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Europe’s long hot summer impacting supply chains – Industry roundup: 18 August

Drought on the Rhine threatens German economy

Europe's prolonged hot, dry summer is compounding problems in its largest economy, with the water level on the Rhine at a record low, making it too shallow for many ships to pass.

Germany depends on the river for 80% of its water freight. Millions of tons of commodities are moved through the Rhine and shipping disruptions will further impact Germany's economy, already hit by global supply chain disruptions and record high energy costs stemming from Russia's invasion of Ukraine.

Companies have responded by sending fewer goods on more ships, leading to a more congested river. The International Commission for the Protection of the Rhine estimates that low water levels happen, on average, once every 20 years. but the last time the river was this low was just four years ago, in 2018. That year saw German industry lose nearly US$3 billion as goods were unable to reach their destinations, while Frankfurt Airport saw reduced jet fuel deliveries as companies were not able to deliver fuel by boat.

This year, companies are attempting to carry freight aboard trucks instead, although it takes 40 trucks to provide the same capacity as one barge for carrying grain.

Low water levels are also affecting the transportation of coal, which also threatens to affect Germany’s economy. “If there are problems transporting coal on the Rhine, we’ll see shortages at coal-fired power plants in September, and they may not be able to generate electricity,” warns Guido Baldi, a researcher at the German Institute for Economic Research.

Baldi predicts that the combination of a coal shortage and ongoing global supply chain problems — will lead to Germany’s economic output falling 0.5% in the third quarter. “This is particularly problematic now, as Germany attempts to wean itself off Russian gas and needs coal plants as a backup,” he adds. “If the transport of coal is hindered, we’ll see electricity shortages starting in September.”

Utility Uniper has already warned of output cuts at two of its plants that make up 4% of Germany's coal-generated electricity capacity. Costs are also likely to rise for chemicals companies such as BASF and could lead to production cuts.

The Rhine flows from the Swiss Alps to the North Sea via German industrial heartlands, the Rhine is a major route for products ranging from grains to chemicals and coal. It provides a major link between industrial producers and global export terminals in North Sea ports such as Rotterdam and Amsterdam, while canals and other rivers link the Rhine to the Danube, also making it possible to ship to the Black Sea.

Some shippers have reported that low water levels mean they have been loading about a quarter of the regular amount of freight onto ships. More ships are needed to move consignments that would normally fit into a single vessel, adding to freight costs. Shipping companies can usually pass on extra costs to cargo owners, who in turn pass on higher costs to customers.

To alleviate the situation companies are shipping more goods by train as well as truck to offset the shortfall on the Rhine. Germany plans to give the transportation of materials and equipment essential for energy production priority on the country's rail networks should low water levels on the Rhine fall further. Shipbuilders have also been working on vessel designs that can cope with lower water levels.

Business group assesses enlargement of BRICS

Recent reports that the BRICS group of five major emerging economies – Brazil, Russia, India, China and South Africa – is looking to expand its membership to tackle shared challenges has prompted an assessment from the UK’s Oxford Business Group research and advisory team.

At last month’s 14th BRICS Summit in Beijing, China, Russia and India discussed the potential entry of Egypt, Saudi Arabia and Turkey, which are reportedly preparing applications. In June it was revealed that Iran and Argentina had already applied with support from China. In addition, international media has reported that Algeria, Bangladesh, Indonesia, Mexico, Nigeria, Sudan, Syria, Pakistan and Venezuela have expressed interest in joining the organisation.

The business group comments that BRICS expansion could offer emerging markets the opportunity to build new economic synergies. As of December 2021, the five current members accounted for 40% of the world’s population, 25% of nominal GDP at US$16 trillion, 30% of land mass and 18% of total trade flows, while holding a combined US$4 trillion in foreign exchange.

Russia’s invasion of Ukraine and Western sanctions have encouraged China and Russia to attempt to switch from the US dollar as a form of exchange and increase bilateral trade, especially in the all-important hydrocarbons sector.

Since March trade volume in the Chinese yuan and Russian rouble has grown. Yuan-rouble transactions in currency markets hit a daily record high in late July at US$1.2 billion, outpacing euro-rouble trading volumes, while Russia purchased US$6.7 billion in goods from China that month.

Russia is also reportedly looking to buy the yuan, India’s rupee and Turkey’s lira as reserves for its sovereign wealth fund, as these currencies have weakened, and Russia’s energy sales have surged. India’s trade with Russia has also grown, reflecting rising imports of oil. In April India imported 25,000 barrels per day (bpd), the figure increasing to 600,000 bpd in May and June. China and India now account for over 40% of Russia’s total crude oil exports, against a figure of around 21.7% in July 2021.

Some analysts believe the current push for BRICS expansion is driven by China’s wish for a larger footprint in the global economy. While Russia and South Africa support expansion, Brazil and India have shown little enthusiasm. India blocked Azerbaijan’s participation in the most recent BRICS summit and has made clear that it opposes any new members located close to either China or Pakistan.

Nonetheless, concerns over global food security could prompt existing and new BRICS members to create a food exchange including members’ major exports such as Argentine corn, Indian rice and wheat, Russian barley and sunflower oil, Chinese grain and cotton, and Brazilian soybeans (see next story below). Such an exchange could later include other emerging markets’ agriculture products.

Food importers such as Saudi Arabia could then gain greater food security, while opening the door to higher volumes of energy sales. In March the Saudi Agricultural and Livestock Investment Company, a wholly owned subsidiary of the Kingdom’s Public Investment Fund, acquired a 35% share in Olam Agri, a leading global supplier of grains, oilseeds, rice and animal feed.

China turns to Brazil as corn supplier

The ongoing Russia-Ukraine conflict continues to create ripples across many channels of the trade finance industry, including the agricultural sector. China is now taking steps to accelerate its imports of Brazilian corn, bringing on a new supplier of the grain at a time when the war has disrupted trade and tensions with the US are increasing.

Beijing will temporarily waive a key clause which paves the way for Brazil, the biggest exporter behind the US, to ship corn to China in the coming months, according to insiders. This follows a deal in May that guarantees Brazil access to the world’s top grains market.

Until now, China has sourced around 70% of its corn imports from the United States and 30% from Ukraine. The decision to diversify is logical as China already buys most of its soybeans from Brazil.

The agreement signed in May stipulated that the Brazilian government should provide farmers with advice on chemical application and crop management before planting in order to prevent disease outbreaks. China will waive that condition in view of current events. If the rule still applied, it would hamper shipments because it was imposed after planting began. Despite the waiver, China has stressed that shipments with any disease listed as unacceptable by local authorities will be refused.

Even Pay, an analyst at consultancy Trivium China in Beijing, said: “It’s pretty clear that Beijing is looking to smooth the way for Brazilian maize to replace the maize it would typically buy from Ukraine. Beijing is extremely unlikely to seek to cut US corn imports.”

Multinationals “rethink China risk after Taiwan tensions”

Multinational companies are reported to be developing contingency plans in the event of a US-China military conflict after Beijing recently launched an unprecedented series of military exercises around Taiwan.

The intensified planning by business leaders in other developed economies indicates that investors in China no longer consider an invasion of Taiwan to be merely a low probability “black swan” risk to the world’s second-biggest economy.

“There’s a lot of scenario thinking going on,” said Jörg Wuttke, head of the EU Chamber of Commerce in China. “All the way to: ‘What shall we do in case there is a war? Should we close our China operations? How can we sustain our business and overcome possible blockades?

“This little island that was always sort of simmering. . . all of a sudden is perceived in many headquarters like it’s going to be the next Ukraine.

Even before tensions were heightened by the recent visit to Taiwan by Nancy Pelosi, Speaker of the US House of Representatives, multinational companies active in China faced increasing reputational risk and pressure from Washington and its allies to diversify away from the mainland market.

Business leaders said the general lack of response by foreign companies highlighted the lack of alternatives to the world’s biggest consumer market and most important manufacturing base. But some US companies are among those considering moving parts of their operations out of China, threatening economic ties between the superpowers.

Eric Zheng of the American Chamber of Commerce in Shanghai said that for many US manufacturers with global supply chains, the Taiwan crisis added to the “material” impacts of deteriorating US-China relations such as trade tariffs and was compelling them to seriously consider building factories in other countries.

“The popular thinking is ‘China plus one’ or even ‘China plus two’ — meaning China will still be the primary base for manufacturing but you have an alternative south-east Asian country, just in case,” he said.

Ripple links with Japan’s SBI Remit on real-time payments

Ripple, the real-time gross settlement system said that Japan’s SBI Remit will use RippleNet Technology to enable instant money transfers between Japan and Thailand. The new partnership also brings Thailand’s Siam Commercial Bank (SCB) on board.

As part of the arrangement, both SBI Remit and SCB will use Ripple’s enterprise blockchain solution RippleNet to process real-time remittance services. Thai recipients currently use local agents to retrieve cash sent by their relatives in Japan.

“This makes it possible for 47,000 Thai nationals living in Japan to send money home faster. SBI Remit’s customers can use ATMs to instantly send money in JPY (yen) to a recipient’s SCB savings account in Thailand and receive funds in THB within seconds,” Ripple said in its PR.

Announcing the news of the new partnership on Twitter, Ripple underlined progressive crypto regulation and business innovations in Asia-Pacific as significant contributors to the growth of the company in this market.

“With the steady rise of remittance flows, we see Ripple helping us open up new revenue potential for our business and a better overall experience for our customers,” commented Nobuo Ando, Representative Director at SBI Remit, said on the development. Ripple recently issued a report that predicted 76% of financial institutions and 71% of businesses will start using blockchain and cryptocurrencies by 2025.

CoinFund US$300m fund to invest in early stage crypto

CoinFund, the crypto and web3 investment firm set up in 2015 said that it will launch a US$300 million fund early stage web3 venture fund in response to a continuing surge in institutional demand.

The new fund is backed by institutional investors and family offices that include the Teacher Retirement System of Texas, Adams Street Partners, StepStone Group, Accolade Partners, and Theta Capital Management.

Managing Partner David Pakman, who is leading the new fund, said; “In my 30 years in tech, I have never seen a bigger opportunity than crypto and web3. We look forward to working with ambitious and driven entrepreneurs to build a permissionless, decentralised and community-owned internet, rewire the global financial system, and unlock enormous value for intellectual property.”

Standard Chartered launches UAE transition trade finance facility

Standard Chartered Bank has announced the successful closure of the first transition trade finance facility in the United Arab Emirates (UAE) for Lafarge Emirates Cement LLC, one of the region’s largest cement producers in the UAE and a wholly owned subsidiary of Holcim Group.

A release issued by the bank said that the transition finance facility will support Lafarge Emirates Cement with its latest project, a Waste Heat Recovery (WHR) system. The project will reduce the company’s reliance on using electricity from the grid to power their operations, thereby supporting their transition to cleaner power sources in line with Holcim’s target of being Net Zero by 2050. The transaction is in line with Standard Chartered’s commitments to providing US$ 300 billion of green and transition finance by 2030, being Net Zero by 2050 and is also in line with the UAE’s industrial strategy to boost the industrial sector.

The WHR solution is being provided by, one of the largest global players in electricity, natural gas, and energy services with a commitment to achieve net zero carbon emissions by 2045. This is also the first WHR project in the UAE to use Organic Rankine Cycle (ORC) technology.

Wirex adds SEPA Instant and Faster Payments as top-up methods

Digital payment platform Wirex said that it has made it easier for users to top-up and withdraw from their accounts with the introduction of new payment methods. The addition of SEPA Instant and Faster Payments will mean customers in the UK and European Economic Area (EEA) can transfer British pounds and euros more easily between their Wirex and bank accounts.

Wirex has partnered with digital payment infrastructure provider, Modulr, to introduce popular deposit and withdrawal methods, SEPA and Faster Payments, to their UK and EEA users. In addition to the debit/credit card top-up method already offered, this will give customers more flexibility to choose how they wish to transfer funds in and out of their Wirex account, instantly and at no cost.

With more ways to transfer funds in, users can instantly begin buying, holding, exchanging or selling multiple traditional and cryptocurrencies from within the Wirex app. Alternatively, they can then spend these currencies in everyday life at over 80 million locations globally using the Wirex Mastercard.

Pavel Matveev, Wirex’s CEO and Co-Founder said: "Offering additional choice and flexibility with the introduction of new top-up and withdrawal methods puts our Wirex users in charge of their money.  The UK and EEA regions make up the majority of our customer-base, and with SEPA and Faster Payments being widely used, we know that this change will have a huge impact on them."

Additionally, over the coming weeks Wirex will roll out Plaid, an additional, well-known top-up and withdrawal method across the UK, EEA and US regions.

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