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World Trader - November/December
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An update from MGTA

Midwest Global Trade Association

World Trader

From the President

By Kylle Jordan, MGTA President

Greetings MGTA community! 

Has your company passed an import/export milestone this year? Tried a new or innovative trade strategy? Participated in philanthropy or outreach in your community? These are just a few of the qualities we look for in our Importer/Exporter of the year - and our application for this year is open! The award is given at our annual meeting, which will be held on February 9th, 2017.

We will also award a scholarship to a student studying a subject related to international trade. If you know a deserving student or professor who might could share this opportunity with student, we appreciate your help in spreading the word! Click here to apply.

Hopefully you've been able to attend one of our recent events - like our "Brexit" luncheon. This fall you can look forward to our legislative update as well our December program on Country of Origin and the opportunity to network with fellow members at our Cooper educational lunches.

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Upcoming Events

Global Trade Education Lunch

Tuesday, November 8, 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


2016 Legislative Update

Friday, November 18, 2016
8:30 am

TBD

View Details and Register Online


MGTA 2017 Annual Meeting

Thursday, February 9, 2017
5:30 p.m. to 9:30 p.m.

Pinstripes Edina
3849 Gallagher Dr
Edina, Minnesota  55435

View Details and Register Online

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Canada Border Services Agency eManifest Now Mandatory

In 2013, the Canada Border Services Agency (CBSA) deployed new electronic systems (eManifest) that allow freight forwarders in all modes of transportation to transmit advance house bill data on consolidated freight to the CBSA.

On May 6, 2015, regulatory amendments supporting the CBSA’s eManifest initiative were published in the Canada Gazette, Part II. The publication of these regulatory amendments makes eManifest requirements for highway carriers, rail carriers and freight forwarders, as set out in the regulations, legally binding.

As of November 7, 2016, it will be mandatory for all freight forwarders to electronically transmit advance house bill data on consolidated freight to the CBSA within the prescribed mode-specific time frames.

The U.S. Commercial Service, of the U.S. Department of Commerce, encourages all freight forwarders to learn about your new requirements by attending a CBSA webinar. For a listing of the webinars, please go to the CBSA’s website.

For more information on the requirements and the implementation timeline, please click here.

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Another Line Bites The Dust

By Thierry Ajas, Randstad Professionals

Hanjin Shipping goes under

South Korea’s Hanjin Shipping Co., the world’s ninth largest container shipping company transporting over 100 million tons of cargo a year,  filed for bankruptcy protection in the U.S. on September 2, 2016 to protect its vessels from being seized by creditors.  The carrier’s debt stood at $5.5 billion at the end of June.

Hanjin filed for protection under chapter 15, the section of the U.S. bankruptcy code that deals with international insolvency matters, in U.S. Bankruptcy Court in Newark. N.J., two days after the company sought protection in South Korea on August 31st.

The company’s filing for rehabilitation akin to chapter 11 in the U.S., in Seoul has roiled ports in the U.S. and beyond, as creditors seized ships and terminal operators refused to handle cargo, stranding Hanjin’s container ships loaded with appliances, electronics and other consumer goods.

Money for nothing


Needless to say that Hanjin’s bankruptcy has caused widespread disruptions in freight shipments, creating a logistics nightmare for many suppliers. The refusal of ports to handle cargo, for fear they won’t be paid, has stranded nearly 80 Hanjin ships and at least half a million containers at sea, representing a commercial value estimated at $14 billion.

Also, the threat of the company’s creditors seizing ships as well as the refusal of destination ports (*) to unload Hanjin vessels led crews on those ships to face increasing uncertainties and diminishing supplies.

Hanjin’s parent company already agreed to put up 100 billion won ($90 million) to help resolve the cargo crisis, but that hasn’t been enough to fully assuage concerns from both suppliers and cargo handlers. South Korea’s maritime ministry said Hanjin Shipping would need more than 600 billion won for unpaid costs, such as fuel, including about 100 billion won for immediate payments to ports and terminal operators.

Other consequences

  • Ripple effect on Global Alliances - The problems resulting from Hanjin’s bankruptcy extended to carriers with vessel-sharing deals with Hanjin, including China’s Cosco Group, Japan’s Kawasaki Kisen Kaisha Ltd., and Taiwan’s Evergreen Marine Corp. and Yang Ming Marine Transport Corp., which typically move thousands of Hanjin containers daily.

  • Rates going up: Sanne Manders, Chief Operating Officer at California-based freight forwarder Flexport Inc., said rates on Asia-U.S. cargo rose 40% to 50% since the beginning of September on all sea lanes—not just those operated by Hanjin. “That amounts to easily $600 to $700 per container, “ Mr. Manders said.” We think this period of high prices will be 30 to 45 days," through the initial peak for Thanksgiving-season shipping, he said.

  • Anticipate delays: Executives with freight-booking platform Shippabo warned that companies would experience delays as many cargo containers were rerouted on different vessels, which could have a devastating impact on smaller companies.

  • Additional costs to be expected: the Hong Kong Shippers’ Council said local terminals are charging shippers a special fee of $1,260 per container to allow them off Hanjin ships. Cargo owners said at least 10 other European and Asian ports are charging similar fees.

  • Empty containers left behind: Since Hanjin filed for bankruptcy at the beginning of September, thousands of its containers—unloaded from ships and emptied of their imported goods—have been cluttering warehouse yards and parking lots up and down the West Coast. Nearly 10,000 of those boxes were attached to wheeled trailers known as chassis that are needed by truckers to move other companies’ goods off the docks.  On October 11, 2016, the bankrupt shipping line said it would accept empty containers at two of its West Coast port terminals, offering relief to logistics companies stuck with thousands of boxes delivered by Hanjin.

  • Layoffs have already started: Hanjin laid off 180 employees at the end of September throughout the country, said Michael Radak, Senior Vice President and Regional Executive at Hanjin’s U.S. headquarters on Route 4. Radak said the cuts included a number in Paramus, which took effect at the end of the workday on Friday, but he declined to say how many.

Going forward

All stakeholders need to understand that no carrier is too big to fail. And while Hanjin’s financial position was at the extreme edges, a number of major carriers are still struggling and the risk of another following the same path as the Korean line cannot be discounted. 
Also, exporters and importers are expected to increase demand for carrier financial risk indicators and advice on risk management, which will most likely lead shippers to award more volumes to financially stronger carriers that provide visibility into their financial health.
A new wave of mergers is to be expected going forward which may bolster the position of the biggest carriers, led by A.P. Moeller-Maersk A/S’s Maersk Line, in an industry that has witnessed the disappearance of five of the 20 biggest carriers in the past two years alone. Transactions included the combination of China’s two biggest liners and Hapag-Lloyd’s takeovers of Chile’s Cia. Sud Americana de Vapores SA in 2014 and UASC this year.

However,  the very business model of ocean shipping lines, focusing on massive ships carrying as many containers as possible at one time over long distances, is increasingly open to question as Asia-Europe and Transpacific trade lanes are no longer posting dynamic growth, which is now to be found on intra-Asia, India and Africa routes.
Last but not least, shipping lines will have to contend with the implications of near- or right-shoring, which an episode like Hanjin is likely to result in having more and more shippers shorten their supply chains to reduce costs and risk.

 (*) With the exception of the Ports of Los Angeles, Singapore & Hamburg.

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International Air Market Reacts to Product Recall

By Kevin Johnson

The Asia/North America airfreight market, already reeling from resulting Chinese National Holiday capacity challenges and carriers adding more capacity at premium rates, now handle the challenges of a volume surge resulting from the recent Note7 voluntary recall. These lithium-ion embedded devices that when transported via international air travel can already pose additional flight space challenges resulting from compliance with International Air Transport Association (IATA) hazardous goods regulations. In addition, shippers are waiting to see if the space capacity chaos in the Transpacific ocean freight market resulting from the unfortunate Hanjin fallout will result in critical ocean freight tonnage defaulting to air transport…and further space challenges.

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Foreign Trade Zones: The Basics

Although authority for establishing a Foreign Trade Zone (FTZ) in the U.S. was first granted long ago, in the first half of the 20th Century, many companies are still unaware or confused about their existence.  Under the Foreign-Trade Zones Act of 1934, a Foreign Trade Zone Board was created to review and approve applications to establish, operate, and maintain FTZs.

Simply put, FTZs are secure areas under the supervision of U.S. Customs and Border Protection (CBP), and upon activation, are generally considered outside CBP territory.  Under the standard zone procedure there is no requirement to follow the formal CBP entry process or pay duty on foreign merchandise, unless and until it enters CBP territory for domestic consumption.  Although FTZ sites are subject to the laws and regulations of the states and communities in which they are located, as well as those of the U.S., FTZs are akin to the U.S. version of an international Free Trade Zone.  Companies that regularly import merchandise to the U.S. in high volume, for example, will often use FTZs to store, re-package, assemble, re-export, and manufacture goods.

What Are the Benefits of Using a FTZ?

Merchandise is not subject to U.S. duty or excise tax (if applicable) while in the FTZ, and the merchandise may be exported from the FTZ free of duty or excise tax.  Whether or not subject to duty, merchandise may remain in a FTZ indefinitely, and CBP security requirements help provide protection against theft. 

Minimize Duty Payments
Once admitted to a FTZ the rate of duty and tax on merchandise may change based on what occurs within the zone.  If the merchandise will be entered into CBP territory for consumption, typically it will be possible to elect to either pay the duty rate that applies to the foreign material placed in the FTZ, or the duty rate on the finished merchandise transferred from the FTZ, whichever is more advantageous to the FTZ user.

What Merchandise May be Placed in a FTZ?
Whether dutiable or not, any foreign or domestic merchandise not prohibited by law or otherwise subject to restriction may be taken into a FTZ.  Furthermore, since FTZs are considered to be outside of CBP territory for entry purposes, merchandise for which a quota on entry is established or quota is filled may be placed into a FTZ until the quota opens or is removed. 

However, merchandise that cannot lawfully be imported into the U.S. is prohibited from FTZs, without exception, the same as it would be in the U.S. outside of the FTZ.  In addition, merchandise judged by the Foreign Trade Zone Board to be detrimental to the public interest, health, or safety may also be excluded. 

Where Are FTZs Located in Minnesota?

There are eight General Purpose Foreign Trade Zones in Minnesota. Six are in the Twin Cities Metro Area (FTZ#119), including large sites at the Minneapolis-St. Paul Airport and at the Mid-City Industrial Park. There are also two FTZs in Greater Minnesota, in Duluth at the Seaway Port Authority along Lake Superior (FTZ#51) and in International Falls near the Canadian border (FTZ#259).  In addition, it is possible for any company in Minnesota to apply to make their existing facility a Subzone of FTZ#119.

How Do I Apply to Use a FTZ?

To apply to operate in an FTZ, a company must fill out “Customs Form 214” and submit it to the administrator of the site they want to work in. After receiving a signature of approval from the FTZ operator, the form should than be sent to U.S. Customs for final authorization.


For more information, contact the appropriate FTZ administrator:

The Greater Metropolitan Area Foreign Trade Zone Commission (GMAFTZC) 
P.O. Box 4933
St. Paul, MN 55101
Contact: John Shoffner
651-259-7445 (T)
e-mail: John.Shoffner@state.mn.us
www.mnftz.com

Duluth Seaway Port Authority

218-727-8525 (T)
218-727-6888 (F)
www.duluthport.com

International Falls (Koochiching Economic Development Authority)
Contact: Paul Nevanen
218-283-8585 (T)
218-283-4688 (F)
www.businessupnorth.com

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Economic Trends Point to Growth in 2017

By Jim Glassman, Head Economist, JPMorgan Chase Bank Commercial Banking

The business cycle is entering its eighth year, making the current period of economic expansion the fourth-longest in US history. Historically, no period of growth has ever exceeded 10 years before yielding to the next recession, and the current recovery’s advancing age has sparked worries that the business cycle could peak any day. Every new headwind—from stock market stumbles to disappointing GDP growth—has invariably been interpreted by some as a harbinger of the next recession.

However, in reality, the calendar tells us very little about recession risks. The business cycle’s timing is determined by the amount of slack in the economy, not the number of years since the previous downturn. The current, growing demand for labor is a sure sign that the economy is on an upward trajectory, and there's considerable potential for above-trend growth to continue through the coming year. In fact, recessionary risks are historically low, and accommodative monetary policies and an improving business climate are creating favorable conditions for growth. Stock valuations indicate a strong potential for future earnings, and relatively low credit spreads on corporate debt are a sign that investors don't see much risk facing the private sector. The record-low rate of layoffs is another clear sign that businesses are recovering and the business cycle has yet to reach its peak.

A Cautious Fed

Despite steady labor market gains, the Federal Reserve declined to raise interest rates in the first half of 2016. Their caution is likely due to an unusually low natural interest rate—which limits a central bank's options, should the economy face an unexpected shock—as well as the US economy’s exposure to risks from abroad. With inflationary pressure weak and US exporters facing headwinds from a strong dollar, there's no reason to preemptively normalize interest rates, even as the economy closes in on full employment.

In January, the Fed reaffirmed its commitment to its 2 percent inflation target. Monetary policy will be adjusted symmetrically in response to inflationary pressure, and currently, inflation is below target. However, as the crosscurrents from falling commodities prices fade, core inflation will likely climb gradually, which should allow interest rate normalization to proceed.
The Open Market Committee’s most recent forecast calls for two hikes of .25 basis points coming sometime this fall and winter, but it appears unlikely there will be any movement before 2017. Even the most hawkish committee members anticipate interest rates remaining at historically low levels for years to come.

Job Creation Hits Its Stride

The labor market has made great progress thus far into 2016, with the pace of job creation vastly outstripping the demographic growth of the workforce. The economy has added an average of 186,000 jobs every month in 2016, approximately doubling the rate of population growth, and layoffs have hit a 40-year low, a sign that relatively few businesses are struggling.
But while the official unemployment rate has fallen below 5 percent, moving into territory historically associated with full employment, there's still considerable slack remaining in the labor market. As opportunities arise, approximately two million discouraged workforce dropouts will likely be returning to the job search, and another 1.5 million involuntary part-time workers are currently searching for full-time work.

The gradual acceleration of wage growth is another sign of an improving labor market. Throughout the recovery, wage growth has been held in check by the extraordinary amount of slack in the labor market. But as the labor market tightens, workers with sought-after skills will likely be able to command greater compensation. In 2016, average hourly earnings rose 2.6 percent, accelerating from the 2 percent average rate of wage growth that had held since 2008. If employment continues to grow faster than the underlying population, the labor market is likely to begin running out of slack in 2017. And as the labor market tightens, wage growth will likely continue to accelerate, spurring inflationary pressure and hastening the normalization of interest rates.

Global Crosscurrents

Despite well-publicized setbacks, the global economy is on firm footing. Last August, the People’s Bank of China shocked markets with the abrupt devaluation of the renminbi. Many observers feared that the Chinese economy had stalled, and stock exchanges around the world tumbled in anticipation of a global slowdown.

In retrospect, these fears appear overblown. While China is no longer achieving the blistering double-digit growth rates seen in past decades, the Chinese economy appears to have stabilized at a respectable 7 percent annualized pace of expansion. This is likely a reflection of China’s economic maturation. As China’s service sector grows and its economy diversifies, the world’s largest consumer society is emerging. Indeed, the rise of Asia’s middle class holds tremendous potential for US exporters which means that slower growth in China may ultimately be good news for the global economy.

And while Brexit may have delivered a shock of uncertainty to Europe, the UK’s departure from the EU seems unlikely to derail eurozone growth. The British economy is likely to contract in the short term, while the EU is projected to continue growing at 2 percent. This may be disappointing when compared to pre-Brexit predictions of accelerating growth in Europe, but the European Central Bank will likely be able to blunt the impact through its accommodative monetary stance.

The global commodities glut continues to challenge producers, but consumers worldwide have benefited from falling energy and food prices. The slowdown in oil exploration and drilling has disrupted the regional boom in America's shale fields, producing a wave of layoffs and a decline in commercial investment. The economy as a whole, however, stands to benefit. Household savings have risen in tandem with cheaper fuel, and there may be a surge in consumer activity on the horizon as people begin spending the windfall from lower gas prices.

Looking Ahead to 2017

All in all, there's little reason to be worried about a new recession. Indeed, it likely won’t be long before the current expansion is seen as fitting the template of the Great Moderation, referring to a period of growth with low inflation and low volatility, characteristics that point to a long era of expansion ahead.

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Minneapolis Saint Paul Regional Economic Development Partnership

By Jakub Kowalczyk, Purolator

What is the Minneapolis Saint Paul Regional Economic Development Partnership, commonly known as the GREATER MSP?  It is a private non-profit organization (501C3) dedicated to providing public and private sector leadership, coordination and engagement to grow the economy of the 16-county Minneapolis Saint Paul region.  The GREATER MSP helps coordinated a number development strategies to stimulate capital investment and job creation in the region, we will focus on exporting.

Despite the reality that 95 percent of the world’s customer base lives outside the United States less than 1% of US business export.  Exporting presents a great opportunity for local business to increase revenue, and you don’t have to be a “large” business to find new markets.  88% of Minneapolis–St. Paul exporters are small to medium size businesses.  

GREATER MSP works with companies to help them launch or expand sales into overseas markets. They will also facilitate relationships with local stakeholders, industry groups and overseas organizations in support of Greater MSP’s mission. 

Exporting may seem like a daunting task, especially if you have never exported before.  The GREATER MSP can assist in:

  • Research new markets
  • Check US export regulations
  • Gain regulatory approval
  • Explore shipping & financing
  • Protect Intellectual property
  • Distribution Partners
  • Even Sales Leads

The Minneapolis-St. Paul metro area is the 15th largest export market in the US, with over 5400 metro area exporters.  The GREATER MSP can help your organization expand to new markets and can be found at www.greatermsp.org

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Country of the Month: Republic of Korea

Capital: Seoul
Population: 51 million
Median Age: 41.2 years
Urbanization: 82.5%
GDP: $1.85 trillion
GDP Per Capita: $36,500

Background:
An independent kingdom for much of its long history, Korea was occupied by Japan beginning in 1905 following the Russo-Japanese War. In 1910, Tokyo formally annexed the entire Peninsula. Korea regained its independence following Japan's surrender to the US in 1945. After World War II, a democratic-based government (Republic of Korea, ROK) was set up in the southern half of the Korean Peninsula while a communist-style government was installed in the north (Democratic People's Republic of Korea, DPRK). During the Korean War (1950-53), US troops and UN forces fought alongside ROK soldiers to defend South Korea from a DPRK invasion supported by China and the Soviet Union. A 1953 armistice split the Peninsula along a demilitarized zone at about the 38th parallel. PARK Chung-hee took over leadership of the country in a 1961 coup. During his regime, from 1961 to 1979, South Korea achieved rapid economic growth, with per capita income rising to roughly 17 times the level of North Korea. South Korea held its first free presidential election under a revised democratic constitution in 1987, with former ROK Army general ROH Tae-woo winning a close race.

Economy:
South Korea over the past four decades has demonstrated incredible economic growth and global integration to become a high-tech industrialized economy. In the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion-dollar club of world economies.

A system of close government and business ties, including directed credit and import restrictions, initially made this success possible. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption.

South Korea's export focused economy was hit hard by the 2008 global economic downturn, but quickly rebounded in subsequent years, reaching over 6% growth in 2010. The US-Korea Free Trade Agreement was ratified by both governments in 2011 and went into effect in March 2012. Between 2012 and 2015, the economy experienced slow growth – 2%-3% per year - due to sluggish domestic consumption and investment. The administration in 2015 faced the challenge of balancing heavy reliance on exports with developing domestic-oriented sectors, such as services.

The South Korean economy's long-term challenges include a rapidly aging population, inflexible labor market, dominance of large conglomerates (chaebols), and the heavy reliance on exports, which comprise about half of GDP. In an effort to address the long term challenges and sustain economic growth, the current government has prioritized structural reforms, deregulation, promotion of entrepreneurship and creative industries, and the competitiveness of small- and medium-sized enterprises.

Exports - commodities:
semiconductors, petrochemicals, automobile/auto parts, ships, wireless communication equipment, flat display displays, steel, electronics, plastics, computers

Imports - commodities:
crude oil/petroleum products, semiconductors, natural gas, coal, steel, computers, wireless communication equipment, automobiles, fine chemical, textiles

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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.

November –
December 2016

From the President

Upcoming Events

Canada Border Services Agency eManifest Now Mandatory

Another Line Bites The Dust
By Thierry Ajas, Randstad Professionals

International Air Market Reacts to Product Recall
By Kevin Johnson

Foreign Trade Zones: The Basics

Economic Trends Point to Growth in 2017
By Jim Glassman, Head Economist, JPMorgan Chase Bank Commercial Banking

Minneapolis Saint Paul Regional Economic Development Partnership
By Jakub Kowalczyk, Purolator

Country of the Month: Republic of Korea

Thank You, Newsletter Sponsor: Port of Seattle

Annual Sponsors

Gold
Bremer Bank


Gold
KPMG Logo


Gold
Neville Peterson, LLP




Silver
CH Robinson Worldwide Inc.


Silver
Drinker, Biddle, and Reath


Silver
Focus Logo


Silver
SBS Group of Companies


Bronze
Bennett Jones


Bronze
Cassidy Levy Kent


Bronze
Chase/JP Morgan Logo


Bronze
Global Training Center


Bronze
HMM


Bronze
Cassidy Levy Kent


 

 

 

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