. AG World will be enacting new policies and procedures to help exporters quickly and efficiently submit VGM weights to ocean carriers.

 

This message will serve as a general overview of AG World’s new SOLAS policies and procedures.

 

The purpose of the 2016 SOLAS amendment is to improve the safety of dock workers and marine crew worldwide. AG World recognizes that declarations of VGM may reduce the number of accidents at sea and on marine terminals. We are committed to improving safety standards within our industry, while providing our customers with an effective solution that ensures containers are loaded on time.

 

Next Steps:

 

To comply with the SOLAS amendment, we will be asking exporters to:

  • Sign a statement confirming their understanding of the SOLAS requirement
  • Declare their shipment’s VGM as an addendum to the Shipper’s Letter of Instruction.

AG World will then transmit the information to the carrier in the regular flow of documentation and in time for the ship to plan stowage.

 

Declaring the VGM:

The VGM (as defined in the IMO Guidelines Regarding the Verified Gross Mass of a Container Carrying Cargo, paragraph 2.1. MSC.1/Circ.1475), can be determined by

  1. weighing the container after it has been packed, or by
  2. weighing all the cargo and contents of the container and adding those weights to the container’s tare weight.

If the exporter opts to weigh the container themselves, AG World will be relying on them to correctly declare the total weight of their containers and contents. Responsibility for any fees or penalties charged by terminals, carriers, or local authorities because of incorrect weights will lie with the exporter.

 

If the exporter would like AG World to arrange for the shipment to be weighed, then a weighing fee (at cost) will be charged. Some terminals in the USA ports may offer container weighing services for SOLAS on-terminal, the additional VGM method recognized by the U.S. Coast Guard (USCG Declaration of Equivalency, April 28, 2016).  Please check with your local AG World representative to see if this option is available at your port/terminal of lading.

Fees:

These procedures are a simple way for exporters to declare VGM. Nevertheless, they will add cost to the logistics process. As such, we will be implementing new fees to cover the additional expenses:

 

VGM Transmission Service                 $25 handling per container or LCL shipment

Weighing Service (if applicable)         At cost (per local facility)

VGM Re-submission                            $25 re-submission fee for cargo with incorrect weights

 

Please download the forms you will need to declare VGM to comply with SOLAS, the Acknowledgement Form and the Shipper's Letter of Instruction with Addendum. We look forward to integrating these new processes with no delays or disruptions to the supply chain. If you have questions, please contact your local AG World representative.

 

Photo courtesy of Peter Kaminski

 

 

As Father’s Day approaches on June 19 and we look forward to giving our dads gifts, we are reminded just how an interconnected world helps us celebrate our fathers. Once upon a time, transportation costs made it too expensive for retailers to source from all over the world. Manufacturers that had a local presence could offer a cost advantage. Today, our global supply chains work efficiently to provide us the goods we want even if they are coming from halfway across the world.

 

Americans spent $12.7 billion on Father’s Day gifts last year, according to the National Retail Federation. Many of these gifts are imported from other countries. China, especially, is the patron goddess of Father’s Day gifts as it is the patron goddess of most American consumerism. (If you don’t believe me, read the book A Year Without Made in China. Even the flags we wave for the 4th of July are made in China.) For four major types of gifts that we give dad --- apparel, greeting cards, gadgets, and household appliances --- China is #1 country we import from. See more of where we source our goods for Father’s Day gift giving in this infographic, Global Trade Presents Father’s Day.

 

fatherss01a

*Mobile phones are used as a proxy for gadgets

 

Here are some other fun facts we learned about Father’s Day imports:

 

  • The U.S. is the largest importer of apparel in the world.

  • China accounts for 37 cent of every dollar of imported textiles and apparel.

  • There is no import duty on mobile phones from America’s normal trade partners.

We hope you like the infographic and feel free to share!

 

 

 

 China Transport Infrastructure 2

The Chinese government has announced that it will pour $4.7 trillion yuan (US$723 billion) into transportation infrastructure projects over the next three years. The Ministry of Transportation and National Reform and Development Commission, which released the joint statement, said that China’s transportation infrastructure has not kept pace with the rapid economic development the country has experienced.

 

We think so too. In 2013, for example, China was home to only 5.6% of the world’s roads despite having 20% of the world’s population. Enormous infrastructure investment in recent years have been an effort to catch up with growth.

 

That’s one of the reasons China is investing 6.9% of its 2015 GDP into these new infrastructure plans, though critics say that the amount of additional debt China will likely take on to finance these initiatives could bring systemic risk to China’s economy.

 

The number sounds gigantic, but it’s spread over three years. Since the reform and opening in 1978, China has already been focused on aggressively expanding its transportation infrastructure. From 1978 to 2008, China increased more than five-fold the total mileage of transport routes (road, rail, waterways, civil aviation, pipeline) in the country. Given that China invested nearly $4 trillion yuan in similar transportation infrastructure projects in 2015, $4.7 trillion yuan over three years is actually a significant reduction.

 

Nevertheless, the $4.7 trillion yuan will go towards 303 projects involving rail, highways, waterways, airports, and urban rail.

 

Railways will be a key focus for this program, with $2 trillion yuan earmarked to build or rebuild over 20,000 km of railways.

 

China will also invest $580 billion yuan, $460 billion yuan and $60 billion yuan respectively to promote 54 highway, 50 airport and 10 waterway projects.

 

We’re excited about these developments, as it will eventually lower the cost and reduce the time needed to transport goods within China. It’s likely that many of the infrastructure projects will go towards developing inland provinces, which have seen unequal economic growth in China compared to coastal regions. As manufacturers move westward and inland because of rising wages on the coast, it’s important for China to develop the transportation linkages to support the manufacturing sector. Transportation costs are a de facto tariff on goods. We expect that these investments in China’s transportation infrastructure will help lower the barriers to trade.


Photo courtesy of jo.sau

 

 Container Ship

With continued confusion and unsettled concerns over SOLAS, the International Maritime Organization, on May 20, announced a 90 day grace period for shippers who must provide the Verified Gross Mass of containers and their contents starting July 1. The IMO stated they wish to provide “flexibility to all the stakeholders in containerized transport to refine, if necessary, procedures for documenting, communicating and sharing VGM information."

Some major U.S. East Coast ports have stepped forward to offer container weighing and certifying on their premises. Ports have always weighed containers to comply with OSHA regulations, and the statement of equivalency announced by the U.S. Coast Guard on April 28 creates the opportunity for ports and terminals to help shippers comply with SOLAS. The Port of Charleston set the precedent in the U.S. by offering container weighing services, and other container terminals such as the Port of Newark Container Terminal at the Port of New York and New Jersey have offered to weigh containers as well. Competition among ports may drive down prices, as the Port of Charleston scrapped their $25 fee after the Port of Savannah offered to weigh containers at no charge. West Coast ports appeared to have adopted a “wait and see” approach but recent indications show they may follow the East Coast lead.

Internationally, a handful of significant ports have opted to weigh and certify containers. Shenzhen’s Yantian International Container Terminal, the main gateway for China’s exports in the Pearl River Delta, will offer weighing services. Modern Terminals’ facilities in Hong Kong, Shenzhen, and Taicang near Shanghai will also follow suit. In the UK, the Port of Felixstowe, the country’s busiest port, will weigh containers and expects 70 percent of shippers to use their weighing services. Russia’s second largest container terminal and a major Singapore terminal operator will also start weighing containers for SOLAS.

We eagerly await other ports in the U.S. and worldwide to also offer on-terminal weigh options to comply with SOLAS. The Agricultural Transportation Coalition (AgTC) reports that some carriers are accepting container weights generated at terminals, while others are adjusting their systems to accept the cargo weight and then adding the container weight themselves and submitting the VGM to the terminal for the shipper, which is the “rational method” long advocated by AgTC. With recent developments in the U.S. and worldwide, we are hopeful SOLAS rule compliance will be implemented using the “rational method” and avoid disruptions to the supply chain.

Photo courtesy of Ingrid Taylar

 

TPP2

 

The Trans-Pacific Partnership (TPP) has been called one of the most “ambitious” free trade agreements in our time. It’s the largest, most diverse, and possibly most comprehensive regional trade agreement ever reached. Certainly, the TPP will affect a great number of people and businesses around the world. The 12 member nations that signed the agreement last October make up 40 percent of the world’s GDP and account for one-third of global trade.

 

President Obama is calling on Congress to ratify the agreement while supporters and detractors argue the merits of the trade deal. As proponents of free trade, we are cautiously optimistic about a trade agreement that will accelerate the free flow of goods and services across borders. The TPP reduces a sweeping number of tariffs and non-tariff barriers to trade, some of which are more significant than tariffs themselves. Restrictive non-tariff measures include import licensing requirements, rules for customs valuation, and discriminatory standards. Lifting them will account for 53 percent of the improvement in TPP member nation GDP.

 

Who stands to benefit?

 

This is a promising trade deal for U.S. exporters. It will eliminate 18,000 tariffs on U.S.-made goods in TPP markets, including all manufacturing tariffs. Although many tariffs are already low between the U.S. and TPP countries, there are notably high tariffs in a number of key areas that have been protected by trade policies. U.S. exports in agriculture and manufacturing will gain a stronger position in trade with TPP countries, which include a number of the fastest growing Asian markets. According to a recent Petersen Institute study, U.S. exports will increase by $357 billion or 9.1% by 2030 as a result of the TPP.

 

TPPgraph

 

However, the U.S. is the not the country that benefits most from the agreement. A 2016 World Bank study on the macroeconomic effects of the Trans-Pacific Partnership estimates that the U.S. will actually benefit the least in relative income out of all the TPP signatories. Participating countries on average will gain 1.1% GDP by the year 2030 from the agreement, though the small open economies of Vietnam and Malaysia will experience the most dramatic relative gains, 10% and 8% of GDP respectively, by 2030, as they gain favored status in large export markets such as the U.S. The United States, which relies less on trade as a whole, will gain only 0.4% GDP by 2030 from participating in the TPP.

 

What about China?


The Trans-Pacific Partnership is an important component to the Obama Administration’s “Pivot to Asia.” U.S. allies in Asia see the TPP as a balance against China’s rising economic and military influence in the region and a way to depend less on China’s economy, which has been deepening economic ties with most countries in Asia. The TPP’s open architecture allows countries like China to join later. At the moment, China is taking a neutral stance, waiting to see how the trade deal plays out. With the signing of the TPP, the U.S. has taken a leadership role in writing the rules of global trade. If China wants to join, it will have to agree to the labor, environmental, and intellectual property standards set forth by the agreement.

 

Photo: Courtesy of NFarmer

Graphs: World Bank study

 

 

 

 



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