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Opinion: Under-investment is the weak link in supply chains, EDC's retiring economist Peter Hall says – The Globe and Mail

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Peter Hall, Vice President and Chief Economist for EDC, at his home in Manotick, south of Ottawa on Feb. 5.LARS HAGBERG/The Globe and Mail

Peter Hall began his tenure as Export Development Canada’s chief economist at the start of a global crisis, and he’s ending it in the midst of another one.

His sense of history tells him that the fallout from the first (the global financial crisis) has led us down a path to the second (the current supply crunch).

His sense of optimism tells him that something positive will emerge from all this.

“We have clear supply chain constraints that are not just about the pandemic. They’re about a prolonged period of time where business was under-investing. I would trace that right back to 2008,” the 59-year-old said in an interview last week, just days before his Feb. 11 retirement from a job he started nearly 14 years ago, as the global financial crisis was taking hold.

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The consequences of that event have coloured Mr. Hall’s entire tenure as the top economist – and most public face – of EDC, the federal crown agency that provides credit to Canadian exporters and their international customers.

“I think one of the greatest realizations that I have had is that globalization has actually stretched out the business cycle,” he said. “We have higher highs; we have lower lows. We have longer growth periods, and we have longer periods of adjustments after, because those corrections are deeper.”

The deep recession that accompanied the financial crisis was followed by a painfully long, slow recovery, rising protectionism, and a loss of confidence in the globalization that had provided so much fuel for economic expansion in the decade prior.

Those forces drove a lost decade for investment in export capacity – the equipment, facilities and public infrastructure necessary to produce and transport goods globally. The unusual pressures from the reopening of global markets after COVID-19 shutdowns, Mr. Hall argues, have brought that investment deficit home to roost.

“What we are seeing right now is a lack of ability to grow because of that [missing] investment,” he said. “It’s not because the economy doesn’t want to grow or doesn’t have the demand behind it to grow. There’s plenty of pent-up demand all over the place.”

But Mr. Hall is confident that the current problem actually contains the seeds of a solution. He believes the urgency for export capacity will be a powerful incentive to both invest and reawaken appetites for globalization.

“That’s typically what happens to undo the protectionism: when you run out of capacity, you scour the globe for capacity. And wherever capacity exists, you latch onto it,” he said.

“I’m hopeful that the growth that we’re seeing right now is going to pour cold water over the protectionist side of things, and get us back into a globally integrated world.”

Mr. Hall has a natural inclination toward optimism, something that has probably made him well suited to an agency whose business is supporting the pursuit of export growth. It’s a trait he shares with the man who hired him, former Bank of Canada Governor Stephen Poloz, who was Mr. Hall’s predecessor as EDC’s chief economist. Mr. Hall was director of economic forecasting at the Conference Board of Canada in 2004 when Mr. Poloz lured him away to be his deputy chief.

“He has made me very proud since, maintaining a level of approachability and reasoned analysis that Canadian exporting companies have consistently found to be of value,” Mr. Poloz said via e-mail last week.

But while Mr. Poloz moved up the management ranks to become president and CEO of EDC, and then made the leap to the head of the Bank of Canada, Mr. Hall has been content to spend the past nearly decade and a half overseeing EDC’s economic analysis and research in service of Canada’s export sector.

“I had offers,” Mr. Hall said. “But I didn’t really want to be in the business of making the rich richer. … I wanted to do something that was going to [help] people who needed a leg up – emerging market economies that were struggling, or small businesses that were having a hard time getting going.”

The work being done at EDC “was exactly what I wanted to be doing,” he said. “I was really in my sweet spot.”

One constant of Mr. Hall’s time at EDC has been his championing of geographic diversification of Canada’s exports. It was the topic of the first research paper he ever wrote at EDC, in 2006. As he prepares to leave, he continues to advocate further expansion into fast-growing emerging markets as the greatest opportunity for Canadian exporters.

“We believe that ramping up to be able to meet the demands of emerging markets, whose middle class is growing in phenomenal leaps and bounds – that’s really where our future lies,” he said. “We [need to] create the capacity to expand into markets such as China, and Southeast Asia, and India – and, ultimately, sub-Saharan Africa.”

But to get there, he said, it again comes back to kick-starting stagnant investment in capacity – more specifically the roads and railways and air and seaports, particularly in Western Canada, that are necessary to deliver goods to these fast-growing markets.

“We know we’ve got a very large trade infrastructure deficit, and we’ve had a very difficult time trying to overcome the obstacles to investment in that infrastructure – particularly Western-based infrastructure,” he said.

“We’ve got to crack the code. Because a lot of those flows are the flows of the future.”

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Emerging Markets Outlook: Investment is strong, but uncertainty remains – Logistics Management

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The $4.9 trillion global logistics market operates as the backbone of international trade, which grew 272% from 2000 to 2021. Expectations for the global logistics market to grow to $6.55 trillion by 2027, coupled with continued growth in e-commerce and the rebound of contract logistics, has companies looking to reimagine their logistics operating models.

However, companies continue to deal with disruption from the pandemic, which has now been further complicated by the war in Ukraine. In fact, a recent Accenture report found supply chain challenges arising from the pandemic and Russia’s invasion of Ukraine could result in a potential €920 billion cumulative loss to gross domestic product (GDP) across the Eurozone by 2023.

Because of these complications, supply chain networks need to be more flexible and efficient while building resilience, relevance and sustainability into the core. Supply chain networks are often more global—not less—with companies using factories that are higher tech, smaller, more numerous, more local, and closer to customers.

As companies build these networks, they’re investing in digital capabilities to enhance service levels and control costs—and they’re also looking to omni-channel fulfillment platforms with dynamic order allocation capabilities to meet ever-changing customer demands.

Transforming with the latest technologies and ensuring resilience and sustainability are embedded throughout these supply chain networks will make companies future-ready and better equipped to managed potential disruptions.

The expansion of emerging markets is an important consideration. As companies look to uncover new channels for growth, they’re continuing investment in emerging markets.

Disruption: Supply chain shocks and the accumulation of disruption

Depending on the length and severity of the war, the cost of supply chain disruption in the Eurozone across 2022-2023 could amount to € 242 billion (2% of GDP) in an ongoing war scenario or € 920 billion
(7.7% of GDP) in an protracted war scenario.

Logistics Breakdowns
• Transportation bottlenecks worsened input shortages and sent costs skyrocketing.
• Continued lockdowns in Chinese ports and war in Ukraine further strain the issue.
• 90% of Ukraine’s wheat exports have halted due to port closures. Ukraine accounts for nearly 10% of global wheat exports. Wheat prices hit record highs, rising 30% in 2021Q1 on previous quarter.

Energy Security 
• Energy markets were already undersupplied before the war given the economic recovery.
• The war in Ukraine has caused further oil and gas price spikes: the price of brent crude oil could peak at 115 USD per barrel in 2022.
• Suppliers are shutting down some operations becauseenergy costs are too high, which creates another wave of input supply shocks.

Lack of Material Supplies
• Resurging demand and initial precautionary hoarding led to inflation and overwhelmed supply chains.
• The concentration of suppliers for critical minerals and food is compounding challenges.
• For example, Russia is one of the largest suppliers of palladium, platinum and diamonds, while Ukraine is the critical supplier for neon gas, agricultural products, and metal ores.

A Tight Talent Market
• Labor and skill shortages plagued most industries.
• The war has created further tension in targeted skills areas like transportation.
•14.5% of the global seafarer workforce are from Russia and the Ukraine.

Thailand

Thailand continues to make large strides in their economic development. Logistics investments have been fast-tracked as the country obtains more market share.

Thailand had previously broken ground in 2021 on mega-projects worth $5.3 billion to improve national infrastructure focused on roads and rail. This is highlighted by a rail line that will better connect six provinces within a 50-mile radius to Bangkok. Supporting urban sprawl in Thailand is now imperative as the people of Thailand continue to prosper despite economic setbacks associated with the pandemic.

In total, Thailand has $60 billion planned in spending to help support The Ministry of Transport’s 40 mega-projects. Year-over-year, Thailand was able to jump three spots up on Agility’s Emerging Markets Logistics Index Top 20.

Vietnam

Although delayed action from policy makers has caused Vietnam to lose logistics market share, despite prime real estate and economic growth, Vietnam is still considered to be an integral part of omni-channel growth and a large contributor to the internet economy.

Vietnam has positioned itself as key player associated in the Asia-Pacific (APAC) region, with e-commerce spend growing 24% year-over-year. As a benefactor in the U.S.-China trade war, as manufacturers are forced to diversify supply chains networks, Vietnam’s core competency is related to labor intensive industries due to their low labor cost.

With 2,030 miles of coastline, Vietnam holds a strategic position for the maritime industry, seeing a 7% growth year-over-year in twenty-foot equivalent units (TEUs). Vietnam had started to invest in the growth of a Da Nang mega-port as early as 2016, which has promised to support 27.2M tons by 2030 and 92.5 million tons by 2045.

However, Vietnam is challenged by size constraints driven by underdeveloped infrastructure, as evidenced in dropping three spots on Agility’s Emerging Markets Logistics Index Top 20.

Mexico

Although hit hard by the pandemic in 2020 with an 8.6% economic contraction, Mexico was able to make-up and surpass 2019 GDP ($1.269 billion) in 2021 ($1.285 billion). Despite economic turbulence, Mexico benefits from a strong trade-partnership with the United States as well as a private-backed investment in infrastructure.

Of the $44 billion committed, 33% is planned to go toward transportation projects, including highways, rail, ports and airports through 2024. With a trend of shippers looking to position closer to their customer, Mexico holds the highest forecast compound annual growth rate—tied with India—at 10%.

India

Like Mexico, India is projected to maintain a 10% annual growth rate and maintain Agility’s ranking at No. 2. India Goods and Services Tax, as well as private-sector investment, have been a catalyst for infrastructure improvement since its inception in 2017.

Due to this infusion of money, India has already built 3.5 million miles of roads, second only to the United States. However, India’s National Infrastructure Pipeline (NIP), a $1.2 trillion infrastructure program, will support continued investment.

Logistics related NIP calls to action are 34,000 more miles of road development; a National Rail Plan implemented by 2030 to support a multi-modal transportation solution with the goal of hauling 45% of freight on rail by 2030; and moves to address digital infrastructure to match the growing business demand and provide access to all citizens.

The Indian government is not just prioritizing interconnected transportation infrastructure, but also making a $94 billion investment in sustainability. The Jawaharlal Nehru National Solar Mission aims to deploy solar energy technologies to create favorable conditions for solar manufacturing capability.

Indonesia

Driven by government restrictions on business during the pandemic, logistics business activities have declined 50%, however current GDP growth indicates economic rebound.

The majority of the Indonesian logistics market is driven by transportation, predominantly road freight, accounting for 70% to 80% of total volumes within their borders. However, 90% of Indonesia’s exports are moved via ship.

Indonesia’s Ministry of National Development released a $412 billion infrastructure investment plan in 2019 to address the World Bank’s assessment of a $500 billion infrastructure investment gap in 2017.

Indonesia remains steadfast in its commitment to plan, aiming to finish the Trans-Sumatra Tolls Roads by December of 2022, effectively providing an additional 1,751 miles of roadway to travel on, with a commitment to complete construction of 3,000 more miles. The goal is logistics cost reduction as well as connectedness within the island to support maturing e-commerce market demand.

Malaysia

As ships have grown 2.9 times larger from Post Panamax II to Megamax-24, so must the ports that support their throughput. Malaysia now has two of the three largest ports of all emerging market countries with both ports achieving strong container volume increases in 2021.

Malaysia will look to grow port infrastructure to capture economies of scale driven by larger ships. Stating with a $179 million expansion in 2022 for the Port of Tanjung as well as multi-million, private-sector investment within facilities in Port Klang. The freight and logistics market in the region is expected to continue to grow, registering a 4% increase to CAGR through 2027.

Looking ahead

Through the end of this year and into 2023, shippers will have to continue to break the physical limits of supply chains, enabling organizations to do more with less and meet customers’ growing expectations for order fulfillment in a cost-efficient way.

Emerging themes to watch in the United States

After historic spending on freight in 2021, shippers are starting to reap the benefits of a softening truckload market. The DAT dry van load-to-truck ratio was at 4.57 in April, down 37% month-over-month and 21% year-over-year, with contractual rates surpassing spot rates in March 2022.

For the first time since June 2020, we’re starting to see normalization of route guide tender acceptance and a stabilization on spot market rates.

Shippers and carriers are shifting their concerns to the now historic rise in diesel prices. Truckload carriers and private fleet managers are
continuing to focus on basic operating efficiencies.

This includes, but is not limited to, fuel mileage being reduced by 3%, increase utilization of equipment, and implementation of electric vehicles. The question remains of how to mitigate risks related to energy consumption, which will be a theme in the United States moving forward.

Leveraging capital investment and technology to better support global logistics channels will unlock greater capacity and cost-efficiencies of emerging markets.

As shippers continue to pivot toward more and more emerging markets, supply chains need to be redesigned with economic diversification in mind, as well as sustainability and resilience. Though, keep in mind, global uncertainty and unrest will always affect supply chain networks.

Whether the issues arising are an increase in costs, a shortage of labor, or additional trade barriers, shippers need to quickly pivot to reimagine, build and operate supply chain networks that orchestrate change, simplify life, and positively affect business, society and the planet.

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What is Causing Bitcoin’s Price to Plunge?

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The cryptocurrency industry’s inaugural asset is experiencing one of the biggest downturns in its short history. Bitcoin has recently fallen to its lowest value in the last year-and-a-half. Having peaked at a value of $70,000 per Bitcoin in November 2021, almost $50,000 has been shaved off its value per Bitcoin in the last seven months. As of 15th June 2022, it has been trading at around $21,400 per Bitcoin. What’s happening and why is the Bitcoin crash causing a ripple effect throughout the rest of the crypto scene?

Crypto analysts believe the real-world problems of surging inflation and rising interest rates are having a knock-on effect on crypto values. With stock markets also threatening to enter a bear market, it’s possible that a big reason for the plunge in Bitcoin is that many investors in BTC have chosen to liquidate their positions and stockpile as much cash as possible as a safety net. Despite the difficult backdrop for Bitcoin right now, it’s still an asset that retailers are keen to accept and utilize as part of their cash flow.

In Canada, there are still plenty of businesses and merchants that accept Bitcoin and other cryptocurrencies as legitimate forms of payment. For example, in the newly regulated Canadian iGaming market, brands like Bodog make it possible for Bitcoin holders to play casino slots for real money, with deposits permitted in Bitcoin, Bitcoin Cash, Bitcoin SV, Litecoin, Ethereum, and USD Tether. Major Canadian gift card brands like Coincards and CoinGate also permit Bitcoin transactions in exchange for gift cards with the biggest names in retail and e-commerce, namely Amazon and Walmart.

In addition, online travel agents like Travala still accept Bitcoin, with discounts worth up to 40% available to those booking flights and trips with cryptocurrency.

Other crucial developments affecting Bitcoin

In recent days, two of the most prominent names in cryptocurrency trading and investing have experienced severe issues. Binance, the world’s most liquid cryptocurrency exchange, was forced to cease Bitcoin transactions for several hours. The platform attributed this hold-up to a “stuck transaction”, although many have since looked upon this excuse with skepticism.

Additionally, the collapse of decentralized finance (DeFi) platform Celsius has been a dagger in the heart of many in crypto circles. The “extreme market conditions” have raised serious question marks over Celsius’ long-term future, with its liquidity drying up fast. The firm takes cryptocurrency in exchange for annual yields on investor deposits, but if there’s no yield to back this up, the concept folds like a pack of cards.

Is it possible to anticipate a recovery for Bitcoin and crypto?

In truth, Bitcoin and all other cryptocurrencies are entering unchartered territory at present. Consumer and retail investor behaviours are changing as confidence in real-world economies diminish by the day. Analysts insist that extreme caution must be taken to enter the markets right now. With very little historical data to fall back on, the price of Bitcoin remains volatile.

Although there is a general feeling within the cryptocurrency community that a “pump” will return sooner or later, it’s going to take time for demand to outstrip supply once more.

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Rothschilds hires RBC's Graham to run Canadian investment bank – The Globe and Mail

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Rothschild & Co is scaling up its Canadian business, hiring veteran Royal Bank of Canada dealmaker Alex Graham to lead domestic expansion at a global investment bank with a two-century family pedigree.

On Monday, Paris-based Rothschild will announce that Mr. Graham will be its Toronto-based managing director and head of Canada, with a mandate to move beyond the bank’s current focus on advisory work for the mining industry and restructurings. For the past decade, Mr. Graham was head of RBC’s telecom, media and technology group in Canada, then Europe.

“Alex has strong professional roots in Canada and a global network of relationships,” Jimmy Neissa, head of Rothschild, North America, said in a release. “His experience, knowledge and leadership will serve our clients well and further grow our leading franchise in the region.”

Mr. Neissa joined Rothschild in 2016 with a mandate to build its North American operations after spending two decades as New York-based merger and acquisition (M&A) specialist at UBS and Donaldson, Lufkin & Jenrette, where Mr. Graham also worked. Previously, Mr. Graham also led the diversified industries team for Morgan Stanley in Canada and worked for Citigroup in New York.

Last year, Rothschild ranked sixth among investment banks for M&A in Europe, advising on 464 transaction, and was 15th among North American banks on M&A, working on 220 deals, according to data service Refinitiv. Rival European banks with significant North American operations include Barclays, while Deutsche Bank, Credit Suisse and UBS have scaled back in the region in recent years.

Rothschild is building out its Canadian team at a time when large Canadian companies and fund managers such as pension plans and Brookfield Asset Management Inc. are using international M&A to build their businesses. The investment bank currently has 10 professionals in Canada.

Rothschild plans to hire Canadian financiers with expertise in M&A for banks and financial services businesses, technology, infrastructure and power companies, and link these local bankers with its international expertise, Mr. Graham said.

“With Rothschild’s strong momentum in North America, along with its continued strength and deep bench of expertise in M&A advisory around the world, I’m honored to have the opportunity to lead and continue to grow the business in Canada,” he said in a release.

Prior to becoming an investment banker, Mr. Graham worked in Ottawa as an adviser to Prime Minister John Turner. He holds an MBA from Western University’s Richard Ivey School of Business and an undergraduate degree from Trinity College at the University of Toronto.

Rothschild has deep roots in Canada, serving as the financier that backed development of the massive Churchill Falls power project in Labrador in the 1960s. More recently, former securities lawyers Gar Emerson and Montreal-based investment banker Daniel Labrecque served as country head in Canada.

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