Sixty percent of senior executives see the global economy improving

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2 Sixty percent of senior executives see the global economy improving and 65 percent of them have confidence in the outlook for corporate earnings. These are the key findings from the March 2014 Capital Confidence Barometer survey conducted by the Economist Intelligence Unit that polls more than 1,600 executives from large companies in order to gauge corporate confidence in the economic outlook. Whilst cost reduction remains a primary focus, North America is well on the road to recovery, albeit a long and arduous journey, with low-growth being the new-normal of economic outlook for the developed economies in the western world, whilst Trade Facilitation continues to increase in priority on the strategic agenda.

3 America Gradually Recovering JUNE 2014 Trade Facilitation Developments In February this year the US president issued an Executive Order entitled Streamlining the Export Import Processes for America s Businesses focussed on reducing supply chain barriers to commerce. As the world s largest trading nation and largest economy, trade is critical to the USA s prosperity - fueling economic growth, supporting jobs, raising living standards, and providing citizens with access to affordable goods and services. The policy outlines the need to promote commerce through the effective implementation of an ambitious 21st century trade agenda to ensure that the USA is well-positioned to compete in an open, fair, and growing world economy The executive order calls for increased efforts to improve the technologies, policies, and other controls governing the movement of goods across US national borders, including: The development of efficient and cost-effective trade processing infrastructure, such as the International Trade Data System (ITDS), to modernise and simplify the way that executive departments and agencies interact with traders. Improving the broader trade environment through the development of innovative policies and operational processes that promote effective application of regulatory controls, collaborative arrangements with stakeholders, and a reduction of unnecessary procedural requirements that add costs to both agencies and industry and undermine economic competitiveness. MARK MILLAR CLN EXCLUSIVE WHITEPAPER 3

4 JUNE 2014 America Gradually Recovering TWENTY YEARS OF NAFTA January 2014 was the twentieth anniversary of the North American Free Trade Agreement (NAFTA) between USA, Canada and Mexico, with a new monthly record of USD 100 billion of US trade with Canada and Mexico being reached in October More than half the value of the US trade with both Canada and Mexico is transported by road, leading to traffic congestion in some key areas, whilst cross-border trucking is rigorously controlled. All three countries are a top ten trading partner with each other, fuelling opinions that a unified North America trading block will help balance the inexorable economic rise of China. TRANSPACIFIC OF PARTNERSHIP PENDING International trade empowers and enables economic growth, but requires facilitation, transparency and minimal red tape for the benefits from trade to be realised. The pending Trans-Pacific Partnership (TPP) will stimulate expansion of North American trade with Asia trading partners. The partnership currently comprises 12 parties, five of which are in the Americas (USA, Canada and Mexico being joined by Chile and Peru) with the balance in Asia comprising Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam. These twelve economies already share 20 separate Preferential Trade Agreements (PTA s). Due for completion during 2014, the TPP is being billed as a gold-standard model for the 21st century, with its high level of ambition in opening markets and deepening co-operation across an impressive range of regulatory issues. 4 CLN EXCLUSIVE WHITEPAPER MARK MILLAR

5 America Gradually Recovering JUNE 2014 MANUFACTURING SHIFTS Also stimulating the economy is the return of some manufacturing as North America becomes more competitive with China. Asia s labour challenges and rising supply chain costs from transportation, materials and wages, is seeing some US companies retuning to home soil, driving job creation and economic prosperity. In the latest study of manufacturing cost competitiveness from Boston Consulting Group (BCG), traditional low cost sourcing locations are losing their cost advantages due to wage increases, lagging productivity growth, unfavourable currency changes and increases in energy prices. In fact, Mexico and the US are described as rising stars, with Mexico s average manufacturing cost now being cheaper than China s. As an example of on-shoring, Hon Hai Precision - the world s largest contract electronics manufacturer - is expanding its USA manufacturing. In Pennsylvania, Hon Hai will spend USD 30 million to expand an existing panel-making plant from 30 to 500 employees over two years, and is also exploring additional sites in Arizona, New Jersey and Texas for other plants. A home grown example is retail giant Wal-Mart who have committed to buying an additional USD 50 billion of US-made goods over the next 10 years. Although that amount is a small proportion of the company s global sales of USD billion, the USA local sourcing initiative is expected to gather steam over time. MARK MILLAR CLN EXCLUSIVE WHITEPAPER 5

6 JUNE 2014 America Gradually Recovering US INTERNATIONAL TRADE GRADUALLY INCREASING According to the Journal of Commerce, US foreign trade with global regions in goods, via all modes of transportation to and from the United States, increased overall by 2.1 percent in the first three months of In the month of March 2014, overall US international trade grew by 5.1percent - trade with Europe increased 8.6 percent year-overyear, the Pacific Rim gained 7.9 percent and NAFTA was up 6.2 percent. In contrast, South/Central America slipped 0.3 percent and Africa plummeted 26.3 percent below March For the whole first quarter, US trade with Africa plunged 23.2 percent year-over- year and South/Central America dropped 2.9 percent. In contrast, the overall US goods trade increased 2.1 percent, with NAFTA rising 2.4 percent, the Pacific Rim advancing 3.5 percent, and Europe leading with a 5.8 percent gain year-over-year. 6 CLN EXCLUSIVE WHITEPAPER MARK MILLAR

7 America Gradually Recovering US Foreign Trade in Goods with Global Regions JUNE 2014 *Not seasonally adjusted. Source: U.S. Census Bureau, Division of Foreign Trade, U.S. Department of Commerce, Journal of Commerce (JOC) May 2014 MARK MILLAR CLN EXCLUSIVE WHITEPAPER 7

8 JUNE 2014 America Gradually Recovering IMPORTS AND EXPORTS Combined North American exports - as reported by Transport Intelligence in their July 2013 publication - increased by 4percent to USD 2.37 trillion - representing 13percent of global exports, whilst imports into North America increased 3percent to USD 3.19 trillion, representing some 18percent of global import volumes. For the USA alone, the total volume of imports averages around USD 230 billion of cargo per month, whilst total exports are slightly lower at average USD 190 billion per month, with modest year on year growth rates of between one and two percent. For Manufactured Goods the Journal of commerce reported that for March 2014, the US manufactured goods international trade increased 4.2 percent over February to USD 260 billion, led by a 15.9 percent increase in exports, whilst increasing 4.2 percent year-over-year, led by a 6.8 percent gain in imports. The January to March USD billion of manufactured goods trade inched ahead 1.3 percent year-over-year, softened by flat exports. *Via all modes of transport Census made 2012 data revisions in June In Manufacturing, certain classifications are subject to Census suppression due to non-disclosure requirements, including aircraft. Source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division Journal of Commerce (JOC) May CLN EXCLUSIVE WHITEPAPER MARK MILLAR

9 America Gradually Recovering JUNE 2014 North America Freight Forwarding Market According to the latest data from Transport Intelligence, the North America Freight Forwarding Market was valued at USD 43 billion in 2012, with projected growth of 5.7percent CAGR through to year 2016, resulting in market value of over USD 54 billion. The freight forwarding market value is reasonably balanced between air freight and sea freight, reaching almost 50:50 in year 2016, with projected value growth being greatest in Mexico at 7.9percent for sea freight and 5.4percent for air freight. Air Freight experiencing Low to No Growth Whilst American Airlines optimistically forecast their 2014 cargo revenues to increase by 3.6 percent to over $860 million, the overall air freight market is in low-to-no growth mode, with the American market experiencing many of the same challenges faced by the global air cargo sector. For the North America air freight sector, the Asia trade remains substantial. As reported at the Executive Summit of The International Air Cargo Association (Tiaca) in Istanbul, it is the import-pull, not the export-push, which drives airfreight flows. For the year 2013, the Asia to North America route still dominated air cargo trade flows, accounting for 16percent of the intercontinental market measured by FTKs and 28percent by revenue - the respective figures for Asia-Europe are 14percent and 26percent. Under relentless pressure to reduce costs, customers continue to trade down in their choice of transportation options, forced to compromise on speed in order to save cost. Consequently, cargo owners are moving some freight from premium express service to lower cost deferred services. As some companies re-design their supply chains with new inventory models that accommodate slower movement of goods thereby reducing transportation costs, some domestic air freight is moving to road or rail alternatives, whilst for international trade some air cargo shipments are shifting to ocean freight. Industry trends also include gradual movement towards more regional supply chain ecosystems rather than global with near-sourcing and on-shoring being popular strategies that create local employment opportunities. Regional supply chains reduce overall transportation distances - increasing speed whilst reducing fuel consumption, thereby saving money and reducing emissions. MARK MILLAR CLN EXCLUSIVE WHITEPAPER 9

10 JUNE 2014 America Gradually Recovering OCEAN FREIGHT DOMINATES Journal of Commerce figures for full year 2013 report overall North American containerised trade of 39 million laden 20-foot- equivalent units (TEU), led by the US ports with 30.8 million TEUs or 70 percent of the total trade. Canadian ports handled 4.6 million TEUs, representing 11.8 percent of the market, and Mexican ports, with 3.6 million TEUs, accounted for 9.2 percent. Los Angeles-Long Beach is by far the continent s largest port complex accounting for 32.8 percent of North American imports, 19.7 percent of exports and 27.3 percent of total trade North American exports totalled 16.5 million TEUs, of which US ports handled 12.8 million, or 77.4 percent. Exports through Canadian ports totalled 2.1 million TEUs, for a 12.9 percent share, and Mexican ports moved 1.6 million TEUs in exports, for a 9.7 percent share. Overall North American 2013 imports totalled 22.5 million laden TEUs, led by US ports at 18.1 million TEUs, an 80.2 percent share. Canadian ports handled 2.5 million TEUs of North American imports (11.1 percent), while Mexican ports processed nearly 2 million TEUs (8.7 percent). -see appendices for North America s Top 25 Ports in 2013 Year 2014 started with January US ocean freight imports increasing 5.7percent year on year to almost 1.6 million TEU s, whilst the number of shipments increased 6.9 percent to over 800,000 units. For the full year 2014, total US containerised imports are expected to increase by just over four percent. Opportunities and Challenges for Freight Forwarders Freight forwarders of course have the flexibility to provide modal substitution solutions for their customers and can readily manage the transition of traditional airfreight shipments, by diverting pallet-sized shipments to LCL sea freight or to consolidated FCL shipments. However, with slower modes come lower revenues. As per-kilo revenues are potentially halved as a consequence of modal shift, the sector will become even more fiercely competitive as forwarders seek to increase overall cargo volumes, whilst being pressured to reduce unit costs and overheads. Over capacity in the air and ocean freight markets has pushed down rates, which - all else being equal - is a negative for forwarders, as it s harder for them to get a higher gross profit per TEU on a low-cost container move than on a high-cost container move. In particular, the large global forwarders - burdened with overhead and infrastructure - are seeing slower volume growth, and whilst freight rates remain weak due to over capacity in both ocean and air sectors, competitors are reducing rates to gain volumes - putting severe pressure on margins As reported in the April 2014 Stifel Nicolaus research paper after the globalization of supply chains and elongation of end-to-end movements likely peaked several years ago, the law of big numbers is making it more difficult for large global forwarders to grow at double-digit rates through any part of the economic cycle. Forwarders may have to wait until supply/demand tightens again to see significant increased profits. 10 CLN EXCLUSIVE WHITEPAPER MARK MILLAR

11 America Gradually Recovering JUNE 2014 Conclusion As the American economies continue their gradual recovery, there will be both challenges and opportunities ahead for freight forwarders and logistics service providers. Agility and flexibility are essential in order to survive and thrive. However, the most critical success factor will be to focus on the customer and concentrate on serving their needs by providing efficient and effective supply chain ecosystems, whilst also helping them address and overcome their greatest challenges, reported by Inbound Logistics to be as follows: What do Shippers report as their Greatest Challenges? Source: Inbound Logistics, USA MARK MILLAR CLN EXCLUSIVE WHITEPAPER 11

12 JUNE 2014 America Gradually Recovering Mark Millar 马克 MBA, FCILT, FCIM, GAICD Mark Millar leverages 25 years global business experience to provide value for clients with informed and independent perspectives on their supply chain strategies in Asia. His Asia Supply Chain Insights series of presentations, consultations, whitepapers, corporate briefings and seminars help companies navigate the complex landscapes in China and ASEAN, make better informed business decisions and improve the efficiency of their supply chain ecosystems. Acknowledged as an engaging and energetic presenter, clients have engaged Mark as Speaker, Moderator, MC or Conference Chairman at over 300 events in more than 20 countries. Mark is a Visiting Lecturer at Hong Kong Polytechnic University and has delivered Guest Lectures at Georgia Tech (Atlanta and Hong Kong), RMIT (Ho Chi Minh City) and SP Jain (Singapore & Dubai). His industry contributions have been recognised with a number of accolades, including being named in the Who s Who of Power Players in Supply Chain Management in China, the Pro s-to-know Thought Leaders in Supply Chain and as One of the most Progressive People in World Logistics. London based business publisher Kogan Page have recently commissioned Mark to write the book entitled Global Supply Chain Ecosystems, due for publication in mark@markmillar.com 12 CLN EXCLUSIVE WHITEPAPER MARK MILLAR

13 America Gradually Recovering Appendices: JUNE 2014 Source: Journal of Commerce, May 2014 MARK MILLAR CLN EXCLUSIVE WHITEPAPER 13

14 JUNE 2014 America Gradually Recovering Source: Journal of Commerce, May CLN EXCLUSIVE WHITEPAPER MARK MILLAR

15 We are proud to announce that we have signed a memorandum of understanding with industry thought leader Mark Millar. The purpose of whitepapers is to provide CLN Members insights for innovative business development. Industry thought leader Mark Millar has been engaged by clients as Speaker, MC, Moderator or Conference Chairman at more than 250 events in 20 countries and is recognized by the Global Institute of Logistics as One of the most Progressive People in World Logistics