UTi Global Trade Update
“APAC carriers impacted by weak cargo demand” A UTi bi‐weekly publication, Volume 54
14 May 2012
Welcome to the UTi Global Trade Update newsletter. The objective of this newsletter is to inform our clients and colleagues of emerging issues and trends within the transportation industry. Air News Higher turnover, but lower profits for Asia Pacific carriers Air cargo operators being squeezed between rising fuel costs and falling demand Asia Pacific airlines saw higher revenue, but lower profits last year. The Association of Asia Pacific Airlines (AAPA) said yesterday the total net profit of US$4.8 billion in 2011, was down 47% on a year ago, due to higher oil prices and a weak cargo market. Kuala Lumpur‐based AAPA said total revenue among its 17 carrier members was up 10% on a year ago at $162 million. But added that this represented only a 3% profit margin and “a poor return on invested capital”. Overall, cargo revenue fell 1.4%, to $22 billion, last year, and operating expenses rose 15% to $155 billion. This was largely due to a 28% surge in fuel costs, said AAPA. Director General Andrew Herdman said: “Profit margins were squeezed by high oil prices, as well as the impact of a weak air cargo market.” He warned that persistently high oil prices and slower economic growth in the major developed markets would continue to cloud prospects. “So far this year, Asian airlines have continued to benefit from stronger economic growth within the region, but air cargo markets remain weak,” he said, adding that airlines were responding with stricter cost controls and cutting services to match the softer demand. (Source: Lloyds Loading List, 04 May, 2012) Lufthansa to cut 3,500 jobs in savings drive (Reuters) ‐ Deutsche Lufthansa (LHAG.DE), Germany's biggest airline, announced plans to slash 3,500 administrative jobs around the world as it tries to offset soaring fuel costs and fierce competition in Europe to return to profitability. "We can only safeguard jobs for the long term and create new openings if we reorganize the administrative functions and accept job losses now," Chief Executive Christoph Franz said in a statement on Thursday. Lufthansa, which has a workforce of about 117,000 people worldwide, fared better in the global economic crisis than peers such as Air France‐KLM (AIRF.PA) and British Airways (ICAG.L), but CEO Franz said the airline needs to radically cut costs to remain competitive. The airline added about 2,500 of the planned job losses will be in Germany. He has vowed to improve results by 1.5 billion euros ($2.0 billion) by the end of 2014 as rocketing jet fuel prices, a weak global economy and competition for passengers with fast‐growing low‐cost carriers and Middle East airlines squeeze margins. Lufthansa's move came as Scandinavian airline SAS (SAS.ST) blamed high fuel prices for a quarterly loss that was more than twice as large as analysts had forecast, and Irish airline Aer Lingus' (AERL.I) said performance in April was lower than expected. At the same time, Danish no‐frills airline Cimber Sterling (CIMBER.CO) said it has declared bankruptcy after its owners finally pulled their financial support. PRICEY KEROSENE Lufthansa's first‐quarter operating loss more than doubled to 381 million euros, missing a consensus forecast of a 289 million euros loss as the average kerosene price rose 9 percent year‐on‐year. The carrier expects to spend 7.5 billion euros on fuel this year, eating up about a quarter of its 2012 revenues. Shares in Lufthansa were up 0.3 percent at 9.931 euros by 03:57 EDT (0757 GMT), underperforming a 0.8 percent gain by the German blue‐chip index finance/markets/index?symbol=de%21daxx">.GDAXI. The carrier said it still sees its 2012 operating profit declining to a figure in the mid‐hundreds of millions of euros, but said that target excluded possible costs related to the cost‐cutting program. In addition to job cuts, which will help lower administrative costs by about a quarter, Lufthansa will bundle some procurement, restructure its Austrian unit and boost cooperation between its main Lufthansa brand and low‐cost carrier Germanwings. It has also cut its capacity expansion plans again, saying it now planned to offer only 1 percent more seats this year, compared with previous plans to add 2 percent capacity. (Source: Reuters, 03 May, 2012) Ocean News Hyundai Merchant Marine Posts $177 Million Loss
Fuel costs offset rising rates, ocean carrier said South Korea’s Hyundai Merchant Marine said higher fuel costs and lower container volumes widened its first quarter operating loss to 201 billion won ($177 million) from $24 million a year earlier. The diversified carrier’s tanker division narrowed its operating loss to $6.2 million from $32 million in the first quarter of 2011. Bulk shipping losses rose to $19 million from $16 million. Hyundai’s container volume slipped 0.8 percent to 708,000 twenty‐foot‐equivalent units in the first quarter. Intra‐Asia and Asia‐Europe volumes rose slightly but trans‐Pacific volume fell 3.3 percent to 295,000 TEUs. The company said rates rose in the first quarter but were offset by fuel costs. Hyundai said it expects per‐unit fuel costs to decline following delivery by mid‐year of five 13,000‐TEU ships that will be more fuel‐efficient than existing vessels. (Source: Journal of Commerce, 07 May, 2012) Idle Container Ship Capacity Falls by a Third Container lines have started reactivating their idle container fleets for the summer peak shipping season, which has resulted in a decline of almost a third in idle container ship capacity, according to Alphaliner. The decline in the idle fleet in the last month has added vessel capacity equivalent of 293,000 20‐foot equivalent units to global trade lanes, which could slow or erode the increases in freight rates to and from China. Rates on lanes connecting to China have increased by an average of 38 percent on the China Containerized Freight Index since January, Alphaliner said. The capacity of the idle container fleet, which stood at 913,000 TEUs in mid‐March, fell 32 percent to 620,000 TEUs at the end of April. New services scheduled for launch in the next three months are expected to bring the idle fleet below 350,000 TEUs by July. The reduction of the idle fleet provides some relief for the charter market, which has suffered from depressed rates for most of the last three years. However, the container ship fleet will not return to full employment anytime soon, since the delivery of new vessel capacity is expected to push idle figures up again by the end of the year. Alphaliner said the current downturn is unprecedented in both duration and intensity. According to historical container ship idling data compiled by the French analyst, the container ship fleet enjoyed close to full employment prior to 2009. The impact of previous container shipping downturns has been much milder than the current dip. Their effect was usually felt for less than 12 months, with modest unemployment levels. The downturn in 2002 lasted for about 10 months, and vessel unemployment peaked at only 3.2 percent of the fleet. (Source: JOC Sailings, 02 May 2012) Hybrid cargo vessel type could emerge in place of discontinued U.S. Northeast container service In the wake of a discontinued Jones Act shipping service that launched nine months ago calling ports in Boston, Portland (Maine), and Halifax, is talk of the development of a hybrid cargo vessel that could be used to restore service there. The Bangor [Maine] Daily News reported officials from the U.S. Maritime Association scheduled a visit to the International Marine Terminal at the Port of Portland just three days after American Feeder Lines announced it was discontinuing its service in the U.S. Northeast that had been utilizing containerships with 750‐TEU capacity. MARAD and the U.S. Department of Defense have reportedly have a preliminary design for an articulated tug barge with capacity for 500 TEUs at an estimated cost range of $30 million to $50 million compared to the $70 million to $125 million cost range for a larger containership. The Port of Portland and at least one state legislator are hoping to convince MARAD to spend another $350,000 that would be needed to complete the ATB design. “One thing that is going to make it easier to develop service to ports like Portland is a more efficient ship design that can be built in local yards at a low cost to make short sea shipping more economical,” said U.S. Rep. Chellie Pingree, D‐Maine in a statement. “I’d like to see the Maritime Administration make the design of that ship a reality. It could go a long way to getting that service up and running again,” he said. The proposed hybrid container vessel would reportedly be built by local shipyard Washburn & Doughty due to that company’s experience with building other types of ATBs. The U.S. Department of Transportation has reportedly approved a project to develop coastal shipping from Portland to the Port of New York. (Source: Cargo Business News, 07 May, 2012) Compliance News New 'single window' is ACE for US manifests Old electronic data exchange system to be phased‐out for sea and rail over next six months US Customs and Border Protection (CBP) has announced it will implement the Automated Commercial Environment (ACE) after a six‐month transition period. ACE will then be the only CBP‐approved electronic data interchange (EDI) system for brokers, carriers, importers and other shippers to file required advance ocean and rail cargo information to the agency. The commercial trade processing system is being developed by CBP to become the “single window” through which international traders will electronically provide all information needed by federal agencies for the import of cargo. The current Automated Manifest System (AMS) will continue to operate during the transition period, but after 29 September 2012, it will no longer be available for transmitting required advance ocean and rail cargo information to CBP. AMS will continue to operate for air manifests, however. The decision to move to ACE for rail and sea manifests was based on a successful pilot programme, which began in November. Acting CPB Commissioner David Aguilar said: “ACE is part of the CBP modernisation process that is essential to facilitating trade and security, speeding the flow of commerce into the country.” (Source: Lloyds Loading List, 04 May, 2012) CBP, EU Sign C‐TPAT Mutual Recognition Decision
U.S. Customs and Border Protection (CBP) and the European Union (EU) signed a Mutual Recognition Decision between CBP’s Customs‐
Trade Partnership Against Terrorism (C‐TPAT) program and the EU’s Authorized Economic Operator (AEO) program. CBP Acting Commissioner David V. Aguilar and Director‐General Heinz Zourek, European Union Taxation and Customs Union Directorate (TAXUD) signed the decision, which recognizes compatibility between the EU and the U.S. cargo security programs. Source: http://www.cbp.gov/xp/cgov/newsroom/news_releases/national/05042012.xml Foreign Corrupt Practices Act Antibribery Provisions Act The 1988 Trade Act directed the U.S. Attorney General to provide guidance concerning the Department of Justice's enforcement policy with respect to the Foreign Corrupt Practices Act of 1977 ("FCPA") to potential exporters and small businesses that are unable to obtain specialized counsel on issues related to the FCPA. U.S. firms seeking to do business in foreign markets must be familiar with the FCPA. In general, the FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. Source: http://www.justice.gov/criminal/fraud/fcpa/docs/lay‐persons‐guide.pdf Danes to tighten export rules on arms shipments
Government will also lobby for international clampdown on weapons being shipped to repressive regimes The Danish government has confirmed plans to tighten transport permit and transit authorisation rules for military cargo leaving Danish ports. The new regulations were triggered by the disclosure by Danish Customs in April, that US‐produced weapons and munitions had been carried on Danish vessels bound for “unstable regimes” in the Middle East. Denmark’s present export laws prohibit the shipment of arms to “unstable or repressive regimes”. In a parallel action, the Danish government also intends to muster Nordic support to lobby for tighter international rules governing the shipment of munitions and military hardware, ahead of the UN’s Arms Trade Treaty meeting in July. Jeppe Kofod, foreign affairs spokesman for the ruling Social Democrats‐led coalition government, said: “There is a need for a strong tightening of the arms trade to ensure that weapons are not traded to countries that violate human rights or humanitarian law. A Danish vessel had recently been impounded after a cargo of 69 US Patriot missiles and 150 tonnes of military‐grade explosives was found on‐board. The ship’s manifest had listed the cargo as fireworks and its destination port as Shanghai. The ship had been on route from Emden in Germany to South Korea, and stopped in Kotka, Finland, to collect a shipment of anchor chains. It was later confirmed that the missiles were bound for South Korea and the explosives for China. (Source: Lloyd’s Loading List, 03 May 2012) Contract Logistics News Supply chain tug of war
Customers eye ways to wrest logistics control from their suppliers to save money B&Q did it, Asda did it, and now more companies are asking whether taking control of their inbound supply chains from their materials suppliers could save them money. Young’s Seafood, part of the Findus Group, has a £600 million turnover, employs 3,200 people across 13 UK sites and produces frozen and chilled fish products for UK retailers. It handles its own distribution, but for the inbound logistics – significant tonnage from all over the world – its fish suppliers buy the forwarding and shipping services. Richard Herbage, Young’s UK Supply Chain Director, said: “Is this the right business model? Intuitively, it doesn’t feel right.” “Most suppliers [like us] have total control outbound but inbound costs are hidden within the materials we buy. “If the distribution costs were 8% of the cost of materials, then any reasonable negotiation could result in savings. What I don’t know is how to get at that.” “If a shipper has outsourced for the past 30 years, it is difficult,” said Charlie Pesti, Key Account Manager at Transporeon, an internet logistics platform linking industrial and trading companies with carriers. “To make it work, you need high‐quality data and to know your volumes and your trade lanes, etc,” added its Business Development Manager, Scott Stevenson. But would taking control of buying services directly from forwarders and shipping lines necessarily result in savings? “There are some fish suppliers we are buying from that may get a better deal [than we could],” said Herbage. “Our suppliers supply frozen fish to the whole of Europe, so their scale may outweigh our purchase power.” (Source: Lloyd’s Loading List, 01 May, 2012) Jury Indicts 11 in $75 Million Warehouse Theft
Warehousing robbery considered largest cargo theft case in U.S. history. A federal grand jury in Miami indicted 11 men for sale and distribution of $100 million in stolen freight, including $75 million in pharmaceuticals taken in the brazen burglary of an Eli Lilly & Co. warehouse in Enfield, Conn. Authorities describe the Eli Lilly break‐in in March 2010 as the largest cargo theft case in U.S. history. Thieves cut into the warehouse’s room, rappelled down, disabled the security system and loaded two trucks with anti‐psychotic and anti‐depressant medications. The U.S. attorney’s office in Miami said the 18‐count indictment resulted from an investigation dubbed Operation Southern Hospitality. The indictments include charges related to the Eli Lilly burglary and thefts of 3,500 cases of cigarettes worth more than $8 million from a warehouse in Razewell County, Ill., in January 2010 and thefts of pharmaceuticals from trailers at truck stops in Pennsylvania and Ohio and from a GlaxoSmithKline warehouse in Virginia. “This investigation represents the largest takedown in U.S. history involving cargo theft. The theft includes more than $100 million, including $80 million worth of pharmaceuticals,” said John V. Gilles, FBI special agent in charge in Miami. (Source: Journal of Commerce, 07 May, 2012) FCPA News Public firms usually settle foreign bribery charges
You're the CEO of a global, publicly traded corporation. You've just learned that some employees may have bribed foreign government officials to help your business get contracts. What do you do? In many cases, negotiate a settlement, pay a fine, and get back to business. The scenario is a hot topic in corporate boardrooms in the wake of allegations by a former Wal‐Mart official that company executives in Mexico paid millions of dollars to government officials there in a successful effort to speed the opening of new stores. The allegations, now under review by the company and federal investigators, were disclosed last month by The New York Times. It's not yet clear what, if anything, will come of the review. But records of Foreign Corrupt Practices Act cases show publicly traded companies are leery about going to trial against the government. "The companies that actually fight the Justice Department or the Securities and Exchange Commission are pretty few and far between," said Amy Conway‐Hatcher, a former federal prosecutor who heads the Internal Investigation practice for the Kaye Scholer law firm in Washington, D.C. "You usually see corporate settlements arise out of this." Enacted in 1977, the anti‐corruption statute makes it illegal for companies and their employees to make payments to foreign government officials with the goal of obtaining or retaining business. Companies with U.S.‐listed securities must also keep records that accurately reflect payments and have internal accounting controls. From 1991 to 2010, each of the dozens of publicly traded companies criminally accused under the law has reached a settlement that enabled it to pay a fine and avoid trial, said Richard Cassin, an attorney who's the creator and principal author of the FCPA blog. Federal case data collected by the Transactional Records Access Clearinghouse, a research organization at Syracuse University, confirm the trend. By settling, companies sidestep negative publicity and avoid the long odds of prevailing at trial because of a legal doctrine that makes them responsible for the actions of their employees. Moreover, Cassin said deferred prosecution or non‐prosecution agreements with the government often enable companies to have the case record closed, provided they cooperate with federal prosecutors. "With that mechanism in place, companies find it attractive to resolve the cases," he said. Criminal and civil fines imposed on corporations totaled more than $3.8 billion from 2007 to 2011, a boom era in enforcement of the anti‐corruption law, according to a widely followed digest issued by the Shearman & Sterling law firm. Income from the settlements represents "a nice cottage industry" for the government, Conway‐Hatcher said. But the government has suffered bruising setbacks amid its successes. Unlike corporations, several individuals charged under the anti‐corruption law have gone to trial in the last few years, and won. Federal prosecutors grabbed headlines in 2010 when they announced an undercover sting had produced indictments of 22 executives and employees of military and law enforcement contracting firms for allegedly scheming to bribe African government officials in exchange for contracts. But in the succeeding months, the alleged conspiracy prosecution collapsed in a mistrial, acquittals and the government's decision to drop the case. David Krakoff, a BuckleySandler attorney who represented one of the defendants, theorized that prosecutors thought they would obtain quick guilty pleas "because they had videotapes and they had audiotapes and they had invoices going back and forth, and they had substantial e‐mail contact." That was a miscalculation, Krakoff said, because the defendants didn't know each other, which undermined the conspiracy allegation, and they dealt with an undercover agent, not a foreign government official. "Did the money really go to a foreign official? Did it actually induce a foreign official to do something or take some action that was improper? Did the company executive actually know a bribe was going to be paid?" asked Krakoff, referring generally to potential problem issues for prosecutors. "These are real live questions, and it's not always easy to prove." The U.S. Chamber of Commerce and other groups have called for revisions that, among other things, would enable firms with strong anti‐bribery compliance systems to mount a good‐faith defense if an errant employee or vendor violates anti‐bribery policies without knowledge of corporate leadership. In a 2010 report titled "Restoring Balance," the Chamber of Commerce said it was unfair to hold a business criminally liable for behavior the business neither knew about nor sanctioned. The question for companies is "how far do you have to go" to detect and correct potential violations of the anti‐corruption law, Conway‐Hatcher said. "What's enough, in the government's eyes? And that's not always clear. To a certain extent … companies sometimes feel a little bit like sitting ducks." The business group and others also contend the government has imposed exorbitant fines on companies that have run afoul of the law. But the Shearman & Sterling digest reported in January that the average penalties over the past few years have ranged from $3 million to $33 million, "not inconsequential, but certainly not as severe and extreme as the annual total penalties might suggest." Pointing to what he termed an expected mixture of wins and losses for both sides in Foreign Corrupt Practices Act cases, Cassin argued the government "is just doing its job." (Source: USA Today, 03 May 2012) Surface News Balfour Beatty lands London Gateway rail terminal contract UK firm will build facility capable of handling trains up to 34 wagons long DP World’s London Gateway has awarded Balfour Beatty Civil Engineering the multi‐million pound contract to build a new rail terminal capable of handling the longest trains in the UK. The UK‐based engineering firm will develop the first of three rail terminals and double‐track the branch line to the new deepsea container port being built on the north bank of the River Thames, east of London. The rail terminal will be able to accommodate trains up to 34 wagons long, which DP World said would future‐proof the new logistics hub. Gina Acosta, London Gateway Port/Park Interface and Rail Terminal Manager, said: “With 33% of London Gateway port throughput expected to go by rail, we are committed to having the right infrastructure and operational processes in place from day one. “We are also future‐proofing rail capacity by double‐tracking the branch line.” Marshall Scott, MD of Balfour Beatty Civil Engineering, said: “This important rail infrastructure will help make the UK more competitive and create new options for distribution of freight.” Opening in Q4 2013, London Gateway is set to become the UK’s premier logistics centre. When fully developed, London Gateway port will handle 3.5 million teu a year, with the adjacent logistics park the largest in Europe. (Source: Lloyd’s Loading List, 26 April, 2012) $105 'slush fund' tolls a threat to US trucking Senate hearing told 'irresponsible' authorities hike tariffs and use revenue for non‐transport projects The CFO of a major haulage firm has accused some US public authorities of raising highway tolls to levels that are threating the country’s trucking industry. Steve Grabell, representing the American Trucking Associations, slammed the “irresponsible behaviour of some tolling authorities which, along with complicit state officials, seemingly view toll revenue as a slush fund for investment in all manner of projects, programmes and activities which have nothing to do with maintaining their highways, bridges and tunnels”. Grabell, who is also Chief Financial Officer of National Freight Incorporated (NFI), told last week’s hearing of the US Senate Commerce, Science and Transportation Committee’s Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security that New Jersey‐based NFI had paid $14 million in tolls last year. He said: “This forced us to re‐route our trucks to less efficient secondary roads, which raises our costs and increases congestion and safety concerns.” As an example, Grabell cited further increases planned for tolls on the six interstate bridges and tunnels between New York and New Jersey, operated by the Port Authority of New York and New Jersey (PANYNJ), that would by 2015 raise the charges by 163%, to a total of $105 per truck – nearly three times higher than any other toll in the country. He said: “By 2015, a trip from Baltimore to New York City will cost a five‐axle truck more than $209 in tolls.” He said the authority had refused to reveal where the extra revenue would be spent, but it was clear that billions would be diverted to major PANYNJ projects like raising the Bayonne Bridge to accomodate bigger ships at the port. He added: “The most egregious use of toll revenue is the approximately $11 billion dedicated to the completion of the World Trade Center office buildings. “It is unclear why trucking companies and commuters are being forced to foot the bill for a real estate project.” He told the hearing: “The process and the outcome points to an authority with unchecked power that shows little regard for the impacts of its decisions on the community which it purports to serve.” Grabell said the tolls distorted the market by penalising vehicles that use toll roads and rewarding those diverting to local routes. He added: “Toll facilities must be subject to federal oversight, and the statutory ‘just and reasonable’ toll rate standard that has been in effect for nearly a century must be applied to toll facilities that serve interstate traffic.” (Source: Lloyds Loading List, 24 April, 2012) The UTi Global Trade Update articles are compiled from a number of public sources that, to the best of our knowledge, are true and correct. It is our intent to present only accurate information. However, in the event any information contained herein is erroneous, UTi Worldwide, Inc., and its affiliates accept no liability or responsibility.