Freight market bottoms out

Here's a Comment by John Kemp:

LIKE life, commerce goes on, even in recession. People make things, move things, and sell things just in slightly smaller quantities.

Even during the 1929-1933 Great Contraction, the most traumatic downturn of modern times, when industrial output halved in the United States, that still left factories producing 50% of their previous output, shipping it and selling it.

In the current far milder downturn, output and trade are already starting to adjust to the harsher environment. The firming of freight rates last week suggests the continuing operation of the physical economy is starting to put a fundamental floor under some commodity markets.

Since Dec 5, freight rates have witnessed the most sustained bounce since August, led by strong increases for the largest capesize coal and ironore carriers on routes from Australia to China. Gains in the overall Baltic Dry Freight Index totalling 15% (101 points) have been barely perceptible blip after losses of 94% (11,108 points) in the previous six months.

But the lacklustre performance conceals sharp differences in the index components. While rates on the smallest and most flexible supramax vessels, and larger multi-purpose grainandore carrying panamaxes, have continued to soften, rates on the largest and most specialized capesize carriers used to transport coal and iron ore jumped 52% last week.

The usual caveats apply. The dry freight index and its components measure the price for spot charters accounting for only a tiny fraction of the market. They can be distorted by just a handful of distressed vessels searching for a charter, or charterers caught short and hunting for a ship.

Freight rates had sunk to uneconomically low levels that could not cover owners’ operating costs so some recovery was inevitable. Rates of just US$3.90 per tonne on the C5 iron ore route from Western Australia to China, or US$6.80 on the C3 route from Brazil, were never likely to be sustained for long.

But last week’s bounce was really the first, largest and certainly most sustained rise since the onset of the downturn in Aug-Sept. The market is being led higher by continued demand for Australian coal. The sudden strengthening of rates on the Australian routes has coincided with an upturn in port congestion at massive Newcastle loading terminal.

The number of vessels queued outside the port has almost doubled from 24 to 45 in the last six weeks, and the tonnage of coal loading or waiting to load is up from 2.26 million tonnes to 4.30 million tonnes. The average time vessels spend queued up waiting to enter the port is up from 7.8 days to 14.0. Both queues and waiting time are at the highest level for a year

Heavy storms have disrupted coal throughput down the Hunter Valley rail lines and onto vessels in the last month. But weather has not been especially bad for the time of year and the port operators cite the continued strength of demand rather than poor conditions for the worsening delays.

The queues at Newcastle have taken some of the surplus capacity out of the bulk shipping market, helping stabilise rates and begin moving them up as short charterers start to cover near-term shipping requirements. So far the impact has been confined to the specialist cape market and Australian routes. Brazilian routes and the wider market for mid-size and more fungible panamaxes look more oversupplied with tramp shipping capacity, and markets are struggling to bounce.

While China’s demand for coal remains voracious, and is providing some underlying support after recent falls, demand for iron ore has fallen more steeply, and China’s buyers are now exercising their newfound power to source coal and iron more cheaply from Australia rather than Brazil. As a result, rates have risen much faster on route C5 from Australia to China (up 40% in 10 days) than on the competing route C3 route from Brazil (where rates are up only 30%).

In fact, the ratio of C3 to C5 rates has halved from 3.20 to 1.60 in a couple of months, the lowest level for more than eight years.

The ratio is normally very stable around 2.002.50 (reflecting the longer voyaging times from Brazil).

In the short term, rates vary depending on shipping delays at Brazil’s main loading terminals of Tubarao and Ponta da Madeira, Australia’s massive Newcastle coal terminal, and the iron ore terminals at Port Hedland and Dampier in Western Australia. But the freight ratio is strongly mean-reverting: if rates move too far away from this level, capacity is switched from one route to the other until the market converges.

Strength on the Australian routes is already starting to spill across as vessels are reallocated. Rates on the Brazilian’s started to follow Australia’s upward towards the end of last week.

The shipping market has arguably been the fastest to adjust to the downturn. After selling off harder than any other, it may have been the first to find a floor based on underlying structural demand.

Source: Star Online

Government urged to liberalise port tariff

THE Government should liberalise port tariff to be more market driven and enhance the competitiveness of local ports.

“Local port operators seem ready, willing to stand on their own two feet to compete on a level playing field,” said Nazery Khalid, a senior fellow of the Maritime Institute of Malaysia who undertook the study entitled, To liberalise or not to liberalise? An assessment of port tariff in Malaysia.

Nazery said most senior officials of port- operating companies interviewed in the study agreed with the idea that tariff rates be determined by market forces.

“As it stands, some federal ports are already performing very well, the emergence of Port Klang among the world’s top 20 container ports is a reflection of that. I am confident that they can do a lot better if they can be more competitive tariff-wise,” he told StarBiz.

Nazery Khalid

While the idea to enhance ports’ competitiveness via tariff liberalisation is promising, certain quarters wondered whether a liberalised tariff milieu would merely be a “bottom line-oriented exercise” and lead port operators to charge higher tariff without a corresponding improvement in their services.

“Despite the pledge of port operators to improve their services with higher tariff, there is no telling if their interpretation of ‘better services’ would match the expectation of their users,” Nazery said.

“Some port users are anxious that a relaxed tariff environment would lead to port operators arbitrarily and unilaterally imposing higher charges and introducing new ones.”

He suggested that to protect port users, port operators could consider differentiating or itemising various chargeable services if they were allowed to fix their own tariff.

“As it stands, different port operators package their ‘service menu’ differently in order to create differentiation in their service offerings and in their marketing mix,” he said.

The use of port tariff as a potent tool for port operators to gain competitive edge was demonstrated to its full effect when Port of Tanjung Pelepas (PTP) managed to pry Maersk and Evergreen away from the Singapore Port when PTP began operating. This triggered a “pricing competition” between the two ports, which underscores the importance of tariff as a key “strategic weapon” in the armoury of port operators to attract port users.

Nazery also said that regional ports were expanding their capacity to offer quality services at competitive prices to attract main line operators (major shipping lines) and to enlarge their share of the lucrative intra-regional trade.

This has become a matter of priority as regional ports jostle for position to capitalise on the prospect of greater regional trade volume once the Asean Free Trade Area is fully implemented and trade in the Asean region is completely liberalised.

Nazery said most of the operators of privately-owned ports in Malaysia felt that their current tariff structures were at the right level, while operators at federal ports thought their charges were too low. “The reason for this is simple – private ports have the liberty of fixing their own tariff according to their capacity and clientele, while federal ports are bound by tariff structure fixed by the Government many years ago,” he said.

In support of a more market-driven tariff, it can be argued that inefficient port operations may lead to an increase in terminal charges.

“This is due to the fact that terminal operators need extra funds to cope with various costs, including port charges, to attain break-even points,” he said.

Nazery also cautioned that low tariff might lead to inefficiency not only to port users but also to port operators, and might even extend across the trade supply chain.

“Port users will have to invest in additional capital to cope with inefficiency at ports where tariff is low and their operators do not have the motivation to invest in extra capacity and improve service.

“In short, when it comes to ports, good services are not cheap and cheap services are not good,” he said.

“For a country like Malaysia which depends heavily on its ports to facilitate much of its trade, tariff liberalisation must be judiciously applied to ensure that its ports are competitive and will continue to enhance their competitiveness.”

Source: Star Online

DHL moving up value chain

DHL, a market leader in express delivery and logistics services, is offering more economical options for its customers in the current challenging market conditions.

DHL Express (Malaysia and Brunei) country manager Sam Leong said customers would expect a leading transport and logistics company such as DHL to deliver a lot more value, especially in terms of optimising their supply chain and helping them to save costs.

“DHL Express is making a fundamental change in how we operate to improve efficiency and our market competitiveness to meet our customer needs,” Leong told StarBiz.

“Our customers are more focused than ever on reducing costs of operations and DHL Express is committed to provide the logistics solutions that can help them achieve a leaner and meaner supply chain.”

Leong said that “with the right solutions, we can help our customers reduce their inventory and raw material stock levels and help free up their cashflow.”

“We can do this by enabling them to adopt a more nimble and just-in-time supply chain to minimise the risk of inventory holdings in an environment of demand uncertainty,” he added.

DHL Express has introduced a new product called DHL Economy Select, which is designed for the time-critical but less urgent shipments.

“Our aim is to provide a more economical option to our customers and a more flexible alternative for their supply chain.

“We also have a Road Express option under the new product that helps our customers move their goods between Singapore, Malaysia and Thailand via road,” he said.

Leong said it was important that DHL stayed even closer to its customers under the current downbeat market conditins so that it could respond to their changing needs.

On its small and medium-scale enterprises (SMEs) market, DHL said its recent initiatives would definitely help enhance its competitiveness in the Malaysian market.

The company recently launched the DHL SME Logistics Solutions and the jointly developed POSPRIORITY Express with PosLaju this year.

DHL SME Logistics Solutions help SMEs explore new markets, expand in growing markets and establish a global presence.

POSPRIORITY Express is aimed at customers from the retail sector as well as SMEs.

“DHL will remain committed to being the trade facilitator to the SME market in Malaysia, and the collaboration with Pos Malaysia will help extend our reach to the SME community and provide them with greater value, convenience and better service.

“Our SME Logistics Solutions programme, roadshows, and through the showcasing of SME success stories have enabled us to connect very closely with our SME customers and in further understanding their needs,” he said.

Going forward, Leong said next year would be very challenging given the slowdown in global markets.

“However, Malaysian businesses and exporters could also at the same time explore to further penetrate the growing regions such as Asia and Middle East markets, and DHL with our extensive presence and market leading capabilities in Intra-Asia Pacific is well placed to help them,” he said.

DHL Central Asia Hub (CAH), located at the Hong Kong International Airport is already operational, helping serve as a gateway for faster and more reliable service into the North Asia markets of China, Japan, South Korea, Hong Kong and Taiwan, all of which are key markets for Malaysian importers and exporters.

With a total investment of US$210mil, the facility is the first large-scale automated express hub in the Asia-Pacific.

Source: Star Online

Freight forwarders urged to stop price war

JOHOR BARU, Dec 21 – In the face of the tough global economic situation, a price war has broken out among 245 members associated with the Johor Freight Forwarders Association (Joffa).

The grave situation had prompted its chairman Toon Teng Fatt to call on the 245 members not to engage in a price war.

“We must stand united and face the tough times ahead together. There is no need to start slashing prices because, in the end, it will not benefit us.

“Already, business is down and if our members try to outdo each other in terms of freight charges, we will suffer. Already some of us are barely able to cover cost in the light of the current global crisis,” said Toon at the association’s 28th Anniversary dinner here last night.

Toon admitted that business among the association’s members had dropped 40 per cent since the world financial crisis began three months ago.

“It’s simple. People are not buying and therefore manufacturers are slowing down their production, which means there is less to transport now,” added Toon.

He also called on the Royal Customs and Excise Department to play its part in helping members of the association to overcome the challenges faced by them.

“They (Customs) can help by expediting the inspection of goods at their checkpoints because by doing so, we can save on the overtime costs,” added Toon.

The Director of the Royal Johor Customs and Excise Department, Subre Ishak, who was present at the dinner, later promised to look into the matter.

“We are here to help them. Not to make things difficult because I understand Joffa’s problem,” said Subre.

Source: Malaysian Insider

CMA CGM, Maersk join forces

TWO container shipping giants, CMA CGM and Maersk, will join services linking Asia and the US east and west coasts in May.

Leading France-based CMA CGM has 387 ships on more than 150 routes. It has 79 new vessels on order for delivery between 2008 and 2011.

Maersk, a division of the A.P. Moller - Maersk Group, has more than 470 container vessels with a capacity of over 1,800,000 TEUs (20-foot equivalent units).

The two companies will launch two joint shipping strings, namely the Colombus route and the Hudson loop.

The Colombus loop is a pendulum service with rotation of port in Shanghai, Hong Kong, Yantian, Singapore, Suez, New York, Norfolk, Tangier, Suez, Singapore, Hong Kong, Yantian, Shanghai, Pusan, Seattle, Vancouver, Yokohama and Shanghai.

The Hudson loop port rotation includes Ningbo, Shanghai, Qingdao, Pusan, Balboa, Panama, Savannah, New York, Miami, Panama, Balboa and Ningbo.

The new services are expected to improve the companies’ services via extensive port coverage.

These two strings will be operated with ships of 6,500 TEUs capacity via Suez and 5,100 TEUs via Panama.

According to a statement by CMA CGM group vice-president North America Lines, Jean Philippe Thenoz, this rationalisation of services would replace its existing capacity, allowing the company to strengthen port coverage.

Source: Star Online

Somali pirates hijack Malaysian, Turkish ships

PIRATES have hijacked a Turkish cargo ship and a Malaysian tug boat and attacked three other vessels in the Gulf of Aden in the past week, a global maritime watchdog said today.

The latest incidents came as a European Union naval task force took over from a NATO operation patrolling the pirate-infested seas near the Horn of Africa with six warships and three surveillance planes.

In the first hijacking, pirates armed with rocket-propelled grenades and automatic weapons boarded a Malaysian tug on Tuesday, said Noel Choong, head of the International Maritime Bureau piracy reporting centre in Kuala Lumpur.

The tug with 11 crew on board was heading to Malaysia from the Middle East.

Choong said a Turkish cargo ship was hijacked, also in the Gulf of Aden on Tuesday, by a gang of pirates who fired automatic weapons from two speed boats.

“They were armed with RPGs. They opened fire at the ship and then boarded it. The ship was heading to Europe from the Middle East,” he said.

“Despite the European Union armada to patrol the Gulf of Aden, the pirates manage to attack and hijack ships because the number of warships is insufficient to secure the vast sea,” he said.

Choong said in three other incidents last week, Somali pirates attempted to hijack a Singapore tanker, an Italian cargo ship and a Greek ship.

Source: NST Online

DHL: Asia too dependent on the West

ASIAN governments need to re-balance their economies as they are currently too dependent on the West, according to a study commissioned by DHL and undertaken by the Economist Intelligence Unit.

“Much of Asia has grown up on the back of vibrant trade with the West,” said Justin Wood, a director at the Economist Intelligence Unit and South-East Asia expert.

Justin Wood

“But with the economies of North America and Europe forecast to perform poorly next year, the impact on Asia’s trade-dependent economies could be serious indeed.”

The study, entitled: Fuelling Global Trade: How GDP growth and oil prices affect international trade flows, also revealed the slowing Asian growth story and the need to re-balance their economies, said Frank Appel, the CEO of Deutsche Post World Net, the parent company of DHL.

“The challenge that Asian trade faces today is to hasten the migration to high value goods and focus on managing their growing dependence on oil.”

“The impact of rising oil prices will add risks and negatively impact Asian international trade,” Appel continued. “The study also reveals that for 2009 and beyond, international trade will depend more on rising Asian incomes, than the West.”

The study examined trade flows between 39 countries in three regions - Asia, the European Union and the North America Free Trade Agreement (NAFTA).

It included three countries under NAFTA- the US, Canada and Mexico, 25 European Union countries, the six largest economies in ASEAN along with Japan, South Korea, India, China and Hong Kong in Asia.

The report looked at the bilateral trade flows between each country and those outside its immediate trade bloc or region, which resulted in 383 bilateral trade relationships.

According to the study, the link between income and trade is stronger between Asia and the West than between North America and Europe.

A 1% increase in combined income between an Asian country and a Western country will deliver a 1.36% increase in trade.

Trade between ASEAN and the West will rise 1.35% for every 1% increase in combined income, while between two Western countries, a 1% increase in combined income delivers a 1.14% increase in trade.

“Equally, with oil prices showing extreme volatility this year, and with the price of oil likely to rise after the current economic downturn passes, this study identifies further challenges for Asian nations to address, especially in terms of pushing their manufacturing industries up the value chain,” Wood said.

Based on an average of all the 383 bilateral trade relationships in the study, a 1% increase in oil price leads to a 0.24% reduction in trade, with the assumption that all other drivers, such as income levels in two countries, remaining constant.

High oil prices have the greatest effect on Southeast Asia, where trade decreases the most.

The impact on oil prices is much greater when an ASEAN country trades with a nation in the EU or NAFTA , a 1% increase in the price of oil reduces the value of trade by 0.3%. Assuming no rise in income levels, the value of trade between ASEAN and the West would fall by 30% over five years if oil prices doubled, as had happened in middle of this year.

In West-to-West trade, there is a higher proportion of “high-value” goods such as computers, aircraft and media devices, and a smaller share of “low-value” goods such as coal and gas, palm oil, textiles and shoes.

In contrast, Asian nations are likely to have a much higher proportion of trade centred on low-value goods.

Since transport costs make up a larger share of the final cost of low-value goods than they do for high-value goods, rising oil prices have a larger impact on trade growth for Asia.

Source: Star Online

Malaysia's exports weakening

PETALING JAYA: Malaysia’s exports are expected to decline well into 2009 after a dismal performance in October which saw the effects of falling consumer demand kick in.

“The sharp reversal in merchandise exports, from a 15.1% year-on-year increase in September to a 2.6% contraction in October, suggests exports in November will slump further,” an economist said.

He said the gloomy outlook was also premised on the forecast that demand in recession-hit developed economies would take a “deeper-than-expected hit”.

Malaysia’s exports in October fell 2.6% to RM53.5bil from a year earlier, the first decline in 15 months.

The economist forecasts about a 5% drop year-on-year in Malaysia’s exports in November and sees further contraction going into 2009 as the full impact of the slower global growth takes its toll on the country’s exports.

CIMB Research chief economist Lee Heng Guie concurred. “It will not be good,” he said.

For next year, Lee said he expected exports to contract up to 3% year-on-year against the Government’s forecast of 1.5%.

“We are likely to see a more pronounced price effect of the commodity fallout in the first half of next year, coupled with continued sluggish demand for electrical and electronics (E&E) products due to reduced consumer spending.” he said.

Year-to-date, the E&E exports were the country’s top revenue generator, accounting for RM217.8bil or 38.5% of total exports. Palm oil and palm oil-based products were second with a combined value of RM56.3bil, or 10% of total exports.

Meanwhile, the sentiment among export-oriented local industry players appeared to be mixed, according to observers.

An industry source noted that certain major multinational corporations (MNCs) such as Intel, Dell and Motorola used local E&E-related companies as their main materials and equipment suppliers.

This could mean these companies are highly dependent on MNCs.

“If the economic crisis becomes worse, there will be a drastic reduction in demand. Equally important is the possibility that future investments or re-investments would also come to a halt,” he said.

The source said these local companies would “be badly hurt” and estimated they would suffer at least a 30% drop in business, hence having a huge impact on their bottom lines.

Malaysian-American Electronics Industry (MAEI) chairman Datuk Wong Siew Hai said he expected export sales in the first half of next year to be even weaker as demand continued to decline.

“The fourth quarter continues to be challenging with sales dropping by as much as 20% compared with the previous quarter.

“For 2008, MAEI members are expected to register a possible contraction from 5% to 10%,” he said. MAEI’s 17 member-companies registered export sales of RM73.8bil, or 27.7% of Malaysia’s total exports of E&E products last year.

An MQ Technology Bhd spokesman told StarBiz that although he expected exports to “slow a little” next year, business was “still okay”. MQ, which is involved in consumer electronics, counts Japanese firms as its biggest customers. “Japan, although in recession, is a mature market and relatively stable. Our customers are cash-rich and this is the most important thing,” he said.

Source: Star Online

Baltic Dry Index shows signs of revival

THE Baltic Dry Index (BDI) has shown early signs of revival as it has gained 40 points or almost 6% from Dec 8 to Dec 11 on the back of surging iron ore transportation demand.

The BDI stood at 711 points on Dec 11.

BDI, the barometer of shipping cost for commodities, fell from 11,793 points on May 20 to only 663 points on Dec 5, a 94.4% decrease.

This was contributed by the sharp dive in demand to ship iron ore for steel production this year due to the global economic downturn that stunted the growth of cars and construction projects.

(The BDI averages 26 shipping routes measured on a time charter and voyage basis where the index covers Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities, including coal, iron ore and grain.)

The small BDI point increase since then indicates that short-term demand of iron ore for next year may be picking up.

According to Bloomberg, customs data showed that China, the biggest steelmaker, imported 32.5 million tonnes of iron ore last month, up from 30.6 million tonnes in October.

The news agency also stated that the markets were moving now on the iron-ore front, quoting Philippe van den Abeele, London-based managing director of Castalia Fund Management (UK) Ltd.

“There’s demand beyond Christmas, and requirements for January are coming into the market so it seems more sustainable than the end of the year. It’s a good development but the jury is still out when it comes to longer-term prospects,” said van den Abeele.

The longer-term prospects are still uncertain.

Apart from this, India has also cut export duty on iron ore to 0% on fines and 5% on lumps, which is expected to spur demand for iron ore export as well as boost the slumping commodity shipping rates.

Previously export duty on iron ore fines was 8% while that on lumps stood at 15%.

The move by the Indian government may encourage demand from Chinese steelmakers like the Baosteel Group Corp and Baoshan Iron & Steel Co, two of the country’s largest steelmakers, and also create demand for Capesize ships.

According to Bloomberg, Baoshan Iron & Steel will also increase sales to Honda Motor Co’s Chinese unit by 43% next year.

The Baltic Capesize Index climbed by 204 points from Dec 8 to Dec 11 to 1,142 points, a 21.8% increase.

Capesize ships are cargo ships traditionally too large to transit the Suez Canal.

Capesize vessels used to have to pass either the Cape of Good Hope but they now can transit the Suez Canal as long as they meet the draft restriction of 18.91m.

On the other hand, the Baltic Panamax Index continued to slide to 422 points on Dec 11 from 481 points on Dec 8.

Source: Star Online

Global economic weakness to hurt Malaysian exports and economic growth in 4Q

KUALA LUMPUR: Current global economic weakness is expected to hurt Malaysian exports and economic growth further in the final quarter (4Q) of 2008.

In a note, ECM Libra said the nation's fourth quarter real export growth might decline by 9.1% from a year earlier, resulting in a slower real gross domestic product expansion of between 1.3% and 1.5% compared to the annual GDP growth of 4.7% in the preceding third quarter (3Q).

"To be sure, Malaysia was not the only country in the region which experienced a big decline in exports in October 08. Both Taiwan and Singapore registered a sharp drop in exports as well.

"As for Indonesia, Thailand and South Korea, their export growth in October 08 had also declined rather significantly," said ECM Libra.

Source: Edge Daily

Maersk slashes Asia-US container freight rates

HONG KONG: Danish shipping and oil group AP Moller-Maersk has slashed container freight rates from Asia to the US West Coast by nearly a quarter as the American economy slows, industry sources said on Dec 5.

"Container shipping rates have came down substantially as demand is very weak and exporters are in deep water," said Sunny Ho, executive director of Hong Kong Shippers Council.

Container freight rates for Asia to the United States have fallen to as low as US$1,300 (RM4,719) per box, he said, without naming specific shipping firms.

But sources told Reuters Maersk had cut freight rates to the West Coast to US$1,300 from US$1,700 per forty-foot equivalent unit.

Maersk officials in Hong Kong were not immediate available for comment.

China Cosco, a listed arm of the country's largest shipping conglomerate, has followed the cut as slowing trade growth due to weak demand from the United States and Europe continues to pressure shipping rates, a source told Reuters.

But he would not specify the amount of the cut.

Analysts expected other regional container line operators, many of whom are operating at losses, to follow.

Credit Suisse said it did not see the prospect of another up-cycle yet and shipping lines were cutting back on capacity to avoid further losses.

Maersk, the world's top container ship operator, said on Thursday that it was taking eight ships out of service until May or June next year due to poor market conditions. Each of those ships can carry 6,500 twenty-foot equivalent units (TEUs).

Container shipping rates from Asia to Europe have also fallen by about two-thirds to more than US$200 per TEU, Ho said.

"We have some cases where shipping firms are willing to move goods for a zero freight rate and exporters are only responsible for bunker (fuel) and terminal handling charges," he said.

Hong Kong-based container ship operator Orient Overseas (International) has also warned of a grim year ahead.

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"The outlook is very pessimistic next year," OOIL Chairman Tung Chee Chen told Reuters this week.

Ho expected container freight rates to US West Coast to fall further. "We had seen US$900 all in before," he added.

Hong Kong exporters reported a 30% year-on-year drop on orders for the peak season next year, Ho said.

The number of US workers collecting jobless benefits hit a 26-year high last month, data showed on Thursday, and it may head higher as a deepening economic slump forces a broad spectrum of firms to cut jobs.

Economists said the latest batch of dour news for the world's largest economy, which fell into recession a year ago, pointed to a downturn that could be the sharpest and longest since the downswings in the early 1980s.

The United States is Asia's largest overseas market for its goods, and several export-dependent Asian economies have also slid into recession as a global slowdown spreads.

Source: Edge Daily.

Building better links in high-tech supply chains

McKinsey's recent article on issues arising from high-tech supply chains contaisn very useful information for logistics operators and consultants. As always, it is important for logistics service providers to understand the issues arising from specific business sectors in order to provide the most cost-effective and efficient services:

The supply chains of high-tech companies are globe-spanning marvels. Over the past 20 years, looking for ready sources of components, lower-priced labor, and talented designers and engineers, these companies have ranged throughout the world. In a highly competitive and fast-moving marketplace, they have sought to maximize their strengths and flexibility as products change rapidly and prices continue to fall.

Pictogram sourced from here.

But the sprawl and complexity of such networks have made it harder to manage end-to-end operations smoothly. Many technology companies are grappling with volatility and disruptions across their supply networks, and eliminating waste from duplicative efforts is an ongoing challenge. As product life cycles shrink, we see inventory buildups in the supply chains of some companies, while others cope with rising distribution costs, on-time delivery problems, or delays in getting new products to market.

In fact, high-tech companies have let complexity undermine collaboration in their supply chains: they aren’t working as closely as they could with their supply chain partners—sharing information or streamlining processes—to smooth out volatility and eliminate waste. This failure is surprising. The high-tech industry creates products that promote collaboration, openness, and efficiency. We all know stories about companies in other industries such as retail and consumer-packaged goods that have improved their operations significantly by using technology to collaborate more closely with suppliers—yet high-tech companies have been slow to follow. For a host of reasons rooted in the way they are organized and compete, their executives have been less than enthusiastic about pursuing the benefits of collaboration with their supply chain partners.

This lack of enthusiasm is fast becoming more costly for OEMs. Even as product life cycles shrink, consumers are demanding products with new features (such as mobility, greater storage, and more memory) that make products ever more complex. As this complexity increases, it will become harder to manage supply networks, opportunities will be missed, and supply chain costs will rise. The path to improvement, we suggest, lies in better collaboration with suppliers. To achieve it, companies should address their internal challenges and then deal with key stress points that strain supplier relations.

Read more here.

Malaysia's October annual exports suffer surprise drop

KUALA LUMPUR: The country's exports unexpectedly fell in October from a year ago, the latest evidence that it is being hit by falling demand from abroad because of the global economic slowdown.

The 2.6% decline from a year ago compared with economists' expectations for a 6.3% rise in a country where trade is more than 100% of gross domestic product, or the value of all goods and services produced.

"We are likely to see much weaker numbers for Malaysia going forward with external demand very weak, and with the unlikelihood that demand for electronics will recover anytime soon," said Alvin Liew, an economist at Standard Chartered.

Exports dipped slightly in July 2007 but the last big fall was in March 2007 when they fell 4.5%.

Imports for October fell by 5.3% year-on-year compared with analyst expectations for a 1.8% rise.

The data comes after South Korea saw exports slide by 18.3% in November, the biggest drop in seven years, and amid tumbling oil and commodity prices, key exports for Malaysia.

Exports totalled RM53.46 billion, down from RM62.31 billion in September, while imports fell to RM43.84 billion.

That ate into the trade surplus, which fell to RM9.62 billion in October compared with RM14.5 billion in September.

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Malaysia has pinned its hopes of avoiding a recession on boosting exports to Asia, although the October data showed exports to the 10 countries that make up Asean fell by 6.1% from a year ago and exports to China fell to RM4.89 billion from RM5.26 billion on weaker commodity and oil prices.

Malaysia hopes to record economic growth of 3.5% in 2009, but many economists say it will not manage that. Investment bank UBS sees no growth at all.

The poor trade data may spur Malaysia's central bank into action after its first rate cut in five years earlier this month when it shaved 25 basis points off its key rate to 3.25%.

"The central bank will look into at least another 25 basis points. I'm looking at 50 basis points in January and February," said Gundy Cayhadi, economist at IDEAglobal.com.

Source: Edge Daily

Higher risk premium due to higher risk in Gulf of Aden

SHIPPING companies may have to pay higher premiums for their vessels plying in the pirate-infested areas in the Gulf of Aden and along the east coast of Africa.

Marine insurance underwriters in London said the enhanced risk in the area would prompt an increase in premiums.

So far this year, pirates have hijacked about 39 vessels in the Gulf of Aden, with the latest being the Sirius Star, the largest ship to be hijacked so far, which was carrying two million barrels of crude oil.

Large ships usually have three types of insurance policies namely hull policy, which covers physical risks; protection and indemnity policy, which covers matters concerning crew; and war risk policy, which covers acts of terrorism including piracy.

The war risk policy has a clause that requires extra premium charges for ship plying dangerous areas such as the Gulf of Aden.

MISC Bhd, which has also fallen victim to piracy acts in the area, said it had not been charged any additional premiums by its hull and war risk underwriters.

Two of its vessels, MT Bunga Melati Dua and MT Bunga Melati Lima were hijacked in the Gulf of Aden in August and were released after ransom was paid.

A company spokesperson told StarBiz that underwriters generally charged additional premiums by applying a certain agreed rate to the total loss value of the vessel that transit either the Gulf of Aden or any other listed areas falling under the war exclusion zone as defined by the Joint War Committee (JWC).

JWC is a group of marine underwriters based in London.

According to the spokesperson, MISC’s ships were still plying within the safety corridor of the Gulf of Aden, accompanied by Royal Malaysian Navy vessels.

This is because the alternative route via the Cape of Good Hope will incur extra cost.

“Going by the Cape of Good Hope means spending more fuel of about 30 to 35 tonnes per day for an extra 12 days at least, not to mention all other consumable and consumption.

“Additionally, we also will loose out on charter hire earnings for the extra days if the charterer does not agree to the route.

“Also, to maintain the schedule reliability of the service, an extra vessel needs to be injected into the service if we opt for the alternative route. This will increase the system cost by one more vessel,” he said.

In contrast, he said MISC would save on fuel and other costs and would only have to pay approximately US$180,000 per transit toll at the Suez.

“Risk-wise, with Somalian pirates moving further down south, a journey via the east side of African Continent through the Cape, will mean that the vessel is still exposed to the Somali pirates and we also have to face the harsh weather at the Cape,” he said.

Source: Star Online