An update from MGTA

Midwest Global Trade Association

World Trader

From the President

By Kylle Jordan, MGTA President

Kylle Jordan

Good morning, MGTA community! I hope you’re enjoying the warmer weather – I’m very happy to have outdoor baseball back! It’s been an eventful last few months for our association, from lively discussion of the Trans Pacific Partnership over lunch at Cooper, to a 101 on Foreign Trade Zones hosted at Donaldson. I’ve enjoyed chatting with our members and seeing the hard work of our committees at these events!

I hope to see many more of you at our upcoming events, including educational lunches on Iran & Cuba sanctions and new SOLAS rules, as well as seminars on OFAC/FCPA and other regulations (May) and Antidumping/Countervailing duties (June). The MGTA is also working with the Minnesota Trade Office to present a successful Doing Business in Europe Symposium on May 12. If you plan to attend the event, please stop by the MGTA booth and say "hi" to our VP Anna Ouattara.

On a personal note, I’ve recently started a new position with the State of Minnesota’s Department of Employment and Economic Development (DEED). I am part of the Business Development team, focusing on the Twin Cities Metro, where I work with local companies considering expansion as well as connecting with out-of-state companies for business attraction purposes.

I also continue to meet with as many of our members as possible, so if you’d like to chat, please feel free to contact me.

All the best,

Kylle

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Upcoming Events

MGTA EVENT — Global Trade Education Lunch: Cuba & Iran Sanctions

Tuesday, May 10, 2016 
11:30 am to 1:00 pm

Cooper Irish Pub
1607 Park Place Boulevard
St. Louis Park, Minnesota  55416

View Details and Register Online


Doing Business in Europe Symposium and Welcome AMCHAMs in Europe Evening Reception

Thursday, May 12, 2016
9:00 am to 4:00 pm

Millennium Hotel
1313 Nicollet Mall
Minneapolis, Minnesota  55403

View Details and Register Online


MGTA EVENT - Global Trade Education Lunch: New Container Weight Rule (SOLAS) Discussion                        

Tuesday, June 7, 2016
11:30 am to 1:00 pm

Cooper Irish Pub
1607 Park Place Boulevard
St. Louis Park, Minnesota  55416

View Details and Register Online


MGTA EVENT — 2016 MGTA Golf Tournament - Sponsor Registration

Wednesday, August 10, 2016
Noon to 7:00 pm

Crystal Lake Golf Course
16725 Innsbrook Dr
Lakeville, Minnesota  55044

View Details and Register Online

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Cargo Logistics Canada Conference
(February 17 & 18, 2016)

By Thierry Ajas, Randstad Professionals

I started writing this article as I was heading back to Minneapolis from Montreal, where I attended Cargo Logistics Canada (CLC) held at the Palais des Congres on February 17 and 18. Besides the fact that my flights to and from Montreal were significantly delayed due to poor weather conditions, I did not think that attending Canada’s largest, integrated logistics show was a waste of time — not in the least!

Having attended the previous conference, Cargo Logistics America, held in San Diego last December, the first of its kind in the United States, I was expecting a higher turnout in Montreal and as a result, a lot more networking opportunities. All I can say is that Cargo Logistics Canada did not disappoint. According to Tracy Nguyen, Event Coordinator Global Exhibitions at Informa, the largest publically owned event organizer in the world who organized both cargo logistics conferences in the U.S. and in Canada, the Montreal Conference gathered no less than 2,000 individuals, including 150 exhibitors and 100 speakers. This means twice as many people attended CLC Montreal as did the Cargo Logistics America (CLA) in San Diego. She indicated the number of attendees is actually expected to increase for this year and next year, as Informa will move the next U.S. Conference to the largest port complex in the Americas at the Long Beach Convention Center (October 11-12, 2016) and the following Canadian Conference to Vancouver (February 8-9, 2017) where the series originated.

Going back to CLC16, it included no less than 35 different seminars to choose from, no less than 4 networking events built around the conference: a sold-out keynote lunch featuring Mr. Najim Shaikh, Vice-President, Commercial Import at Mediterranean Shipping Company, a keynote breakfast featuring Mr. Jim Vena, Vice-President and Chief Operating Officer at Canadian National Railroad, and two well-attended networking functions concluding each day: the welcome reception featuring Sylvie Vachon, President and CEO of the Port of Montreal, followed the next evening by Mayor of Montreal Denis Coderre.

The presentations mirrored the depth, breadth and diversity of the many exhibitors on the showfloor. The conference agenda covered a range of topics/market sectors including: shippers’ roundtables, rail productivity, air cargo 2020, omni channel and distribution logistics, women in supply chain, global cold chain developments, commodity and energy impacts on North America, trade with Europe, land for logistics, project logistics, and NAFTA at 22, among others.

Layered within the broader conference were specialized, focused summits on cold chain and commodities, distribution/warehousing, and port productivity. The show floor also featured live seminars on both days that were mostly filled to capacity.

If there was one word to describe the over-arching theme to come out of CLC16, it was likely “growth”, which was framed at the sold-out lunch keynote delivered by Najim Shaikh, Vice-President, Commercial Import, for the second largest container-shipping line in the world, Mediterranean Shipping Company. Saikh presented a forecast for an additional 900,000 TEUs entering the Canadian shipping market over the next five years.

Other multimodal carriers, stakeholders and customers at CLC16 echoed MSC’s bullishness over global trade growth through Canada:

  • Canadian National Railway’s Fiona Murray, VP of Corporate Marketing, said at the breakfast keynote that Canada’s largest railroad would invest $2.9B in 2016 alone for capital investments.
  • Canada’s five busiest container ports (Prince Rupert, Vancouver, Montreal, St. John, and Halifax) are investing in port infrastructure that will accommodate close to an additional two million TEUs over the next six years.
  • Sal Ciotti, Managing Director for Air Canada Cargo, said at the Air Cargo seminar that the airline’s capacity would increase by 50 per cent in the next three years.
  • Quebec’s robust $1.5B maritime investment strategy was a common thread woven through several speakers’ presentations.

One education seminar that was of current industry news interest focused on the International Maritime Organization’s container weight verification mandate under the Safety Of Life at Sea (SOLAS) convention that is now to be enforced globally on July 1 of this year.

In Canada, the readiness of relevant supply chains and regulatory bodies to VGM appeared to be mixed, at best, seminar attendees learned. A representative of shipping line CMA CGM said, “There could be stress on [documenting weight for] 200 containers in one day.” A maritime attorney commented that there will likely be impacts on cargo insurance and letters of credit with regard to VGM. 

The container weight seminar seemed to exemplify what many attendees were sharing at the show and on social media — that there was something for everyone — whether one’s interest was in air, ocean, trucking, rail, warehousing, technology or all of the preceding.

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The Limits of Monetary Policy

By J.P. Morgan Global FX Strategy & Global EM Research

April 6, 2016

At February’s G20 summit in Shanghai, representatives of the International Monetary Fund urged the world’s largest economies to take coordinated fiscal and monetary action to reverse the slowing trajectory of global economic growth, but negotiations failed to build a consensus for any specific policy. This leaves the world’s central bankers and finance ministers free to pursue their own paths. At this point, it's unlikely that their efforts will significantly alter the status quo of slow growth in the developing world, stagnation in Europe and Japan, and soft demand for commodities.

Domestically, the U.S. economy has emerged from a trying winter. February saw the U.S. Dollar Index slump against rising oil and commodities prices, but declining recession risks for the U.S. economy and the strengthening employment picture may have set the stage for an additional interest rate hike later this year.

The Limits of Unconventional Policies

Looking across the pond, the European Central Bank (ECB) has shown hesitance to lower negative interest rates further. The Eurozone’s experiment with negative interest rates has, thus far, failed to spur inflation; additionally, pushing rates much lower than the current -0.4 percent will likely raise the prospect of banks passing on additional deposit losses to their account holders—a situation that has proven politically untenable.

The ECB’s next move will be to focus its monetary stimulus efforts on easing credit markets, and this return to easing will likely mean further depreciation of the Euro, because currency markets typically react more strongly to interest rate adjustments than balance sheet expansions. The ECB’s balance sheet is on track to reach €3.8 trillion by March 2017, but the downward pressure that the asset purchases exert on the Euro seems to be negated, at least for the time being, by the modest recessionary risks facing the U.S. economy.

The Brexit Looms

Great Britain has formally scheduled a referendum on leaving the European Union (EU) on June 23. The vote is shaping up to be a close contest, despite the concessions on immigration and welfare policy granted to Britain at the February 19 EU leadership summit. Futures markets currently place the odds of a British exit (“Brexit”) from the EU at 30 percent, although extrapolation from FX markets seems to indicate a higher probability, perhaps closer to 40 percent. (Alternatively, currency markets may simply believe the exit would cause a greater degree of depreciation for the pound.)

The pound has already shed 9 percent of its value since November. Although the success of negotiations at the EU leadership summit generated a 2 percent bounce, the pound is likely in for greater losses as the referendum’s growing risks drive further capital outflows. Barring a shift in public opinion as the vote approaches, the pound is likely in for a turbulent spring. However, if the referendum fails, the pound could quickly bounce back.

The Bank of Japan Holds Off

The Bank of Japan (BoJ) has declined to cut interest rates further; instead, it will wait to evaluate the full impact of the current -0.1 percent negative rate, which was adopted in January. Thus far, negative interest has produced underwhelming results for the Japanese economy—inflation remains well below the official 2 percent target, and the yen actually rallied in the month following January’s rate cut. Capital outflows have increased, with investors sending ¥4.8 trillion out of the country in February, but the effects of portfolio rebalancing are likely to be offset by the nation’s considerable account surplus.

The BoJ will look to this spring’s salary negotiations for signs of incipient wage inflation, but any further policy moves will likely await the results of July’s National Diet elections. Negative interest rates are unpopular with the current government, but that could change if the policy succeeds in generating inflation in the coming months.

Will the Commodities Boom Last?

February saw an unexpected surge in commodities prices. The agreement between Saudi Arabia and Russia to freeze oil production at January’s levels spurred a 26 percent rise in oil prices over the past month. This rally helped the currencies of exporting nations, including Canada, Mexico and Russia. Iron ore prices also rose 26 percent in February, benefiting the Australian dollar and Brazilian real.

But the staying power of this rally is already in doubt. The agreement to freeze production is not sufficient to end the global oil glut, and Iran’s continuing resistance to production caps will likely further hinder the agreement's power to restore oil prices. The market’s fundamental oversupply makes a prolonged climb unlikely for oil prices in the near future, with oil projected to stay below $40 until U.S. production begins to taper off significantly.

Emerging markets saw their currencies appreciate in anticipation of a Chinese stimulus program, but intervention to restore China’s growth no longer seems likely. A few weeks ago, the governor of the People's Bank of China (PBoC), Zhou Xiaochuan, announced that the nation would meet its 6.5 percent growth target without significant government intervention. The PBoC’s new target is a significant downward revision from the historic 7 percent goal, and the official acceptance of China’s slowdown makes a surge in demand for commodities unlikely.

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Global Market Slowdown

By Jakub Kowalczyk, Purolator, Inc.

Is the world economy headed for a slowdown or recession? While a recession is considered a period of economic decline identified by a fall in GDP in two successive quarters on a global scale, there is no standard.  Citigroup defines a global recession as growth below 2 percent. IMF has previously considered 3 percent rate a technical recession globally.

So is the world economy headed for a slowdown? It is unlikely; a poll of Wall Street economists stated the chances of one occurring in 2016 at one in five. Morgan Stanley stated in a March report that chance as near one in three chance. Morgan Stanley is forecasting global growth at 3 percent, down from 3.3 percent. Global ratings agency Fitch lowered its global growth forecast 2.5 percent this year, down from a 2.9 percent. The IMF cut its global economic outlook to 3.2 percent, down .2 percent.

There are five recession triggers to keep an eye on whether the global market will slowdown.

  • Energy:
    • When oil started falling, economists were bullish on growth, as cheaper gas tends to give consumers more spending money. But no one anticipated the magnitude of the commodity’s collapse. Reducing the value by $100 per barrel subtracts $3.3 trillion from world income, which is only $70 trillion. While that does represent almost 5 percent of the world income, a majority of economic activity in the U.S., Japan and Europe is in the service sector, which generally benefits from cheaper energy prices.
  • Manufacturing:
    • In order to compete with the Chinese while their economy weakened and commodities have slumped, many manufacturers have been forced to slash prices to stay competitive as Chinese factories run at full tilt. While manufacturing these days is only a small portion of the economy, keeping track of surveys of the service sector as well as measures of the labor market for signs of weakness may be a better indicator.
  • Lending:
    • January’s Federal Reserve survey of loan officers saw just over 8% respond that they planned to toughen lending standards on corporate borrowers. Tightening credit doesn’t always lead to a recession. But every recession starts with that. The fact that interest rates are still low means that companies are still paying historically low prices to borrow. In addition, lending officers say they are continuing to make credit card, auto, and other loans more available, not less.
  • Profits:
    • Average earnings for the companies in the S&P 500 dropped in the fourth quarter of 2015 vs. a year ago, according to FactSet.  Collectively, Wall Street analysts predict earnings will continue to sink past the spring. If earnings outside of the oil industry turn south as well, then the economy might have a real problem; so far; that’s not the case.
  • Stocks markets:
    • The market is a leading indicator of economic activity, and recessions are almost always preceded by falling stock values. Stock market declines of 10% or more are not uncommon during economic expansions. Pay attention to the bond market — if short-term interest rates outpace long-term rates, that is a far more reliable indicator of recession than equity markets.

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TransPacific Import Contracts

By Kevin Johnson, Best Buy Co., Inc.

It’s that time of the year when Beneficial Cargo Owner (BCO) shippers in the TransPacific eastbound trade are at the annual contracting table with ocean carriers. Behind this year’s contract negotiations is the continuing decline of ocean freight rates due to overcapacity in vessel tonnage throughout the TransPacific and Asia-Europe trades. Industry prognosticators say the overcapacity will remain another year or two before the trade balances with vessel capacity. Ocean carriers are challenged from the years-old decision to lower costs through the operational economies of scale and fuel efficiency by purchasing and deploying mega ships in the 18,000 twenty-foot-equivalent units range. Spot rates in the TransPacific trade have remained lower than many BCO contract levels throughout much of 2015. This has prompted some shippers to rely to a larger degree on the spot market than they historically would. It’s safe to say both the shipping and carrier communities yearn for a stable ocean freight market with equitable rate levels for both Carriers and Import-Export shippers across the U.S.

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Country of the Month: Panama

By Bryan Mulkerron, Euler Hermes

While the Panama Papers and law firm Mossack Fonseca have been steling the headlines recently, the country continues to shine as a beacon of economic growth and stability in Central America. Panama’s history runs deeper than just the well-known locks within its iconic canal, as the country has served as a crossroads for international trade since the Spanish empire arrived in the New World.

Just as the Spanish saw value in the route to export gold and silver back to Spain during its 300-year rule, so too does the modern world view the treasured canal as it prepares itself for the opening of the third lock, which is scheduled for later this year. The canal already generates a third of the country’s revenues and sits near the Colon Free Trade Zone, which boasts of being the largest in the Americas, propelling Panama into the distinction as the fastest growing economy in Central America.   

Panama’s economic rise and stature as a top five Latin American country to conduct business with alongside its 13 Free Trade Agreements and 6%+ GDP growth may be the reality of today; however, the country began to blossom into its own sovereign identity a little over 100 years ago, much like its lush landscape is decorated with trees, fish and butterflies, which also turns out to be the consensus definition and etymology for the word Panama. 

As a country with deep roots in the U.S. since the formation of the canal as well as its declared independence, Panama’s economy might reflect many familiar aspects of the U.S. economy — including the U.S. dollar as an established and accepted currency. It is the first Latin American country to have a developed international banking community, but also includes some of the downside risk and exposure of conducting in global trade during a slowdown.

Panama has maintained a relatively moderate fiscal deficit and looks to continue positive growth across several metrics, which include GDP and strong FDI inflows. Strong import sectors remain transport equipment and petroleum (which are reflective of the canal project), Tocumen International Airport, which is Central America's largest — as well as a growing tourism industry that is supported by favorable tax exemptions for foreigners to visit as well as live and retire.

Export trading partners include other Latin American countries in addition to the U.S., which also benefits from the Bilateral Investment Treaty, protecting and favoring U.S. private investment along with the U.S. Trade Promotion Agreement. 

While risks still exist with the ties to the global market and the regional spread of corruption and economic slowdown among some of Panama’s neighbors, the country continues to be a stable and influential route for international trade... as it has been for several hundred years.

For more information on Euler Hermes Country Risk Reports:
http://www.eulerhermes.com/economic-research/country-risks/Pages/country-reports-risk-map.aspx

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Do you know an MGTA member who was recently promoted or hired to an import/export company? Know of a member who recently got married or had a new addition to the family? Share the good news with your industry colleagues by emailing Kylle Jordan.

May – June 2016

From the President

Upcoming Events

Cargo Logistics Canada Conference
By Thierry Ajas, Randstad Professionals

The Limits of Monetary Policy
By J.P. Morgan Global FX Strategy & Global EM Research

Global Market Slowdown
By Jakub Kowalczyk, Purolator, Inc.

TransPacific Import Contracts
By Kevin Johnson
, Best Buy Co., Inc.

Country of the Month: Panama
By Bryan Mulkerron, Euler Hermes

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