Decline of 2009 has bottomed out

Energy Information Administration predicts rising oil demand, prices
January 15, 2010 Break Bulk Connection

Global oil demand fell in 2009 and 2008, the first time since 1983 that oil demand has fallen for two consecutive years, according to a short-term energy outlook released this week by the US Energy Information Administration. However, the decline bottomed out in mid-2009 and the EIA expects recovery to continue with oil demand growth of 1.1 million barrels per day in 2010 and 1.5 million bbl/d in 2011.

Countries outside of the Organization for Economic Cooperation and Development will lead 2010 demand recovery while OECD countries should see some demand growth in 2011, the EIA said. Overall, China is expected to lead world consumption demand growth with estimated increases of more than 0.4 million bbl/d both years.

The EIA expects the benchmark West Texas Intermediate crude oil price per barrel, which averaged $62/bbl in 2009, to average $80 in 2010 and $84 in 2011. EIA’s forecast assumes U.S. GDP growth of 2 percent in 2010 and 2.7 percent in 2011 and world oil-consumption-weighted growth of 2.5 percent in 2011 and 3.7 percent in 2011.

The EIA also expects annual average natural gas spot prices in the U.S. to increase from $4.06 per thousand cubic feet (Mcf) in 2009 to $5.36 Mcf in 2010 and $6.12 Mcf in 2011.
Global investments in oil and gas exploration and development, and related heavy-lift and project cargo movement, can be expected to increase as oil and gas prices rise.

Trucking Headlines: NAFTA trade rose 4.1% in 2008
By eTrucker Staff

Surface transportation trade between the United States and its North American Free Trade Agreement partners, Canada and Mexico, was 4.1 percent higher in 2008 than in 2007, reaching $830 billion, according to the Bureau of Transportation Statistics of the U.S. Department of Transportation. The 4.1 percent rate of growth was the smallest year-to-year growth rate since 2003.

BTS, a part of the Research and Innovative Technology Administration, reported that surface transportation trade with Canada and Mexico grew 8.6 percent during the first six months of 2008 compared to the same period in 2007. It declined 0.3 percent in the final six months and 9.4 percent in the October-to-December period compared to 2007. Total North American surface transportation imports rose 2.7 percent in 2008 from 2007, and exports rose by 5.9 percent during the same period.

In 2008, 86 percent of U.S. merchandise trade by value with Canada and Mexico moved on land. Total North American surface transportation trade value in 2008 was up 47.5 percent compared to 2003, and up 83.7 percent compared to 1998.

U.S.-Canada surface transportation trade totaled $537 billion in 2008, up 5.1 percent compared to 2007. The value of imports carried by truck was 6.0 percent lower in 2008 than 2007, while the value of exports carried by truck was 2.4 percent higher. Michigan led all states in surface trade with Canada in 2008 with $67.0 billion.

U.S.-Mexico surface transportation trade totaled $293 billion in 2008, up 2.3 percent compared to 2007. The value of imports carried by truck was 2.1 percent lower in 2008 than 2007, while the value of exports carried by truck was 7.8 percent higher. Texas led all states in surface trade with Mexico in 2008 with $94.1 billion.The TransBorder Freight Dataset is a special extract of the official U.S. foreign trade statistics. The data are obtained by BTS from the U.S. Census Bureau’s Foreign Trade Division.

** Basic Knowledge Required for Trading in Natural Resources
- Do You Understand the Flow of the Transactions and the Abbreviations? -
Mr. Tatsuya Oishi, President, Focus Business Produce, Inc.. with the Japan External Trade Organization

The TTPP Newsletter of September 2008 reported the frequent occurrence of trouble in transactions involving recycled materials, metal materials and other resources through the TTPP. To help keep you out of trouble over resource transactions and avoid unnecessary risks, I will explain the general flow of transactions in the resource trade and the main abbreviations used at that time.

International transactions in metal/mineral resources and food resources are characterized by the following three points: First, the sums involved are huge. For example, in term contracts (long term contracts continuing for a fixed period such as several months), sums of tens to hundreds of millions of yen are often seen. Second, specialized brokers or agents often act as intermediaries. Third, due to the large volumes, at the time of FOB contracts, space in specialized ships is sometimes arranged.

Resource transactions used to be generally conducted by specialized businesses.
In recent years, due to the increase in demand, easing of regulations, establishment of infrastructure and spread of the Internet, the environment is being laid enabling more traders to participate in resource transactions.

Along with the increased opportunities, beginners in the resource trade are exposed to greater risk of scams and other dangers.

Therefore, both the seller and the buyer have to reduce the risks by exercising greater caution in procedures compared with general container-based transactions. Seen from another perspective, it means that the seller determines how reliable the buyer is based on the buyer's familiarity with the complicated procedures of the resource trade. Let us introduce an example of the flow of a resource transaction.

[1] Buyer : Sends an LOI and BCL.
[2] Seller: Sends an FCO.
[3] Buyer : Signs the FCO and returns it to the Seller.
[4] Seller: Sends a draft contract to the Buyer.
[5] Buyer : Signs the draft contract and returns it to the Seller.
[6] Buyer : Requests a POP from the Seller.
[7] Buyer : Opens an SBLC or BG.
[8] Seller: Sets a PB.
[9] Seller: Loads and ships the product in accordance with the contract terms.
(Sometimes allows Buyer to witness shipment.) [10] Buyer: Sends payment in accordance with the contract terms.

The hardest things for beginners to understand are abbreviated terms such as LOI, BCL and FCO. Let us explain them next.


1) LOI = Letter of Intent This is a letter by which the Buyer expresses its intent to buy the product. It describes the name of the product, the product specifications and country of origin, quantity, term of the purchasing contract, desired price, terms of transaction (FOB, CFR, CIF, etc.), desired shipment date, method of payment and valid period of LOI.

On the other hand, the Seller's side will sometimes ask for disclosure of the Buyer's bank's name, bank account number, etc. and for its understanding of a "soft probe" so as to investigate the Buyer's ability to pay. A "soft probe"

means the procedure of contacting the Buyer's bank through the Seller's bank to briefly investigate the Buyer's ability to pay.

2) BCL=Bank Comfort Letter (Bank Capability Letter) This is a letter issued by the Buyer's bank to the Seller and certifies that the Buyer has sufficient ability to pay for the transaction in question. The BCL may be demanded by the Seller at the stage of the LOI, the time of signing the contract, etc. Several cases are possible.

3) FCO=Firm Corporate Offer (Full Corporate Offer) This is a formal offer by which the Seller proposes details of the transaction and the final price. If the Buyer accepts these terms, it signs the offer and returns it to the Seller. Next, the Seller sends a draft of the contract.
Depending on the transaction, the two parties will sometimes enter negotiations on concluding the contract directly without going through the FCO process.

4) POP=Proof of Product In the same way as the Seller thinks the Buyer's ability to pay is important, the Buyer finds it important to determine if the Seller really owns the products in question or has the right to deal in them. A document proving the ownership or right of trade of the product is called a "POP".

Specifically, this includes an export license issued by an official organization, a warehouse receipt and certification of results of inspection by an independent third party certification organization. However, it is essential to determine if the documents are genuine.

Further, as a method to ensure a more reliable progress in the process, sometimes a POF (Proof of Funds/document proving the Buyer's ability to pay) and POP are exchanged between the Seller's and the Buyer's banks.

5) BG=Bank Guarantee, SBLC=Stand By Letter of Credit, PB=Performance Bond
- A BG is, as the name implies, a bank guarantee. The bank guarantees that the Buyer will pay the debt to the Seller.

- An SBLC differs from a usual L/C (Letter of Credit) in that it is a special letter of credit with no terms requiring attachment of a bill of lading (type of clean letter of credit) and is considered a bank guarantee issued in the form of a letter of credit.

- In the event the Buyer defaults on its debt, in both a BG or SBLC, the issuing bank guarantees payment to the Seller.

- A PB is a proof of performance. It guarantees payment to the Buyer of a fixed percentage of the export price (for example, 2%) in the event of the Seller defaulting on the contract to export to the Buyer as contracted for. Due to this, if the Seller defaults on the contract, the Buyer can be compensated for the expenses required up to that point. Specifically, this is set by the
Seller for the Buyer in the form of a BG or SBLC.

There may be various other variations in the flow of transactions. Further, technical terms and other specialized terminology unique to the industry/ resource will also be used. Therefore, the most important point in resource transactions is sufficient understanding of the products. Can you completely understand the processes involved in a transaction proposed by a seller and do you really have a grasp over the potential risks behind the transaction? If you find this difficult, I recommend you should not let yourself get involved in such a transaction or you leave it to experts such as specialized trading companies.
Above, I explained part of the basic knowledge required for resource transactions. In actual transactions, be sure to check by yourself the flow of transactions and terminology unique to the individual industry and remember that only you are responsible for the transaction.

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TTPP News Back Numbers
http://www3.jetro.go.jp/ttppoas/mailnews/index.html
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Latin America on Target to set more records

We, at Dixie Cullen, have seen a large increase in the volumne of equipment and material coming through our warehouse facility for export packing bound for Latin America.

TRADE WITH LATIN AMERICA ON TARGET TO SET MORE RECORDS September 1, 2008 LETICIA LOZANO from Shipping Digest

Rapid economic growth spurs demands for U.S. importsSoaring energy and food prices, the worst housing slump since the Great Depression, a credit crisis, job cuts: It all may be enough to tip the U.S. into recession this year, if we aren’t already there. But the “flu” in the world’s biggest economy is causing little more than the sniffles in Latin America, where growth remains strong and a weak dollar is driving trade between the U.S. and South America.

With Latin American banks having little or no exposure to the U.S. credit crunch, and with the region’s strong domestic currencies, a China-driven commodities boom, high foreign investment levels and fiscal discipline, trade is robust — despite soaring oil prices, rising freight costs and Latin America’s congested ports.

“We haven’t seen impact from the U.S. slowdown,” said Alvaro Espinosa, general manager at the Port of San Antonio, Chile, which sends 16 percent of its exports to the U.S. and where U.S. imports represent 25 percent of all imports. “In the first five months of this year, we’ve seen a 15 percent increase in container shipments, so at least at the first reading, there is no talk of a U.S. recession here.”

Such optimism may be dampened in the coming months if the relentless increases in oil prices continue and as U.S. manufacturing activity falls. Consumer spending is weakening now that the fiscal stimulus checks have mostly been spent.

Overall U.S.-South American trade is nevertheless growing at historic levels, with Chile and Peru benefiting from free-trade deals. U.S. exports to Central and South America reached a record $107.5 billion in 2007, and imports hit a record $134.8 billion, according to the U.S. Census Bureau. Those records will probably be smashed this year. U.S. exports in the first six months of the year totaled $66.8 billion, while imports totaled $80 billion.

Despite the slowing U.S. economy and world oil prices, exports to Central and South America in June were a record $12.9 billion, compared with $8.7 billion in June 2007. Imports totaled $15.7 billion, compared with $10.7 billion in June of last year.

Brazil is enjoying a boom time as its middle class swells and the country enjoys an unprecedented stretch of economic growth coupled with low inflation and a strong currency. Foreign investment doubled to $35 billion last year, the economy grew 5.4 percent, and trade with the U.S. totaled $50 billion. The economy is set to grow 4.5 percent this year.

“The stronger buying power of Latin American currencies, particularly the Brazilian real, and the abundance of petro-dollars in Venezuela have generated a significant increase in export liftings compared to a year ago,” said Frank Larkin, senior vice president at Hamburg Sud North America, the U.S. subsidiary of the German shipping line Hamburg Sud.

Soaring economic growth in Argentina, Peru and Venezuela is also spurring demand for U.S. imports in those countries.

Despite the bitter anti-U.S. rhetoric of President Hugo Chavez, Venezuela is increasingly dependent on U.S. imports and, as the government nationalizes large chunks of the economy, its exports beyond oil are few.

“The downside of that shift is the need to continually reposition empty boxes,” Larkin said. “On the export side, the Venezuelan container market, for example, is virtually all inbound, and those boxes, once emptied, must then be repositioned to match up with export opportunities in other markets.”

Changes to customs laws in Brazil and Colombia this year also have made life difficult for shippers. Both countries now require cargo heading for their ports to be documented 48 hours prior to the vessel’s first Brazilian port call. Failure to do so can mean cargo confiscation or denial of berthing.

“These new mandates are very rigid and unfortunately conflict with the realities of modern just-in-time shipping,” Larkin said. “If manifest information is submitted to (Brazil’s) Siscomex Carga and then changes or additions need to be made, fines of $3,000 per incident can be imposed and cargo delivery can be further delayed.”

Such measures have increased costs for shippers having to rehandle and work export documents, Larkin said.

Deficit Shrinks as Exports Surge

DEFICIT SHRINKS AS EXPORTS SURGE
August 25, 2008 Shippers Digest

The U.S. trade deficit dropped 4.1 percent in June despite soaring prices for imported oil. Goods exports increased 5.1 percent to $118.6 billion, compared to $114.3 billion in May and $99.1 billion in June 2007.

Exports of manufactured goods were 17 percent higher than in June 2007, according to the National Association of Manufacturers.

“Manufactured goods exports are growing more than twice as fast as imports of manufactured goods, and as a result the manufactured goods trade deficit is falling,” said Frank Vargo, NAM’s vice president for international economic affairs. “June’s manufactured goods trade deficit in fact was 9 percent lower than it was a year ago.”

Exports of automobiles, parts and engines grew by $576 million, while imports grew by $60 million. U.S. exports of food, feeds and beverages rose by $853 million, while U.S. imports of the same products fell by $144 million. Exports of capital goods excluding autos rose by $1.2 billion in June, while imports fell $1.4 billion.

Goods imports were up 2 percent because of the increase in oil prices, which averaged $117.3 billion. Non-oil imports fell.

Including services, the deficit shrank to $56.8 billion, according to the Commerce Department. However, when adjusted for inflation, including oil prices, the real trade deficit fell by 10.3 percent in June to $39.1 billion, the lowest level since December 2001.The trade deficit with OPEC countries grew to a record $18.1 billion, while the politically sensitive U.S. trade gap with China rose to $21.4 billion, up from $21 billion in May, but not up much from the $21.2 billion deficit in June 2007.

The total U.S. deficit with all countries in the first half of the year was $394 billion, up from $376.2 billion in the first six months of 2007.