MARKET REPORT
SHORT READ PART 3
2022 JANUARY ISSUE
Written by : Andrew Sia
Contents:
What We Should Deal with the Plastic
Cipriani Faces the Foreclosure Threat
Delay Shipments Are Hurting Small Businesses
An Outpost on the Atlantic
Vietnam Production Not Going Well During the Pandemic
What the Malaysian Government Learn from the Pandemic
Bring Manufacturing Back to Compact the Adverse Situation
Net-Zero Coronavirus Rules in China is Taking Effect on Expatriates
Amazon Rainforest is Under the Continuous Threat
Chaos of the Supply Chain
Hydrogen as an Alternative for Clean Energy
What We Should Deal with the Plastic
Almost everyone is blaming the fossil fuels for their cause of the climate change and not knowingly that they have helped us to build our world economy since their introduction during the industrial revolution about two hundred years ago. It is only recently that we have started to talk about the renewable energy and while fossil fuels will slowly recede from being the primary sources of energy, we must not neglect that the petrochemical industry is counting on the increasing of the production for plastics and toxic chemicals.
We can start to talk about plastic. Plastic production can jump three- to four-folds by 2050 according to the World Economic Forum report in 2016. The plastic waste is often exported to countries in Africa and Asia but they are lack of the capacity to recycle and to manage the waste. But often in the developed countries like the United States, the wastes are often ended up as garbage in landfills and as trash in rivers and oceans. They often ended in bodies of marine mammals, sea birds and humans.
Petrochemicals are commonly used in everyday products and we can find them in those stain repellents, flame retardants, and phthalates and other toxic chemicals are causing cancer, falling sperm counts, obesity and damage our neurological, reproductive and immunity system.
Fracking and natural gas have made the United States one of the world’s most competitive places in the world to make polyethylene which is a common plastic used primarily for packaging. The biproduct, a cheap ethane is used to make the single-use plastic containers.
Since plastic is coming from fossil fuels, it will continue to generate greenhouse gases. We are talking about an additional nine million tons of annual ethylene for 2021 alone and it is the result of takeaway packaging from the restaurants during this time of the pandemic when restaurant dining is still not encouraged.
The world can learn from the European Union who declared to become carbon-neutral by 2050 and it has developed a plan to build a circular economy based on the reuse and recycling products and to deal with the presence of those hazardous chemicals in those products. This will take further research in technology to achieve a healthier environment for our children.
Cipriani Faces the Foreclosure Threat – WSJ, December 8, 2021
What a year it has been! Even the go-to Manhattan venue for celebrity galas and corporate holiday parties faces the threat of foreclosure at its two New York locations. The two Cipriani properties—on 42nd Street and Wall Street, owned by the Cipriani SA that can trace its roots back to Giuseppe Cipriani Sr., who also founded Harry’s Bar in Venice in 1930s.
The hospitality company has been in default since May 2020 on $53 million in mortgage debt shows how difficult it is even for iconic New York City locales that caters for deep-pocket clients. Many of them have a long relationships with law firms, accounting firms, banks and the big corporations but under the covid-stricken situation, they all become venerable.
21 Club, the Manhattan restaurant and lounge that opened during Prohibition, closed at the beginning of the pandemic. Another icon restaurant went out of business during this time.
Delay Shipments Are Hurting Small Businesses
It was already in late August last year that the container ships were leaving China water for the West Coast for orders placed for Halloweens and Christmas not knowing that they would get stuck at ports for almost two months and missed the two holidays. Among other things, TVs, cookware, Fender guitars, board games, were all placed with ample of time for delivery to catch the season.
Shipments started to arrive one following the next off the coast of Los Angeles on the second week of September and were caught immediately into a traffic jam of dozens of ships. They continued to float for almost another 60 days before it was their turns to offload the containers. And already they missed the Halloweens but the Christmas was only a few weeks away.
The larger companies usually have more stocks in their hand and this supply-chain delay would have still brought them problems but that were not catastrophic. Unlike the small businesses, they were just waiting for one or two shipments and the delays would have a heavy toll on their business and their financial plan.
It was not only the importers who have suffered, but also the mom-and-pop stores who were also bearing the financial impact.
The increase cost of the shipment had gone as high as ten times compared with the price a year earlier, but the increase of the prices for those products can never catch up with that kind of increase.
And because of the delay, orders are cancelled, goods are stuck, with the future unclear. What is there to do and who is there to complain? The answer is there in no one. And also this situation have no sight to improve.
An Outpost on the Atlantic
China is expanding its military power from new overseas bases and has its presences in Cambodia and the United Arab Emirates. To the U.S., the most significant threat would be a militarily useful naval facility on the Atlantic coast of Africa. In Equatorial Guinea, the Chinese set their eyes on the city of Bata which the Chinese already built a deep-sea commercial port on the Gulf of Guinea with highways link the city to Gabon and the interior of Central Africa.
Equatorial Guinea is a former Spanish colony with a small population of 1.4 million and declared its independence in 1968.
Lately, the U.S, intelligence agencies picked up indications of China’s military intentions in Equatorial Guinea in 2019 and since then the U.S. and China have been trying to win it over.
Its president, Teodoro Obiang, has been in power since 1969, allowed his family to live lavishly on huge offshore gas and oil reserves and is known for corruptions and accused on tortures and disappearance of any of his oppositions. He found now that China and the U.S. are courting him and his next reaction is remaining unknown.
Beijing has set foot in Africa’s east coast and has its first overseas military base in 2017 in Djibouti, also known as the Horn of Africa, on the opposite side of the African continent.
Vietnam Production Not Going Well During the Pandemic
Many of the Vietnamese traveled from their villages to Ho Chi Minh City to earn wages that were three times for what they had made as farmers at home. But since the summer of 2021, the covid cases have become so severe and factories have begun to close down. Workers were forced to live in cramped houses and subsisting on minimum food that they can afford. Many of them couldn’t continue to wait anymore and decided to return to their provinces.
In 2020, Vietnam’s control of the coronavirus was so successful, and it achieved the highest economic growth in Asia that year, a growth of 2.9%. Now it is so bad as the new cases for those who have caught the covid keep on rising and the workers have gone back to their provinces although they have been promised raises and benefits.
The worker shortage, worldwide shipping crisis, together with the months’ long of factory closure in the Southeast Asian countries have already causing Nike’s shortage of sneakers. And this has also applied to Lululemon and Under Armour. Even though during the trade war between the U.S. and China, Vietnam came out as the benefactor, and yet some U.S. retailers have swift their orders to China for the production to deal with the crisis.
The factories tried to keep the workers in the compound and started to offer the “three-on-site” model, which is to eat, sleep and work without stepping out of the company’s premise. They used up every space but when the virus broke out the situation became out of control.
Vietnam was not known for manufacturing, and it was only recently the country has grown to become the world’s second-largest supplier of clothing and footwear and also the largest for the mobile phone. The peasants turned workers are not used to this kind of stress and it is easy to understand that they call for quitting their factory job.
For the Western world to reposition their sourcing and to secure their manufacturing base will have to depend on so many considerations now. It is not easy to stay in business under this circumstance which is strongly affected by a global pandemic.
Vietnam Production Not Going Well During the Pandemic
China is expanding its military power from new overseas bases and has its presences in Cambodia and the United Arab Emirates. To the U.S., the most significant threat would be a militarily useful naval facility on the Atlantic coast of Africa. In Equatorial Guinea, the Chinese set their eyes on the city of Bata which the Chinese already built a deep-sea commercial port on the Gulf of Guinea with highways link the city to Gabon and the interior of Central Africa.
In 2020, Vietnam’s control of the coronavirus was so successful, and it achieved the highest economic growth in Asia that year, a growth of 2.9%. Now it is so bad as the new cases for those who have caught the covid keep on rising and the workers have gone back to their provinces although they have been promised raises and benefits.
The worker shortage, worldwide shipping crisis, together with the months’ long of factory closure in the Southeast Asian countries have already causing Nike’s shortage of sneakers. And this has also applied to Lululemon and Under Armour. Even though during the trade war between the U.S. and China, Vietnam came out as the benefactor, and yet some U.S. retailers have swift their orders to China for the production to deal with the crisis.
The factories tried to keep the workers in the compound and started to offer the “three-on-site” model, which is to eat, sleep and work without stepping out of the company’s premise. They used up every space but when the virus broke out the situation became out of control.
Vietnam was not known for manufacturing, and it was only recently the country has grown to become the world’s second-largest supplier of clothing and footwear and also the largest for the mobile phone. The peasants turned workers are not used to this kind of stress and it is easy to understand that they call for quitting their factory job.
For the Western world to reposition their sourcing and to secure their manufacturing base will have to depend on so many considerations now. It is not easy to stay in business under this circumstance which is strongly affected by a global pandemic.
What the Malaysian Government Learn from the Pandemic – WSJ, November 15, 2021
With Covid-19 reducing migrant labor in many countries, some governments are testing if their economies can run with fewer foreign workers than in the past.
Malaysia, a country of 33 million inhabitants that has long been relying on several millions of low-paid migrant workers to work in their factories, employ by the construction companies and harvest in their rubber and palm oil plantations. These import workers help them to build up their economies.
But since the beginning of the pandemic, Malaysian government has closed the border and restricted the laborers from entering into the country leaving the labor shortages in their agricultural production, and also in the textiles and the semiconductor industry to keep up with the demands.
Malaysia’s national chamber of commerce says the country is short of 500,000 workers and this is including the need to replace those who left during this time.
Instead, the government wants to push for a program known as “Malaysianization” and encourage the enterprises to employ local workers by raising local wages and productivity. The country has roughly three million migrant workers living in Malaysia before the pandemic and this held back the companies to invest in automation to transform the companies to move up the value chain.
Malaysia is known for three of its exports to the world, palm oil, rubber products and semiconductors.
In early November, the United Nations Food and Agriculture Organization commented that due to the migrant-labor shortage in Malaysia, the world’s number two palm oil producer behind Indonesia, was one of the reasons the global food price hit its highest level since 2011.
The rubber goes in the same direction and this agricultural industry is hard and dirty and it is the nature of the job. In the past it has been relying on migrant workers from Indonesia and Bangladesh.
Another industry that is affected by the labor shortage is the assembling lines for the semiconductors. Malaysia is a major chip assembling hub and the industry is short of 30,000 workers.
Unfortunately that there are all manual labor and to replace by automation will take a long while. Malaysia will have to look for a quick fix once the pandemic can be under control.
Bring Manufacturing Back to Combat the Adverse Situation
You can call it onshoring, reshoring, or near-shoring, but the key word is to be close to the customers, although it is a major endeavor, it is the future. This pandemic has sent a shock wave through the organizations, it is the resiliency of the supply chain and the cost is no longer the important factor.
How do we come to this among all the things that we have done to drive for the globalization which resulted the loss of so many workers’ jobs? It was the decades of dependence on Asian factories, in particular to the Chinese factories after it joined the WTO in 2001, and the numbers of the workers in the U.S, dwindled to 12.5 million now. These workers are receiving $20 to $25 an hour in the bigger cities where they are still being unionized. If you compare this with what the Asian factories are paying only for $2.50 an hour, This is quite depressing. But I would suspect that if you add up all the social cost and others, $7.50 an hour, or $1,440 per month should be more viable in today’s economy. And even with that, it is only a third of what the workers here in the U.S. are getting.
Since the pandemic started, efforts to relocate production have accelerated and over relying on China factories has been threatened by delays and surging freight costs. The smaller retailers have found that they can’t depend on imports from Asian countries due to the uncertainties that hurt their business in the holiday season. For them to look for supplies close by is beginning to become a norm.
Not to forget that the punitive tariffs are still lurking in the back and once when things can start to return to normal, this will be put again on the negotiation table by the U.S. government with imports from China.
Now is the time to build up the high value-added products with automation to offset the manufacturing cost. I believe that the industry will have to look in this direction.
Net-Zero Coronavirus Rules in China is Taking Effect on Expatriates
Under China’s strategy of eliminating the virus, Beijing is also ready to start to enter into its third year of strict border security, including three-week quarantine and fewer visas for business people and their family members. Their aim is to suppress the coronavirus outbreaks and reduce the death toll from the pandemic. But lately with the Omicron, we have seen that it is getting out of hand even for the authoritarian government.
But because of its strategy, business executives are leaving Beijing, Shanghai and Hong Kong that has created an impact on the entrepreneurial spirit of China.
It is already mentioned that the travel restrictions will extend until the end of 2022 and this created the further uncertainty for the business community.
Amazon Rainforest is Under the Continuous Threat
The Amazon rainforest is regularly invoked by environmentalists because of its important role in maintaining the global habitat. It has an estimate 390 billion trees that spread across nine Latin American countries, namely, Brazil (60%), Peru (13%), Colombia (10%), and minors in Bolivia, Ecuador, French Guiana, Guyana, Suriname, and Venezuela. This acts as the decarbonization, also known as absorbing the carbon emissions from all over the world. It is also the world’s largest repository of biodiversity, containing at least 30,000 species of plants, 1,300 species of birds, and 300 species of mammals. The Brazilian Amazon is accounted for 60% of the total rainforest, but this is under threat as deforestation has soared. Last year, almost 11,000 square kilometers were razed and it has been increased every year.
The changing of the weather is also taking its toll as the harsh droughts have caused the deaths of billion of trees.
Scientists are worrying that if the situation continues, the Amazon may reach its tipping point, where its tree mass can no longer sustain even its water-recycling ecosystem. This would trigger the large extinction of large swaths of forest and will bring extreme climate fluctuations.
The Jair Bolsonaro government, which is the far-right populist government, is openly anti-environmental and the challenge now is to remove him from the government this year. During his four years as the president has done enough damage to the Amazon rainforest by allowing illegal logging, illegal mining and farming. The election is scheduled for October 2022.
Chaos of the Supply Chain
At the beginning of 2000 when the pandemic started, the world was hit hard by the coronavirus and for places like China, Vietnam, Taiwan, South Korea were shut down because of the panic as at one point no countries were taking in shipments as the retailers were also lockdown. The shipping companies cut back their schedules in response to the anticipation for demand for moving goods around the world.
The market changed to the switching of demands to work-from-home and study-from-home. Homes were refurnished with office furniture, computers and printers. The consumers went further to refurbish the basements into gym and video game consoles were added.
Paints and lumbers were bought for home improvements. Kitchenware like blenders and mixers were added. The surge of orders were more meant for home than what it was like in the normal days.
Clothing was changed to loungewear, sweatpants, casualwear than streetwear.
The sourcing and resourcing for materials and components were spilling all over the place and to find the right match took a longer time to fix the problem. The shipping companies were scrambling to dispatch container vessels around the world to try to bring the finished products to the market where there are the demand. As the result, there are empty containers being scattered around the world as the shipping lines are only interested to deliver the products and what was organized previously in the orderly manner was not in the mind of anyone. And because of the demand, the shipping cost is lucrative for them and they turned short-sighted.
What is there to do to clean up the mess and put the business back in an orderly manner is not going to happen very soon. Some said that it will take until the end of 2023 which I won’t be surprised.
Hydrogen as an Alternative for Clean Energy
Lately I came across Jules Verne, (February 8, 1828 to March 24, 1905); was a French novelist, poet and playwright, his work included Journey to the Center of the Earth (1864), Twenty Thousand Leagues Under the Sea (1870) and Around the World in Eighty Days (1872), once said that a society powered by hydrogen back in his time.
Lately when I was reporting on the clean energy in the Progress Report on the Paris Climate Agreement, hydrogen appeared many times in my research.
This time I read about the UK entrepreneur Jim Radcliffe, who owns the Ineos Group, which produces chemicals and refines oil, has set aside €2 billion to develop on “green” hydrogen as the source for the clean energy. It is made by splitting oxygen in water using renewable energy. Not only that it can replace hydrocarbons as a portable and storable fuel, it can also be used for steelmaking, which is using blast furnaces with coking coal to melt the iron ore and remove oxygen. Hydrogen can do this but will need to take abundantly and cheaply.
Currently UK produces 7 million tons of steel annually. This will need 7 gigawatts of electrolysis plants to produce it. It will also need the new sites which would cost £3.5 billion to invest.
Today’s hydrogen fuel costs $5-7 per kg and the green version is triple what the steelmakers are willing to pay.
It is estimated to build a green steel plant would cost more than €500 per ton. The EU produced 159 million tons of steel in 2019 and it will cost €50 billion of investment to switch.
To become carbon neutral and to be “green” is coming years is carrying a very hefty price tag.