Container rates to US top $10,000 as shipping crunch tightens. Container shipping rates from Asia to the U.S. and Europe increased to new record levels over the past week, ensuring transportation costs will stay elevated for companies heading into a peak season for rebuilding inventories. (AJOT) 

US sends message to businesses, China with Hong Kong warning. The Biden administration warned investors about the risks of doing business in Hong Kong, issuing an advisory that said China’s push to exert more control over the financial hub threatens the rule of law and endangers employees and data. (Bloomberg) 

South Africa deploys more than 20,000 troops as death toll tops 100. South Africa calls up army reserves to assist police in quelling deadly unrest following the jailing of former President Jacob Zuma. (Al Jazeera) 

Lebanon crisis deepens as PM-designate quits over cabinet deadlock. Lebanon's Prime Minister-designate Saad Hariri has given up trying to form a new government after nine months of deadlock over its make-up, pushing the country deeper into crisis. (BBC) 

USMCA: One year later. In honor of the USMCA’s first birthday, Shipping Solutions looks at how implementation has gone. What, if anything, has changed over the past year? (Shipping Solutions) 

US to extend Trump-era halt to economic dialogue with China. Treasury Secretary Janet Yellen and her staff have no plans to resurrect the regular U.S.-China economic dialogue that governed ties between the two nations during the Bush and Obama administrations, continuing for now the suspension put in place under President Donald Trump. (AJOT) 

What does the Federal Reserve mean when it talks about tapering? Since July 2021, the Fed has been buying $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities (MBS) each month. As the economy rebounded in mid-2021, Fed officials began talking about slowing—or tapering—the pace of its bond purchases. (Brookings) 

Cuba protests: Tax on food and medicine imports lifted. Cuba says it will allow travelers arriving in the country to bring in food, medicine and other essentials without paying import duties. (BBC) 

How the world’s first carbon border tax may play out. The European Union wants to enact the world’s first pollution-import levy on global competitors. The details will take a while to hash out. (AJOT) 

China’s pork imports set to plunge 50 percent as local prices tumble. China’s record demand for foreign pork is about to crater after domestic prices plummeted, potentially easing pressure on the world meat market and cooling at least one constituent of global food costs. (Business Mirror) 

Biden foreign policy team scrambles to address Latin American crises. President Biden’s foreign policy is being upended by a series of cascading crises in the Western Hemisphere and posing significant challenges for a State Department that still doesn’t have its full regional team in place. (The Hill) 

Dealmakers see M&A rush, then chills, in Biden's antitrust crackdown. Dealmakers expect a new wave of transformative U.S. mergers and acquisitions (M&A), as companies rush to complete deals before President Joe Biden's antitrust push takes shape, to be followed by a slowdown when regulators start cracking down. (Reuters) 

Argentina spawns another FX rate as government clamps down. Government steps to regain control over Argentina’s chaotic currency market has led a new unofficial exchange rate to rise to prominence. (Buenos Aires Times) 

 

 

Kyriba’s Currency Impact Report (CIR) reveals a negative impact from currency volatility of $9.54 billion for North American and European multinational corporations.  

The quarterly report details the impacts of foreign exchange (FX) exposures among 1,200 publicly traded multinational companies based in North America and Europe. 

North American companies experienced greater headwinds than their European counterparts in the first quarter of 2021, reporting $5.87 billion in FX-related negative impact—a staggering increase of 322% from the last quarter. By comparison, European corporations reported $3.67 billion in negative impact. 

Highlights from the July 2021 Kyriba Currency Impact report include: 

• The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q1 2021 held steady at $0.03—three times greater than the recommended standard of $0.01 EPS impact. 
• Publicly traded North American companies that qualified to be monitored in the Q1 2021 report had a collective currency loss of $5.87 billion. 
• Publicly traded European companies that qualified to be monitored in the Q1 2021 report had a collective currency loss of $3.67 billion. 
• North American companies indicated the Chinese renminbi (CNY) as the most impactful currency, with 33% of companies referencing it as most impactful, snapping the euro’s (EUR) hold as the most impactful currency over the last two quarters. 

• The U.S. dollar (USD) remained the currency most mentioned as impactful by European companies on earnings calls for the third quarter in a row, followed by the euro, with the Chinese renminbi ranking third. 
• The top five industries that experienced the greatest impact from currencies in North America (in order) were machinery, trading, distribution, professional services, healthcare equipment, biotech and pharmaceuticals, and chemicals. 
• The top five industries that reported the greatest impact for Europe (in order) were electronic equipment, instruments and components, construction and engineering, airlines, biotech and pharmaceuticals, and chemicals. 

All companies analyzed in the report’s findings conduct business in more than one currency, with at least 15% of their revenue coming from nations that are located outside of their headquarters. 

 

 

 

GDP growth forecasts for 2021 have been revised upward 5.6%, but this is mainly the result of positive surprises from the United States, according to trade credit insurer, Coface. These improved growth prospects are reflected in world trade: After a 5% decline in volume last year, Coface forecasts an 11% increase for 2021.

In this context of growth in international trade, countries exporting raw materials are benefiting from an improvement in their terms of trade. At the same time, the slow progress of vaccination campaigns in emerging countries makes it unlikely that herd immunity will be achieved in the next 12 months. This suggests that stop-go processes will persist, and continue to constrain domestic demand in most emerging economies. Finally, Coface noted an increase in political risk linked to the health crisis and the acceleration of inflation.

Since the beginning of April, the health situation has remained difficult in several Latin American countries (notably Brazil and Argentina), and in India. Further increases in the number of infections have also been observed in several Asian countries (e.g., Malaysia, Thailand, Korea and Singapore), with high-frequency mobility indicators pointing to lower economic activity in these areas. The number of people infected with the virus also increased rapidly in Africa and Russia in early summer. The trend is more positive in Central and Eastern Europe, the Middle East and Turkey.

Besides the health context, the rise in inflation (8.1% year on year in Brazil, a 5-year high) and the subsequent tightening of certain monetary policies are likely to limit the extent of the recovery in domestic demand. Countries whose materials account for a large share of imports will be penalized by a significant rise in their import prices. This is the case for China, whose imports of raw materials represent more than 30% of its total purchases of foreign goods, Coface said. While consumer inflation remains contained in China at this stage (+1.3% over one year), the sharp rise in producer prices (9% year on year, a 12-year high) argues for its acceleration in the months to come.

Inflationary risks have been in the news in recent months. In this context, the annual update of the Coface Political Risk Index shows a strong rise in political risk across the world, and particularly in the emerging countries.

Figures show a deterioration in living standards and purchasing power, as well as a rise in inequalities observed following the COVID-19 crisis. At this stage, these conditions are not necessarily leading to popular uprisings, which remain limited by people’s capacity to mobilize.

In 2020, the social risk index rose 5 points to 51% at the global level, reaching its highest level ever. Despite the numerous fiscal and monetary support measures, 140 of the 160 countries assessed saw their GDP decline last year. At the same time, the unemployment rate has increased in 145 of these 160 countries. The increase in this risk is more marked in high-income economies, which have a lower initial risk level. However, despite these developments, the countries with the highest level of social risk remain Yemen, Syria, Iraq, Venezuela, Libya, Lebanon, Sudan, Iran, Algeria, and Saudi Arabia.

The conflict index, the second component of the Coface Political Risk Index, is calculated according to the number of conflicts, their intensity, the number of victims and their duration. In 2020, Azerbaijan and Ethiopia saw an increase in this index due to the conflicts observed on their territories. They are followed by countries fighting terrorism or in civil war, such as the Central African Republic, Sudan and Mali.

 

After a year of supply chain disruption, political tension and growing climate worries, resilience has become a prized commodity for global businesses, and it’s more prevalent in some places than in others.  

One such place is Denmark, which now tops the world in the newly released 2021 FM Global Resilience Index. The index ranks 130 countries and territories by the resilience of their business environments. The Scandinavian nation rises from third in last year’s index to its first-ever top ranking, bumping Norway, which has held the No. 1 spot in recent years, into second place. 

Produced by FM Global, one of the world’s largest commercial property insurers, the index provides a composite picture of 12 objective measures reflecting each country or territory’s economic, risk quality and supply chain conditions.  

“Over the years, leanness, speed and short-term profit have often reigned as primary concerns of global businesses,” said Eric Jones, vice president, global manager, business risk consulting at FM Global. “But the historic events of 2020 reminded the world that these qualities are subordinate to the ability to resist, rebound from or operate through lockdowns, demonstrations and climate-related disruptions. Resilience has always affected a company’s total value, and this past year’s events brought this imperative into sharp relief.” 

Top, bottom, risers and fallers 
Top-ranked Denmark is known for its quality of life, education, health care and income equality. In this year’s index, it benefits from higher resilience rankings than last year in the measures for economic productivity, fire risk quality and oil intensity (signifying increased vulnerability to oil shock). Luxembourg rounds out the top three countries in overall business resilience, with Western Europe taking 9 of the top 10 places. The Central United States is the lone exception, occupying ninth place as it did last year. 

Ukraine is the index’s biggest riser, soaring from 84 to 63 based on improved resilience rankings in multiple measures, including productivity, oil intensity, natural hazard risk exposure, inherent cyber risk and control of corruption. 

The biggest faller is Oman, sinking from 57 to 69 because of steep drops in economic productivity and oil intensity. The drop would have been even larger if not for an improved ranking in natural hazard exposure due to new, more incisive data incorporated into the index relating to earthquake risk. 

The United Kingdom re-entered the index’s top 10 (now ranked 10 in overall resilience, up from 13 in 2020’s index), driven primarily by an easing of political risk, reflecting in part the election of a majority government with more mainstream policies and the completion of Brexit. 

The United States region 1 (the East and Southeast) fell from 10 to 17 in this year’s index, reflecting two changes: a drop in the region’s natural hazard exposure ranking of nine places due to the new earthquake risk data; and a falling political risk ranking for the country as a whole (from 41 down to 50). The latter shift may reflect partisan acrimony and heightened conflict over social justice issues. 

Iran for the first time entered the bottom three ranks with a 14-place drop in productivity and a 7-place drop in political risk rank. Venezuela, second to last, and Haiti, last, round out the bottom three countries. 

China’s region 1 (the East) fell nine places, from 68 to 77, due to a 19-place drop in the country’s oil intensity ranking and a 6-place drop in control of corruption. China’s region 3 (Central and West) fell six places, from 65 to 71, exacerbated by a 9-place drop in its natural hazard exposure ranking. 

Climate risk 
FM Global has noted growing concerns among global companies over risks related to the changing climate. Companies have contended with severe floods, droughts, wildfires, precipitation and windstorms around the world. 

Natural hazard exposure is one of several climate-related resilience measures in the index, and a frequent contributor to that exposure is flood risk – among the changing climate’s most tangible threats. A related index measure is natural hazard risk quality, a reflection of how well countries are mitigating their exposure to natural hazards. A third index measure with climate risk implications is urbanization rate. The faster a region’s urbanization, the more business property and value is in harm’s way during any given climate-related event. Finally, the quality of [transport and utilities] infrastructure provides important clues about a country’s prospective response to extreme conditions. 

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 Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations