Archive for Global Trade

Last week negotiators from the P5+1 (or EU+3) and Iran developed a preliminary agreement on Iran’s nuclear program. This opened the door for Iranian sanction relief and presents the question, “How will Iran’s international trade change, and what partners will benefit?”

The World Bank lists Iran’s 2013 GDP at $369 billion, making it the third largest economy in the region, behind Saudi Arabia and Turkey. Iran’s largest export is petroleum, representing about 80 percent of product exports, and China, India, and Turkey are the largest purchasers of Iran’s goods. (As a note, the US Census shows that the US exported $182 of goods in 2014, and imported $0). Expanding Iran’s options to sell its petroleum internationally could have dramatic effects on the global oil market and substantial effects on that for natural gas as well.

Oil Transportation
Market participants expect a lag time between the sanction lift and oil market effects. In fact, a 5 percent increase in the price of oil just two days ago (April 6) was partially attributed to the expectation of longer than expected time-to-market for Iran’s oil. However, there appears to be plenty of Iranian oil just waiting to be shipped. Estimates range from 7 to 35 million barrels of Iranian oil that is currently sitting either onshore or in supertankers waiting to be shipped. At the same time, Iran appears intent on opening up its ports to international shipping firms. The head of Iran’s Ports and Maritime Organization stated, “Serious talks are underway with shipping companies from across the world, including Europe, on a weekly basis.” In addition, Shipping Company of India is revisiting its recently dissolved joint venture with Islamic Republic of Iran Shipping Lines. The reestablishment of this joint venture is especially substantive due to India’s status as the second largest importer of Iranian oil, after China.

TAP TANAP SCP Schah Denis from Wikimedia

TAP TANAP SCP Schah Denis from Wikimedia

Gas Transportation
In 2008, after a brief disruption of Russian natural gas supplied through Ukraine, the European Commission (EC) launched a strategy to increase the diversity of its natural gas supply sources.  As part of this strategy, the EC proposed the Southern Gas Corridor. This proposal was subsequently envisoned as a pipeline from Azerbaijan through Turkey, named the Trans Anatolian Natural Gas Pipeline (TANAP). Iranian gas supplies were considered a potential extension to the project.

This past September, Reuters quoted A European Commission source that stated, “Iran is far towards the top of our priorities for mid-term measures that will help reduce our reliance on Russian gas supplies.” The article further stated that impediments included the sanctions and a lack of infrastructure. Investors consider a pipeline through Turkey to be a practical option. Turkey views itself as a potential “energy hub of the region” connecting the energy supplies to its east with the demand to its west. The Turkish President is scheduled to make a visit to Tehran next week where he is reportedly expected to express interest in an expansion of Iran-Turkey trade from the current $14 billion.

The potential removal of international sanctions on Iran offers much in the way of opportunities for trade partners, especially India, Turkey, and China, as well as fuel sources for Europe. It also offers promise for international ocean carriers and gas pipeline infrastructure design and construction firms. The time horizon for these opportunities ranges from near-term for the effect on global oil prices, to mid/long-term for gas pipeline infrastructure completion.

ARC Advisory Group ( periodically publishes a study on the global trade management (GTM) systems market. Trade compliance, international transportation execution, and trade visibility represent the core functionality offered by these software solutions. The trade compliance functionality often includes up-to-date trade content that assures users comply with the constantly evolving international trade regulatory environment. ARC is currently developing this study. Please don’t hesitate to contact us for additional information.

Categories : EU, Global Trade, Petroleum Industry
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ecommerceDuring the second half of 2014, Clint Reiser and I worked on an extensive survey examining the omni-channel commerce landscape. One of the key findings from that research was on the growth of e-commerce. According to our research, the lion’s share of revenue is still driven by the store. Brick and mortar locations accounted for approximately 67% of all revenue for our survey respondents. However, when looking at revenue growth, our research tells us a different story. Over the last five years, survey respondents indicated revenue growth of 6% from the brick and mortar channel compared to 47% for e-commerce. Looking ahead, respondents forecasted flat growth for their brick and mortar channel compared to 40% growth for e-commerce. This is a pretty dramatic shift in the retail landscape. It shows that the convergence of channels will be more important as omni-channel operations continue to evolve. It also poses a significant problem for retailers: how to deal with the last mile.

Fedex_ups_uspsLast mile delivery is the final leg of the supply chain. It is the moment the customer finally receives their order. And it is generally the most expensive, least efficient, and most problematic part of the overall delivery process. In the US, last mile deliveries have their own unique set of challenges. Mostly they come down to cost issues, and a retailer’s desire to control the final moment of the brand interaction. There are a few main categories for last mile deliveries. First, is parcel delivery. UPS, FedEx, and the Postal Service are the three main players in this area. These companies are delivering thousands and thousands of packages daily from retailers around the globe to customers front doors and offices. The shipping rates have gone up recently, and these companies provide very little control over the last mile for retailers.

Amazon FreshAn alternative to typical parcel deliveries is in use by Amazon. To control the last mile, and to utilize its massive distribution centers, Amazon has rolled out its own private fleet of trucks to make deliveries. For Amazon, it creates more flexibility in delivery timeframes and reduces overall shipping costs (as Amazon is no longer paying UPS, FedEx, or the Postal Service for deliveries). This is not the first time Amazon has looked for creative ways to complete deliveries. As recently noted in Logistics Viewpoints, Amazon is one of a few companies testing drones for deliveries. The company has also experimented with bike messengers in New York City for small deliveries as well as delivery lockers for customers to pick up items at their convenience.

Another alternative to using the big parcel companies that has taken off is the use of crowdsourced delivery services. Deliv, for example, is a crowd sourced delivery option that stretches across multiple retail segments. This company uses a smartphone app to alert pre-qualified drivers of a pending delivery. The driver picks up the merchandise from the retailer and delivers it to the customer. Instacart is another example of crowdsourced delivery. Based in San Francisco, this company connects personal shoppers with customers to deliver local groceries. Both of these companies are proving that the crowdsourced model is growing. And all of these models show that while they may be expensive, they are doing a good job of satisfying the customer during the last mile.

last mile indiaBut outside of the US, it is another story. The growth of the e-commerce economy is great for retailers, and allows more people to shop for the goods they want, but it poses significant challenges to the last mile. The world’s two most populated countries, which bring an awful lot of buying power, face significant challenges. In India, for example, Morgan Stanley estimates that Indian online sales will hit $100 billion a year by 2020, up from $3 billion in 2013. The difficult part is figuring out the infrastructure to make home deliveries viable. Trucks have a difficult time navigating the crowded streets and the postal service is notoriously slow. One new option in India is the use of couriers to deliver goods purchased from Flipkart, Snapdeal, and Amazon India. But, in order to actually deliver these products, couriers are turning to smaller modes of transportation. In many places, delivery trucks are simply too big to navigate. Instead, couriers are using motorcycles and scooters to carry giant backpacks filled with 100 pounds+ of merchandise. These drivers navigate narrow streets, potholes, and erratic drivers to deliver everything from soda to laser printers. Most people agree that without the use of couriers to deliver these goods, the e-commerce market as a whole would grind to a halt in India.

china last mileChina faces its own set of challenges. The e-commerce market is growing exponentially in China and vast improvements have been made to establish more operations centers across the country. These improvements have made it possible for residents in rural China to shop online and receive orders in a timely fashion. But the last mile still remains an issue. One of the biggest roadblocks for Chinese retailers is the government policy banning freight vehicles and gas-fueled and electric tricycles in downtown areas. This poses a number of problems. First, delivery people can be detained, have their vehicles seized, and receive fines for violating regulations due to the pressure of making a delivery timeframe. Secondly, to combat the costs of tickets and seized vehicles, many companies are simply driving up their delivery costs. These costs can certainly be burdensome to the customer, but at the same time, they are necessary if they wish to receive their package. And third, if the last mile problem is not solved, and vehicles are seized or delivery personnel are detained, the packages may never be delivered. According to the operator of one such delivery service, “if the last mile problem is not solved, up to 1 million packages awaiting delivery could be stockpiled in cities around the country.” This shows just how serious the last mile problem, and the associated challenges are in China.

In conclusion, the global e-commerce market is growing. In fact, according to eMarketer, global B2C e-commerce will reach $2.3 trillion by 2017. This explosive growth brings about new opportunities, new customers, and new challenges. One of the biggest challenges will be controlling the last mile. Logistics infrastructure, economic and political regulations, and competition have proven to be roadblocks for many companies. But as the market grows, the solutions will too.

The unemployment rate edged down slightly in February 2015, to 5.5%. While the unemployment rate for teenagers decreased 1.7% to 17.1%, the rate for adult men (5.2%) and women (4.9%) remained relatively unchanged. This is a good sign for the US economy, as jobs continue to grow. There is one area, in particular, that has a very promising forecast: supply chain leaders. The US Bureau of Labor Statistics estimates that jobs in logistics will increase 26% between 2010 and 2020. The problem? Today’s leaders are nearing retirement age and there is a shortage of available talent to fill these positions. While there are many great college programs out there to help guide the next generation of supply chain leaders, there is not enough interest to fill the demand. This could have disastrous effects on the overall state of logistics in the future. Without enough qualified leaders, will the logistical processes we take for granted today (same or next day shipping, worldwide availability of produce during all seasons, etc.) become a thing of the past? Probably not. But without the right people in place, the processes can only hold up for so long. And when the processes begin to break down, logistics costs will rise. And that is when things will get interesting. So for any readers out there in college, or with kids in or nearing college, a helpful “push” towards a career in supply chain might not be a bad idea. In fact, it just might be a very lucrative one.

And now, on to the news.

ports 2Now that the contract talks are over, operations can resume at West Coast ports to work through the backlog. As a result, import cargo volume at the nation’s major retail container ports is expected to rise an unusually high 16.9% this month over the same time last year. The March number is high both because of the backlog of ships at anchor waiting to be unloaded and because the annual Lunar New Year shutdown of Chinese factories was later this year, delaying some February cargo into March. Imports are expected to remain up year-over-year for each of the next 4 months. This is good news for retailers, as they rush to ensure spring merchandise is on the shelves and ready to be sold.

cargo theft graphThe 2014 cargo theft report points to an elevated threat and more sophisticated thieves. For the second straight year, the number of thefts reported has dropped, but the average value of the theft has risen. The number of thefts dropped 12% from 2013, while the average value of each theft rose 36% to $232,924. This indicates that thieves are more aware of what is on trucks are specifically targeting high value merchandise. Food and beverages were the most stolen items at 19% of all thefts, followed by electronics at 16%. The number of electronics thefts valued over $1 million tripled from 2013. The report indicates that lack of secured parking accounted for 87% of thefts, and nearly all of the cargo thefts in 2014 occurred in just five states: Florida, California, Texas, Georgia and New Jersey.

mexico borderThe Teamsters Union announced this week it has filed a lawsuit against the Federal Motor Carrier Safety Administration’s (FMCSA) recent move to expand its cross-border trucking program with Mexico. The FMSCA announced it was opening the U.S. operating authority application process to all Mexican carriers as part of compliance provisions in the North American Free Trade Agreement (NAFTA). The Teamsters lawsuit alleges the decision “is arbitrary and capricious in light of the admitted lack of significant data” gleaned during the agency’s three-year cross-border pilot program.” The Teamster’s big issue with the announcement is over the validity of data from a pilot program that deems Mexican carriers just as safe as US carriers. The Teamsters have vowed to continue to fight this ruling to ensure the safety of US roads.

amtrakSpeaking of court cases, the US Supreme Court has temporarily revived a federal law credited with improving Amtrak’s on-time performance. The 2008 law stipulates that Amtrak trains have the right of way over freight trains on shared tracks. The freight railroad industry fought the law and argued that Amtrak is a private organization that could not regulate competitor’s actions. Initially, an appeals court sided with the freight railroad industry, ruling that Congress unconstitutionally gave regulatory power to a private company. The Supreme Court disagreed, citing the fact that Congress created Amtrak in 1970 as a for-profit company, meaning that even though Amtrak is subject to government oversight, it is like a government entity. The case will be decided by the appeals court after a full review.

Amazon 3D PrintingAmazon has recently filed a patent application which indicates that 3D printing may be a way to reduce inventory by replacing the traditional warehouse model. The patent suggests that once a consumer orders the item, printing instructions are sent to the closest available 3D-printing truck and device combination, before delivering the freshly made device when it’s finished. The main driver here would be to reduce inventory carrying costs. This is obviously not a guarantee that Amazon will move forward with the mobile 3D print shop, but it is an interesting idea. While it is not immediately practical for most goods, it could be applicable to Amazon’s 3D print shop, which currently sells with jewelry, home décor, tech accessories, among others things. Although the print time is just too long for this to happen today. Either way, it’s always fun to see what ideas Jeff Bezos has floating through his head.

Spot Market RateAnd finally, rates on the spot freight market generally turned higher over the past week as freight availability continued it seasonal rebound. The largest increase was in the van segment, which increased 3.2%, up to an average of $1.94 per mile. The reefer rate was up to $2.16 per mile, which is an increase of 2.4%. The flatbed rate fell to $2.12 per mile, or 0.5%. Load-to-truck ratios improved in all three segments as well, with vans up 16%, reefer ratio up 15%, and flatbed ratio up 12%.

That’s all for this week. Enjoy the weekend and the song of the week, The Clash’s I Fought the Law.

Bob_Dylan_-_The_Times_They_Are_a-Changin'The times they are a-changing. This week’s news reflects some major changes, especially in the retail world. The West Coast port work stoppage has come to an end with a formal agreement in place after 9+ months of discussions. Major retailers are branching into new, and often unlikely spaces, as the global e-commerce market soars. The commercial drone industry finally has an initial set of regulations in place, which now opens a 60 day comment period. Amazon, for one, is none too happy with the proposal. And finally, this weekend marks the end of February. For those of us in the frozen landscape of New England, it means that the end is in sight. Spring will be here soon, and we can finally move on from a record-setting winter. Yes, the times they are a-changing.

And now, on to the news.

wcpAt least for now, the West Coast port labor fight has come to end. The owners of the 29 West Coast ports and the dockworkers union have reached a tentative deal for a new contract. As a result, the port can begin to work through the backlog of stalled goods waiting on the docks and out at sea to get operations back to normal. While this is good news for retailers, manufacturers, and agricultural exporters, the road to recovery will not be quick. Analysts predict it will take months for operations to normalize, and the flow of goods through the ports will be slow going for the foreseeable future. All parties involved in the deal know that this is certainly not the end of worry over future confrontations.

remote droneThe FAA revealed a proposal over the regulation of commercial drones in the US. The proposal would allow commercial drones up to 55 pounds to fly within sight of their pilots up to 500 feet high at speeds as fast as 100 mph. The remote pilots must be at least 17 years old and would have to get certificates by passing a test of aeronautic knowledge and a vetting by the Transportation Security Administration. Many people are happy with the proposal. Brian Wynne, CEO of the trade group Association for Unmanned Vehicle Systems International, called the proposal a milestone toward remote-controlled aircraft sharing the skies with passenger planes. Amazon and Google however, are not so happy.

“That means we really are not talking about unmanned aerial vehicles. We are talking about something that has to have a person. It defeats the whole purpose,” said Michael E. Drobac, executive director of the Small Unmanned Aerial Vehicle Coalition, of which Amazon, Google and GoPro are members.

In Hyderabad, India, the logistics side of e-commerce has been a challenge. Local convenience stores and gas stations are stepping in to try to save the day. Third party logistics providers are working with local shops to establish e-commerce hubs in neighborhoods in smaller cities. Rather than developing complicated supply chains to ensure home delivery across the region, retailers can now deliver goods to small local stores for convenient pick-up by the customer. This plan allows the local business to serve a major role in the last mile of delivery while enabling retailers and logistics players to save money on their supply chain operations.

FarmersMarketOnline food shopping has been growing at a rapid pace in the last few years. And now, an unlikely retailer is entering the space: Overstock. Known for selling surplus and returned items through its e-commerce site, is now a player in the online grocery space. But instead of working with traditional supermarkets like other retailers, Overstock is taking a different approach. Overstock is working directly with farmer’s markets to deliver “locally grown, farm fresh food.” The program works with local farmers to deliver food directly to customers. Overstock handles the delivery of the order to customers and uses a profit-sharing program to compensate farmers. With an increasing focus on local and sustainable food sources, Overstock has put itself in a great place for growth in the grocery space.

waffleTwo more retailers are entering new business ventures as well: Waffle House and Woolworths. Waffle House, a breakfast restaurant based in the US, is entering a new business – delivering mail. The restaurant chain is attempting to compete with the USPS, FedEx, and UPS. The plan is take a page from Uber’s playbook and use its restaurants as drop-off locations. Using an app developed by Roadie Inc., customers can find drivers already heading towards their package’s destination. The drivers will then deliver the package to Waffle House locations, where customers will retrieve it. Rather than getting paid, drivers receive a free waffle when they download the app and free drink when they make a delivery.

At the same time, Australia based retailer Woolworth’s has inked a deal with eBay to serve as pick-up locations for orders. The service will initially be available to eBay buyers living in Sydney and Tasmania. They will have the choice to collect their orders from more than 90 Woolworths and Big W stores located across both cities. eBay and Woolworths predict that up to 12,000 sellers will be involved in the new click-and-collect service, based on Woolworths’ claim that 91 percent of Australians currently live within 10 kilometers of one of its stores. These two agreements show the changing nature of supply chain logistics. Click-and-collect is becoming a larger portion of businesses for retailers, and will only continue to grow as the global e-commerce market does as well.

That’s all for this week. Enjoy the weekend and the song of the, The Times They Are A-Changing by Bob Dylan.

On Friday, the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) announced a tentative agreement on a new five-year contract covering workers at all 29 West Coast ports. This announcement comes after months of labor negotiations and West Coast port congestion that has caused widespread shipment delays felt across the nation and across industries.

Courtesy of Michael Kelley

Courtesy of Michael Kelley

My colleague Chris and I have included ongoing updates on the gridlock in our Friday news posts. This past Friday I referenced a Gizmodo article that included some truly remarkable photos of the congestion at the Ports of LA and Long Beach. This got me thinking about the longer-term prospects for the stakeholders of the West Coast ports.  I have a personal interest in economics and business strategy; so I almost automatically look at the dynamics of these situations from the perspective of Porter’s Five Competitive Forces.

Michael Porter -  The Five Forces That Shape Industry Strategy

Michael Porter – The Five Forces That Shape Industry Strategy

Existing Competition Among Ports
I consider the West Coast ports to be one entity in this situation, since the ILWU is established along the entire coast. Therefore, other ports outside of ILWU territory can be considered alternatives, or “competitors.” I found it interesting that the ILWU chose to disaffiliate itself from the AFL-CIO (since the International Longshoremen’s Association is affiliated) back in 2013, as I always thought that “strength in numbers” was a key tenet to collective bargaining. Anyway, it is clear from the press and from statistics that a notable amount of shipments are being diverted away from the West Coast ports to more reliable alternatives such as Gulf and East Coast ports. (In fact, The Panama Canal has been another beneficiary of these ship diversions because the ships coming through have a greater number of loaded containers, generating greater fees for the canal operators.) There is evidence that discretionary West Coast cargo has been getting diverted for some time. A PMA annual report states that East Coast and Gulf ports have gained market share at the expense of the West Coast. And they point to reliability concerns after the 2002 coast-wide port shutdown as the likely cause. With the Panama Canal expansion, the Gulf and East Coast ports will become an increasingly viable alternative for the West Coast going forward.

The diversion of shipments to alternative ports is driven by the importers’ desire to receive the goods in a timely manner and on a reliable basis. Diversion causes an increase in shipping distance and cost. But at this time diversion is providing time and reliability advantages. Importers are likely to continue to shy away from the West Coast until they obtain sufficient confidence in the reliability of the ports.

Threat of Substitutes to Labor
Aside from the reduction in work caused by diverted shipments, the ports are becoming increasingly automated due to general modernization, capacity constraints, and the increased use of containers that lend themselves to standardized processes. In 2013, when the ILWU disassociated with the AFL-CIO, the Seattle Times referenced  a letter from the ILWU president stating that they faced the “challenge of the ports soon being run by robotics and computer-operated machinery over the next five to ten years.” This is likely to be true, as the ports need to stay competitive and increase throughput. But I also think that while some jobs will be replaced by automation, others will be created to support the new technology and processes in use.

Technology is currently being deployed across the West Coast ports. The recent TracPac container terminal at the Port of LA is the West Coast’s first to be completed terminal automation project, according to PMA. It is a $510 million upgrade that is composed of 10 projects and includes the construction of an automated intermodal container transfer facility and equips each terminal with on-dock rail. West Coast terminals are reportedly also considering the deployment of additional automation including automated guided vehicles and automated stacking cranes. An example of the use of AGVs in terminals is APM Terminals new facility in Rotterdam that will use battery-driven lift AGVs for container transport within the yard and eight STS cranes that will be controlled remotely.

So the shipping lines are being pressured by volumes and economies of scale; the West Coast port operators are being pressured by the alternatives being created by the Panama Canal and alternative ports; and the ILWU is being pressured by the port operators. It sounds to me like competitive forces are alive and well on the Pacific.