Export Food Small Business Start-up

This is why, in addition to my general small business international trade start-up courses I teach a a specific class on food export.  The information offered everywhere except from me is not only bad, it is downright harmful.  The harm in these articles is people contemplating export expansion say "If that is what it takes, then I cannot do it." Well, what is described in the article is not what it takes. What is described in the article is a whole lotta waste.  The way it is done worldwide is not at all like this article describes.

Someone has to present what really happens in small business international trade.

This article is an example, and start out with a claim that is rather wrong.

While food giants such as P&G, Nestle and Unilever have long operated with a global footprint, it’s only recently that small- to mid-sized companies have been able to effectively tackle these markets.

Small businesses have been exporting food from the United States all along, nothing has changed in recent years, the tools tactics and attitude necessary have been there all along.  Yet the story will tell us about a "pioneer" in this field.

One of those food retail pioneers is Kontos Foods, a mid-sized New Jersey-based manufacturer and distributor of traditional artisan breads and Mediterranean specialty foods. A little over three years ago Kontos began a vigorous overseas expansion program, and now ships its products globally, to a wide range of locations, including Singapore, Indonesia, the Caribbean, Panama, Bahrain, Saudi Arabia, and Dubai.

I've never heard of Kontos Foods, and I am sure they are a fine company.  But what bothers me with these perennial articles telling us about "pioneers" is they never mention cost/benefit...  I can get sales into all of those countries pretty quick too...  at a cost.  The trick is to have sales and maintain a profit, at least as good as what you would have if you expanded domestically.  If Kontos is New Jersey based, then export orders ought to be no more difficult (or costly to acquire) and every bit as profitable as a domestic sale.  And alongside testing the overseas market, one would be obliged to test expanding domestically to compare with the overseas opportunities.

Now, recall the opening false claim that biggies like Nestle and Unilever were the only possible players before.  And who is making this claim?

Before Kontos, I worked at Unilever and my colleague, Kontos Foods’ Global Sales Director Doug Werts, is formerly of Nestle. Combined, we’ve lived and worked in different markets around the world, including the Netherlands, Brazil, and the U.K.
At Unilever, for instance, I spent significant time and resources building market share in Europe and South America. Those experiences, along with our current Kontos research about consumer shopping habits, provided us with the deep consumer insight we needed to target the right products and packaging to shoppers.

So to help a small or mid-sized company break into export markets, the process is the same as for Unilever and Nestle?  This is an internal contradiction: "nothing has changed, things are now different."

Now notice the valentine-to-self slipped in there, "my experience and my time spent on the Kontos dime travelling gives ME deep consumer insights."  Bull$#!+.  Since valid and reliable market information costs tens of millions, any other "experience or insight" is mere anecdote, and the plural of anecdote is not science.  There is a way to test market with spending tens of millions, and getting solid results.  It is search and learn, a process where you discover customers not otherwise discoverable.  But the tool tactic and attitude is utterly contrary to all of the elements this article proffers.  In short:

1. The tool - LCL MOQ FOB ...  if you have specialty, overseas buyers are looking to test this in their market.  They want and need that smallest order rational, not the largest order possible.  They want a pallet load to test, not a 40' container. It is FOB because you will be prepaid before anything rolls out of your warehouse destined for overseas.

2. The tactic:  Your export offer is one-size fits the entire world.  You ship overseas what you ship domestically. All "localization" for the export market is up to the importer overseas.  No good deed goes unpunished, so you never help your buyer by doing localization.  Recall we are talking a one pallet load shipment, and as a tst possibly several of these in sequence.  Why would you foot the cost of "localization" for a test order, in which most test will come up nil?  Don' worry, your importer overseas knows how to localize on the spot if necessary.  I am also an importer, and have had to "localize' many shipments on the spot in which customs has found fault.  it's a small shipment, no sweat.

3.  The attitude:  I came here to sell, why are you here?  At the trade shows, every buyer ought to place an order for your LCL MOQ FOB.  If not, why not?  If the person you are speaking to is not a buyer, end the conversation and move on to a buyer.  If the buyer says no to your one-size-fits-all worldwide offer, then find out why not.  Start a matrix of objections to see if any changes wold be worthwhile in your offer.  This is science, something sorely lacking among those who go to trade shows happy to settle for "trade leads."

What exporting gets down to is a test of the product by the importer overseas to whom you sell.  This article has a lot of moving parts, but bottom line is you find an importer overseas who wants to test your product.  On the one hand all of the rigamarole laid out in this article nets no advantage, and on the other hand you can achieve the same results with none of the rigamarole.

Then on this this:

The problem, however, is that overseas research isn’t cheap: Attending one trade show could cost upwards of $15,000-$20,000. There are nonprofit and government programs to help assist with companies as a means of trying to boost overseas trade. We found FoodExport NorthEast, a non-profit organization that supports international commerce. The organization is designed to help American food and beverage manufacturers attendforeign trade shows, connect with potential customers and learn about consumer trends.

Sigh. It could cost that much, but you can achieve the same results at a fraction of the cost.  Here is the funny thing, it could cost that much if you take the help those orgs offer, because their help is in the form of rebating half your costs if you do things their way, which "could cost upwards of $15 -20K..."

OK, so you spend $15,000 on a trade show and get $7500 back.  And their way is not the optimal way.  And I can do an optimal version the same thing all in for about $5000.   Now what kind of leverage is it when you net net you spent too much to do largely the wrong thing?

With the assistance of FoodExport, we started hitting the global trade-show circuit. They provide exploratory tours to help retailers discover whether a particular market is right for them. These tours offer crucial learning time, where retailers, manufacturers and distributors can quickly learn which regions are worth pursuing. When you’re on one of these tours, I recommend maximizing every minute of your research gathering.
For instance, while in Shanghai for a trade show tour, I learned that people in Northern China prefer bread much more so than their southern countrymen. This helped steer Kontos’ sales efforts to the correct part of the country, saving time and money.  

Any any Chinese food importer would already know this.  Why not just find a competent Chinese importer and have them test your product and provide feedback?  If and when something developes, then you might go visit China.  All this travel and time is expensive.

The international export business is on an upward trajectory. If you plan to join in on an overseas expansion program, gather an experienced team, do your homework and get your passport ready. People are now enjoying Kontos flatbread in Bahrain, Singapore, South Korea, Saudi Arabia and Dubai. Who would have dreamed that three years ago?

As I started out this post asking, where is the cost benefit, I am pretty sure Kontos has gone well into the hole getting those export orders.  The question is when, if ever, it will proven to have been profitable.  For overseas expansion, you need no more talent than a good Freight Forwarder and a solid importer, who may be discovered without ever leaving your office.

Because these articles claiming "small businesses can export just like Nestle now" have been coming out the last 40 years, I offer a corrective course.  No nonsense, the tool, tactic and attitude to find export business no more difficult and every bit as profitable, from the first sale and onward.  You may read about the course here, and enroll now and pay later at the same site.

Tuesday 1/24 - 2/14/2017   Four Sessions

Section One ~ 6 PM to 7 PM Pacific Time

(This would be 7 PM to 8 PM Mountain, 8 PM to 9 PM Central, 9 PM to 10 PM Eastern)

This work can be done either as a proprietor producing food, or an agent representing a food producer.

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Diagram Your Business Model

A student in Chile sent me his diagram of the business he is contemplating...  I think he captures the concerns as well as the needed facts...

Dear John

Just rereading your book, I decided to make my own exporting diagram. Not sure if it is correct as I draw 2 inland freight cost, maybe is like that maybe not. 

Is my diagram correct? Looking forward to know your opinion.

Martin

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Hanjin Hype Follow-up

We can assume since they are selling the ships the Hanjin cargo has been unloaded, hence fears of "crew in peril and cargo stranded for years" as hyped initially has proven, as I predicted, nonsense.

South Korea’s Hanjin Shipping Co. that is under court-led restructuring is expected to complete the disposal of all of its vessels this month at the earliest, a move that would practically lead once the world’s seventh largest shipper to liquidation. 

Yes, black swan events happen, and in small business international trade we work in multiple LCL shipments, never FCL shipments, which is cheap insurance against disaster.

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No Jobs But Plenty of Work

You can whine about no jobs, but there is plenty of work.  Here a fellow solves a problem for himself which he in turn sells to everyone else...

Who knows how much he makes, but think of all the Epson printers that gum up, and note his vid has a quarter million hits... and at about $20 each for some rather inexpensive parts...  well...

Now since only about 6% of the market is online, this fellow might find 15 times the market if he were to address the brick and mortar customers.



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October 15 San Francisco Import Export Start Up Boot Camp

Join us in San Mateo, California Saturday, October 15, 2016, from 9am to 5 pm for a all-day, in person, intensive boot camp import export start-up seminar.

Here is the link to the registration and information,  and feel free to email me directly anytime regarding the seminar.  My email is on the upper right under "Have a question for John? Ask him here..."

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MegaStore Bricks and Mortar/Online Goes Suddenly Bust

There are some lessons from the demise of a one unit megastore/online retail play.

Customers had turned up at Seapets, in Stanway, Colchester, Essex, on Friday, September 2, to find its doors locked and notices in the windows advising them the store had closed down.
...
Seapets had both the superstore location and an online presence. Its website and Facebook pages have been taken down and the telephone line is unmanned.

No reason was given as to how come.  But, the description of the company had disaster written all over it.

With 11,000 SKUs at say merely a $100 minimum order requirement from suppliers, the store had to well over a million in inventory at cost.   We have negative interest rates on bonds, and cheap interest house loans, but not business loans, for the simple reason ex nihilo credit is exceptionally risky, since people are loose with loose (ex nihilo) credit (or perhaps loose credit makes people loose).

Managing 11,000 SKUs even with computers is a lot of work, someone has to review exception reports.

Some of their inventory was livestock, pets, fish, etc...  that is management intensive.  Apparently the inventory in the megastore was less than the online division.

The article was unclear as to when it opened up its online division, it says both "many years" and 2012, but in any event websites are not marketing channels but self-service check-out.  If the online did not reach people who come to the store anyway, or tried to reach people otherwise, then it is a losing proposition.

A megastore tries to compete on price.  The online division uses paypal, which takes a deep cut.  Narrow margins and high expenses are a bad combination.  The game becomes to try to make up in volume what you lose on each sale.

Te article goes on to say "Jerry", one of he owners, had decades in the business and was a minor celebrity judge, etc, at trade shows.  He and a partner started this company in 2003, in the boom years, and built it up then.  Here we go again, the damage is done in the boom years, the shake-out comes with the bust.

There is a interesting comment that they appointed a new freight handler recently.  The people providing logistics, the truckers bringing gods in and out of a business, are an excellent reference for the health of a business.  Freight shipments don't lie.  Just as the Baltic Dry Index is the best judge on international trade activity, so is a truckers view on any given business they serve.

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Start Your Business Start-up Now

There are innovators, there are retailers, but the link between the two, the sales force in which the communication channels have resided, has atrophied. The economy needs to recover, and we have people innovating, and retailers groping out changing customer demand.

The missing link is the sales process, lost with the two generations that went in F I R E . Selling establishes the rationale for the buy, something necessary when money is scarce. When banks lend credit, not money, the delusion is there is no scarcity.  All can be afforded, no selling is necessary, just order-taking.  Salesmanship atrophied.

Integral to the sales process is the feedback mechanism, which communicates to the innovators what demand the retailers have discovered (or is at least worth testing with new offers.)

Sales is not my thing, but I think I am an excellent consumer of good salesmanship, and therefore qualified to teach just that.

Along the lines of renaissance sales reps have re-organized themselves in Seattle into a new rep association....  I've been watching them and the moves seem right.  I am seeing a resurgence of the boutique, the shopping preference for the high-maintenance.

With the fax machine anyone could order flowers from Colombia, and have them here in 24 hours....  but local flowers are competitive.  A retired flower shop owner told me there is a resurgence in the 4am flower auction, a small biz staple 40 years ago.

Business start-up based on customers is my unique approach.  If you wish to thrive in spite of the coming crash, don't hoard gold, stock up on guns 'n ammo, or bury food supplies.  No!  Start a business.

I've been teaching that for 35 years on the side, and I am highly rated by past participants for content, pace and humor, with (so far) unlimited follow-up.

There are several options, live or online classes, for you to consider here.  eMail me if you have any questions.

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The Hanjin Non-Event - A More Interesting Take

OK, the Hanjin Greece got unloaded first, not the Boston.  The Boston did get up to 10 knots for the time it takes to get to the port, and then 12 hours later do it again.  I took it to mean it was the one unloaded first. I wonder where it went on that trip?  Is the Boston unique since it has a lien on it?  is it not odd we have no press reporting details, the only solid news is speculation on blogs, which is better than the speculation in what news is presented? Anyway, point is the same, the problem is over, Hanjin ships are getting unloaded.

But this is an interesting tidbit:

Hanjin is the majority owner of Total Terminals International, which operates Long Beach’s largest shipping terminal.

That is some prime real estate.  In a bankruptcy, that goes to pay creditors...  or is it owned but carries a mortgage?  A real problem with globalism is the complexity of the titles.  This makes the Hanjin problem political as well as economic.  And far more interesting than some T shirts might be a week later than anticipated.  (And all indications are, retailers have ordered too much for the upcoming season.  We'll know in January.)

A friend with a long term relationship with Hyundai tells me Hyundai is sending in extra vessels into the demand vacuum the Hanjin demise has created.  Just as I said.  And of course, at these new higher rates, mothballed ships or ships gaining less revenue elsewhere are directed to where the revenue is best.  The solution to high prices are high prices.

Naturally, the regulators get it exactly wrong, and enforce policies that harm the industry:

The Federal Maritime Commission warned the industry not to take advantage of the situation by price gouging.

Sheesh.  that which is most needed will be sanctioned.  Nice work, fellas.  Gouging will last only for as long as it takes for those vessels in search of a better buck make it to the shipping lanes.  Then it is back to over-capacity super low rates.  Hyundai is urging customers to sign long term contracts given the Hanjin issues.  Of course.  But why lock in lower rates relative to today's rates when the rates will drop way down again.  No sale.

So to my mind the question is why are they bankrupting Hanjin over a mere $225 million loss first quarter?  A couple of years ago, big deal..  now they liquidate in a disorderly fashion?

Ocean shipping too is an example of the misallocation and malinvestment that comes with ex nihilo credit at interest.  The regime is clearly over, and as I have said, the damage was done in the boom, the bust is simply where they decide who pays.  The ships are not worth much, but marked to market they would be a huge asset competing against ships that are on the books at false economy valuations.  That is a huge opportunity, but tricky.

The more direct play is Hanjins' long beach port operation.  But wait, what about the Mexican port projects being developed to compete with LA/Long Beach?    Who knows...

Taiwan is letting the chips fall, and now Korea.  It is Econ 101, but bad politics, to be the first to let the bust clean out the malinvestment and misallocation.  China has said they will not bail out, but that is yet to be seen.  In any case, expect Taiwan and Korea to recover first economically if they let the chips fall, which they seem to be doing.  That is the news.

Zero Hedge points out that the Hanjin blip will be just another excuse by USA dinosaurs ( so Tyler, why help them by overblowing the event?)

Update:  the Hanjin Boston is on the move as of 8am Friday...   looks like unlading is LA vs LB... And now on its way up to Oakland, 4pm pacific time.

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Hanjin "Crisis"Ended Today: Never Was a Problem

So its over, as I predicted.  Ho hum.  But note the hype continues in spite of the facts.

Fresh off of sensationalizing the ITT demise, the Wall Street Journal was just  hyping the Hanjin problem, and Zero Hedge is hyping the hype: ghost ships, crews gone crazy, chaos!  Those were the headlines a day ago.

The very articles promoting the-end-of-the-world internally contradict themselves.  And the search for victims settles on small business.  Small businesses have no problem with this, we know these things happen, so we are prepared and survive.  As I mention how below, but first the hype.

$90 million dollars has been coughed up to address the problem, not a lot when its takes a million to fuel up one of the bigger ships, and there is a lien for a million on the ship.  But it is a start.

Before I address the reality, let's look at the hype:

Zero Hedge quotes a labor Union official:

"Our ships can become ghost ships,” said Kim Ho Kyung, a manager at Hanjin Shipping’s labor union.

Well, now.  "can"? There is a possibility we can all lose sleep over. Except it will never happened.  In salvage law an empty ship belongs to whoever first boards it.  No, a quote including the word ghost might make for exciting copy, it's not in the cards.

As to the earlier fear of cannibalism Zero Hedge hinted at:

As a result, The company has started providing food, water and daily necessities to crews on six Hanjin ships anchored at ports including Rotterdam and Singapore.

Next... an industry finds no problem yet...

Nate Herman, a senior vice president for the American Apparel & Footwear Association, said: “This is not impacting store shelves now,” however he added that “It will impact store shelves if the situation isn’t resolved.” 

And won't since this is over already. And this...

One Hanjin captain operating a ship in international waters near Japan said his vessel has been given permission to enter a Japanese port Wednesday to unload cargo, but will be required to head back out soon after.

Oh.  So if you cannot pay your bills, well, unload the goods and leave.  This is crisis stuff?

And this from a consultant:

The problem retailers face is that there is little precedent how to deal with the fallout. While Hanjin was granted protection by bankruptcy courts in Korea and the U.S., conditions are “bordering chaos,” said Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen.

Well, sounds like he is looking for clients, knowing the words "bordering chaos" will get quoted along with him.  As to little precedent, what nonsense.  Admiralty law has thousands of years of precedents, apparently unknown to the consultant.  I do some consulting.  Our industry motto is "seldom informed, never in doubt."  Lars Jensen is stellar.

Recall above Hanjin is sending in food, water, etc to its ships.  Now read this clever piece, again alluding to cannibalism:

But while manufactured cargo can survive indefinitely, crews on ships can not, and as Hanjin ships drift at sea, their crews face increasing uncertainties and diminishing supplies. “We usually have food and water for about two weeks,” said the captain of a Hanjin-operated ship speaking by satellite phone from the South China Sea. But, after 12 days at sea, “everything is getting tight—food, water and fuel,” he said.The captain added that he is rationing water and cutting back air conditioning to save energy.
“The heat is driving the crew crazy,” he said. His ship was carrying lubricants and home appliances from South Asia to a Chinese port, but last Thursday, he was told to stop, as the ship could be seized at its destination.

Spot the problem?  A Hanjin-operated ship?  Meaning an independent tramp steamer who picked up a load for Hanjin on contract.  Who told him to stop?  Hanjin, or the owners of his ship?  If Hanjin is not supplying them, it is only because it's not Hanjin's boat.  Hanjin captains are national navy grade officers.  No responsible officer would talk like that. Also, any ship in distress can ask passing ships for relief and are extremely likely to get it.  That's just the merchant marine.  Sounds like someone trying to shake Hanjin down.

The Wall Street Journal is not very well informed:

Adding to the confusion, the WSJ adds that shippers and brokers said the Korean government has designated only three so-called base ports—Los Angeles, Singapore and Hamburg—where Hanjin vessels can unload shipments without risk of being seized by creditors.

The Hanjin Boston has been seized.

One of three Hanjin ships moored off Southern California’s shores was seized by U.S. Marshall’s officers, officials confirmed Wednesday.

And that is good.  Yesterday the Hanjin Boston, which had been one of the "choatic, crazy-crewed, cannibal ghost ships" referred to by Zero Hedge, unloaded its goods and now sits back in the bay at anchor with a US Marshall on board until Hanjin coughs up the money to pay its bills.

(A seized ship has a marshall on board, so no "ghost ships.")

Seven days ago I predicted the problem would be over in 6 days.  Exactly right.  Zero Hedge was calling it years.  I kept my eye on the Hanjin Boston, which I specifically mentioned,  for that was obviously one of the ships in question.

How come I knew there would be no problem?  Because there is nothing special here.  There is comprehensive law to deal with such common events.  Read this through and you see what the rules are, what happened, and what will happen.

Back to Zero Hedge, this is just odd.

The Korean Shippers Council, which represents more than 60,000 trading companies, said Wednesday  its members “have not been able to figure out the whereabouts of their freight.”

What's your booking number?  Email me, I'll tell you in about 5 seconds where your freight is.  Someone just doesn't have their facts straight.

Meanwhile, executives with freight-booking platform Shippabo warned that companies should expect delays as many cargo containers have been rerouted on different vessels. “For the top 25 importers, this is a blip,” said Frank Layo, a retail strategist at consulting firm Kurt Salmon. “They’re diversified, they’re not shipping it all on one line.” But for smaller retailers with less sophistication, “this could be devastating,” he said.

This is no problem for small businesses.  We know how to deal with this.  We never do volume.  We always do frequency.  There are no practical economies of scale in shipping, no matter what business schools teach.  They are simply wrong.  We don't try to ship the largest amount possible, we ship the smallest amount rational.  We invented "just-in-time' inventory.  If one of our small shipments is held up a week on a ship, no problem anyway, but if a container goes overboard (happens more than you think) and we have a pallet on that can, well, no problem, we have another pallet on another ship coming in a week.

Of course I've been teaching this tactic for 30 years, and I have seminars listed on the upper right corner of this blog page.

The only real news the Zero Hedge has, and this is right, is this:

Another word for devastating? A "justification" to miss earnings for yet one more quarter.

Exactly.  the dinosaurs will use this too as an alternative narrative...  "we are not dying."  O yes they are, but this was a no- event.  They are dying because the ex-nihilo credit regime is over.  And this is great news for small business international trade.

As an aside, if any reporter ants to know what is going on in int'l trade, they should ask me.  But that ain't gonna happen, because no hype quotes rom me.

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Hanjin "Crisis" and Jones Act - An Aside

Another reason not to worry about the Hanjin crisis. This is last May.  Since all the major lines already linked up, does it sound like they will let the freight sit and rot?  They may have to move things up a bit schedule wise, but here it is.

May 13^th, 2016, Seoul, Korea – Hanjin, Hapag-Lloyd, “K”Line, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and Yang Ming have agreed to create a new alliance covering all East-West trade lanes namely, Asia-Europe/ Mediterranean, Asia-North America West Coast, Asia-North America East Coast, Transatlantic and Asia-Middle East / Persian Gulf / Red Sea.  A binding agreement has been concluded by all partners and “THE Alliance” is scheduled to begin operation in April 2017 subject to approval of all relevant regulatory authorities. The initial term of the cooperation will be five years.

Now, that "Alliance" mentioned.  What does that suggest to you?  They used to be call "conferences" and in essence they were created to fix prices.  That's right, anti-trust.  Illegal in USA.  But no more USA shipping.  (I know, back in the day they got an anti-trust pass).  But anyway, what can we say when we no longer play?  With Hanjin capacity out, those foreign companies can fix prices higher.

By the way, note there is no longer any USA steamship line. SeaLand, the last to go, was bought out by Maersk.  Now USA is 100% dependent on foreign shippers. What happened to SeaLand?  American President Lines, with its 1960a super cool office tower in San Francisco? United States Lines?  Lykes Lines? All gone?  How come?  Protectionism.  In this case the Jones Act.

The intention of Congress to ensure a vibrant United States maritime industry is stated in the preamble to the Merchant Marine Act of 1920.^[5

The rich and powerful crybaby millionaires, with names like Roosevelt, wanted to get rich without competition. What specifically, inter alia, did they get?

Section 27 of the Jones Act deals with cabotage and requires that all goods transported by water between U.S. ports be carried on U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.^[2] 

Not to mention massive subsidies by taxpayers, and what happened to them all?  Gone.  The millionaires took the profits, the taxpayers took the losses.  By reserving it all to themselves, we ended up with nothing.  And price fixing.

From the 1820s to 1920s private individuals could start up ocean freight lines and get rich, back when there were no subsidies, regulations, protections, acts of congress.  We had more separation of business and state.  Then we got subsidies, regulations, protections, acts of congress and now we have nothing but foreign vessels calling on our ports and price fixing.

Trump is right to decry NAFTA and TTiP and TPP etc.  Those have nothing to do with free trade.  But protectionism like the Jones Act has the opposite effect.  So I hope we have none of that.

Eliminate the Jones Act and let anyone sail between our ports, unilaterally welcoming world trade. Since Hanjin ships will come up at auction prices, let some USA billionaire get them marked to market value and then engage in free trade shipping.  No subsidies, no protections, no regulations outside of lex mercatoria.  Not only will shipping costs drop (no more price fixing) elegant travel from LA to Seattle on US flagged vessels will resume:  "Champagne and fancy dress, we won't set sail for less"

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Hanjin: Zero Hedge Nonsense

Like you I enjoy the occasional Tyler Durden/Zero Hedge report.  But this is all nonsense:

As reported Wednesday, after the company's bankruptcy protection, on Wednesday, terminal operators, ports, cargo handlers, truckers and others have refused to handle its cargo, for fear they won’t get paid. That is causing turmoil at U.S. ports and beyond, said shippers, importers and freight forwarders. Then as we followed up yesterday, U.S.-bound cargo has been delayed at the point of origin, and cargo-laden Hanjin ships are unable to get into U.S. ports. Worse, already delivered cargo is sitting unhandled, clogging ports and occupying containers needed elsewhere. Several Hanjin ships have been seized by creditors or barred from shipping cargo from Busan, South Korea’s main port, and vessels have been turned away from ports in the U.S., China, Canada, Spain and elsewhere.

Those "terminal operators, ports, cargo handlers, truckers and others" are all the exact same people, working within the stevedore companies.  OK, so they extort their fees up front.

Name names: If ships are lying wait off the coast we can see them real time on the web.  Name the vessels so we can see.  I can imagine Hanjin is not finding anyone to load its vessels at origin, but again, name names: which ports are clogged.  It hasn't happened.

And this:

Meanwhile, as we also reported yesterday, shipping rates have soared as freight capacity shrank overnight, and indicative rates from Busan, South Korea, to Los Angeles had risen to $2,300 a container by Thursday, up from $1,700 four days earlier. One U.S. importer said he was getting rate quotes of $2,000 a container, compared with $700 before the Hanjin news.

Well, yes, with that much capacity gone prices go up.  But Austrian Economics 101: the solution to high prices is high prices.  The overcapacity around the world will rush to Busan to get some of that largesse.  Until then, the most critical shipments, by way of in essence auction, will move first, albeit at a higher price.  I bet the high rates disappear as soon as Maersk and Cosco and Fesco position some freighters there. What, 6 days?

And this breathless non-issue:

The biggest hit may come for the $25 billion US toy industry, however, which has been sweating the Hanjin news, as it prepares for the holiday season, responsible for half its annual sales. Jeff Bergmann, managing director of the Toy Shippers Association, said his customers are fortunate that only about 20 containers are on Hanjin or affiliated vessels.

No, no "biggest hit may come," yes, only 20 containers out there "at risk," because for the dinosaurs, if the 4th quarter merchandise is not in USA by the end of the 2nd quarter, you are sunk.  There is not enough lift capacity in Asia, never was, to get all of the 4th quarter merchandise delivered in the 3rd qtr, let alone the 4th.

unh!:

But forget the retailers, will someone please think of the ship crews? Hanjin ships carry crews of 15 to 25 sailors, and with the vessels unable to call at ports, the sailors could be stranded at sea for weeks or longer. “They have food and water for a couple of weeks,” said Basil Karatzas of New York-based Karatzas Marine Advisors & Co. “Beyond that, things may become very difficult because suppliers will no longer extend credit to Hanjin and everything must be paid in cash.”

So tomorrow will Zero Hedge report fears of cannibalism?  Few people realize just how plush ocean freighters are.  Elevators, libraries, plush dining, swimming pools.  I've been on them.  I suspect the millionaires who officer those vessels will get provisioned, plus take care of their crews.  These are sailors, after all.  Sheesh!

Finally, anyone hoping for a quick resolution to chaos unleashed by the Hanjin bankruptcy, should not hold their breath. While Hanjin has obtained creditor protection in Korea, and secured an injunction protecting its ships against seizure domestically, it needs to quickly file for bankruptcy abroad, especially in Europe and the US, in order to keep its ships moving.

Again, what chaos?  A couple of consultants overstating the case is your evidence?  Higher prices?  Does anyone remember the Cho Yang bankruptcy?  You won't remember this either.

Update:

In the meantime, one massive container ship (Ed.: The Hanjin Boston?) was holding 40 miles south of the San Pedro Bay port complex Thursday afternoon, while another was anchored at the Port of Long Beach and a third outside the harbor, 

Anyone who has ever flown in or out of LAX sees a dozen ships at anchor outside the harbor at any given time.  I stop by El Segundo beach for an ocean swim before I fly out of LAX, and always see ships at anchor off the cost.  Right now Maersk, OOCL and others are waiting their turn.  They don't wait long.  Get your own raw facts. Watch the ships themselves.

The LA Times article is a rehash of Zero hedge alarmism, but they did actually call someone at Port:

The Port of Oakland terminal that handles Hanjin’s cargo was continuing to “unload Hanjin ships and they’re going to deliver the loaded import containers to Hanjin customers,” port spokesman Robert Bernardo said.

Wonder why they didn't call Long Beach? Nothing amiss in LA either?

Durden does well to note the dinosaur retailers are jumping on the opportunity to demand a bail-out and  deflect attention from their ongoing demise.  That is news, well to report.

My earlier post on Hanjin is here.

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Hanjin Announces It Is Bust

Well, the damage was not done in the bust, the damage was done in the boom.  What happened today is simply Hanjin starting the process of deciding who will pay for the damage done during the boom times.  

As Reuters reports, banks led by state-run Korea Development Bank withdrew backing for the world's seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.

All false economy businesses operating today are busted, what is new is Hanjin has actually started the process of deciding who pays.  We learn a decision as to who pays is decided, so far, pensioners and insurance companies, corporate and small time investors.

Shares in Hanjin Shipping have been suspended after plunging 24% on Tuesday.

If it plunges to zero, then bondholders take a hit.  What is interesting is Korean Central bank has decided not to buy up the stock to keep it going.  This is great for the economy!

In essence, they are planning to get marked-to-market, which means they will be the first to recover and retake a #1 position. After 9/11, both Swiss Airlines and Las Vegas Casinos went bankrupt immediately.  They also recovered first.  The article says this is the largest bankruptcy since the 1986 bankruptcy of United States Steamship Lines.  Remember them?  No?  That's my point, life goes on.

This is misleading nonsense:

Making matters worse, Reuters adds that KDB's move to pull the plug was already having an impact on Hanjin's operations, with the company's various shipping assets already frozen. Ports including those in Shanghai and Xiamen in China, Valencia, Spain, and Savannah in the U.S. state of Georgia had blocked access to Hanjin ships on concerns they would not be able to pay fees, a company spokeswoman told Reuters.

As if the cargo on the ships is being seized!  The cargo is not owned by the steamship line, it is owned by either a bank or the importer.  Neither is subject to seizure.  The ship may be impounded for docking fees, etc, but that will be an empty ship.

Next, this tidbit...

 Finally, while jarring Hanjin's bankrtupcy was inevitable: shipping industry economics have deteriorated. Charter rates for medium-sized container ships have dropped from around $26,000 a day in 2010 to $13,000 per day now.  Container rates from Shanghai to the U.S west coast have more than halved since then, from around $2,000 per 40-foot container in January 2010 to $596 per 40-foot box last week, data from the Shanghai Shipping Exchange shows.

1500 TEUs at $596 each = $894,000.  14 days times $13000 = $182,000.  Twice that is $364,000.  that leaves about a half million a voyage gross profit, even at the higher rates.  No wonder Aristotle Onassis was a billionaire from shipping, so rich he could marry Jackie Kennedy.  No wonder the governments ran all the private shippers out of business and took over with government run shipping lines.  And as usual, they ran them into the ground.

And this:

The global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos.

No.  None of that will happen.  At worst some independent like Maersk will take over the ships and make a profit.  With overcapacity, ships are mothballed and others take up the slack, if and when the subsidies end.  For Hanjin, it appears they have ended.

This is the inevitable result of ex nihilo credit.

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Hong Kong & Belt & Road

Islam introduced free markets to the Spanish Scholastics, who passed it on the the French philosophes, and from there to Catholic Scotland, and then assumed by protestant Scotland, and got carried by Scottish managers to the far reaches of the British Empire, most notably Hong Kong and the American Colonies.  Hong Kong kept the faith, largely, whereas USA has only traces of free markets: for in the legal field alone we have bounty hunters, jury nullification, pro se, and attorneys general, all free market elements.  The list of trade residual free market elements would make quite an encyclopedia.

Hong Kong is reltively free market so it knows to discover new markets, not try to go cut rate on known markets.

The interesting aspect of the Belt and Road is that it will create opportunities, which will be different from those that we can take advantage of right now. The winners will be those companies that can recognise these new opportunities and organise themselves to tap into them. You cannot expect that tomorrow will always be like today. You have to be open-minded about how the world may change and how new economic linkages will create new opportunities for you.

Swire is one of those Scottish companies, like HSBC, started in vastly more free trade Hong Kong.

What does it mean specifically for the global transport and logistics industry? The Belt and Road, at its core, is about better, cheaper and faster logistics. It is about building infrastructure and removing barriers to trade, and by doing those two things, creating new trade opportunities.

I love to see free marketers so often unwittingly quote Chairman Mao: More Better Cheaper Faster.

Only free markets can provide what both communists and capitalists claim they want.

A significant component of our portfolio of businesses is involved in transport and logistics. We have the airlines – Cathay Pacific was the world’s largest air cargo airline a few years ago. We are involved in shipping in the Asian region, specifically between China, Hong Kong and some of the Belt and Road countries. We are also involved in other infrastructure-related sectors such as cold-chain logistics, so we think there is ample opportunity for us.

Yes, cold chain logistics is an untapped potential, and unseen.  USAs policy of get big or get out in agriculture kept this option from becoming manifest in LCL fresh exports from USA.    Some agents have managed work-arounds, but not yet for the small seller exporting direct.  A wide open business for anyone who can manage it.

And Hong Kong can win this game because it's relatively free market, and so desirable a place to live, they have excess management supply, so management is less expensive in Hong Kong.

Where Hong Kong can carve itself a space, among other things, would be as a great University center.

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LCL MOQ FOB

For 35 years I've been teaching this since no one else has...  order the smallest amount rational, not the largest amount possible.  Economies of scale for small business is poppycock.  HKTDC.com has always been on board with this...

In this new economy, they now push it:

The owner and general manager of Aeskimo Co Ltd is one of hundreds of small suppliers who are benefiting from the Small Orders online platform launched by the Hong Kong Trade Development Council (HKTDC)... 
Please credit and share this article with others using this link:http://www.bangkokpost.com/news/asia/937521/small-orders-big-opportunities. View our policies at http://goo.gl/9HgTd and http://goo.gl/ou6Ip. © Post Publishing PCL. All rights reserved.

Exactly. The world is catching up to what I've always taught.  Soon I can quit teaching.

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Patti Lebelle's Pie Success

A paean to Patti Labelle's Swee'patata pie went up on Youtube 12 November, it has 3.5 million views by the day before Thanksgiving, 26 November, and it helped push sales of the $3.28 pie to one pie per second for 72 hours straight at Walmart.  

This will go down as exhibit A in the canon of viral marketing.  There are two sides to this, a reality side and a fantasy side.  Billions will now be spent attempting to replicate a fantasy, and ignoring the reality.  The fantasy is viral marketing can make you rich and is replicable.  The reality is no one will make any extra money off this, and it is not replicable.

First the video, but warning, naughty language.


First how many pies is one every second per day?  86,400.  At retail of $3.28.    That is about $284,000 at retail.  Do you know why Walmart had $284,000 worth of pies ready to sell?  Because Walmart expected to sell them.  If this viral video had an effect, then it only accomplished moving the pies faster than Walmart expected.

What we do not know, and Walmart is not likely to reveal, is what they expected to sell and on what time frame.  The video impacted sales and created more demand in a given time frame than Walmart anticipated. Walmart now has information upon which it can hypothesize near term sales, given the impact of the viral video.  This now breaks into two parts; replenishment (today it is in a sold out position at Walmart online) and purchase order.

Walmart will write one of their legendary 50 page purchase orders that will offer to buy X many pies at Y price, and all risk will be with Patti Labelle.  Walmart has raised the price 20 cents (slowing demand by raising price), but even at 21 ounces for $3.48, or just under 17 cents an ounce, this has to be one of the most inexpensive pies ever concocted.  With ingredients including "all California sweet potatoes" (Not 'Bama sweet potatoes?) coming up with that many sweet potatoes at that low of a price in the holiday time frame is one tall order.

Now no doubt that many pies has 50 separate industrial bakeries banging out her pies already, so it is a matter of booking more production time, but at overtime costs, since this is the busiest season for the industrial bakers.  With margins this tight, there is not a lot of room for either cost rises nor inventory mistakes.  I bet Walmart stays largely sold out, and they simply sell through what was ordered anyway. Nobody lifts a finger to expand production or sales.  There is nothing to be gained.

Patti Labelle is a smart, successful woman, and in one of the toughest industries out there, music.  She knows how contracts and managers make sure you earn practically nothing, so she is not about to be fooled by this fake success.

Nonetheless, this story will circulate for decades as people sell the fantasy of getting rich through viral marketing.  Even if you were a famous singer who went into pies and someone had a video that went viral (you aren't, and you won't) there is no money to be made following the "success" anyway.

Yet, people ever want to believe business success is about luck, fortuna, when it is about serving others.

As an aside, is her pie really that good? The pie has 90 reviews at Walmart online, where it is judged "not diabetic friendly" for being "super sweet."  Well, yes, in taste tests the most popular version of anything has the most sugar.  Imagine that.  You think you are eating all healthy like when you have a sushi meal?  Raw fish, organic rice?  Guess what holds that sushi rice together?  Sugar.  I was astonished at 15, taking a Japanese cooking class, to find every Japanese recipe loaded up on sugar.

But that is an aside.

What Ms. Labelle might do is instead of ramping up production, just license out her name to all of the pecan and pumkin pies coming out of industrial bakeries in plain boxes to be sold at grocery stores...  at 20 cents a pop, she could make millions at no risk to herself...  any mistakes by the licensee ends up in extra labels, not pies.  But she knows the music business, and that may be what she does.  Let's watch.

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Ocean Freight Rates Tumble

Ocean freight rates don't matter much in small business int'l trade, but falling rates mean the big boys are shipping less, in other words, no hiding the economy that is failing, the big boys' economy.

Shipping is a strong indication on the health or weakness of the global economy. So let's take a look at what's happening.

So, while this does not mean much directly, as in lower costs for small business, indirectly it does because as those big boys contract, there is some vacuum into which we sell, a theme I have been demonstrating here.

An informal study I have done is how many longstanding businesses started in times of economic distress.  Someone ought to study this as a master thesis or a Phd dissertation; small business renaissance after rents fall in a capitalist economic crack-up.

We cannot have an economic recovery until rents fall (disastrously for the capitalists) and free marketers can build from a "place" ... where they do business.  It would be an interesting study.

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Fresh Food Exports

The problem to solve is gain a critical mass in LCL fresh shipments to get 3PL providers to support it:

For example, new bags delay cherries from ripening. Most of Idaho’s exported cherries are still flown, but the bags make it feasible to ship via water, which is cheaper.
...
Led by whey and cheese, dairy is Idaho’s largest farm-export sector. While fresh milk lacks the shelf life needed for long-distance shipping, cheese has it.

We are making progress at the small, private business level on the solution.

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Mag Lev Lexus Skateboards

This blog has for years advocated Mag-Lev as a solution to pollution, energy costs, foreign dependency, police abuse, transportation inefficiency and a host of other problems.  Now come Lexus with a working solution:

Before we get to that, here's a brief description how it works: Lexus’s hoverboard uses magnetic levitation, or maglev, to achieve frictionless movement. Liquid nitrogen-cooled superconductors are combined with a magnetic surface to essentially repel gravity. Maglev technology itself isn’t new, and this isn't the first hoverboard to use it. American startup Arx Pax raised over half a million dollars last year through a Kickstarter campaign to fund its Hendo Hoverboard.

Note these are private company efforts, the hegemon is merely getting in the way.  And indeed, if we want to see a revolution and economic recovery as grand as we saw with telecommunications when Carter deregulated phones and Al Gore gave us the internet, then we need to deregulated transportation so private companies can raise equity on real assets and build out a mag lev system, where China is ahead of us already.  To make this happen, the Hegemon has to relinquish power, as Carter (my favorite president) did when he eliminated the ICC.  (Carter did the heavy lifting, the right thing, and Reagan got the credit for the massive benefit to the economy.)

Usually such technological advance goes from the general to the specific: the railroad steam engine for mass use drilled down over time to the internal combustion personal locomotion, the auto+mobile.  We still use the word "car" (from an individual train car) to refer to a individual transport unit.  But this time it seems to be going from the individual (the skate boarder) to the car, trucks, railroads.  The country that is the least regulated and most free market will win this contest.

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Deflation in Shipping Rates

Deflation is everywhere, a process the powers that be cannot counteract, and showing up in useful areas, such as shipping:

The glut of massive ships is adding to the overcapacity on the world’s busiest trade lanes, particularly the benchmark Asia-to-Europe route, pushing the cost of shipping a container from Shanghai to Rotterdam down to a record low of $342 per 20-foot container last week. The year-to-date average is $742 a container, down 36% from the $1,151 average for the first five months of 2014.

At the small business level freight rates are of little consequence, the more important aspect is the implied capacity availability.  What is not noted is if the plan to chase the littler guys off the main routes works, those littler ships will start to call on more marginal ports, where some money can be made, making world trade even wider.

Search and learn new markets no one else has found for new markets are opening.

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The New Silk Road Away From U S A

Russia is on solid footing and no where to go but up, and China has an outsized credit problem like the USA.  Too many claims on too few productive assets.  China is going to grow its way out of this, with its Silk Road development project. 

Russian news outlet RT has disclosed that Vladimir Putin and Xi Jinping have signed a decree on cooperation in tying the development of the EEU with the Silk Road economic project. “The integration of the Eurasian Economic Union and Silk Road projects means reaching a new level of partnership and actually implies a common economic space on the continent,” Putin said. Furthermore, columnist for Russian news outlet Sputnik, Pepe Escobar, stated, “What we have here, above all, is the China-led New Silk Road directly connecting with the Russia-led EEU. China and the EEU are bound to set up a free trade zone”. The EEU could potentially grow into a very significant power bloc.

What will USA do to grow its way out?  Develop free trade with Mexico?

The new project will have a currency based in gold, which will foster peace and prosperity.

No, USA cannot match this, but it can grow its way out.  Deregulate something. Anything.  Banking.  Medicine.  Education. National defense. Housing. Transportation.   If we can turn USA creativity loose, we can compete.

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