When Hanjin Shipping, the world’s seventh-largest container shipping line, filed for bankruptcy on August 31st, it put ports and retailers around the world into panic mode. By filing for bankruptcy, this meant that all Hanjin ships were either banned from docking in ports or were to seized by creditors.

The crisis caused major disruption to the global supply chain, as 89 ships carrying $14 billion in goods were left out at sea with no plans of being offloaded because to the company’s inability to pay docking fees. The effects of Hanjin’s bankruptcy on global trade were seen immediately, as the World Container Index reported that in the week following the ruling, rates on routes like Shanghai to Rotterdam were up by 39%. Furthermore, Hanjin accounts for 2.9% of the global market share and 10% on the Asia-to-Europe route.

For retailers and customers around the world, the question then became… how long will this last?

 

 

Hanjin’s collapse came at a pivotal time of the year, as retailers had already begun preparing for the holiday shopping season. Traditionally, goods begin shipping from Asia at this time in order to be on shelves for Thanksgiving, and with 89 ships stuck at sea this could cause major disruptions to the global supply chain.

So who’s stocking will be empty on December 25th?

According to analysts at CitiGroup, of the $14 billion worth of goods trapped on the ships, toys were expected to be the most affected good for retailers, along with apparel, handbags, washing machines and televisions. Additionally, Samsung claimed that it had $38 million of good stuck on two Hanjin ships in the U.S and would have to charter 16 planes to move the goods if the ships were unable to dock.

James Van Horn, a restructuring specialist at McGuireWoods LLP, estimated that, “the cost of shipping goods from Asia to the U.S. has almost doubled as a result of Hanjin’s bankrupcy.” This is because the inability of retailers to receive their products could drive up prices, as customers needing to shop for the holidays would now see them as “scarce” products. Furthermore, Van Horn predicts that the higher cost of stocking shelves could mean that stores across the US would hire fewer temporary workers and have a shortened Christmas shopping season.

The economic implications of Hanjin’s bankruptcy pose serious threats to retailers across the world, as they have already invested capital to produce the merchandise. Therefore, having goods sit on container ships can offset inventory planning and force retailers to suffer major losses due to their inability to sell their products. These effects can carry over onto the next season, as brands try to recuperate their sales.

In a statement about the bankruptcy, Jonathan Gold, VP of Supply Chain and Customs Policy for the National Retail Federation, said that “retailers’ main concern is that there is millions of dollars worth of merchandise that needs to be on store shelves that could be impacted by this.”

Only time will tell what happens for retailers this holiday season, but retailers and customers alike can only hope that whatever is on Santa’s list this year wasn’t stuck on a Hanjin ship.

 

http://www.bloomberg.com/news/articles/2016-09-09/quicktake-q-a-the-shipping-line-that-could-spoil-christmas

http://www.businessinsider.com/hanjin-bankruptcy-could-cause-christmas-disaster

http://www.usnews.com/news/business/articles/2016-09-01/hanjin-bankruptcy-causes-global-shipping-chaos-retail-fears

http://www.wsj.com/articles/hanjins-demise-why-global-shipping-glut-isnt-going-away-1472811129

http://www.marketwatch.com/story/hanjin-shippings-bankruptcy-filing-could-ruin-the-holiday-season-for-retailers-2016-09-02

http://www.reuters.com/article/us-hanjin-shipping-debt-usa-ports-idUSKCN11I03B

 

 

On September 27^th, the World Trade Organization forecasted the growth of trade to be 2.8%, a major decrease from 2016’s 1.7%. GDP has been growing at a slow pace and this year trade may be even slower. In the past global trade flourished, however, many factors contribute to the rate at which trade grows such as protectionism and changes in demand. Trade is an important factor in the global economy because it allows countries to spread ideas. It allows countries to interact with each other and in turn expose themselves to new ways to thinking and new products. Furthermore it is important for the economy because it promotes competition in the marketplace.

In the past, trade was given steam by the explosion of growth of China’s economy. This was in part due to large investments and led to high imports and exports as well as the use of huge quantities of resources. China’s growth has since stabilized and has been growing at a slower rate. This has in turn affected trade around the world, about one sixth of the slowing exports in Asia from 2014-2015.

Another factor is Brexit which has impacted Britain and Europe negatively thus far. America is also facing some changes with its upcoming political election. In response to what has been deemed “unfair” trade advantages, trade laws have been put into place. China has been cited for dumping and having extremely cheap labor costs which drove down their prices. This has caused millions of American jobs, such as at the steel mills in Ohio and Pennsylvania, which used to be steady and secure job source to be obsolete. It has also caused American to have a trade deficit with China. Donald Trump says that he will renegotiate trade deals and stop NAFTA and the Trans-Pacific Partnership. These impending changes have caused uncertainty and will definitely have a ripple effect on global trade.

The Great Sendai Earthquake happened on March 11, 2011. It was an earthquake of a 9.0 magnitude that caused large tsunami waves as well. The damage from this natural disaster was severe. There were nuclear accidents, thousands of buildings destroyed and damaged, ports were shut down, there were power outages and damaged infrastructure. The estimated cost of rebuilding was $200 billion.

The value of the yen was greatly affected following the disaster. The yen hit a high at 76.25 against the U.S. dollar after the earthquake. The yen was previously at 83.8 on February 15, 2011 before the disaster. This happened because of repatriation of capital- Japanese corporations were exchanging their money they have in other countries for yen to pay for handling the aftermath. The large demand for yen was created so its value went up. What Japan did in an effort to lower the yen was had their central bank was sell yen to weaken its value, but it wasn’t enough to bring it down.

When the value of the yen is higher than foreign currencies, it makes it too expensive for the rest of the world to be able to buy Japan’s exports and makes it less desirable. So, if the yen is high this is very bad for Japan because 14% of their economy is based on exports. For example, every one yen move versus the U.S. dollar will cost Toyota $380 million a year. Also, the natural disaster’s immediate damage hurt their trade because it caused supply chain disruption. This is because Japan plays a large role in the global supply chains because they not only export parts of products but finished products as well. Japan’s large companies that have exports such as Toyota, Nissan, Sony and other tech and auto industry companies had to halt production because of damages.

Because Japan’s production and trade was halted following the earthquake because of damages and increase of the yen, Japan’s GDP growth halted as well. Their national savings went down because they were spending it on repairs and their debt increased as well. At the time, Japan’s economy was the third largest in the world that accounted for 8.7% of the world’s GDP. But, this natural disaster moved Japan from this spot. Here is a brief look at how their GDP staggered from the disaster: in 2010 it was 42935.3, in 2011 it was 42824.7 and in 2012 it was 43658.2. The fall from 2010 to 2011 is bad because usually just a small amount of growth is bad; no growth to where it is negative is very bad (and this is what happened). But, Japan’s economy was able to get back in the steady direction it was going by 2012. Since the disaster, Japan’s growth has fell behind other large economies so it has not contributed to the growth of the global GDP.

Japan was able to recover and able to maintain its economy because of the G7 Intervention that took place following the disaster and the sharp increase in the value of the yen. The G7 is made up of some the nation’s wealthiest countries, this includes the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. This group meets annually to discuss global economics, international security, and energy policies. They met on March 18, 2011 in regards to Japan’s economy after the earthquake and agreed to start selling the yen to makes the value of the yen go back down. The group wanted to decrease value of the yen so Japan could recover and they could continue trading with them. If Japan’s yen stayed at that very high level it would have affected the world’s trade in horrible way. Following the G7, the yen weakened and went back to 80.94 against the US dollar. Because of this, Japan’s economy was able to start recovering because they could resume exporting their goods (a large driving factor of their economy). Other countries were able to buy

their exports because the value of the yen leveled-out to where the exports were affordable to other countries again. Without this intervention we most likely would have seen a rippling effect from Japan to the rest of the world causing other economies to weaken because of the disruption of trade. The global GDP was still able to grow in the year of 2011 following the earthquake, but it did not continue to grow at the same rate as it was from 2010 to 2011; this could be partly due to the disruption of trade in 2011 because of the halt of Japan’s production and exports that impacts the rest of the world. 

“Have you seen Zootopia?” That’s one of the most frequent questions I was asked by my friends from home and abroad in March this year. With more than 1 billion box office globally including 0.2 billion from China’s market, Zootopia has successfully stampeded across the world including China. Moreover, Kung Fu Panda 3 which was supposed to be perfectly calibrated to Chinese tastes, keeps adding Hollywood grosses

 

In just the first 3 months of 2016, two Hollywood animated movies —Zootopia and Kung Fu Panda 3 by themselves combined to break 2014’s record of $286 million in box office grosses for American animated features in China. It won’t surprise that only animated movie exported to China from the United States will gross over $500 million in China’s market.

Other Hollywood hits in 2014 such as Dreamworks Animation’s How To Train Your Dragon 2 ($65 million in Chinese theatrical revenue), Universal/Illumination’s Despicable Me 2 ($53 million), Disney’s Frozen ($48 million) and Dreamworks/20th Century Fox ’s Penguins of Madagascar ($40 million) shows how blatant American culture export is and how lucrative China’s market is. Undoubtedly, Hollywood is the most competitive export to China compared to tons of made-in-China products imported to the States each year.

Some people argue that Hollywood is synonymous with America. To some extent, it might be true because American entertainment industry is highly visible in the world, that bear the sign of American culture pervasively. The movies made in Hollywood have shaped many Chinese youngsters’ fashion and attitudes for generations. The American films are entertaining, thrilling, and full of heroism. Now, even children from China can quote lines from American films.

Here is an ideal picture for Uncle Sam: America assembles movies and ships them to China, and China assembles merchandise promoting those movies and ships it back to America. Repeat.

However, don’t forget China has its sanction system. Films cannot play in China unless it is approved by the State Administration of Press, Publication, Radio, Film and Television. American studios with the hope of film distribution in China either submit to Beijing’s censors or become adept at self-censorship. China tightly controls U.S. investment in films in China. Although in 2012, China raised the number of foreign films that can be imported on a revenue-sharing basis to 34 from 20 per year to cater to the rules of WTO, the policy is set to expire and remain unknown yet.

Moreover, China’s footprint in Hollywood is growing. This year, Dalian Wanda Group, the Chinese real estate and entertainment giant, bought a controlling stake in Legendary Pictures, a major Hollywood studio that financed films like “Jurassic World.” Moreover, Wanda is now owning AMC theaters, the second-largest U.S. cinema chain.

(Picture of Wang Jianlin, at the announcement)

At the announcement, Wang Jianlin, the company’s chairman and China’s richest man, said the acquisition will allow greater distribution of Chinese films to international audiences. It marked a milestone that China is entering Hollywood, combating the long entertainment trade deficit and dominant market position of America.

According to Wang Jianlin, Chinese-made films does not generate enough interest in the American market. His move will promote Chinese movies to entertain American audiences.

China is ambitious to launch his next big export of creativity and culture. “Confucius Institute” has left its footprints globally. But entertainment export would hugely impact US-China cultural exchange.

Sanction system might not be a problem. If China has a strict sanction on American films to protect its domestic market. Why not America?

Nonetheless, Wanda’s move makes it seems hard to stop China’s steps into Hollywood.

Will the China’s entertainment trade deficit change ultimately? Who knows?

 

Being a “shopping consultant” in Australia has potential to earn great returns thanks to the steady high demand coming from the Chinese customers. As an article on Business Insider introduced, Chinese students living in Australia can make up to $3000 a week by selling Australia made health products, such as vitamin and baby formula. Today, shopping consultant has become an alternative to those who do not commit to a full-time job.

Demand for health products made overseas started to rise since China’s Baby Formula Scandal in 2008. Chinese company Sanlu Group was found responsible for producing infant formula adulterated melamine, causing six infants die from kidney stones and about 54,000 infants diagnosed with kidney damage. The scandal led to a long-term national criticism on food safety. Today, when it comes to buying baby formula, traumatized parents still wouldn’t consider products made in China as their first choices.

Since than, many Chinese customers turned to baby products that are made in other countries. Australian product has a great reputation in terms of safety and quality, so it becomes one of the top choices among the Chinese consumers. But the prices of import products at retail stores are often much higher — usually double than the products sold in Australia. One can of formula which costs about $20 in Sydney, can end up charging customers $48 at the retail stores.

 

 

That’s when some Chinese living in Australia started to realize the business opportunity. In addition to the sudden raise of demand, a heavy drop in Australian dollar also prompted benefit for this new career.  According to Yahoo, in July 2008, one AUD equals to approximately 6.5 Yuan. However, that same Australian dollar could only buy 4.5 Yuan by Mid October, 2008. It was great news for both Chinese consumers and shopping consultants in Australia, because within three months, all products made in Australia became cheaper by almost a third.

Demand for Australian baby formula started to raise dramatically. Some Chinese live in Australia saw it, and decided to start a business. The shopping consultants take requests from the Chinese customers, and buy baby formula from Australian stores. They distribute products in different ways. Some set up online stores on platforms such as Taobao and WeChat; so communicate with customers via WeChat and ship products directly through custom. The expensive international shipping cost is the biggest challenge for these shopping consultants. For example, the Australia Post’s pricing for international standard shipping starts from $21.64 a kilogram. It is essential for shopping consultants to find cheaper shipping alternatives.

 

The rapid growth of Chinese demand for  led to a shortage in Australian baby formula supply. Supermarkets begin to limit the amount of cans each person could buy.

However, a change in Chinese custom and e-commerce ruling announced in April this year has led shopping consultants to a greater challenge. They now have to pay for a higher import tax on products — on postage items, passenger carry-on items, as well as foreign e-commerce transactions. While the revenue is being threaten, they are also facing a competition. Some Australian baby formula producing companies have set up official online stores on Chinese e-commerce platforms such as Taobao and Jingdong. The value of RMB has also been gradually increasing since the end of May this year (1AUD=5.18 Yuan, Nov.1st, 2016). Perhaps the good times for full-time baby product shopping consultants are finally coming to an end.

Suddenly, music is everywhere.  We hear in while on our daily commutes, in stores and restaurants, and all throughout our everyday lives.  In today’s climate, music is very easy to access and to consume.  We are able to access any type of music through the phones and are able to pick and choose each song we want to listen to.  In the past few years, companies like Pandora and Spotify have made it so easy for us to access music on-demand from the devices we hold in our hands.  These firms have disrupted the previous revenue models of selling individual tracks for both the traditional music industry and the artists themselves, all while simplifying the user listening experience for consumers.

Many music industry experts believe that this will be the year that the market will correct and stabilize and will determine which firms will be able to survive the consolidation of the music consumption streaming market.

With the introduction of all of these new companies like Spotify and Pandora,  iTunes no longer has a monopoly in the music consumption market.  Streaming services now offer more music at a lower price, essentially making it impossible to justify purchasing one song for a dollar.

There are currently many streaming services in the market, all hoping to win the majority stake in the industry.  Currently, Spotify is the largest in the United States, followed closely by Pandora and Apple Music.

Although there are many various streaming companies currently in the market, they all offer slightly different benefits for the consumer and attract different sectors of the population.

One of the obvious current leaders is Spotify.  Founded in 2006, Spotify is the largest streaming service in the United States today, with over 40 million paid subscribers.  Competitor, Apple Music, which has only been released for about a year, has 17 million paid subscribers for comparison.

Over the past few years, the consumption of music has changed dramatically, from physical record sales to individual song purchases made on iTunes to now the unlimited consumption on streaming services.

According to recent numbers published by Billboard, the industry is looking to have the highest numbers of growth and sales since 2009. Currently, over 411 million units, measured in “total album consumption units,” have been sold in the first three quarters of 2016.  These numbers are set surpass the 2009 sales number set at over 489.8 million albums.

The Recording Industry Association of America (RIAA) midyear report found that the overall industry, not just record sales, was up over 8.15% since 2015 as well.

Many attribute this growth and success to streaming services, as they have created alternative revenue sources for the artists and music industry.  A few years ago, many downloaded their music illegally.  Today, streaming services pay out the artists who have songs on their platforms.

However, one of the biggest criticisms of the music industry today is that the revenue from streaming is nowhere near the physical streaming sales numbers.  Although neither Spotify nor Apple Music releases the actual payout numbers to artists, leaked reports reveal payments of $0.006 per stream by Apple Music.  Additionally, according to Spotify, instead of a per stream payout, they pay out 70% of revenue to rights holders.  This typically averages out to $0.006 and $0.0084 per stream.

These numbers per stream are tiny; it is estimated that the payout for each stream is between $0.004 and $0.008 depending on each service.  For the larger artists who receive radio play and are on major labels, this can be a huge revenue stream, with annual payouts ranging from $100,000 to $500,000 per year.  However, for the small artists who might only have a few thousand fans on Spotify or Apple Music, this can threaten their survival in the business.
Many smaller artists and industry experts have criticized streaming services for their lack of payout, and believe that the streaming services should change their compensation models. However, it is not just small, indie artists who believe this should change.

In June 2015, Taylor Swift posted a Tweet criticizing the Apple Music launch.  She believed that the service should pay out artists during the three-month trial period, which at the time, they were not planning to do.  In a letter entitled, “To Apple, Love Taylor,” she wrote, “I’m sure you are aware that Apple Music will be offering a free 3-month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company.”

Apple VP Eddy Cue responded, on Father’s Day, that Apple would be compensating the artists during the trial period, reversing his initial decision to withhold compensation during the trial period without revenue for the firm.  With this single tweet, Swift was able to alter the business model of a huge media and tech conglomerate like Apple and was able to stand up for all of the smaller artists who do not have a voice as powerful and as large as Swift, creating a larger change in the streaming industry.

Swift’s label head and president of Big Machine Records, Scott Borchetta, has been very outspoken regarding his views on streaming and has called out Spotify by name. “Ninety percent of those outlets that we visited in that first year are out of business, so 10 years from now, I guarantee you at least half of those streaming services that exist today will not exist, at least not freestanding.”

While there are many like Borchetta and Swift who are outspoken against streaming, for many artists, platforms like Spotify have helped to launch their careers and gain exposure that they could only previously dream of.

For example, Hozier was an unknown artist until 2013, when he was introduced into a Spotify artist discovery program and added to a playlist, and eventually was added to more, increasing his daily streams from an initial 15,000 streams worldwide per day to over 2 million a day (Billboard).  With the support and push of Spotify, Hozier was introduced to over 11 million new fans over the course of two years.

Streaming services can provide success to the lesser-known artists, but many people are weary of the services, as there is an influx of firms in the market that has is constantly changing and evolving.

At today’s point, the streaming services in the market are still in the development stage.  Many, including Spotify, are not yet profitable.  Even companies like Pandora, which has been in business since 2000, has reported losses of millions in the past few quarters.

So, if the companies aren’t making money but have millions and millions of customers, how will they ever be profitable?

The solution, many industry executives and trend predictors believe, is to move away from a “freemium model” and transition to one that is only paid.  In the current economic climate, “freemium” means that companies like Spotify and Pandora offer a free, ad-supported version as well as a paid version for their customers.  Many believe this will begin to vanish, as Apple Music only offers a paid version and revenue would increase if everyone were forced to pay.

With these changes, some services like Pandora and Spotify will pivot, encouraging consumers to pay for access to a streaming service.  However, will new players in the market choose to create a free model to play with these tech giants?

According to the Financial Times, SoundCloud, a popular site for
remixes and unofficial music, is the next purchase for Spotify.  This could be beneficial, as SoundCloud needs help financially and the purchase would diversify Spotify’s catalogue, as it would include more original content and more indie label releases.

The Spotify/SoundCloud acquisition could be one of many that will occur in the next few years, as the industry condenses and corrects from the current oversaturation.  There are so many players in the market currently and it will be important for the consumers to express their wants and needs in the streaming market so that the companies best suited for the consumer and industry survive.  In a few years,

Three years ago, Spotify and streaming were words that were uncommon in our everyday vernacular.

 

 

Sources

http://www.billboard.com/biz/articles/news/record-labels/7534386/heres-why-2016-is-set-to-be-music-industrys-best-year-since?utm_source=twitter

http://www.billboard.com/articles/business/6656722/spotify-spotlight-support-major-lazer-hozier

http://fortune.com/2016/09/29/spotify-soundcloud-acquisition/

http://www.digitaltrends.com/music/apple-music-vs-spotify/

http://www.digitalmusicnews.com/2016/05/24/apple-music-pays-every-country-worldwide/

http://time.com/3940500/apple-music-taylor-swift-release/

http://www.musicbusinessworldwide.com/scott-borchetta-50-of-todays-streaming-services-will-be-dead-in-a-decade/

http://www.forbes.com/sites/hughmcintyre/2016/09/28/report-spotify-is-in-talks-to-buy-soundcloud/#798f59366a49