How to choose ocean versus air shipping (hint: ocean usually wins)

Let’s start with the numbers.

The Port of Los Angeles moves the most containers of any port in the world, carrying 182.8 million metric tons of freight. Nearby Los Angeles International Airport moved 2.1 million tons of cargo in 2016.

Maersk is the world’s largest shipping company, with more than 16 percent of market share, 15 percent of all sea freight capacity, and 652 ships.

FedEx operates the world’s largest air freight business, moving 15.8 billion metric ton-kilometers’ worth of cargo on 657 planes from more than 375 airports.

You’ll notice that the sea freight business is significantly larger than air freight. But why?

Today’s newest and largest cargo ships can carry a lot more stuff a lot more efficiently. The OOCL Hong Kong, currently the largest, has a capacity of more than 21,000 twenty-foot equivalent units (TEU). Ship sizes have increased dramatically in recent decades — back in 2003, OOCL’s newest and largest ship carried barely 8,000 TEUs, which was then the most in the world.

A freighter plane, by comparison, can only carry about 4 TEUs at once.

In addition to these economies of scale, ocean shipping is significantly better for the environment and a great deal more fuel efficient. Each metric ton shipped by cargo ship produces about 15 grams of CO2 — less than 3 percent of the 545 grams per metric ton created with air travel.

But perhaps most importantly, sea freight costs less: about $195 for what would cost $1,000 to ship by air. For global corporations shipping millions of goods around the world, small differences in marginal shipping cost can make a big difference to the bottom line.

For certain goods like smartphones, where the security of shipping is important and marginal costs are easily passed on to the consumer, air travel is the way to go. This is also true for items that need to move quickly, like perishable food, seasonal clothing, or holiday toys.

But most goods going most places are best shipped one way: on a boat.

Debt Creates a Double Win-or-Lose Bond Between China and America, Even No Chance to Pay Back

That “China owns the U.S. National Debt” has become an universal knowledge for American people, being taught from the lower school to the university. How does this debt relationship work? Will America ever pay off its debt? Why is China willing to keep borrowing to the United States?

The U.S. National debt exceeded $20 trillion on September 8, 2017, surpassing the American gross GDP. Based on the data as of May 2017, China has cut its American foreign debt holding to $1.102 trillion, no longer holding the largest portion. With $1.111 trillion, Japan now has become the No.1 U.S. debt holding country.

Owning U.S. Treasury notes benefits China by increasing the demand of U.S. dollar and so decreasing the value of RMB (as the Dollar-to-Yuan conversion increases) . Thus. Chinese exports are cheaper than those of America. Consequently, Chinese cheap exports gain global market and produce more jobs opportunity for Chinese people. The strategy of devaluing RMB led Chinese economy to grow 10 percent annually for the past three decades.  On the other side, American people can enjoy lower consuming prices and lower interest rates. American economy also grows.

Will America ever pay off its debt to China? Probably never. There are three paths for America to pay back its debt: cutting spending, raising taxes, and boosting GDP. Unfortunately, there is not much in American budget to cut to save $1.102 trillion. It would terminate any politician’s career to raise tax for paying off Chinese debt. Boosting GDP is far more difficult to execute than to say.

However, such double-win situation might not last longer. Since the Chinese government purposefully decreases the value of RMB, the Chinese businessmen are hurt by the interest rate. They start to take loans in dollars or invest outside, leaving cash flowing out of China. Moreover, the Chinese government has asserts its voice in the global market through this low-value RMB process. The Chinese government ambitiously aims to replace RMB to Dollars as the global reserve. On November 30, 2015, the International Monetary Fund awarded the RMB status as a reserve currency. The IMF added the RMB to its Special Drawing Rights basket on Oct 1, 2016. At last, that the American government allows the value of dollar to drop made the debt China holds less valuable.

As China begins to sell parts of debt out, the situation is shifting to a double-lose. American interest rate would rise, and the economic growth slows. The Chinese exports also loses competitiveness.

The anxiety is not necessary. China would not sell all or large amount of U.S. debt at one time because it will drastically devalue dollars and ruin the international market. The American and Chinese economy will still be bonded together through this tremendous debt for a long time.

Sources:

https://www.thebalance.com/dollar-to-yuan-conversion-and-history-3306089

https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

https://www.thebalance.com/will-the-u-s-debt-ever-be-paid-off-3970473

https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355

https://www.thebalance.com/yuan-reserve-currency-to-global-currency-3970465

Is Amazon the Retail Apocalypse?

Do you remember where you were on June 12, 2017? I certainly do; I was riding a very delayed 1 train on the New York City Subway Red Line to the 59th Street stop just two blocks from my office. With the fear of being late to work driving my actions, I omitted my morning coffee from Starbucks and ran to the 9th floor of my building. I was greeted by a too-quiet office in which each one of my co-workers’ eyes were glued to the television screens playing CNBC. The bold chyron stating, “Amazon to Acquire Whole Foods” at the bottom of the screen silenced me faster than I could regain my breath.

 

The implied monopoly of Amazon’s takeover of Whole Foods provides a tremendous threat to brick-and-mortar retailers. Following the announcement that Amazon was buying the mega health food chain, stock prices of top grocery stores all declined. Shares of Kroger, the parent company of Ralphs and Food4Less supermarket chains, were down 14.41% to $21.02. Target and Costco shares fell 9.7% to $50.08 and 6.83% to $167.77 respectively.

 

Meanwhile, thousands of Whole Foods employees began to ponder whether Amazon’s inclination for automation would result in their jobs being replaced by robots.  Amazon’s ability to cause such a resounding effect on the stock market after the announcement of a proposed acquisition, while simultaneously intimidating suppliers and competitors, highlight’s their dominance in the economy.

 

Wall Street Investors are placing large wagers that Amazon and the new fast fashion trend will knock out numerous stores in the next months and years to come.

 

Traditionally, the retail industry has been admonished by the stock market. This assertion is supported by Bespoke Investment Group’s stats on the average percentage of shares that investors are shorting, or essentially betting against. Fortunately for investors and unfortunately for retail companies and employees, this retail short sale has been a winning trade.

 

Insipid sales stemming from low investor confidence has resulted in hundreds of store closures, bankruptcies, and countless layoffs. On average, 15.6% of shares among retailers are being shorted, which, by the Street’s standards, is very high.

 

The investors of Wall Street are not the only demographic to blame, as many Americans favor the ease and hassle-free experience of online shopping as opposed to taking trips to local malls. Meanwhile, the brick-and-mortar stores that have survived are struggling to compete with fast fashion-modeled stores like H&M and Zara. Due to this blatant shift in consumer behavior, Wall Street experts have grown exceptionally bearish when it comes to investing in multiline retailers, including general merchandise chains like Kohls and department stores like Macy’s.

 

The impending apocalypse for the brick-and-mortar stores isn’t here just yet, though. Some retail giants have maintained their dominance in the industry; take Best Buy, for example. Many consumers and investors alike feared the Technology and Electronics chain would be quickly overpowered by Amazon; however, Best Buy’s stock is up 37% and is actually outperforming the online shopping megastore.

Economics of Refugees – The Numbers That May Benefit America?

President Trump was elected into office a little over 10 months ago. At which time, his political platform differed vastly from the rest of the conservative candidates, for he was the only one to call for a radical, even extreme, stance against immigration and refugees. The reason for this, in his words, was to “bring jobs back to America”, a phrase that hints at the competition immigrant and refugee workers bring with them. However, a recent New York Times article respectfully disagrees, at least partially to the entire idea of that incoming workers may hurt the country’s economy.

The truth is, studies have shown that refugees do have a positive side to their hosting country. The article notes that, while the Trump Administration rejects this finding, the refugees will be “paying more in taxes than they consume in public benefits, and filling jobs in service industries that others will not.” In other words, the refugees may not create such a burden as widely imagined by the Americans upon the American economy, and will likely not cause tension within the already competitive industries.

Still, the rejection of this finding does not come as surprising, as anti-immigration is a core pillar supporting the Trump political platform. It is not uncommon for politicians to “selectively accept” findings that are convenient to them and deny the rest. The climate change debate that has been going on within the American politics for years, which has long become a laughingstock of the United States in other countries, only showcases this further.

Disregarding the debate of terrorism associated with refugees and looking at the matter purely from an economic perspective, the economic gain of cheap labor combined with a solidifying of the working force demographics could only benefit the United States. The States, like Canada, are both immigration countries whose very foundations were made up by immigrants from the 17th and 18th centuries. Unlike China and India, the United States never had a substantial domestic population to support its economy, and to turn away from immigration is to undoubtedly a move away from the foundation of this fine nation.

Perhaps, if President Trump truly intended to “Make America Great Again”, he should reconsider the basis of some of his policies.

Naw, this Evan kid is just fake news. Don’t listen to him. We’re good. We’re great. America’s great. America’s gonna be great.

 

Equifax Doesn’t Ring a Bell? Well it Should Because It Probably Affects You

Equifax Inc., one of three major U.S. credit reporting agencies, or in other words, a company who has access to your most personal information from social security number, driver’s license, to credit cards.

The company receives all of this personal data most likely from your bank provider, and their “data breach it discovered on July 29” (Wired), is one of the most high-profile security breaches in its’ history. In fact, Equifax stated that 143 million customers—almost half of America—were affected by this breach, and from that number, 209,000 of the U.S. consumers had their credit card numbers exposed.

So why does all this matter? Equifax has most likely put your personal information at risk of being available online. And this data “packaged together sells for upwards of $30 per identity on online black markets, according to Mark Nunnikhoven, head of cloud research for cybersecurity firm Trend Micro.” He adds, “it’s enough to allow cyberthieves to take over you online” (qtd. in CNN).

If this isn’t still clear to you, it means you probably won’t pass a credit check, thus, making it impossible for you to take out any loans. And on top of that, for example, “[if] someone gets a driver’s license in your name and runs a red light or gets a speeding ticket, you’re on the hook,” according to CNN. CNN adds, that “[recovering] from identity theft isn’t easy,” to say the least, and “you could have to provide months or years of information to clear your name.”

The potential for economic disaster is detrimental. So if you’re poor, you’re basically screwed. The worst part is, since “Equifax still hasn’t given reliable information on who exactly was affected,” according to Quartz, that means everyone has to play victim and take responsibility on minimizing potential damages—damages, again, ranging from “thieves using stolen identities to file taxes, obtain drivers’ licenses, run up medical bills or commit crimes” (Quartz)—this not only takes up time, but money.

In a 2016 survey by the Identity theft Resource Center, out of 300 participants who were victims of identity theft, “52% earned household incomes below $50,000 per year, and 33% earned less than $25,000,” as well as an average of “$1,343 in stolen assets” for the average victim for identity theft costs—and on top of that, “31% lost their home” (Quartz).

Now imagine if half the United States was affected, which is what Equifax put us in risk of. Sounds like another depression just waiting to happen. Basically, this Equifax breach can affect you in the most difficult of ways messing up your life in so many countless ways.

On top of its affect on us, who matters, Equifax’s “shares [dropped] more than 8 percent in after-hours trading,” according to Bloomberg. And following the massive security breach, Equifax executives sold “nearly $2 million in shares of credit bureau Equifax Inc,” actions compared to “insider trading,” said Reuters. These stock sales are currently being investigates by the U.S. Department of Justice, the Securities and Exchange Commission, as well as the Federal Trade Commission.

On September 15th of 2017, the Equifax released a statement on their site, announcing the retirement of their CIO and CSO, as well as offering “free credit monitoring and identity theft protection to all U.S. consumers.” If you haven’t already, it’s time to start taking some precautions.

Social Tech: Intangible Product and Unimaginable Scale

One of the most amazing concepts about social media is that as a business, it operates at an unimaginable scale with what is essentially an intangible product. By “intangible product” I mean that a company like Snapchat, Twitter, Instagram or Facebook doesn’t actually have a product that uses traditional distribution methods since it’s online, and you can’t physically touch what arises from it (contrary to Amazon).

Thus, the use of servers end up becoming the company’s main cost if the product successfully scales to thousands, or in the best case, millions. 

One of the best examples of the one-of-a-kind scaling nature of social media is the rise of Instagram. It launched in October 2010, and within three months, had 1 million users. In February 2011, the company received $7 million in Series A funding from Benchmark Capital. About a year later in April 2012, Instagram was valued at $500 million after securing an even bigger round of funding, $50 million, from Sequoia Capital.

All Instagram allowed you to do was share photographs with your friends and other people you know. It doesn’t sound like anything revolutionary, but when it exists within a instantaneous medium, it ultimately changes how people communicate. So at first, even if the idea doesn’t seem world altering, its value is actually greater than one would expect. Similar to how the telephone and telegram revolutionized mass communication, new age companies like Instagram, Twitter and Facebook have certainly restyled the way in which people interact.

The real issue for these businesses is making legitimate revenue. Since their product isn’t actually built to sell, the main way they make money is through striking advertising deals. So in the early stages when these companies don’t have ads running, investors bet massive sums of money based on user growth. The logic is, once ads sell to a huge user base, the company will then be worth all those dollar bills.

According to TechCrunch, Snap Inc. was projected to amass near $1 billion in revenue in 2017, but through Q1, it notched only $149.6 million, and at the Q2 close, it hit $181.6 million. These numbers have steadily increased over the years, as you can see from the graph below of the 2015 quarterly revenues. From $4 million of revenue in Q1 to $33 million in Q4, the growth of revenue was obvious in 2015 because the user growth was still flying high.

Since user growth has slowed in 2017 for Snap, the revenues haven’t been going up at such quick of a rate. With this trend happening, it appears Snap is trying its best to convince advertisers to use the app, releasing an Ad Manager platform in June that helps to optimize ads for appearance on the app.

Fifty years ago, most of what I’m talking about in relation to technology didn’t exist. And people would’ve thought building a billion dollar company, while making little to no revenue, was impossible. But now, the ever increasing use of mobile technology has opened up a market for intangible products, whether or not the actual money being earned measures up to the product’s hype.

What the Market Telling Us about the Korean Peninsula Conflict

A rogue state testing hydrogen bomb sent a missile over the territory of a neighboring country. The American president promised “fire and fury” if threats continue. Sounds a lot like the plot of a Hollywood thriller, right? Tthe Market, however, doesn’t seem to think the world is heading for to conflict and chaos. International investors are relaxed about the potential crisis on the Korean peninsula, and the market stays undisturbed. According to the recent data collected by the Economist, economic indicators including the yield on Treasury bonds and the MSCI World equity index fell, while the Gold price rose in the recent month. However, these movements are not big. In fact, the South Korean stock market, which should be most sensitive to the risk war, is doing better in comparison to the start of the year.

Let us consider the terrible possibility of a conflict on the Korean Peninsula. In addition to the tragic humanitarian loss, the global economy will also suffer. Capital Economics points out that South Korea produces 40% of the world’s liquid-crystal displays and 17% of its semiconductors. If Japan was the target of missile strikes from North Korea, as it might be, the disruption would be even greater for that Japan is the world’s third largest economy.

So how can we justify the market’s insensitivity to this delicate political situation? Some propose that the market is simply not very good at assessing political risk. A recent example would be when the European market failed to foresee the result of Brexit. The vast majority of polls and markets had “remain” with a solid lead. It was only when the polls shifted towards “leave” in early June 2016 did the market moved in the same direction. Still, never once did “leave” come close to taking the lead.

Another explanation is that investors have learned in recent decades that geopolitical events tend to have only very short-term impacts on the markets. In comparison to political risks (e.g. the result of a presidential election), economic growth and corporate profits are far more important factors to consider for the investors. The reality is, no one can run enough analysis to properly assess and predict the situation with North Korea based on polls or past data.  Nevertheless, the market has made a decision that for now, they do not believe a serious incident will happen on the Korean peninsula. So let us all hope that the “wisdom of crowds” wins this time.

 

Big companies have Brazil addicted to junk food and its a problem

A recent investigative report by the New York Times highlighted Brazil’s addiction to junk food and the problem it has created. Companies like Nestlé and Coca-Cola among others have seen decreased profits in wealthy countries have since moved to poorer countries spread out in Latin America, Asia, and Africa. More so, these companies have brought their products directly to consumers by hiring local workers to take and deliver orders by foot. In doing so Brazil is now facing an obesity problem and much larger problems in productivity and job security as a result.

Employees of companies such as Nestlé travel across the country taking and delivering over 800 products. Customers have until the end of the month to pay for their purchase and often find themselves overindulging as a result. While the company does highlight its many healthy products the Times article did note that many end up resorting to foods high in fats and processed ingredients while offering little to no health value despite being advertised otherwise.

The report highlighted the drastic change In the health of the Brazilian people. In 1980, 7% of Brazil was considered obese. That number has since doubled to over 18%. This is directly attributed to the availability of packaged foods. From 2011 to 2016, packaged food sales grew by 25 percent worldwide compared to only 10 in the U.S. Even scarier is the sales of soft drinks which in Latin America have doubled and have since overtaken the North American region in sales.

The problem is much larger than just obesity. Companies such as Nestlé have provided thousands of men and women with jobs that pay very well. What the Brazilian government could not do, Nestlé has. The Times article chronicled a woman who with this job was able to purchase a refrigerator, television, and stove with her earnings and has since elected to save money for a new home.

With so many people becoming obese and being diagnosed with concurrent ailments such as diabetes it doesn’t help that the Brazilian healthcare system is ‘broken.’

In a report by Al Jazeera just before the onset of the Rio Olympics it was reported that federal government experienced a budget shortfall. Hospitals in the area were literally turning people away because they could not service any more patients. Some hospitals lacked basic medical supplies such as saline. Public funds were also misappropriated with $12 million USD going to a social organization contracted to support local hospitals.

Not only are hospitals suffering, but so are farmers. Fields once strewn with vegetables and fruit that comprise a healthy diet have since been replaced by soybeans, corn, and sugar. These ingredients make up the bulk of ingredients that make up processed foods.

The website WITS tracks trade statistics for countries. In 2010, soy beans were the third most exported good by Brazil. Raw cane sugar followed suit in fourth place. Both exports had a U.S. value of $11 and $9 million respectively.

Flash forward to 2015 and soy beans in particular have overtaken the top spot as the most exported product in Brazil. In five years time what was once an $11 million dollar industry has since ballooned to nearly $21 million. Cane sugar stayed in the same spot with a loss of around $3 million.

The country of Brazil is in a very tough spot. While such large corporations have certainly hurt the health of its people as well as the productivity of the country, thousands are benefiting in ways they could not previously. It will be interesting to see where Brazil goes from here.

Sources:

http://wits.worldbank.org/CountryProfile/en/Country/BRA/Year/2010/Summarytext

http://wits.worldbank.org/CountrySnapshot/en/BRA/textview

http://www.aljazeera.com/indepth/features/2016/02/brazil-broken-healthcare-system-160204075525812.html

How Big Business Got Brazil Hooked on Junk Food – The New York …

 

 

 

 

 

The U.S. household income increased, but there is still much to do.

The data released by the Census Bureau in the income, poverty, and health insurance report on September 12 seem to portray a healthier U.S. economy.

In fact, the annual report shows that the median household income rose by 3.2% from $57,200 in 2015 to $59,039 in 2016, and that the percentage of people living in poverty decreased in 2016 by 0.8% from the rate registered in 2015. Additionally, the data reveal a drop in the percentage of people without health insurance coverage: the value registered in 2016 was 8.8%, 0.3% less than the value registered in 2015 (Reuters).

Overall the quality of life in the United States seems to be improving and this means that the growth that the country has seen since the recession in things like the stock market, is at least to a certain extent also starting to show in households (Marketplace). Yet, skepticism lingers over the data shown in the report.

Considering other measures could help to better understand why the U.S. still has much to do to repair its economy.

The report by the Census Bureau reveals that the income inequality rate is not decreasing: there are still huge divisions in incomes because of people’s gender, race and age. Moreover, inequality between Americans is growing (The New York Times).

In addition to income inequality, there is another measure that we should take into account: supplementary poverty. As pointed out by Forbes, unlike the poverty rate, supplementary poverty considers many of the government programs designed to assist low income families and individuals that are not included in the official poverty measure. Therefore, it shows that there are many families above the official poverty level that are actually receiving government aids.

This is one of the aspects that shows there are still many open questions about how economists should measure the poverty level and what values to take into account. Despite a rise in median household income, there are a lot of people who still feel «economic frustration», because there are different factors that influence people’s wages and economic opportunities, like for example the place where they live (Marketplace).

Beside these measures, also the number of health insurance coverages raises skepticism among the experts.

Even though the percentage of householders having insurance coverage increased, a breakdown of these data could reveal a different story.

If we look at people with income at or below the poverty level, we can see that 16.3% of them lack insurance coverage: «these are people who can least afford to take on medical debt» (Forbes). This percentage is quite remarkable when compared with the 4.6% of householders above the poverty level living without insurance coverage.

Despite these issues, it seems that the U.S. economy is improving overall. This element matters a lot, since President Donald Trump has announced that he wants to reform the current tax system and cut government spending. Democrats, considering the economic improvements shown in the Census Bureau’s report, «now have more ammunition to argue that the changes Mr. Trump seeks would mess with the success » (The New York Times).

The Federal Reserve is also paying close attention to the data released by the Census Bureau and to the current status of the U.S. economy. In fact, Janet L. Yellen, the Federal Reserve chairwoman, is expected to end the Fed’s lenient monetary policy in a meeting scheduled this week; the changes that will be following could affect the current improving U.S. economy.

Yet, whatever effect the new monetary policy will have on the economy, the increase in household income and the drop in the poverty rate is a reflection of the higher number of people back in the work force and of the 2.2 million of jobs added over the past year. The growth in the number of working people is «a vivid illustration of the old maxim that a job is the best antipoverty program » (The New York Times).

 

 

Why are states required to have balanced budgets?

With over $20 trillion in amassed debt, the United States federal government is no stranger to running budget deficits. It’s essentially common and expected practice now. For college students my age, the knowledge that there used to be a balanced budget in the US comes as a surprise that almost doesn’t seem real.

But for most state and local governments across the country, balanced budgets aren’t just the norm, but the rule. According to the National Conference of State Legislatures, 43 states require their governor to propose a balanced budget, 39 require the legislature to pass one, and 37 require the budget to continue to be balanced at the end of the fiscal year. In California, the constitution requires the governor to propose a balanced budget and prohibits the passage of a budget in which General Fund expenditures from exceeding General Fund revenues. In cases like California’s, it’s hard for states to even attempt to carry a deficit because their constitutions prevent them from selling bonds to pay for it.

California’s constitution was ratified in 1879. That’s 138 years (ideally) of balanced budgets. So why can’t the federal government do the same?

Spending only as much money as you get is definitely sound fiscal policy to ensure the solvency of the state government, but it does limit what legislatures can do in times of crisis. States and local governments are reliant on taxes on sales, income, and property — revenues that fall in economic recession when people lose their jobs, lose their property, and/or don’t buy as much. At the same time, reliance on safety net welfare programs increases, putting the state in a budget crunch.

Just as in the federal government, a great deal of state spending essentially runs on autopilot and is difficult to control. States take in — and then spend — a lot of money from federal grants or reimbursements, and the way that money is spent is typically determined by the federal government. Other revenues are specifically earmarked by law, such as money from lottery sales or gas taxes. And in other cases, like Proposition 98 in California, the state is required to spend a certain amount of money on specific departments. (Proposition 98 requires California to spend increasing amounts on education based on economic and enrollment growth).

A lack of flexibility can lead to desperate actions when the economy falters. Governments freeze hiring, stop maintaining buildings, cut back services, furlough employees, or renegotiate pension agreements. In 2009, Arizona was so desperate to balance its budget that it sold public buildings as a way to get money fast — including the Capitol, the state fairgrounds, and some prisons. These cuts can have further impacts on what we typically perceive as economic recovery, since state and local government spending makes up about 12 percent of GDP.

Whether this is good or bad depends in many ways on ideology. If state and local governments were allowed to follow the Keynesian model and spend their way out of an economic downturn, that would allow for even more powerful economic recovery efforts. But followers of Friedrich Hayek’s thinking would say that cutting state budgets in times of crisis keeps us rooted in the reality of the services our government gives us — and what they’re worth.