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

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."

Photo courtesy of Ingrid Taylar

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.

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

July 1st is the first day the Safety of Life at Sea’s (SOLAS) new amendment goes into effect. In less than 70 days, SOLAS will make shippers responsible for the weight of the container and its contents (Verified Gross Mass) before they can be loaded onto an ocean carrier. As of today, there’s still no consensus on how to carry out these rules though some carriers are starting to issue guidance.

SOLAS lays out two methods to obtain the Verified Gross Mass (VGM):
 

1. Weighing the packed container using calibrated and certified equipment; or
2. Weighing all packages and cargo items, including pallets, dunnage and other securing material to be packed in the container and adding the tare weight of the container to the sum of the single weights, using a certified method approved by the competent authority of the State in which packing of the container was completed. 

It’s important to note that Admiral Thomas of the United States Coast Guard recently reiterated that the Coast Guard will not be enforcing the regulation by penalizing shippers. Instead, the Coast Guard stated that they will continue to have jurisdiction over ocean carriers, and emphasized that shippers and carriers must agree upon business “best practices” to comply.

The “rational” approach advocated by the Agricultural Transportation Coalition (AgTC) is the current method and adheres to the SOLAS principles. Another method is to weigh the container at the ports, but most ports do not have a way to certify the weight. The Port of Los Angeles, Port of Long Beach, and Port of Oakland as well as a majority of ports have already declared that they are “incapable” of weighing and certifying containers to comply with SOLAS. Meanwhile, the Ocean Carrier Equipment Management Association (OCEMA) has released their own “best practices” to comply with SOLAS, which can be viewed here.

AGWorld is in favor of the “rational” approach supplied by AgTC as we make preparations to comply with SOLAS. We’ll keep you informed on new developments with SOLAS’ new rule and how it will ultimately be implemented here in the U.S. Please contact your AGWorld representative with any questions and concerns on SOLAS’ rule and how it may affect your shipments.

Photo courtesy of Ingrid Taylar

 It’s fair to say that West Coast ports are tentatively relieved with the amount of business they’ve seen this year so far, despite the economic slowdown in China. Rebounding from a disruptive labor dispute that slowed traffic in early 2015, the Port of Los Angeles and Port of Oakland are reporting strong gains year-over-year in container volume for the first quarter of 2016.

Less growth than it seems

Do West Coast ports have reason to be optimistic? Yes, but not without reservations. Both the Port of Los Angeles and Port of Oakland are recording notable year-over-year gains, yes, but the numbers indicate a bounce back from a lackluster early 2015. We’re not seeing as much growth when taking a longer view.

In the Port of Los Angeles’ 109 year history, the current quarter has set the record for the busiest quarter yet. From January to March, the port handled 2 million twenty foot containers (TEUs), up 11.3% from the same period last year. In 2014, the Port of Los Angeles handled 1.92 million TEUs. That means growth from first quarter 2014 to now has been at a much more modest 6%.

Further north, the Port of Oakland handled 18.9% more volume than the first quarter of 2015 due to the resolution of labor disputes. No comparison was made to the same period in 2014.

Rising imports, driven by consumer goods and pharmaceuticals, have contributed to the growth of container volumes. In the first two months of 2016, the Port of Los Angeles experienced 36% year-over-year growth of import volumes while the Port of Oakland saw 52% more imports pass through its terminals than the previous year.

A weaker dollar has improved the competitiveness of American exports, driving export container volumes up as well. But while export volume has recovered from 2015, they are still down compared to two years ago at the two ports. At the Port of Los Angeles, March export volumes are down 13% compared to the same month in 2014. The Port of Oakland also saw a decrease of 9.8% from 2014.

What about labor?

We can’t be sure West Coast ports have overcome the labor tensions of the previous year that caused multiple delays and sent business to East Coast and Gulf Coast ports. The International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) signed a 5-year-contract last March, but it hasn’t been without birth pains. The labor dispute at the Port of Oakland towards the end of last month reveals that serious tensions and miscommunications can still erupt and cause temporary shutdowns. The ILWU represents 42,000 dock workers in 60 local unions along the West Coast, making it a powerful group with formidable organizing and bargaining power.

That being said, if labor disputes do stand in the way of efficient port operations in the future, importers and exporters must be nimble and flexible, willing to divert shipments to alternative ports on the West Coast, depending on where a strike may happen. Another option would be to use air freight instead of ocean freight.There are plenty of options for shippers that are open to alternative routes and they don’t necessarily have to divert as far as the East Coast.

Photo courtesy of Pete (Creative Commons)

Sources: The Wall Street Journal, Datamyne, Census.gov, Los Angeles Business Journal

Qatar has grand ambitions for shipping.

By the end of 2016, Qatar will have completed the first major phase of the new Doha mega-port project. The price tag? $7.5 billion.

The 2020 completion date for the project will be just in time for the port to receive the raw materials needed for Qatar’s infrastructure projects for the 2022 World Cup. The Doha port will have the capacity to handle 6 million TEU annually, which will make it the second highest capacity port in the Middle East after the Jebel Ali port in Dubai.

Doha will give Dubai a run for its money. According to a new report by Worldfolio, a market intelligence agency, the new port at Doha will pose significant challenges to other ports in the Middle East. Its modern infrastructure and the capacity to support state-of-the-art warehousing and data services will prove to be competition for rival ports such as the ports in Dubai.

Qatar, however, ranks #68 for “ease of doing business” on the World Bank’s 2016 index, far behind the UAE at #31.

The Middle East is already a natural gateway for goods moving to and from Asia, Europe, and North America. In recent years, a number of Gulf Coast countries have invested significant funding into projects that promote free trade and the shipping industry. The region has emerged as a global hub for logistics due to government initiatives to establish new ports, special economic zones, free trade, and open skies policies.

Photo courtesy of Francisco Anzola. 

The International Maritime Organization (IMO) amended SOLAS (International Convention on the Safety of Life at Sea) regulations in 2014 to require shippers to measure and certify the weight of each freight container before it is loaded onto an ocean carrier.

July 1, 2016 marks the day these new international treaty guidelines will take effect. As of today, no consensus has been reached on how to implement the rules in the U.S. while a major exporting coalition is calling on Congress to revise or revoke the law.

Previously, shippers only needed to report the total weight of their cargo, not the weight of each container, which is owned by the ocean carrier. Seeking to address the safety of shipping crews and dock workers, the new SOLAS rules makes the shipper responsible for the Verified Gross Mass (VGM) of the container.

The new regulations are arousing debate in the U.S. Many freight forwarders and exporters are concerned that it will add unnecessary time and cost to the transportation of goods, contending that current regulations calling for the total weight of the cargo to be certified is enough.

The Agriculture Transportation Coalition (AgTC), an alliance of U.S. exporters, is asking Congress to change or revoke the law. Congress will hold a hearing next week on this controversial regulation.

In the past, especially outside of the U.S., a small minority of overweight shipping containers have caused instability while at sea and accidents on the dock. However, SOLAS did not provide evidence that the new requirements would improve safety for workers, AgTC said.

The AgTC also said the new regulations would put U.S. agricultural, forestry, and manufacturing exports at further disadvantage. Competing countries such as Brazil and Russia have not yet issued any guidance for SOLAS’ new regulations.

Although the regulations go into effect on July 1 of this year, the U.S. Coast Guard announced in January that it would not be penalizing shippers for not following these conventions. The U.S. Coast Guard’s understands the new rules as “business practices” between shippers and carriers.

“SOLAS places no legal obligation on the shipper. It places a legal obligation only on the vessel subject to SOLAS,” Admiral Zukunft of the U.S. Coast Guard told an audience at the Trans-Pacific Maritime Conference. “So if you need to meet that obligation by working on a better business practice with your partners, that’s where you need to focus.”

The IMO calls for international compliance but it is up to each individual nation to enforce the treaty laws. A lack of enforcement in the U.S., however, may set the tone for other countries.

Stakeholders, including freight forwarders and industry associations such as the World Shipping Organization and OCEMA, are currently deliberating over the most efficient way to comply with these international regulations. 

Photo courtesy of Steven Straiton 

On March 18, the 50-member team at AGWorld headquarters in South San Francisco gathered for a happy hour dedicated to raising money and awareness for the American Cancer Society. Over food and wine donated by team members at AGWorld, Victoria Sciacqua, administrative assistant, told the story of her father’s longtime battle with cancer, which ignited a personal passion for fundraising for cancer research. 

“I truly believe that the American Cancer Society helps take one of the loneliest moments in a person life – when they or their loved ones have been diagnosed with cancer - and makes them feel like they are a part of something much bigger, much greater,” Sciacqua said. “The American Cancer Society and all of its volunteers make cancer patients feel that they are not fighting this all on their own - because they’re not.”

The happy hour and continued fundraising over two weeks raised $3360 for the American Cancer Society. The donations will go towards cancer research, patient services, early detection, treatment, and education.