London, May 2017
Slow boat from China
It has never been easier to ship cargoes around the globe. Bank Leumi (UK) PLC's Head of International Trade Services, John Edwards, looks at the issues that importers and exporters are currently facing.
When Hong Kong registered container ship the CSCL Globe docked at Felixstowe in January 2015 on its maiden voyage from China, it was a sign of things to come.
With a capacity of 19,000 containers, it was the biggest container ship in the world. A few weeks later, the MSC Oscar docked at the same port. It had the capacity to carry around 120 more containers than the CSCL Globe. Both ships are big enough to carry more than a million washing machines.
The largest shipping companies are investing in massive vessels, and ports are investing in docks to take them. Meanwhile, smaller ships continue to sail. Capacity is subject to cyclical and seasonal variations, but is readily available, meaning it has never been easier to transport goods.
The reason why CSCL Globe serves as an allegory is this: it demonstrates both the huge influence of China's economic might on international trade, and it also shows the technological future of shipping.
China has a huge effect on the international economy and a direct effect on trade. The steel industry is a prime example.
China is the world's largest steel producer, accounting for half of world output, and its mills import huge quantities of iron ore for use in production. This influences the amount of shipping capacity available in the market as well as the price of steel itself. Should China decide, as well they might, that they wish to spend a period of time using the steel they produce rather than exporting it, both the price and internal shipping patterns would shift.
China's demand is potentially so high it can impact the price of any commodity. For example, UK wool exports to China doubled in 2014/2015. Now around a third of UK wool production is exported to China and 48% to mainland Europe. If demand weakens in those economies, it will have a significant impact on world prices for wool.
We cannot alter China's trade preferences, but we can help our customers deal with the challenges that dealing with such a large economic power throws up. For example, getting a container ship loaded or unloaded at a Chinese port during Chinese New Year is simply not possible. The whole nation slows considerably for the celebration. Factories gear up their production prior to New Year, before winding down, then starting up again. Things do not get back to normal until after the backlog at the ports has cleared.
This has relevance to UK importers who either need constant imports from China, or are reliant upon imports for the UK spring and early summer season. We can help by offering seasonal finance deals to allow businesses to import greater quantities prior to the slow down.
Our clients ship to and from countries all over the world, so we are aware of the features and quirks of international trade across the board, and are able to offer bespoke solutions for dealing with them.
On the face of it, shipping looks low tech. Goods are loaded and transported around the world, with the ships becoming ever larger in scale. However, it is in the loading and the unloading that technological advances have been made. Computer-operated cranes now simultaneously load and unload ships with absolute space-saving precision. A job that once took days now takes hours.
Similar efficiencies are on the horizon for the paper trail that underpins trade. Shipping is still document-heavy with every consignment evidenced by a paper bill of lading. Blockchain technology is poised to revolutionise that. Soon, we will be transferring ownership with absolute security at the touch of a button.
Although such improvements in efficiency and security are clearly beneficial we are, nevertheless, very much aware that the fundamentals of trade, trade finance and customer relationships have remained much the same for centuries.
The tools that we use may become smarter, and the volumes that can be moved in one shipment may continue to grow, but it does not change the fact that the aim of importers and exporters is to source goods and products and move them through international supply chains to their ultimate point of sale. Our aim is to provide a responsive, bespoke banking service to help them do so.
John Edwards, Head of International Trade Services
+44 (0)20 3772 1700