Coronavirus: Supply disruptions for New Zealand importers and exporters

Electronics, iPhones, clothes, and raw materials are in short supply and could take much longer to get here as the novel coronavirus outbreak slows global trade.

Photo: 123RF

More than 60 countries now have cases of Covid-19, with the outbreak limiting travel, trade, and shipping.

Stats NZ said the virus may have cost as much as $300 million in lost exports to China in the past month.

Meat company Silver Fern Farms said the port in Shanghai was at capacity and ships were unable to unload there.

In addition, factory closures in China because of the coronavirus outbreak have left New Zealand outlets short of vacuums, televisions and iPhones.

Stock levels across businesses are running low and are unable to be replenished as shipping routes slow and change around the virus.

Noel Leeming merchandise executive general manager Jason Bell said they had sufficient stock for now, but a few lines had run out.

“We are expecting that there could be delays from April but the extent of that is unclear at this stage.”

The Warehouse and Warehouse Stationery was closely monitoring the effect of Covid-19 on its supply chain.

Chief sourcing officer Tania Benyon said some shipments from China, including winter clothing, could be delayed by up to eight weeks, but they had started sourcing goods elsewhere.

“We have options available to us as we have factories manufacturing products outside China, and in addition to our NZ operations we have an office in India.”

Apple has told its investors the number of iPhones would be limited and slow to return to normal.

It is already difficult to get them here with some models completely out of stock in at least one major retailer.

Kenneth Leong, chairperson of the Association of South East Asian Nations Business Council, said manufacturers who used raw material from China were having a nightmare getting supplies.

This included clothing factories trying to bring in fabric, he said.

“Importers and exporters are currently experiencing very significant disruptions to global supply chains. Although some manufacturers may be looking to source products from outside China, the reality is a lot of their raw components come from China.”

Leong said trade had been restricted for about a month and businesses were fast running out of stock – although he would not name them.

Plastics New Zealand chief executive Rachel Barker said the problem was widespread across multiple sectors – like packaging and food and also medical supplies.

“A company who manufactures medical devices which go all over the world, but their electronics come from China … because of those issues with shipping from China at the moment, they have had some problems actually getting those electronics to then make the product to then ship to China.”

Food and Grocery Council chief executive Katherine Rich said industry was having to work hard to find other sources.

“New Zealand’s economy is interwoven with the economy of China and so we are starting to see products that have been ordered not be able to be dispatched, also ingredients for New Zealand food manufactures being difficult to source,” Rich said.

It was not a problem that exclusively affected importers – exporters had also taken a financial hit.

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Annabel Young: Get ready for fuel price rises in 2019

Prices are expected to climb rapidly as demand increases, especially in New Zealand. Photo / File

NZ Herald By: Annabel Young

COMMENT:

Prices at the petrol pump were a regular item in the 2018 news but spare a thought for businesses that buy fuel by the tonne (1000 litres). In shipping circles, the expectation is that the price of oil-based fuel products will rise steeply in 2019 and that they will keep going up. International price rises will be reflected in prices in the domestic market, at the suburban fuel pump.

Here is why this is happening and how it will affect you.

By January 2020, most ships in the world will be subject to restrictions on sulphur emissions. This is the effect of a treaty known as Marpol Annex VI which imposes a maximum level for sulphur content of emissions at 0.5 per cent. Currently the maximum limit is 3.5 per cent sulphur content although it should be noted that in practice, many ships operate below that level.

New Zealand has not ratified Marpol Annex VI yet but it is assumed by the sector that this will be done by at least 2023. In the meantime, the majority of ships operating around New Zealand are flagged to countries that have ratified the Annex and they are therefore bound by it.

Sulphur emissions from fuel are a result of the fuel used and there are a number of ways to address this, but there is no easy option. The fuel oil used by most ships originates from crude oil as the fuel is the residual left after the diesel or other distillates have been extracted. The residual becomes bitumen and fuel oil, termed HFO, IFO and LFO. When the residue is no longer used as a shipping fuel, it may continue to be used in shore-based oil-fired consumers, eg power stations.

Designing a new vessel to operate on an alternative fuel to oil is much easier than retrofitting an existing ship. By way of example, a shift to methanol would be a great way to solve the emissions problem but it costs about $2 million extra to build a methanol ship; whereas it costs significantly more to retrofit an existing vessel. So methanol, being emissions free and locally sourced from Taranaki, looks perfect but may be difficult to implement as a replacement.

Liquefied Natural Gas (LNG) is another option widely available in Australia, but in New Zealand it is tricky to source. Nuclear power is not currently an option for commercial vessels (it is for warships) but may feature as a civilian propulsion choice in the future.

The practical option for most current ships operating on fuel oil is to shift to a lower sulphur oil-based fuel. The obvious choice is diesel because other low sulphur oil-based fuels are not yet in significant production.

An alternative to switching fuels is to install so-called “scrubbers”, that is equipment that uses sea water to clean emissions. About 1 per cent of the current world fleet uses scrubbers; and it is not expected that scrubber production will be able to scale up in the short or medium term. Of course, the scrubber option is only useful if the current higher-sulphur-content fuel remains available.

So what is the likely impact of most ships in the total worldwide fleet shifting to diesel? Ship operators expect significant increases in fuel costs and also worry about availability. At current prices, diesel is at least 35 per cent more expensive than the fuel currently used by ships. Prices are expected to climb rapidly as demand increases, especially in New Zealand as we already rely on importing at least 30 per cent of current diesel needs and would have to import any increased usage.

To achieve the 2020 deadline, it is expected that the worldwide conversion of ships to a low-sulphur fuel will begin in mid-2019. The effect will be a steep rise in demand for diesel. And increased demand means increased prices. The six month lead-in is because changing the type of fuel used by a ship is not as easy as switching on a lamp. It is almost a case of saying that the engine has to want to change.

Around the world, the change in fuel is expected to throw up a range of engineering issues on every vessel, and in some cases the issues will be unable to be resolved leading to the removal of that vessel from the fleet. Some ship lines have already imposed an additional tariff to cover the cost of the switchover.

As the price rises in the world market, the effect on the price of any oil-based fuel (not just diesel) at the local petrol pump is likely to be substantial and immediate.

The impact of higher costs of ship operations will also play out in the cost of everything that you buy because virtually everything has a component of transport in its price.

Ship operators are even wondering if they will be able to source fuel at all.

• Annabel Young is the executive director of the New Zealand Shipping Federation which represents coastal ship operators.

What did experts say at the World Transport Convention in Beijing?

From June 18 to 21, some 6,000 representatives in the field of transportation, about 15 percent of whom were foreigners, attended the 2018 World Transport Convention in Beijing. Serious and scripted, the convention was opened by China’s transport minister and an academician from the Chinese Academy of Engineering.

Though the theme, “Better Transport, Better World,” indicated nothing special, expert’s words and the tech models on display gave audiences a picture of Chinese achievements and ambitions in the field.

A long list of “World Firsts”

By the end of 2017, China had a transport network with a total length of over 5 million kilometers. In-service railway mileage across the country reached 127,000 km, with high-speed railway stretching for 25,000 km – 66.3 percent of the world’s high-speed railway mileage.

As for waterway transportation infrastructure, China had 2,366 berths for 10,000-ton ships and above, equivalent to 18 times what it had when opening-up and reform started four decades ago.

By the end of 2017, the in-service railway mileage across China had reached 127,000 km, with high-speed railway stretching for 25,000 km. /VCG Photo

The list goes on and on. Both the in-service mileage and traffic of China’s urban railway transit are world firsts. China’s highway mileage reached 136,000 km, with 98.35 percent of rural roads open to traffic, also taking the world lead.

In a deeper sense, a transport network of such scale and density pushes the growth of the delivery business. According to a report released by the China Highway and Transportation Society (CHTS) at the convention, an estimated 40 billion packages were delivered across the country last year, making China the biggest driving force in the international express market.

Tech innovation

While China keeps developing its transportation infrastructure, it never forgets what its people need and what the environment requires – security, low energy consumption, less pollution, to name only a few. These were all represented in the transportation technology exhibition at the convention.

A robot for driving safety developed by G7, a company dedicated to smart logistics, can monitor every truck from the company in real time.

Equipped with an artificial intelligence (AI) algorithm, it is able to assess the road condition and detect whether the vehicle is speeding or the driver dozing or distracted by a phone. Voice instructions or alerts will be made remotely by staff if any problem is detected. The accident rate has dropped by over 75 percent after utilizing the robot, according to the company.

The safety robot is able to detect whether the driver is dozing or distracted by a phone. /Screenshot via g7.com.cn

Shouqi Group, one of China’s largest travel service companies, has launched a self-service car rental platform, “Go Fun,” which helps integrate users’ fragmented needs for cars, providing convenient, green, fast and economical travel service.

“The development of the Internet of Things and mobile payment makes it more acceptable for people to opt to sharing travel mode,” said Tan Yi, president and chief operating officer of GoFun, adding that the platform now offers service in over 50 Chinese cities with nearly 30,000 in-service vehicles, and will be built into an integrated sharing platform to meet people’s catering, shopping, accommodation and entertainment needs.

The “GoFun” sharing car. /VCG Photo

China’s super-speed train: Maglev + Hyperloop

China is now working on the feasibility of a super high-speed train that can reach a theoretical speed of 1,500 kilometers per hour (km/h), adopted with high-temperature superconductivity magnetic suspension and vacuum valve technology, said Zhang Weihua, chief professor of Southwest Jiaotong University, at the convention.

The speed boundary for wheel-rail transportation is 600 km/h due to many factors, said Zhang, and “high-speed magnetic suspension rail transport will be the major direction of the future development for railway transportation technology.”

The scale model train test line of the world’s fastest evacuated-tube high-temperature superconducting maglev train is now under construction in Chengdu, capital of southwest China’s Sichuan Province. It is expected to be completed and tested by the end of this year. The test speed can be as fast as 400 km/h, while the speed of the same-type train developed by American company Hyperloop One reaches 387 km/h.

The evacuated-tube high-temperature superconducting maglev test platform in southwest China’s Chengdu. /VCG Photo

Magnetic suspension plus vacuum creates an operation environment with low resistance, which can effectively improve the speed of future high-speed trains, said Zhang.

China could meet the test speed of 1,500 km/h as soon as 2021.

As Trump Punishes Trade Allies, Europe Expands Global Alliances

Europe is building new alliances to counter an increasingly isolationist America as President Donald Trump recasts the U.S.’s economic relationship with the world.

The European Union opened free-trade negotiations with Australia this week, representing one of more than a dozen deliberations currently being conducted by the bloc. This comes on the heels of the U.S. slapping tariffs on imports from some of its most solid allies — including the EU, Canada, Mexico and Japan — in the name of national security.

But Trump’s aggressive foreign-policy stance, which has included leaving the Trans-Pacific Partnership and the Iran nuclear deal, has offended some of the U.S.’s closest partners, with EU President Donald Tusk vowing to stand up to the White House’s “capricious assertiveness.” This has raised the prospect of a shift in alliances among world powers as they seek to preserve the global trade system.

All the trade deals being concluded are sending a message that “the EU and its partners are coming together,” European Trade Commissioner Cecilia Malmstrom said in a speech in Canberra on June 18, adding they were shaping globalization and standing up for open trade. “And we need many allies to help us in pursuing these goals.”

Doubling Down
Trump doubled down on his efforts to recast Washington’s trade relationships this week, threatening tariffs on another $200 billion in Chinese imports after already identifying $50 billion in products to hit with levies. The U.S. measures have created unlikely allies among nations, with both China and the EU calling for adherence to the multilateral trade system.

This comes after Trump threw a Group of Seven meeting into chaos, rejecting a joint statement upon hearing Prime Minister Justin Trudeau say Canada would be forced to respond to the U.S. decision setting tariffs on Canadian steel and aluminum. Leaders have criticized Trump, with French President Emmanuel Macron’s office saying “international cooperation cannot be dictated by fits of anger and insults,” and Norway’s prime minister saying “the U.S. isn’t the same driving force as it used to be.”

“The Atlantic has gotten wider under President Trump,” German Foreign Minister Heiko Maas said in a June 13 speech in Berlin. “Trump’s isolationist policy has opened a huge worldwide vacuum. Therefore our common response today to ‘America First’ must be ‘Europe United’.”

The EU is already Australia’s second-largest trading partner after China, and an accord including New Zealand could boost the bloc’s gross domestic product by 4.9 billion euros ($5.7 billion) by 2030, according to European Commission estimates. Sectors likely to be included in discussions will be machinery, cars, electronic equipment, chemicals and metals.

‘Like-Minded Partners’
The talks with Australia come a year after the EU inked accords with Mexico and Japan and the provisional passage of a trade agreement with Canada, which took seven years to complete.

“I look forward to adding Australia to our ever-expanding circle of like-minded trade partners,” Malmstrom said in a statement. “In challenging times, it is heartening to see that Australia shares our commitment to a positive trade agenda, and to the idea that good trade agreements are a win for both sides.”

Despite the historical relationship the U.S. has with Europe, and the American role in developing the trans-Atlantic partnership, EU leaders are concerned that Trump’s actions may undermine the global system.

“What worries me most, however, is the fact that the rules-based international order is being challenged,” Tusk said during the G-7 summit in Charlevoix, Canada. “Quite surprisingly, not by the usual suspects, but by its main architect and guarantor: the U.S.”
Source: Bloomberg

Trains, boats and planes: Kim Jong-un’s modes of transport

Kim Jong-un arrives in DalianDon’t call it Air Force Un – the aircraft’s official designation is “Chammae-1”

A mysterious North Korean aircraft stationed at China’s Dalian airport was the subject of much speculation on 7 and 8 May.

The plane was eventually confirmed to be that of leader Kim Jong-un, who it turned out was meeting Chinese President Xi Jinping in the coastal city.

Mr Kim’s increasing international engagement has given the wider world a view of how he travels, with each visit showcasing a different form of transport.

Kim Jong-un arrives in DalianKim Jong-un was afforded a guard of honour on his arrival in Dalian

Aircraft – just an Ilyushin

Kim Jong-un’s China visit this week marks his first confirmed international flight since assuming power, but media reports suggest he has previously used his private jet for travel within North Korea.

The aircraft that flew him to China was a Soviet-made long-range aircraft, the Ilyushin-62 (Il-62). The North Korea watchers at website NK News say it is called “Chammae-1”, named after a local species of hawk.

The North Korean IL-62 jet on final approach to Incheon before the Winter Olympics in South KoreaThe IL-62 jet was used to transport North Korea’s delegation to the Winter Olympic opening ceremony earlier this year

The white exterior of the plane is emblazoned with North Korea’s official name in Korean on two sides, with the national flag next to the text. The tail features a red star inside red and blue circles.

The aircraft has modern interiors, and Kim has occasionally been photographed working and holding meetings on board.

Kim Jong-un inspects Pyongyang from the air in 2015Smoking is allowed on the Supreme Leader’s personal aircraft

The Chammae-1 was in the spotlight in February when it carried Pyongyang’s high-level Olympics delegation, including Kim’s sister Kim Yo-jong, to South Korea.

South Korean news agency Yonhap reported that the flight used the identification number “PRK-615”, possibly a symbolic reference to the 15 June North-South Joint Declaration signed in 2000 by the two countries.

Kim Jong-un at the controls of an AN-2 biplaneThe North’s leader, seen at the controls of a Korean Air Force biplane, is thought to have an interest in flying

Kim has also been seen using a Ukrainian Antonov-148 (AN-148), featuring state airline Air Koryo’s logo, in a 2014 documentary aired by state-owned Korean Central Television (KCTV).

Kim Jong-un’s father Kim Jong-il and grandfather Kim Il-sung avoided air travel, reportedly due to a fear of flying. Kim appears to have no such issues, and in 2015 state media even carried footage of him piloting a “homegrown” light aircraft and sitting at the controls of an AN-2 military biplane.

Kim Jong-un's train on the way to Beijing in March 2018The appearance of a green train with a yellow stripe on the way to Beijing caused a frenzy of speculation

Big train

When Kim Jong-un visited Beijing in March this year, he used a “special train” believed to be the same as the one used by his father for international travel until his death in December 2011.

Footage of the “dark green train with (a) yellow stripe” used by Kim Jong-un for his China visit went viral on China’s Sina Weibo social network at the time, sparking comparisons to Kim Jong-il’s train.

In November 2009, conservative South Korean daily Chosun Ilbo said that Kim Jong-il’s armoured train featured around 90 carriages. The train had conference rooms, audience chamber and bedrooms, with satellite phones and televisions installed for briefings.

According to North Korean news reports, Kim Jong-il died aboard his official train while on his way to an inspection visit outside Pyongyang.

Kim Jong-un and his wife Ri Sol-ju meet officials aboard the North Korean leader's trainThere’s plenty of room aboard Mr Kim’s train, but only if you are a fan of coral-coloured armchairs

Commenting on KCTV footage of the train in 2011, a source told Chosun Ilbo that the predominantly white furniture appeared to be “custom-made by foreign artisans using top-quality materials”.

Kim Jong-un’s train features similar furniture, but the sofas and armchairs now appear to be a luxurious coral colour.

State media reports indicate that both father and son used the train to hold meetings during their international visits.

Kim Jong-un stands in front of his Mercedes Benz car in BeijingMr Kim’s Mercedes did the taxi work on his visit to Beijing in March

Won’t you buy me a Mercedes-Benz?

During his visit to Beijing, Kim reportedly used his personal Mercedes-Benz S-Class to travel within the city.

According to South Korean daily JoongAng Ilbo, the car was specially transported on board the leader’s train.

The paper reported that the car, manufactured in 2010, cost roughly 2 billion Korean won ($1.8m).

Kim Jong-un's Mercedes car flanked by bodyguards at the Inter-Korean summit
 There was no room on board Kim’s Mercedes for his flock of bodyguards at the Inter-Korean summit

Kim’s favoured S-Class model was prominent during the 27 April inter-Korean summit at Panmunjom, when he drove across the border with bodyguards running alongside.

His convoy at the summit was also reported to feature a private toilet car, used by the leader to answer the call of nature while travelling.

This was also mentioned in a 2015 report by Seoul-based website DailyNK, which said that a customised bathroom is built into one of the cars of Kim’s convoy of armoured vehicles.

Kim Jong-un travels by boat to inspect island-based military unitsWith hints of Duran Duran’s Rio video, only the Supreme Leader gets a cushion on this boat

Mystery yacht

State media in North Korea has shown Mr Kim riding variously on boats, a submarine, buses and even a ski lift.

He is also rumoured to use other forms of transport, but these are yet to be seen in his excursions abroad.

When state media published photos of his visit to an army-run fishing station in May 2013, NK News observed a yacht in the background.

There was no clear confirmation that the yacht, estimated to cost $7m, belonged to Mr Kim, or even how it was imported despite international sanctions on luxury goods.

Kim Jong-un walks past a lauxury yacht during a 2013 inspection visitWho in North Korea could possibly own a luxury yacht of that size?

Given the price, however, many international media outlets singled out the nation’s ruler as the most likely owner.

In June 2015, Washington-based Radio Free Asia reported that a researcher had spotted a new helipad at Kim’s lakeside villa in South Pyongan province.

The researcher, working at the US-Korea Institute of the Johns Hopkins School of Advanced International Studies, suggested that the helipad may be used by Mr Kim’s family or visitors.

Kim Jong-un rides a ski lift at Masikryong Ski ResortKim Jong-un has a solitary cigarette while enjoying a ski lift ride at North Korea’s Masikryong ski resort
Kim Jong-un on a submarineMr Kim rides one of his navy’s elderly ex-Soviet submarines
Kim Jong-un and his wife Ri Sol-ju take a midnight bus ride around Pyongyang earlier this yearFares please: Kim Jong-un and his wife Ri Sol-ju take a midnight bus ride around Pyongyang earlier this year

Reporting by Shreyas Reddy, additional material by Alistair Coleman

Costa Rica to ban fossil fuels and become world’s first decarbonised society

Costa Rica’s new president has announced a plan to ban fossil fuels and become the first fully decarbonised country in the world.

Carlos Alvarado, a 38-year-old former journalist, made the announcement to a crowd of thousands during his inauguration on Wednesday.

“Decarbonisation is the great task of our generation and Costa Rica must be one of the first countries in the world to accomplish it, if not the first,” Mr Alvarado said.

“We have the titanic and beautiful task of abolishing the use of fossil fuels in our economy to make way for the use of clean and renewable energies.”

Symbolically, the president arrived at the ceremony in San Jose aboard a hydrogen-fuelled bus.

Last month, Mr Alvarado said the Central American country would begin to implement a plan to end fossil fuel use in transport by 2021 – the 200th year of Costa Rican independence.

“When we reach 200 years of independent life we will take Costa Rica forward and celebrate … that we’ve removed gasoline and diesel from our transportation,” he promised during a victory speech.

Costa Rica already generates more than 99 per cent of its electricity using renewable energy sources, but achieving zero carbon transport quickly – even in a country well-known for its environmental commitment – will be a significant challenge, experts say.

Jose Daniel Lara, a Costa Rican energy researcher at the University of California-Berkeley, said completely eliminating fossil fuels within just a few years is probably unrealistic – though the plan will lay the groundwork for faster action towards that goal.

“A proposal like this one must be seen by its rhetoric value and not by its technical precision,” Mr Lara said.

Oscar Echeverría, president of the Vehicle and Machinery Importers Association, said the transition away from fossil fuels in transport cannot be rushed as the clean transport market is so far undeveloped.

“If there’s no previous infrastructure, competence, affordable prices and waste management we’d be leading this process to failure. We need to be careful,” Mr Echeverría said.

But economist Monica Araya, a Costa Rican sustainability expert and director of Costa Rica Limpia, which promotes renewable energy and electric transport, said that in a country already rapidly weaning itself off fossil fuels, focusing on transport – one of the last major challenges – could send a powerful message to the world.

“Getting rid of fossil fuels is a big idea coming from a small country. This is an idea that’s starting to gain international support with the rise of new technologies,” she said.

Costa Rica’s push towards clean energy faces no large-scale backlash, in part because the country has no significant oil or gas industry.

But demand for cars is rising, as is use of other transport systems, and that may prove one of the biggest challenges in meeting the new goal, Mr Lara said.

According to data by the National Registry – the country’s records agency – there were twice as many cars registered as babies born in 2016.

Transport is today the country’s main source of climate changing emissions. According to the country’s National Meteorological Institute, 64 per cent of Costa Rica’s emissions come from energy use, and more than two thirds of that is from transport.

According to data from the State of the Region report, put together by a council of Costa Rica’s university leaders, public transport has struggled to meet the transport needs of the country.

As a result, demand for private vehicles has risen dramatically, with the car industry growing 25 per cent in 2015 alone, making Costa Rica one of the fastest growing auto markets in Latin America, according to the report.

The centre-left Mr Alvarado beat his Christian conservative rival and namesake Fabricio Alvarado, whose campaign had largely centred on his opposition to same sex marriage, with 60 per cent of the vote in second-round elections, and took office on 8 May.

No relief as crude prices to rise by 20% in 2018: World Bank

The World Bank has projected a 20% jump in global prices of energy commodities — crude oil, gas and coal — this year, indicating a continued squeeze on fuel consumers in India and raising the prospect of cramping the government’s social spending ability as it heads back to the people for another mandate.

According to the Bank’s April commodity markets outlook, oil prices will average $65 a barrel through 2018, 22% higher than the average price of $53 in 2017, due to the combined effect of production cut by Opec and Russia — the largest exporter outside the grouping of 14 oil exporting countries — and an uptick in demand.

This is not good news for India, which imports 80% of its crude requirement. Already pump prices are at multi-year highs as Brent hovers near $74 a barrel. Brent holds a big sway over the overall cost of India’s crude purchase since it has 28% weightage in India’s oil basket.
Crude-gfx-ed

Though the global benchmark crude slipped 1% on Wednesday as apprehensions over US sanctions on Iran eased a bit after Tuesday’s talks between the US and French presidents, other factors contributing to high oil prices still remain at play.

The government expects the oil import bill to rise 20% from $88 billion in 2017-18 to $105 billion in the current fiscal, at an average crude price of $65 per barrel. This is 64% higher than $64 billion in 2015-16 when prices were practically in a free fall.
Falling oil prices reduced subsidy burden and helped improve macro-economic parameters such as CAD (current account deficit) and kept inflation in check, prompting RBI to lower interest rates in August 2017.

The government also used this window to mop up additional resources for welfare schemes by cumulatively raising excise duty by Rs 11.77 per litre on petrol and Rs 13.47 on diesel between November 2014 and January 2016.
In October 2017, the tax was cut by Rs 2 a litre as protests became louder over rising pump prices since August 2016 on the back of a rebound in crude. The situation looks familiar as demand for another tax cut grows louder. But that’s only a small problem.

The larger issue is that high oil prices can upset the government’s maths, more so if it is forced to cut excise. Though the government does not buy oil or gas, their high prices become a drag on the rupee as forex outgo increases.

The subsidy bill too goes up. These factors trigger higher inflation and limit the legroom for government spending needed to push growth.
Source: TNN

Blockchain Is About to Revolutionize the Shipping Industry

  • Maersk, APL, Hyundai race to build paperless cargo system
  • Adoption of blockchain could generate $1 trillion in trade
Gantry cranes at the Port of Long Beach in California. Photographer: Tim Rue/Bloomberg

Globalization has brought the most advanced trading networks the world has seen, with the biggest, fastest vessels, robot-operated ports and vast computer databases tracking cargoes. But it all still relies on millions and millions of paper documents.

That last throwback to 19th century trade is about to fall. A.P. Moeller-Maersk A/S and other container shipping lines have teamed up with technology companies to upgrade the world’s most complex logistics network.

The prize is a revolution in world trade on a scale not seen since the move to standard containers in the 1960s — a change that ushered in the age of globalization. But the undertaking is as big as the potential upheaval it will cause. To make it work, dozens of shipping lines and thousands of related businesses around the world — including manufacturers, banks, insurers, brokers and port authorities — will have to work out a protocol that can integrate all the new systems onto one vast platform.

Should they succeed, documentation that takes days will eventually be done in minutes, much of it without the need for human input. The cost of moving goods across continents could drop dramatically, adding fresh impetus to relocate manufacturing or source materials and goods from overseas.

“This would be the biggest innovation in the industry since the containerization,” said Rahul Kapoor, an analyst at Bloomberg Intelligence in Singapore. “It basically brings more transparency and efficiency. The container shipping lines are coming out of their shells and playing catch-up in technology.”

The key, as in so many other industries, from oil tankers to cryptocurrencies, is blockchain, the electronic ledger system that allows transactions to be verified autonomously. And the benefits wouldn’t be confined to shipping. Improving communications and border administration using blockchain could generate an additional $1 trillion in global trade, according to the World Economic Forum.

APL Ltd., owned by the world’s third-largest container line CMA CGM SA, together with Anheuser-Busch InBev NV, Accenture Plc, a European customs organization and other companies said last month that they’ve tested a blockchain-based platform. South Korea’s Hyundai Merchant Marine Co. held trial runs last year using a system developed with Samsung SDS Co.

Containers are loaded onto automated guided vehicles during testing at Port of Long Beach in California in 2015.

Photographer: Tim Rue/Bloomberg

The shipping paper trail begins when a cargo owner books space on a ship to move goods. Documents need to be filled in and approved before cargo can enter or leave a port. A single shipment can require hundreds pages that need to be physically delivered to dozens of different agencies, banks, customs bureaus and other entities.

Trail of Roses

In 2014, Maersk followed a refrigerated container filled with roses and avocados from Kenya to the Netherlands. The company found that almost 30 people and organizations were involved in processing the box on its journey to Europe. The shipment took about 34 days to get from the farm to the retailers, including 10 days waiting for documents to be processed. One of the critical documents went missing, only to be found later amid a pile of paper.

“The paperwork and processes vital to global trade are also one of its biggest burdens,” according to Maersk, the world’s largest container shipping company, which has teamed up with International Business Machines Corp. to enable real-time tracking of its cargo and documents using blockchain. “The paper trail research that Maersk did uncovered the extent of the burden that documents and processes inflict on trade and the consequences.”

That plethora of paper processors has been one of the reasons shipping has lagged behind other industries in moving to electronic forms. The variety of different languages, laws and organizations involved in moving cargoes in the past made standardization a slow process.

An illustration of the Great Tea Race of 1866 between the clipper ships Taeping and the Ariel.

Source: Universal History Archive/UIG via Getty Images

Instead the industry has relied on advances in transport technology and cargo handling to improve efficiency, with the great Clipper sailing vessels replaced by steamships and then modern oil-powered leviathans – the largest ships on the oceans. In the 1850s, it took more than three months to move chests of tea from southern China to London. Today, that journey would take about 30 days.

The biggest change came in the 1960s, when the industry adopted the standard-size steel boxes in use today, replacing the wooden crates, chests and sacks that stevedores had hauled on the docks for centuries.

With these containers sometimes holding products from different suppliers, and ship cargoes sometimes ending up with thousands of customers in dozens of countries, the transition to a uniform electronic system presents major challenges.

“Not all stakeholders are looking at deploying the same blockchain solution and platforms,” APL said in response to questions. “This can pose as a challenge if stakeholders are expected to trade via a common platform or solution.”

Workers handle cargo at the Royal Victoria Dock in London in the 1930s.

Photographer: Guildhall Library & Art Gallery/Heritage Images via Getty Images

And the shipping lines will also need to persuade the ports and other organizations involved in cargo trading to adopt their systems. Maersk said Singapore-based port operator PSA International Pte. and APM Terminals, based in The Hague, Netherlands, will use its platform. APL and Accenture said they plan to pilot their product by the end of this year. Accenture said it has tested its technology with other pilot shipments that range from beer to medical supplies.

The cost savings could be visible in the companies’ financial statements in about two years, Kapoor of Bloomberg Intelligence said.

“Shipping needs to stop thinking about itself as this standalone middle sector,” said K D Adamson, chief executive officer of Futurenautics Group. “It needs to start thinking about how the different elements of shipping fit into other ecosystems.”