Far East & Indian sub-cont westbound (import) rates/space/equipment

Half year losses declared by some carriers are causing concern and some ships have been withdrawn from service. Demand has increased over recent weeks and utilization has returned to more acceptable levels. It does appear as though some lines will apply Peak Season Surcharge from 1st September 2011.

Far East & Indian sub-cont eastbound rates/space/equipment (exports) – Ocean freight rates remain at an all-time low and there is a significant volume of empty containers being returned to the Far East.

UK Terminal Handling charges – generally remain at £120 except Maersk and SafMarine where THC is £131 per container and MSC where THC is £125 per container.

Heavyweight Container Surcharges – continue for westbound traffic only with each carrier having slightly different weight break points. It should be noted that this surcharge is not part of any ‘all-inclusive’ rate.

North China 20ft Equipment Premium (westbound only) – This charge continues to be applied by all lines on 20ft containers ex Dalian, Qingdao, Tianjin, Xingang, Yantai and Lianyungang at $250 per 20ft container only.

Suez Canal Surcharge – remains at $25 per TEU except Evergreen ($47 per TEU) and CSAV ($50 per TEU).

Gulf of Aden Emergency Risk Surcharge – this surcharge is now $55 per TEU.

Equipment Inspection Fee – Hapag Lloyd has introduced a surcharge of £6.00 per container as the result of packaging being dumped inside ‘empty’, returned containers. No other carrier has yet applied this surcharge.

Port Congestion – Some carriers have announced this charge from several Far Eastern ports including Qingdao, Haiphong and Chittagong. General advice is that such charges should be pais by suppliers of goods and included in FOB charges.

UK Landside Charges/Haulage/Fuel/Port Congestion – Fuel Surcharge remains at 25.5% (against a base price of £0.90 ppl) on most published indices. An infrastructure charge of £3.00 per container continues at Southampton.

Airfreight – fuel/security surcharges are expected to continue. Current rates:

Hong Kong  8.80 to 9.20 HK$ (combined) per kg.

Shanghai     9.20 CNY (combined) per kg.

Kevin Fryer 8th August 2011.

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The competition watchdog has been probing the possible mis-selling of Payment Protection Insurance (PPI) which typically covers a purchase in case the buyer of a product becomes sick or unemployed.

The watchdog has estimated that customers were being overcharged by over £1.4 billion a year from the sale of PPI, and revenues from the sales have plunged since regulators stepped up scrutiny on sales practices.

The UK’s five biggest retail banks could have to pay over £5 billion to compensate customers under a worst-case scenario for them, analysts at Morgan Stanley said on Wednesday.

In August the Financial Services Authority introduced proposals for banks to handle PPI complaints and redress customers fairly where appropriate. The British Bankers’ Association this month brought a judicial review of whether the FSA can apply new standards to old sales.

There are an estimated 12 million outstanding PPI policies, and Lloyds for example could suffer a £1.5 billion hit, Morgan Stanley reported.

Whilst I personally welcome the fact that this is a unified global response – and brings certainty into the banks’ planning equations – it also sets in stone the new liquidity reality. It’s fair to say that whilst the UK banks are already adequately capitalised, many overseas ones are not. We are already seeing Deutsche bank announcing plans to raise sufficient funds to increase its reserve capital by 50%/£10bn. European banks alone are estimated to face raising £110bn-£150bn.

“Reserve Capital” is just a ratio, though, and another way for banks to increase it is to shrink their balance sheets. That can mean divestments but it also – more easily – means reducing aggregate lending. So whilst UK businesses looking for bank facilities can perhaps breathe a collective sigh of relief that our own institutions are currently well capitalised, we should reflect that those serving our key European target export market are not.

The impact on pricing should not be forgotten either as the ratio of 7% is three times the pre-crisis standard. That means that the increase in average interest costs over and above Base Rate that I have previously blogged about (  http://www.expense-reduction.co.uk/2010/01/uk-banks-increase-business-cost-of-borrowing/ ) is here to stay. Finance Directors need to reflect that whilst interest costs have not fully reduced in line with the tumble to 0.5% base rates, it is certain that in the future they will fully reflect any return to historically more normal levels. In other words the margin increase is not temporary and reflects a new structural reality.

In essence today’s news is good in that it brings global uniformity and certainty to lenders. Moreover the ratio of 7% is probably at the lower end of their collective fears. But to use a medical analogy it is a splint or crutch that will aid, but not in itself lead to, recovery.

(The new ratios do need formal approval by the G20 by the way. And it is true that both the UK and US wanted stronger ratios of 10%, and Germany championed lower levels. So it will be interesting to see if G2o endorsement is a formality or not. My suspicion is that it will be, with perhaps some political posturing).

Equally disappointing were the sales and profit figures for consumer services over the three months from March to May published by the CBI: Leisure and personal care as well as hotels, bar and restaurants recorded not only markedly lower sales but also drops in profitability and optimism. These latest numbers cast serious doubts over whether the private sector will be able to compensate for the public sector spending cuts. This morning, the Office for Budget Responsibility (OBR) has downgraded the growth forecast for the British economy to 2.6% from Alistair Darling’s more optimistic 3.25% announced in March.

The latest IMD World Competitiveness Yearbook should make uncomfortable reading for British businesses: Of the 58 economies ranked along 300 criteria, the United Kingdom ranks 22 (down one place from last year) with a score of 76.808 as opposed to the 100 points for the leader Singapore. There are undoubtedly a few lessons to be learnt from the IMD classification: The leading countries not only benefit from strong demand in Asia, but also stand out, according to the IMD, by their low levels of debt and deficits.

For the first time, the IMD has also presented a ‘debt stress test’, measuring when the nations’ debt levels will revert to a ‘bearable’ level of 60% of their respective GDP. On the back of the global economic crisis the deficits of the major industrial nations have been soaring, and, as far as the G20 countries are concerned, the IMD expects the average debt to rise from 76% of GDP in 2007 to 106% in 2010. Therefore, although the recession is behind us, its consequences will likely be felt for some considerable time to come. The UK economy, according to the Swiss researchers, is not expected to reach the 60% debt threshold until 2028.

The Prime Minister has set the tone for the budget cuts to come in his speech earlier this week. My personal suspicion is that the well orchestrated and highly publicised announcements over the past few weeks are setting the stage for potentially worse than expected cuts when the Chancellor announces his budget on 22 June: Rumours of a VAT increase to 20% (or potentially higher?) are rife, as are indications of a cut in free school dinners for the poorest and an increase in tuition fees and Capital Gains Tax. There can be no doubt, higher taxation – and in particular an increase in VAT – will inevitably lead to fall in consumer spending, as recently suggested by Stephen Robertson, the Director General of the British Retail Consortium, in an interview with the BBC. As far as the impact of a potential VAT increase on Charities is concerned, please see my blog posted in February.

Up to 725,000 public service jobs could be lost over the next four years and spending cuts could push unemployment to nearly 3 million by the end of 2012, the Chartered Institute of Personnel and Development’s chief economic advisor, Dr. John Philpott, stated a few days ago. Similarly, in a letter to Chancellor George Osborne, the CBI’s deputy director John Cridland agreed that a radical re-engineering of public services was necessary if tax rises were to be avoided, stating that ‘only an effective cost reduction strategy can safeguard future growth’.

This last point surely should apply to all of the economy, and Expense Reduction Analysts’ experts are ideally placed to ensure your organisation achieves best value for its money, not only today but every day.

Today’s budget changed the “net lending targets” for RBS and Lloyds to “gross lending targets” instead. Is it just political semantics and posturing, or is it a practical move? Time will tell …..but as an ex-banker used to targets…….I think it could turn out to be the latter.

Reading Robert Peston’s blog on the bbc’s website today http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/chancellor_moves_bank_lending.html he provides a cogent analysis of just why this might be a smart move. He highlights that the banks can now conceivably meet stretching lending targets (and these are circa 20% greater than they achieved last year) whilst also cleaning up and shrinking their overall balance sheets.

So what at first glance looked to many as a semantic fudge, may turn out to be a touch of insight. What is for sure, is that we do need business to have access to increased credit if the recovery is going to be soundly based. A credit crunch was the most potent symbol of the crash and – to date – most of us haven’t really seen it improving for businesses.

The consequences are that:

1/ The net cost of the bio element in mixes (for eg, normal pump diesel already includes up to 5% bio) is increasingly dramatically, as a result of the reduced duty rate being withdrawn, and,

2/ The wholesale costs of the bio elements (known as FAME in the trade) are rising faster than mineral based fuels, because the legislation requiring the minimum percentage is European wide, and market traders are taking advantage of a possible supply shortage.

Fuel oil suppliers are being very cagey on the final impact on prices, but based on wholesale market prices at the beginning of March, the combined effect of market rates plus duty subsidy removal willequate to an additional 1.5 pence per litre on pump prices over the official duty increase due on 1^st April.

General market commentary is fairly unanimous that fuel oil prices will rise significantly anyway this year, as the far-eastern economies begin further economic growth. Combined with all the legislative and duty changes on the 1^st April, we can look forward to fuel costs being significantly higher by the year end.

Mitigation measures, whether through technology, modifiying driver behavious, or smarter purchasing will no doubt become of greater priority as the increase bite !

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When the ONS announced its growth revision upwards from 0.1% in Q4 ‘09 to 0.3% I thought, well its not much more, but what good news. That was until I realised that the revised Q4 figures are actually worse than originally announced, and the “improvement” is only because Q3 was even worse than originally thought. Instead of producing £315,845m in Q4 UK Plc produced £315,712 and yet today’s headline makers fell for the spin and heralded an improvement.

And worryingly the ONS press release accompanying the figures was titled “Services growth in December pushes up GDP estimate”. I say worryingly, because the ONS ‘ own headline is just plain misleading given it is so wrong.

The report actually suggests that Q4’s growth was on the back of car manufacture and retail sales. With the car scrappage scheme in its final stages and VAT already returned to 17.5%, I wonder what Q1 2010 will reveal?

My own view is that our recovery will turn out to be more of a “bounce along the bottom” for two or three more quarters, with the possibility of either Q1 or Q2 2010 showing a retraction. Hopefully not two consecutive quarters to herald the dreaded “double-dip”, and subsequent difficulties in financing the national debt… but that cannot be ruled out. The tough economic times are certainly nowhere near over.

The survey was conducted by Reuters on 7th January this year and what is striking is that whilst there is wide disparity around “when” and by “how much” rates will rise, there  is unanimous consensus that significant increases are just around the corner.

I have highlighted margin increases in previous blogs (the average margin increased by 0.4% in just the three months of August to November ‘09 according to the Bank of England) and common-sense suggests that businesses should ensure they budget realistically for the cost of finance going forward. A business facing average interest costs for working capital at circa 2.5% could conceivably face 5% within 15 months – a doubling!

Certainly in finance related projects that we have concluded in Expenses Reduction Analysts over the downturn, the emphasis has been on reducing processing costs whilst containing borrowing costs. Mainly this is because bank managers have become painfully aware of their own true “cost of funds” but the better ones – the ones who take a long-term view of relationships – recognise that concessions can be made elsewhere.

Controlling inflation will be the reason and Sentance says it would be wrong for markets to assume base rate will stay at the unprecedented low of 0.5% throughout 2010. His exact words? :-  “It would not be wise to put yourself in that camp. A lot can happen in a year. In 2008, we moved from a position where the economy was growing quite healthily at the beginning of the year to diving into deep recession by the end of the year………last year we moved from the position where a deep recession was getting deeper to a position where the economy is now recovering, albeit in an early phase. It would be wise not to be too definitive about what to expect this year.”

It’s fair to say that nothing in the interview suggests a central fear that inflation will run out of control; but it does show that the fight against it remains a key policy aim.

Other pertinent topics covered were Quantitative Easing and the possibility of a so called “double-dip” recession. Sentance seems to dismiss the latter risk, while warning that the recovery will be fragile though. On the former he suggests that whilst further stimuli will probably cease, it is unlikely the underlying liquidity boost of £200bn will be swiftly reversed.