Monthly Archives: May 2014

The New Silk Road Might Be the Biggest Boon to Supply Chain Finance This Year

In yesterday’s post, we asked what impact will the new silk road have on global trade. Specifically, what impact will the new Russia, China, and Germany trade partnership have on global trade — besides simplifying and building Eurasian trade relationships.

One thing it will do is strengthen the resolve of these countries to not only de-couple their currency from the dollar and launch a new reserve currency backed by their union, but to trade in local currencies as well. As trading in local currencies becomes more and more common, banks will become more and more inclined, and even comfortable, to lend in foreign currency denominated debt as well as local currency. Private lending institutions will not only follow, but begin to lead the way.

This will be a great boon to foreign companies which, until now, have been limited to either borrowing from local lenders, at high interest rates, but in the local currency, or a handful of global lenders, at slightly lower interest rates, in a foreign currency, that could cause their debt to skyrocket if their currency weakens with respect to the foreign currency.

The whole point of Supply Chain Finance is to help the cash-strapped supplier. Early payment or dynamic discounting doesn’t help the supplier if the discounts are too high. Arranging for third party lenders to lend using your credit score, and not the suppliers, doesn’t help if the supplier has to take a risk in a foreign currency. And factoring isn’t a solution at all! (Since a third party will only buy your suppliers’ receivables if it can make money off of them — loan sharks at their finest.) Arranging for lending in your suppliers’ local currencies on your credit score when you can’t pay early is safest for your supplier and probably the best supply chain finance solution we’re going to see for a while.

Thoughts?

What Impact Will The New Silk Road Have on Global Trade?

Russia is decoupling its trade from the dollar, decoupling its hydrocarbon trade from the petro-dollar, and working with China to re-open the old Silk Road between China, Germany, and Russia. Powered by the Eurasian Land Bridge that is a rail transport route for moving freight and passengers overland from Pacific seaports in the Russian Far East and China to seaports in Europe using a transcontinental railroad and rail land bridge (by way of the Trans-Siberian Railway and the New Eurasian Land Bridge through China and Kazakhstan), the New Silk Road will increase Eurasian trade, most likely at the expense of North America.

The immediate consequences of Russia’s actions will amount to the BICS, and BICS partner countries, following Russia’s lead and decoupling their trade from the dollar, especially in hydrocarbons (which is a Trillion dollars a year in Russia alone), to local currencies and trading partner currencies. Furthermore, China has been in the process of decoupling from the dollar for months and is focussed on the yuan’s ascendancy.

The follow-on to this, as described in this recent article over on sott.net on Russia and China announce decoupling trade from Dollar – the End for the USA is nigh, is that the BRICS are preparing to launch a new currency — backed by a basket of their local currencies — to be used for international trading, as well as a new reserve currency. As a follow on, a new international payment settlement system, replacing SWIFT and IBAN, is expected, which will bust up the effective monopoly held by the Bank for International Settlement (BIS) in Basle, Switzerland. Currently, China has two small operations in London and Frankfurt to process trading cash flows directly between Euros and Yuan, but that is expected to grow.

But the new economic Silk Road, which is going to use Duisburg, the world’s largest inland harbour (and a historic transportation hub in Europe), and link Russia and China through the world’s fourth largest economy, as well as with Kazakhstan, Belarus, and Poland, has the potential to overshadow all of this from a trade perspective. The effect of decoupling from the dollar just means that some currencies rise at the expense of others that fall. It doesn’t alter trading volumes substantially. Some countries, not having to buy an overpriced dollar, might be able to buy a little more, or some, for which the dollar was relatively weak to their currency, might have to settle for a little less, but overall, the change will likely be limited and controlled.

But a new trading route, which can get things from China to Duisburg in 18 days or less, could significantly shift the global balance of trade, see less trading between the West and the East, and even increase trading on the Eurasian continents. It’s hard to say what will happen, but chances are some ocean carriers will lose considerably, as more goods will be moving over land, and carriers servicing the ports along the New Silk Road will gain, as trade shifts to minimize the amount of time cargo needs to spend on the ocean (as time is money). It’s a situation to be aware of at least.

Will Increased Cargo Theft be the Next Impact of MAP-21?

MAP-21, the short-hand for Moving Ahead for Progress in the 21st Century Act, took effect October 1 of last year (and shortly thereafter we asked if your supply chain was compliant in Part I and Part II). This 584 page monstrosity had ramifications across your transportation-based supply chain and included, among other things, in the Commercial Motor Vehicle Safety Enhancement Act: Subtitle 1, section 32918, a requirement that each broker subject to the requirements of this section shall provide financial security of $75,000 for purposes of this subsection, regardless of the number of branch offices or sales agents of the broker, a seven-fold increase for the average small carrier.

As a result of this requirement, we asked if the act should be more accurately renamed RIP-21 as the act led to the forced closure of over 9,800 freight transport brokerages that were unable to put up the significantly increased bond. Overnight, 46% of independent brokers disappeared! Some eventually came up with the bond and reopened, but the number of independent brokers is down 40% year over year.

So what does this have to do with increased cargo theft? One of the fastest growing forms of cargo-theft is deceptive / fictitious pick-ups. The scheme, as described in an AP article last year on how “thieves pose as truckers to steal huge cargo loads”, works as follows.

 


Thieves assume the identity of a trucking company, often by reactivating a dormant Department of Transportation carrier number from a government website for as little as $300. That lets them pretend to be a long-established firm with a seemingly good safety record. The fraud often includes paperwork such as insurance policies, fake driver’s licenses and other documents.


Then the con artists offer low bids to freight brokers who handle shipping for numerous companies. When the truckers show up at a company, everything seems legitimate. But once driven away, the goods are never seen again.

And now thieves have over 9,000 cargo companies, many of whom with good safety records, to work with. Now more than ever, you need to keep a close eye on your cargo on American soil, or you may not see it again! Makes you wonder just who MAP-21 is for, eh?

We First Rocked Around the Clock 60 Years Ago Today …

… but how long have you been rockin’ your supply chain?

As Christopher Sciacca insists, supply chains don’t have to be boring. You don’t have to sing the blues. You can twist and shout.


Put your glad rags on and join me, hun,
We’ll have some fun when the clock strikes one
We’re gonna save some money tonight.
We’re gonna save, save, save ’til broad daylight

Modern e-Sourcing Technology allows you to identify savings you never knew existed.
Spend Analysis and Decision Optimization identify year-over-year savings in excess of 10% when properly deployed.
New market intelligence solutions identify changing commodity prices in near real time.
Six Sigma and Lean solutions allow you to improve processes to reduce manpower costs.


When the clock strikes two, three and four,
if the float goes down we’ll save some more
We’re gonna rock around the clock tonight,
We’re gonna add value ’til broad daylight

Visibility solutions identify potential risk and allow for mitigation and prevention.
Sustainable options increase brand value and minimize long-term costs.
Recognized brands add value to your own.


When the chimes ring five, six and seven,
we’ll be right in seventh heaven.
We’re gonna rock around the clock tonight,
We’re gonna innovate ’til broad daylight

Collaboration tools allow for joint product design.
VMI allows for joint inventory management.
e-Document Management allows for procurement and sales support.


When it’s eight, nine, ten, eleven too,
I’ll be goin’ strong and so will you.
We’re gonna rock around the clock tonight,
We’re gonna start again at broad daylight

Savings, Value Generation, Innovation is a continuous process — and supply chains support it!


We’re gonna rock, gonna rock, around the clock tonight!