2021 OCTOBER
GLOBALIZATION
NEEDS REINVIGORATE
PART 2
By : Andrew Sia
Introduction
More than four years ago we made a study of twenty pages about globalization and since then this topic has been frequently revisited. We suggest you to look for the article known as “What We Can Learn From Globalization” in our January 2018 issue and we have still found many of the points raised at that time is still relevant in today’s world.
We believed that globalization, like all international initiatives, began with the good intention. Unfortunately, it was spoiled by the activists of the anti-globalization movement with their disruptive tactics whenever there are meetings of the international institutions such as WTO, IMF, World Bank, World Economic Forum, G7 and G20. United Nations have become the organization that have to step in and give arbitration from time to time.
We can see the Anti-Globalization Movement would continue to go further and oppose many different levels of globalization and they would team up with trade unions, environmentalists, anarchists, indigenous, and human rights.
Also institute like Organization for Economic Cooperation and Development (OECD) has been singled out for harsh criticism.
In the past four years, the US led by the Trump administration created the country to be split and brought irreparable damages to Trans-Pacific Partnership (TPP), North American Free Trade Agreement (NAFTA), Transatlantic Trade Investment Partnership (TIPP), World Trade Organization (WTO), North Atlantic Treaty Organization (NATO) and others.
Beginning of the year we have seen the United Kingdom entering into Brexit and we began to see cracks it caused to the country.
It seemed that all these were not bad enough and since the beginning of 2020 we have seen the outbreak of the coronavirus which quickly became a pandemic and it has very quickly affected the whole world. Globally the death caused by this pandemic has already exceeded four and a half million.
This pandemic further exposed the weakness of our supply chain that enables our globalization. We are trying to find out if we can find ways to improve as we have been learning from the mistakes we have accumulating since the introduction of globalization that started in the 1980s.
DHL Global Connectedness Index 2020
No question that this is the first time when almost all the nations have closed their borders to restrict the travelers that grounded passenger airlines and cruise lines and have created an impact that has never been experienced by the people.
The DHL Global Connectedness Index 2020 provided an assessment of globalization during the pandemic and claimed that the pandemic was unlikely to have caused the globalization to collapse.
The DHL Global Connectedness Index measures globalization based on international flows of trade, capital, information and people. For trade and capital flows it plunged at the beginning but it has already started to recover. Information, we would refer to digital information, have surged as people and companies rushed to stay connected online and we haven’t seen at such a scale like before. And for the people, the flows have collapsed because of the lockdown which is unprecedented. As a result the 2020 index had declined.
The ten most connected countries when I compared with the report I have in 2018, I found that the No. 1 country is still the Netherlands, and the No. 2 is still Singapore. Ireland has fallen from No. 3 to No. 5 this time. And Belgium was No. 6 before.
From the above we have come to realize that Europe is the most connected region in the world.
The DHL continued to comment that despite strong headwinds in global geopolitics and trade, the Global Connectedness Index has shown surprising resilience in recent years. The pandemic put the people flows on pause, but trade, capital and information flows have helped to keep the world connected.
What We Learn from the Impact of the Covid-19 – the Perspective of a Garment Manufacturer
In February and March 2020 we encountered the epidemic and the world was locked down, but soon the Covid-19 elevated to become the pandemic. It caught the world by panic.
What followed were the cancellations of orders but the more ethical customers would suspend those orders temporary rather than cancelling them. The payments were stop from coming that drove the factory owners into dire strait, and that led the workers into the most distress financial situation.
We are here to make a review for what happened and how the problem was encountered and being handled.
China at its height of the Covid-19 crisis, orders were cancelled without any exception. Physical shops in China were closed and that left the online shops remained open to serve the market’s need.
Orders were cancelled and it affected the upstream supply chain who worked on order projections but everything was stopped. Textile machines were stopped because the indications from the garment factories were lacked. That put a lot of pressures on the yarn and fabric mills, textile printers and manufacturers of those accessories, and they were all halted until the market could move again.
Usually these textile manufacturers are capital-intensive and they are hiring lot less labor than the garment factories. The pressure on those garment manufacturers was another kind as the workers were coming from the rural areas and to send them back until the business would return would be more likely to be the case.
The Chinese government is well aware of the problem and to maintain the political stability, the first thing they would look into would be the people—the farmers and the workers. They noticed the stability of supply chain, finance would assure the stability to the nation.
In their 14th Five-Year Plan (2021-2025) they aimed to push the garment production westward, to the contentious province of Xinjiang, and to grow the domestic market and use the skill and capacity of its apparel, footwear and its complete upstream manufacturing facility.
Moving the garment and textile production westward is making sense as Xinjiang is the province where 80% of the cotton from China is coming from there. The provinces in that region are considered to be poor and under developed. We can see the potential advantages of the close proximity to the natural fiber, low-cost labor, and growing access to neighboring countries like Pakistan, who is also a strong player of textiles, and finally the gateway to the Belt-and-Road Initiative where textiles can trade as a commodity.
This can keep the coastal provinces for the export market where they can develop design, R&D, technology, creating brands, marketing, emphasizing “green transformation”. This can apply to Zhejiang, Jiangsu and Fujian provinces, and take Shanghai, as the center of the fashion trend to promote the industry to the higher level, to lead the high-end industries, become the hub for developing advanced materials and fashionable consumer goods.
And because of the cancellation of orders, China’s upstream textile and accessories productions are affected by countries that are depending on the supply from China. Countries such as Bangladesh, Sri Lanka, Vietnam, Cambodia and Myanmar for instance. They have all learned to work hand-in-hand and go through this difficult situation that none of them could have encountered.
Although Bangladesh announced that it would look forward to the five state-of-the-art textile factories at the Korean Export Zone (KEPX), where three are under construction, and two already open for polyester yarn and fabric, are in operation. These are manmade fiber (MMF) operation but I only can see that the Koreans would look after their need first and with the excess capacity, they will consider to supply to the other garment manufacturers. It is too optimistic for the Bangladeshi to say that with the five new Korean facilities can meet 25% of the total demand for MMF in Bangladesh.
It is correct for the president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Faruque Hassan, to say that due to the changing of the lifestyle, consumers are looking for products which are easy-care and sustainable and the demand for the MMF is increasing. And according to him that between 2007 and 2017, the share of MMF in apparel rose to around 45% of the global trade. And this has the 5% compound annual growth rate (CAGR). He continued to say that in 2017, the global trade of MMF-based apparel was worth $150 billion and in that year Bangladesh had 5% share of that business.
I am surprised to find that Bangladesh has 430 spinning mills, and according to him that only 27 are based on synthetic and acrylic fiber and the rest are cotton spinning mills.
In my opinion that it is kind of fluke for such comment.
Massachusetts Port Authority is Getting Ready for a New Berth
I came across this piece of news one day and found that placing three massive cranes over a ship is a brilliant design of itself.
Three massive cranes, 205 feet tall with a lifting height of 160 feet, arrived in Boston Harbor from Shanghai. It is ready for the part with a new berth and a deepened harbor to handle the bigger vessels in according to the announcement made by the Conley Container Terminal from the Massachusetts Port Authority.
It is one of the principal container ports on the East Coast and in 2015, the port handled 237,000 containers TEUs, 60,000 automobiles and 121,000 metric tons of cement. It processed petroleum, liquefied natural gas (LNG), gypsum and salt.
Also some 114 vessel calls for 2016 cruise season which carried 328,305 cruise ship passengers.
Globalization is Under Siege By Covid
The recent outbreak of the first coronavirus case as detected on May 21 in Shenzhen, a city of 12 million population with less than 24 locally transmitted cases, caused the testing of all 230,000 people living anywhere near to Yantian container port, and any contacts between employees and sailors have been banned. Port employees were stopped from going home and were put in temporary prefabricated buildings at the docks.
As a result the Yantian port capacity, the world’s fourth largest, was running at 30% of its capacity. Long queue of container ships awaiting cargo bound for Europe, North America and other parts of the world have to anchor off Shenzhen and Hong Kong as the ships would take as long as 16 days to dock at Yantian. The use of barges with their own cranes were found ferrying between piers and container ships anchored in the sea for loading as the only way to bypass the delays at Yantian.
According to the record, the Yantian Port, also known as the Shenzhen Port was handling 25,770,000 TEUs in 2019.
In August, a major port container terminal at China’s Ningbo-Zhoushan Port, shut for one week because of a single Covid-19 case. Ningbo-Zhoushan Port is the world’s third largest port and was handling 27,530,000 TEUs in 2019. This further delays dozens of ships lining up for loading cargo for the western markets that are getting ready for the year-end shopping season.
It is not expected to resume full operations before the end of August. Already the traffics are diverted to the Port of Hong Kong and Port of Shanghai. This cascading effect will lead to ports along the Asia-to-Europe and trans-Pacific routes that could further slow the flow of goods. This will also affect giant retailers like Walmart and Amazon.com to mom-and-pop shops who will have to deal with late deliveries and also bear higher transportation cost.
It is already estimated that the holdup of the Ningbo-Zhoushan Port will cause the delay of two weeks. Through this port, furniture, home goods, toys and auto parts are exported to the world market.
The backlog of shipment has extended to the two major ports across the Pacific, the Port of Los Angeles, number sixteen in the world, and was handling 9,337,000 TEUs in 2019, and Long Beach, number twenty-one in the world, was handling 7,632,000 TEUs. Thirty-seven container ships were anchored outside the two ports this time in according to the Marine Exchange of Southern California. Earlier on, in February during the episode of the Suez Canal, there were forty ships waiting outside the two ports.
This was as if the blocking of the container vessel, Ever Given, earlier on in March in the Suez Canal was not bad enough. This time we have seen the Covid-19 is taking the effect on the global shipping industry.
Already the Drewry Maritime Research in London is comparing the two incidents statistically. This has brought up the shipping cost by quadruple. Stores in the United States and Europe find themselves with understocked shelves and higher cost of products. They have to bring in the goods earlier than the season and we have already heard that the big American retailers are chartering their own ships rather than booking for shipments through the shipping companies. Walmart and Home Depot are doing this already. They need to charter the vessels and secure the capacity for the third and fourth quarter.
The freight rates from China to the US West Coast are $16,425 per container compared with $3,886 at the beginning of the year. The rates from Asia to Europe are at $14,038 per container compared with $5,662 in January.
Other congested ports in the US on the East Coast are New York and Savannah. It is not better in Europe either, the Netherlands’ Rotterdam, the largest port in Europe, world’s tenth largest port which was handling 14,810,000 TEUs, and Belgium’s Port of Antwerp, world’s thirteen largest port which was handling 11,860,000 TEUs in 2019, are suffering from the congestion.
Closing Remark
This time our world has gone through many different challenges that we haven’t experienced before. The challenges are largely caused by the coronavirus pandemic but this has yet to finish. We have to observe and record down for any remedy and to study for improvements that could have brought to us as the way we work, the way we live, the way we study and the way we relax will all have changed. Even if it is slightly, it can mean a lot already.