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FedEx trades growth for profits; Norsk Hydro hack presents risk to supply chains


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FedEx trades growth for profits; Norsk Hydro hack presents risk to supply chains

The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains.

FedEx focuses on profitability as revenue growth slows
FedEx Corp. reported fiscal third-quarter revenue growth of just 2.9%, compared to a year earlier. That was the slowest rate for the third-party logistics provider since the second quarter of 2015. The slowdown was widespread across the business with the express parcel segment posting a 1.0% drop in revenues.

The company may have also underperformed its peers with U.S. seaborne shipments that dropped 14.6% year over year in February, compared to an industry average of a 4.4% slide. One explanation may be a focus on profitability. FedEx's EBITDA margin of 11.3% was slightly down from 11.5% a year earlier, but that compares to an average 1.5% year-over-year drop on average in each of the previous seven quarters.

(Panjiva Research - Logistics)

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Norsk Hydro hack might cut into aluminum supply chains
Aluminum producer Norsk Hydro ASA has had a disruption to its production due to a ransomware cyber intrusion. The LockerGoga virus, which had targeted Altran Technologies SA earlier in 2019, is a reminder of cybersecurity risks for supply chains flagged in Panjiva's 2019 Outlook. Ransomware attacks previously had a significantly detrimental impact on A.P. Møller - Mærsk A/S and Fedex in 2017.

Norsk Hydro's supply chain has seen a marked increase in U.S. seaborne imports in 2018, with 34.2% year-over-year growth, which has continued into 2019 despite U.S. tariffs. The company sourced 57.4% of its U.S. requirements in 2018 from Europe. Imports working with Norsk Hydro that may face a disruption from reduced supplies including Eastman Kodak Co., Agfa-Gevaert NV and Southern Lithoplate Inc.

(Panjiva Research - Metals & Mining)

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Bercow's Brexit ruling raises risks, preparatory imports rise
A ruling by House of Commons Speaker John Bercow will likely mean a third vote on Prime Minister Theresa May's Brexit plan will not occur. That increases the risk of a no-deal Brexit in the event Europe's leaders do not ratify a delay to the process at a summit meeting from March 21.

There are signs of a short-term pickup in trade as companies ready their supply chains. British bilateral trade increased 5.1% year over year in January after a 2.4% increase in the fourth quarter of 2018. That was driven by a 6.9% rise in imports, including a 12.0% surge in shipments from the EU by the chemical industry.

Within the chemical sector there were notable gains in imports of organic chemicals from the EU, which jumped 46.2%, as well as pharmaceuticals. More recently the surge in trade may have slowed. Seaborne exports to the U.S. of all products actually fell 11.3% year over year in February.

(Panjiva Research - Policy)

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Perdue's problematic purchase plan needs China bean buy to be all-American
U.S. Agriculture Secretary Sonny Perdue has stated that a trade deal with China could result in a "doubling or tripling" of U.S. agricultural exports within two to five years. President Donald Trump has already called on China to cut its agricultural tariffs. Yet a final deal is unlikely to emerge until at least April.

Tariffs in 2018 have slashed 59.0% year over year from U.S. agricultural exports to China that were worth $7.0 billion in that year. In 2017, oil seeds, including soybeans, accounted for 74.4% — or $12.9 billion — of the total $17.3 billion of U.S. agricultural exports to China. A tripling of total exports would therefore need a similar increase in oilseed exports.

That looks ambitious given China accounted for 48.8% of U.S. soybean exports in 2017. As total Chinese soybean imports were worth $38.1 billion in 2018, a tripling of U.S. shipments would need China to source all its beans from there.

(Panjiva Research - Agriculture)

MSC addresses Lone Star's state of service as CMA-CGM takes market share
MSC Mediterranean Shipping Co. SA and Maersk are enhancing their Lone Star container shipping service, which runs from China and South Korea to the U.S. East Coast, with the addition of an extra vessel to "improve customer experience and schedule reliability." Service enhancements are an increasing area of competitive edge for the container lines.

MSC and Maersk had a 45.1% share of volumes on the route in 2018 and recorded a 4.3% year-over-year drop in volumes in the first two months of 2019. By contrast CMA CGM SA's volumes, which were 21.8% of the total in 2018, have soared 23.6% in the first two months of the year. CMA-CGM has taken market share from Cosco Shipping Holdings Co. Ltd. as well as MSC and Maersk.

(Panjiva Research - Logistics)

ONE beats 2M as Norfolk bucks the national trend
Container handling through the port of Norfolk, Va., and its neighbors climbed 4.3% year over year in February. A 5.0% improvement in imports bucked the national trend of declining volumes. While shipments from China fell 7.0%, there was a marked improvement in shipments from Europe and the rest of the world. The market landscape for imports to Norfolk from outside China and Europe to Norfolk has changed markedly. The volumes handled by Ocean Network Express (owned in part by Mitsui O.S.K. Lines Ltd.) surged 31.9% higher, compared to a year earlier in February, while those handled by MSC and Maersk — combined in the 2M Alliance – dropped by 17.3%.

(Panjiva Research - Logistics)

Christopher Rogers is a senior researcher at Panjiva, which is part of S&P Global Market Intelligence. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

The Supply Chain Daily has an editorial deadline of 7:30 a.m. ET. Some external links may require a subscription. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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