November 2016 Industry News


Brendan Bourke new Port of Melbourne CEO

Brendan Bourke has been appointed the new chief executive of the Port of Melbourne Corporation, replacing Nick Easy.

Mr Bourke has been appointed to the role by the Lonsdale Consortium, the entity that has acquired the 50-year lease of the Port.

He comes to the role with extensive infrastructure experience, albeit mostly in roads. He has held senior roles at Transurban Group for many years, including serving as CEO of CityLink Melbourne for almost nine years, as well as former CEO of Queensland Motorways.

He also has extensive experience in banking and is a graduate of Monash University.

“As Australia’s largest container, automotive and general cargo port, the Port of Melbourne is a truly landmark asset and I am delighted to be joining as CEO at this exciting time in the Port of Melbourne’s proud history,” Mr Bourke said in a statement.

“I look forward to leading the organisation and working with all stakeholders to ensure the Port upholds its track record of providing world class facilities and services to industry and being a responsible neighbour within the community.

In a statement, the Lonsdale Consortium thanked outgoing CEO, Nick Easy, for “the important role he has played in the evolution of the Port of Melbourne”, wishing him all the best for the next stage in his career.

The Lonsdale Consortium officially took control of the Port this week.



Boxship price wars need to be 'decent'

A price war in the container shipping freight market is inevitable, but it needs to be a “decent price war”, said CMA CGM vice-chairman Rodolphe Saadé at the Danish Maritime Forum in Copenhagen.

New ships entering the global fleet intensify competition for cargoes, forcing owners to lower their rates to attract business, he said. While this is understandable, it is ultimately detrimental to the industry.

“Bringing rates all the way down is not the answer,” he said. Such undercutting “is not what our industry is about”, he said, adding that any price war “needs to be decent”.

Container carriers worldwide will record a collective operating loss of $5bn this year, according to shipping consultancy Drewry.

The state of the industry will usher in more consolidation, Mr Saadé forecast.

Hanjin’s misfortune was “a pity” but it is a fate that could happen to other container shipping companies in the current difficult market, he said. To combat the tough market, owners need to get costs down, he advised.

In addition, creeping digitalisation of shipping operations is a prime opportunity for owners to take significant costs out of their businesses. “It is difficult to say how much, but I believe we are talking about a lot of money,” said Mr Saadé.

Some estimates suggest 30%-50% of costs related to documentation could be cut through digitalisation.

Who's owed the most out of thousands of Hanjin creditors


Thousands of creditors of bankrupt Hanjin Shipping face taking huge losses as liquidation looms for the South Korean shipping line. And for some smaller suppliers caught up in the crash, it could spell the end of the road.

Alphaliner has analysed a provisional list of 2,998 trade creditors, released by the court receiver on 10 October, with claims totalling $800m. It noted, however, that the number of creditors and the total liability were likely increase, given that the claim reporting period only expired yesterday.


The top three registered creditor types by value are: shipowners (owed a combined $230m); container terminals and stevedores ($182m); and container leasing companies ($67m).

The list also includes bunker suppliers, rail and trucking companies, shipping agents, P&I clubs, crewing agents, container depots, pilots, tug operators, shipbrokers and consultants. There is also another list of individual creditors, including ship lessors and charterers, as well as banks and lending institutions, which lift the total debt to around $5bn.

A claim inspection period will last until 15 November, and the receivers will submit a rehabilitation plan to the Seoul District Court by 23 December.

However, plans announced last week to sell its Asia-US network and the approval this week to shut European offices, including the regional headquarters in Hamburg, suggest that not much will remain of Hanjin Shipping to salvage. And given the massive debt mountain Hanjin had accumulated, creditors will be lucky to receive 10 cents per dollar after the liquidators finish unravelling claims and counter claims and various legal challenges.

Shipowner Seaspan Corporation tops the list of individual creditors, with $41.6m of unpaid charter hires and charter party defaults. And Greek shipowner Danaos, obliged to cut its charter rates on vessels leased to Hyundai Merchant Marine and also caught up in Zim’s debt-for-equity reconstruction, has submitted claims for some $35m.

However, the largest amount owed to a containership-owning group is some $58m, to Conti Reederei, comprising accounts for 12 German KG funds.

The merged container and chassis leasing group Triton TAL has the unwanted honour of heading the asset-leasing creditor list with debts of around $17m, followed by Textainer, which is owed approximately $13m.

The list of terminal operators is topped by more than $30m owed to Total Terminals at Long Beach, California, of which the carrier was a majority shareholder. And feeder operators were also hit: X-Press Feeders claiming around $3m and Unifeeder just under $2m.

Hanjin’s membership of the CKYHE alliance at the time of its collapse, and the extensive slot swapping now common in liner shipping, resulted in Evergreen heading the creditor list of carrier and feeder operators, being owed over $7m, followed by K Line, claiming $5m.

Meanwhile, bunker and fuel suppliers seem to have been extending credit to Hanjin by much longer than the industry norm of 15 days, resulting in World Fuel Services being owed over $20m, with Glencore claiming $10m.

The collapse of Hanjin Shipping dwarfs the last major carrier failure, in 1986, when United States Lines (USL) filed for Chapter 11 protection. The US-flagged carrier, which owned most of its 40-50 ships, had a list of creditors that ran into hundreds rather than Hanjin’s thousands. USL was not formally liquidated until 1992 – some six years later – when creditors received little if anything against their debt, especially after legal costs.

Prospect of higher spot rates puts pressure on shippers for 2017 contract talks


Shippers and carriers start their Asia-Europe 2017 contract negotiations against a background of higher spot rates than a year ago, and according to the latest freight rate forecast by Drewry, “the direction will now be up for rates”.

Indeed, today’s Shanghai Containerized Freight Index (SCFI) recorded a 25.9% surge in spot rates for North Europe and a 41.2% leap for Mediterranean port rates, further ramping up the pressure on shippers. This suggests that ocean carriers have succeeded in implementing a reasonable quantum of their GRI (general rate increase) and FAK (freight all kinds) rate adjustments.

The “corner has been turned” according to Philip Damas, director and head of Drewry’s supply chain advisors practice, and he noted that in the last six months there had been a “significant correction of freight rates” from the all-time unsustainable lows of March and April.

“The environment is very different to a year ago,” said Mr Damas, suggesting that the so-called ‘Hanjin effect’ and the subsequent ‘flight to safety’ by nervous shippers was playing a part in the firming of rates on a number of routes.

However, Mr Damas also admitted there was a paradox while the supply-demand fundamentals of the container liner business remained way out of kilter, with chronic overcapacity still plaguing the industry.

Moreover, a further 1.7m teu of newbuild capacity is scheduled to hit the water in 2017, following the 1.2m teu added this year.

Nevertheless, Drewry said it had also detected a change in behaviour by carriers – who, and not least their shareholders, were as equally shocked by the sudden demise of the world’s seventh biggest carrier – to endeavour to rebuild their balance sheets, after years of losses that have left many shipping lines worryingly over-leveraged.

The impact of the rock bottom spot market on 2016 contract rate negotiations was significant. Drewry calculated that contract rates declined by some 40% between the third quarter of 2015 and the third quarter of this year.

This was evidenced by third-quarter operational numbers released by OOCL -although the Hong Kong-headquartered line carried 14% more containers on the transpacific route in Q3, compared with the same period last year, the carrier’s revenue slumped by 18%.

Over the first nine months of the year, OOCL carried 5.4% more containers on its ships, 4.4m teu, but its revenue tanked by 15.8% to $3.4bn – a toxic mix that would splash red ink over the accounts of even the most highly efficient and astute of carriers.

Elsewhere, Patrik Berglund, chief executive of freight rate benchmarking platform Xeneta, reported that large volume shippers seeking long-term contracts with carriers were finding difficulty in renewing deals at the bottom of the current market, where, he says, “many of the older, expiring long-term contracts now sit”.

He added: “This should wave a red warning flag to any shipper tendering/bidding for new long-term rates in January, the European norm, and next May, the US standard.”

And one carrier source told The Loadstar  his sales team had been instructed to “walk away” from renewing Asia-North Europe long-term volume contracts if the BCO would not accept a substantial rate hike.


Leg up for VGM


With the new Safety of Life at Sea regulations on verified gross mass (VGM), accurately and efficiently weighing containers has become an issue for many shippers, but these new requirements have prompted development of new ways to weigh containers.

One such method was developed by New Zealand company Bison Group in the form of its “Bison C-Legs”, which allow containers to be weighed without removing them from a trailer chassis.

These “legs” are self-contained scales that attach to and lift a container just clear of the chassis, which then transmit the gross container weight via Bluetooth to a smartphone application. The application then confirms the container’s weight distribution, captures snapshots and shipment details and sends weight certificates and data via email.

The “legs” are compatible with all sizes of shipping containers up to 35,000 kilograms and they function with both air and spring suspension chassis.

More consolidation among container lines better for shippers

After the supply chain havoc caused by Hanjin Shipping’s collapse, and with an alliance reshuffle on the horizon, should shippers be hoping for further carrier consolidation? Or will the new alliance structure create more stability?

Next April, the four major container shipping alliances – the 2M, Ocean Three, CKYHE and G6 – will become three, in the shape of the 2M (or 3M), Ocean Alliance and THE Alliance.

However, according to McKinsey & Co Shanghai partner Steve Saxon, more consolidation, rather than new alliances, would provide greater benefit to shippers. “Shifting alliances have not had much impact for shippers and, if anything, has been negative as the alliances have complicated their operations and commoditised product which has led to service decline,” he said at TPM Asia in Shenzhen this month.

“Whereas consolidation has the potential to benefit lines, the industry, and shippers. Although there are some risks too,” he added.

Outlining an argument based on what shippers want versus what they currently receive from carriers, Mr Saxon said common complaints included “problems from lower freight rates; a widening gap between services expected and received; more complicated operating environments; service unpredictability; more complicated inventory planning; communication gaps; and cost cutbacks”.

But Mr Saxon added: “However, many argue that dissatisfaction from shippers is somewhat churlish – because if you look at how much they and their customers have benefited from the industry competition and lower freight rates, it’s arguably a staggering $23bn between 2010 and 2015.”

On the other hand, he said, shippers wanted transparency, reliability, a decent choice of carrier, product and service and stable prices, instead of wild swings in rates.

Had previous alliances assisted with this outcome? “Well, not with rates. Alliance partners happily remained fierce competitors and were prevented from cooperating commercially. We’ve therefore seen wild rate swings with the oversupply in capacity.

“Arguably, the biggest negative of alliances has been commoditisation of services, which has led to competition based only on price.

“When you’re sharing capacity and launching common services, it’s incredibly hard to differentiate that service; you can’t be faster or more reliable, and you can’t have quicker inland transfers because your boxes start turning up at all sorts of other terminals,” said Mr Saxon.

He argued that, instead of the new alliances leading to more stability, larger groupings would in fact create more operational complexity. However, he also claimed that carrier consolidation via M&A activity and corporate exits led to better carrier performance, as bigger carriers achieve higher margins through larger economies of scale. Larger carriers can provide shippers with better price savings, more choice in services, and a more stable industry with fewer wild rate swings and more predictability.

He added: “There are also synergies in container line mergers. Publicly announced synergies from recent mergers have been anywhere between 2-6% of the cost base of the line’s density.

“This is pretty substantial for an industry with zero or negative margins. So the cost savings achievable through synergies has been, and continues to be, a large driver for consolidation.”

Carriers targeted for acquisition should not feel defeated, Mr Saxon said. “In many cases it’s a victory. If you look at the stock market performance of the acquirers versus the acquires over the past 15 years, mergers have added 10% to the acquired company’s stock but subtracted 4% from the acquirer’s stock.

“So I would say to any carrier ‘you don’t have to be going for glory and shaping this industry, you can be delivering higher value to your shareholders by readying the company for a great sale’.”

However, Mr Saxon cautioned that further consolidation would need to be monitored in terms of carriers adopting monopolistic practices. “But we’re a long way away from that, and competition authorities will be watching closely,” he said.

DP World to push ahead with Burnie terminal


Stevedore DP World has announced plans to push ahead with an ambitious container terminal at Burnie on the north coast of Tasmania.

This is despite the lack of change to Australian coastal shipping laws, which were previously a precondition of building the terminal when first publicly proposed a year ago.

According to a statement from DPWA and Tasports, the parties are fully committed to the Memorandum of Understanding to build the facility, albeit it is to be open purely to international volumes initially.

The stevedore is expected to spend $75m in plant and development, with international container ships being handled at Burnie as early as November 2017.

DPWA says the terminal could cut containerised freight costs to key destinations by more than 40%, as well as boosting international trade and providing access to new markets as well as better freight choice for Tasmanian exporters.

Tasports and DPWA propose an initial minimum $20 million staged investment in new port infrastructure and terminal capacity enhancements.

Key features of the project include:

  • Able to handle 200,000 TEU a year;

  • Refurbishing the existing ship-to-shore crane;

  • Providing an additional ship-to-shore crane;

  • Developing the container yard for general and refrigerated containers;

  • Integrating the yard with the existing rail terminal; and

  • Providing yard container handling equipment.

The stevedore has referred to about 40 new jobs being created at the start of the project and a $10m a year economic boost for north-west Tasmania. Tasports chief executive Paul Weedon welcomed the renewed DPWA commitment, noting Burnie is a strategic piece of port infrastructure for Tasmania. “Tasports’ 30 Year Port Plan clearly identifies Burnie as the State’s future largest natural gateway for container freight into and out of the state,” Mr Weedon said.

DPWA managing director and chief executive, Paul Scurrah, said the business was committed to connecting Tasmania with the global economy.

“Tasmanian exports are set to grow as soon as we can get direct shipping connections to major international ports, and the cities of Sydney, Brisbane and Perth,” Mr Scurrah said. “The project is fantastic news for Burnie, the local economy and its citizens. We are proud to be associated with the town.”

DPWA chief commercial officer, Brian Gillespie, said greater access to international container services would slash shipping costs for both export and import containerised goods.

Mr Gillespie said the company would recruit a new workforce with 40 new positions (required at launch).

“There is a firm proposal on the table being negotiated in good faith between the two parties which is commercial in confidence at this point,” he said.

The Port of Burnie was chosen as the most suitable location in Tasmania for its deep water port with direct sea access, enabling it to cater for large ships in the decades ahead. Burnie is also directly connected to an intermodal rail facility which will allow containerised freight to be railed safely and efficiently to Launceston and Hobart.

Direct shipping access to global markets has been a strong theme in Tasmania in recent years as the small state seeks to revitalise its economy. A push for more trade with China was highlighted some years ago with a visit to Hobart by Chinese President Xi Jinping two years ago.


Brexit with no trade deal will prove more expensive for EU exporters


European exporters have more to lose than their UK counterparts if the country leaves the EU without a freetrade deal in place, according to a new report by Civitas.

Analysing potential tariffs under World Trade Organization terms, the think-tank found that European companies seeking access to the UK market would be liable for £12.9bn a year, more than double the £5.2bn cost for the UK’s access to the continent.

Report author Justin Protts said the figures were a reflection of the current balance of trade between the EU and the UK.

“As a net importer of EU goods the UK government would potentially collect over twice as much in tariffs on EU goods than would be levied on UK goods going to the EU,” he added.

“It is unlikely, however, to provide much comfort to a British exporter facing higher costs to learn that, overall, the UK is a net ‘winner’, or to be told that his overseas competitors are left in an even worse position.”

German exporters would be the biggest losers, with a potential tariff barrier of around £3.4bn, while French and Irish firms would be billed £1.4bn and £1.3bn respectively. Comparatively, UK exporters would face access tariffs of £900m for Germany, £700m for France and £800m for Ireland.

“This again highlights the fact that the remaining EU nations, not just the UK, have a great deal to lose if a deal is not struck to continue free trade across the continent,” said  Mr Protts.

MD of UK-based forwarder SLi Richard Triolo said the negotiation of new trade agreements, equivalent to those in existence, were unlikely to be ready in time for Brexit. Thus, joining the European Free Trade Area would ensure continuity and stability.

“Simplified import procedures for customs controls and import duty rates post-Brexit are vital to encourage continued UK-EU trading, while other trade avenues and agreements are explored and established,” he added.

The report found that car manufacturers would pay the highest absolute costs. EU carmakers would need to stump up £3.9bn for UK access – of which Germany would take the lion’s share of £1.8bn – while UK firms would face a £1.3bn bill.

However, Mr Protts said it was important to look at percentages, with high absolute costs potentially just reflecting higher sales volumes. Using this formula, the report suggests dairy exporters from both sides would be significantly affected, with EU and UK exporters facing tariffs of 39.9% and 39.4 % respectively.

“These tariffs would be a cost that would be damaging to both UK and EU exporters,” said Mr Protts. “They should put pressure on both sides in the negotiations to achieve a deal that is in the interest of their own economies.”

Meanwhile the EU’s free-trade deal with Canada – which UK businesses have said would be a good basis point for a post-Brexit trade deal with the EU –remains in doubt after it was rejected by Wallonia in Belgium. If Belgium cannot get the region to agree to the deal today, Thursday’s EU-Canada summit will be cancelled.

Chinese imports growing faster than exports as consumer market grows

China’s container imports are growing faster than exports, as it shifts to a consumption-led economy.

According to Brian Jackson, senior economist at IHS Markit Beijing, China will leap from representing one-third of total consumption in Asia to two-thirds over the next 20 years. “Even though China’s slowing down, it’s completely impossible to ignore it, no matter what part of Asia’s economy you’re looking at; consumption, trade, and even industry,” he told delegates at TPM Asia in Shenzhen last week.

He added: “Industry is the biggest part of China’s slowdown at the moment but it still accounts for two-thirds industrial output in Asia.”

He said industry was still growing faster than trade, despite the slowdown, and that this industrial growth was focused on domestic consumption in China.

“By comparison, we see industry in ASEAN growing slower than trade. There’s very rapid import growth for processing domestically and then exporting the processed manufactured goods, especially to China

“It is the number-one reason why Vietnam is growing so quickly, for example, and yes the US is a large source of demand – but another very large source of demand is China.

“China is the first or second-largest source of exports for most ASEAN countries. Chinese consumption is going to be a major boom for these economies and drive faster-than-average export growth.”

The opposite is the case in China, according to Mr Jackson, because consumption is causing imports to grow much faster than exports.

He said that despite the focus on domestic consumption and services, in recent years China had signed a number of free trade agreements and was “very much one of the strongest proponents of free trade in the world at the moment”.

He added: “China is also going to be more and more open to the idea of import consumption because the government doesn’t like the idea that it has tens of millions of people going abroad and spending around $150bn on retail sales every year.”

Chinese retailers are being encouraged to import goods and sell them locally, as the government would prefer to create retail jobs domestically rather than in Singapore or Hong Kong. Michel Looten, maritime director at Seabury, said that while China’s trade had slowed significantly, it remained the “backbone” of the container industry, and stressed, like Mr Jackson, that imports were likely to continue rising.

“It’s something we can’t stress enough – in container shipping it’s all about China,” said Mr Looten. “China is a heavy lifter in terms of GDP, population and, especially, in ocean trade; its relatively low share of container imports indicates opportunities for further growth.”

He said one in every two teu transported globally had touched China in 2015. The country accounted for 32% of global container exports last year and its imports of 12.9m teu represented 10% of global container volumes.

NYK, MOL and K Line to merge container shipping businesses to form world's sixth largest carrier


Japan’s big three shipping groups – K Line, MOL and NYK – have agreed to spin-off their container shipping businesses into a new joint-venture company with a total capacity of 1.4m teu, which would rank as the sixth largest in the world and have a global market share of approximately 7%.

A joint statement released today said the deal was subject to shareholders’ agreement and regulatory approval with a planned establishment of the new company scheduled for 1 July 2017, and the target for business commencement set for 1 April 2018.

“The three Japanese companies have made efforts to cut cost and restructure their business, but there are limits to what can be accomplished individually,” explained the statement.

It added: “Under such circumstances, we have decided to integrate our container shipping business so that we can continue to deliver stably high quality and customer focused products to the market place.”

The three companies all operate portfolios of diversified enterprises that include: bulk shipping, car transportation, LNG, tankers, offshore, energy heavy lift and air cargo transportation.

It has been agreed that the shareholding of the container line joint venture will be: K Line 31%, MOL 31% and NYK 38%, with a total contribution of Y300bn, including fleets and share of terminals, but will exclude terminal operating business in Japan.

According to, NYK owns the largest container fleet, with 68 vessels providing a total capacity 507,046 teu, valued at $2.33bn; followed MOL, with 35 ships for 307,449 teu, valued at $1.7bn, and third K Line, which owns 31 containerships with a capacity of 240,440 teu and a value of $1.2bn.

Including current chartered-in tonnage the total number of ships operated by the joint-ventrue would equal 256 vessels earning a cumulative annual revenue of Y2.04trn.

And according to Alphaliner data the merger of Hapag-Lloyd and UASC will lift the German carrier to fifth in the world rankings at 1,479,968 teu capacity, behind the merged Cosco and CSCL at 1,560,999 teu, with the proposed Japanese grouping taking the sixth spot with 1,369,728 teu.

A factor in the decision to merge their container activities is that the Japanese carriers will all be members of the new THE Alliance east-west vessel sharing grouping from April next year, which makes the integration significantly less complex.

Moreover, the Japanese shipping groups have a close relationship that stems from their “common corporate culture” with senior executives and operational management naturally familiar with their counterparts at the other companies.

In the past few years container liner shipping has been a problem child for all three of the Japanese trio as they have found themselves increasingly unable to match the economy of scale unit benefits enjoyed by the big three of Maersk Line, MSC and CMA CGM.

Furthermore, the raft of container M&A activity in the past year – with of CMA CGM’s acquisition of NOL, Hapag-Lloyd’s merger with UASC, and the merging of the two Chinese state-owned lines – has widened the gap in this sector and proved a drag on consolidated group results for the Japanese companies.

Indeed, second results for the period April to September were also released today with K Line recording a $499bn loss and NYK reporting a massive $2.2bn deficit after opting to take a huge impairment hit on the value of its ships.

MOL actually managed to record a profit of $158m in its second quarter, but this was mainly supported by one-off gains from the disposal of associate companies.

After the bankruptcy of Hanjin Shipping and the merging of the Japanese trio THE Alliance will be streamlined into three carriers: Hapag-Lloyd, Yang Ming and the newco Japan carrier, thus overcoming the “too many cooks” criticism that has previously been levelled by analysts at the grouping.

The passing of King Bhumibol Adulyadej of Thailand


King Bhumibol Adulyadej of Thailand passed away on the afternoon of October 13 after an extended period of hospitalization. Prime Minister Prayut Chan-o-cha announced the King’s passing in a televised announcement on the evening. The PM stated that mourning will last one year. Flags will fly at half-mast for 30 days, and no festive activities will be held for 30 days. The PM also noted that the government will proceed with the succession, with Crown Prince Maha Vajiralongkorn succeeding King Bhumibol. However in the following days it was announced that the Crown Prince wishes to mourn with the people the King's passing first for 1 year before his succession. Until this the country is under the Recency of the head of the Privy Council members, General Prem.




The king’s death is a highly emotional event for the Thai people, most of whom have known no other monarch. The king has been a constant amid the tumultuous economic, political, and social changes the country had undergone throughout the seven decades of his reign, and as a result is widely revered as the nation’s ultimate repository of moral authority.




The economy might slow down somewhat during the initial phase of the mourning period, which is to last 100 days. Most celebratory events have already been cancelled, and it is likely that many entertainment venues will be temporarily shut or open reduced hours only. In his announcement last night, PM Prayut requested that economic activity to proceed as normal.



Open political manoeuvring is unlikely to occur, as doing so will be perceived as disrespectful of the monarchy. Similarly, the possibility for an outbreak of political violence is remote.


Policy making will be likely be tempered, at least at the outset of the initial mourning period. Engagements with government officials and ministers on substantive issues should be put on hold, lest such attempts be viewed as insensitive.


Aussie Bank's 7000-Mile Blockchain Experiment Could Change Trade

  • Commonwealth, Wells Fargo unveil technology for shipments

  • Trade finance “ripe for disruption”: Commonwealth’s Eidel

  • When the Marie Schulte rounds the breakwater off the Chinese port of Qingdao in early November, bankers on two continents will be watching anxiously.

  • In particular, they’ll be focused on 88 bales of cotton worth approximately $35,000 that the container vessel is carrying -- not because of the value of the goods, but because of the technology attached to the shipment.

  • Unloading the goods at the end of their 7,000-mile journey from Houston will mark the final stage of an experiment by Commonwealth Bank of Australia, Wells Fargo & Co. and the trading firm Brighann Cotton to prove for the first time that the combination of much-hyped technologies -- blockchain and smart contracts -- can deliver real-world benefits.

As port staff scan the bales, an update to an electronic contract will be triggered, transferring ownership of the goods and authorizing the release of payment. The deceptively-simple sounding process is only possible because digital-ledger technology encrypts and stores the parameters of the contract, ensuring all parties are working off the same synchronized version, which cannot be unilaterally.

When the Marie Schulte rounds the breakwater off the Chinese port of Qingdao in early November, bankers on two continents will be watching anxiously.

In particular, they’ll be focused on 88 bales of cotton worth approximately $35,000 that the container vessel is carrying -- not because of the value of the goods, but because of the technology attached to the shipment.

Unloading the goods at the end of their 7,000-mile journey from Houston will mark the final stage of an experiment by Commonwealth Bank of Australia, Wells Fargo & Co. and the trading firm Brighann Cotton to prove for the first time that the combination of much-hyped technologies -- blockchain and smart contracts -- can deliver real-world benefits.

As port staff scan the bales, an update to an electronic contract will be triggered, transferring ownership of the goods and authorizing the release of payment. The deceptively-simple sounding process is only possible because digital-ledger technology encrypts and stores the parameters of the contract, ensuring all parties are working off the same synchronized version, which cannot be unilaterally altered or tampered with.

This assurance allows the various phases of the transaction to be coded into the smart contract, and triggered automatically when certain conditions are met, without the need for a long-winded paper trail and human authorization. The experiment offers a glimpse into how transactions might one day be managed in the $4 trillion trade-finance industry, a global business that’s been in the spotlight in recent years owing to high-profile fraud cases.

“This is a truly innovative step,” said Scott Farrell, a Sydney-based partner at law firm King & Wood Mallesons who sits on the Australian government’s financial technology advisory body. “This experiment turns up the dial,” he said in a telephone interview.

While other banks have researched blockchain solutions for trade finance, Commonwealth Bank and Wells Fargo appear to be the only ones to publicly announce a real-world transaction for one of the most cumbersome processes in global finance. Reams of paper, faxed statements and multiple contracts typically follow the movement of goods around the world through the hands of exporters, shipping companies and importers -- and all of these must be kept synchronized.

As well as the risk of human error, the process is also highly vulnerable to fraud. Qingdao, where the ship will dock, was at the center of a multi-billion dollar scam in 2014. The Chinese government discovered that firms were taking advantage of inefficiencies in the paper-based system to use the same stockpile of metals to secure multiple loans.

“Trade finance is one the most clunky processes in business,” Michael Eidel, head of transactions at Commonwealth Bank, said in an interview at the bank’s office in Sydney. “It is ripe for disruption.”

It could take a while before the technology takes off and transforms trade finance. The “scalability and interoperability of different blockchains” is still something that needs to be further explored, Eidel said. Chris Lewis, Wells Fargo’s head of international trade services, said “significant regulatory, legal and other concerns” need to be addressed.

For future iterations of the technology, Commonwealth Bank is looking at widening the number of participants to include insurance companies as well as opening up to other banks and clients, Eidel said, declining to give any timeframe for rollout.

CBA and Wells Fargo, which is based in San Francisco, aren’t the only banks actively experimenting in this area. Globally, Greenwich Associates estimated that the annual budget for blockchain initiatives hit $1 billion this year.

For a snapshot of the blockchain initiatives some Asian banks are exploring, click here.

The two are among the more than 50 global financial firms affiliated with the R3 consortium, which is developing blockchain applications for use in financial services. Barclays Plc, a member of the consortium, earlier this year said it had been testing the use of an R3 distributed ledger in developing smart-contract templates that would simplify legal documentation.

Two other members, Bank of America Corp. and HSBC Holdings Plc, are currently working with the Singapore government on a distributed ledger that enables paperless letters of credit for trade finance.

The number of different banks working on blockchain initiatives underscores the challenge for the widespread adoption of any new fintech application: getting players in a highly competitive and secretive industry to agree on common standards in using the same platforms.

“Absolutely trade finance is going to move this way,” Jonathan Perkinson, who leads Deloitte’s payment advisory practice in Sydney and is part of the professional services firm’s global blockchain initiative. “Really the question becomes how quickly the sector can align to one solution.”

Free trade agreement amended


FEDERAL trade minister Steve Ciobo has announced the signing of an amendment to the Singapore-Australia Free Trade Agreement (SAFTA).

The deal was signed by Mr Ciobo and his Singaporean counterpart Minister Lim Hng Kiang and is said to be an important part of Australia’s Comprehensive Strategic Partnership with Singapore.

Mr Ciobo said Singapore had given Australia its best FTA treatment, putting Australian exporters on an equal or better footing than foreign competitors.

“Complementing existing tariff-free entry for goods, the updated rules of origin will simplify administration and reduce the compliance costs for traders using the Agreement,” he said.

A framework is also being developed to support mutual recognition of professional qualifications.

SAFTA is also expected to reduce so-called ‘red tape’ for investors from Singapore.

The amended SAFTA is expected to build on the FTAs the government concluded with China, Japan and South Korea.

“The Turnbull Government is pursuing an ambitious trade agenda, and more free trade agreements, as part of our national economic plan to create jobs and economic growth,” he said.

Australian border controls


The Australian Border Force (ABF) targets both imported and exported goods, considered to be at high risk of containing asbestos. A list of high risk goods is available from the Department of Immigration and Border Protection’s (the Department’s) website

Any unauthorised goods found to contain asbestos will be seized and the importer may face penalties and/or prosecution.

Ensuring the goods do not contain asbestos

It is the responsibility of importers and exporters to ensure they do not import or export prohibited goods such as asbestos. Should the ABF suspect goods arriving at the border contain asbestos, the goods will be held and examined.

Importers should be aware of the increased risk of goods containing asbestos when sourced from countries that have asbestos producing industries. Goods which are manufactured in the same factory that produce asbestos containing goods are considered high risk due to possible cross contamination. Importers should not assume goods labelled “asbestos free” are in fact free of asbestos or that testing of goods undertaken overseas certified “asbestos free” meet our border requirements. Some countries can lawfully label or test goods declaring them asbestos free if they are below a certain threshold.

To ensure that goods which are manufactured overseas do not contain asbestos, importers should enquire to overseas suppliers about the use of asbestos at any point in the supply chain. Importers are also encouraged to investigate, and where appropriate implement:

• Contractual obligations with their suppliers specifying nil asbestos content

• Testing for asbestos content prior to shipping the goods to Australia

• Regular risk assessment and quality assurance processes, that take into account:

o what raw materials are used in the manufacture of the goods

o where overseas manufacturers source their raw materials

o identifying and subsequently minimising asbestos-risk activities at the point of manufacture

The importer may be required to arrange testing and certification by a ‘competent person’ to ensure the asbestos content is nil. The arrangement and cost of any independent inspection, testing and storage of the goods is the responsibility of the importer/exporter in Australia in accordance with Section 186 of the Customs Act 1901 (the Act).


Due Diligence


Importers and customs brokers must be aware of Australia’s asbestos import prohibition. Before goods are imported to Australia, importers must have adequate assurance that the goods being imported do not contain asbestos. This can be achieved by engaging with their overseas suppliers early and confirming that asbestos was not used in the supply chain. Importers must not assume that goods contain nil asbestos content.

The ABF expects importers to undertake adequate assurance measures to demonstrate that the goods they are importing that are known to be at risk of containing asbestos, or goods supplied from countries with asbestos producing industries, do not contain asbestos


Company Letterhead

(MUST be issued by the manufacturer or supplier of the goods and MUST include the company’s name AND address)




Vessel Name:……………………………………… Voyage Number:………………………………..



We understand that Australian legislation prohibits importation of materials containing any asbestos and that there is NO TOLERANCE permissible for any amount of asbestos material, no matter how slight and that significant penalties apply for any infringement.


The GOODS covered by order number 000000, and invoice number 000000 contain ZERO asbestos materials.





Signed: ............................................................ Printed name:..............................................

(Company Representative)


Date of issue:..........................................