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Mar. 17, 2014

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INTERNATIONAL MARITIME 36 THE JOURNAL OF COMMERCE www.joc.com MARCH 17.2014 By Bill Mongelluzzo production in many industries. "China is still the gold standard," said Julia Hughes, president of the United States Fashion Industry Association. China supplied 49 percent of U.S. tex- tile imports last year, compared to India's 6.6 percent, Vietnam's 6.4 percent and Pak- istan's 4.4 percent. "China is still growing, though at a lower rate than other suppliers as its labor costs rise," Hughes said. China's superior infrastructure also keeps it at the top of offshore manufactur- ing locations in many industries. "The juice is not worth the squeeze to shift sourcing," said Matt Priest, president of the Footwear Distributors and Retailers of America. In 2013, 81 percent of U.S. shoe imports came from China, 10 percent came from Vietnam, 3.7 percent from Indonesia and only 0.8 per- cent from Mexico. Countries with which the U.S. has free trade agreements account for only 1.2 per- cent of its shoe imports, Priest said. The U.S. footwear industry pays $2.5 billion in duties on shoe imports, a hefty bite for an industry with sales of $54 billion. He urged passage of the Trans-Pacific Partnership Agreement to cut duties on footwear. The world still imports 82 percent of its toys from China, even though wages have risen tenfold in the last 10 years. "Toy companies went to China because of infra- structure, factory capacity and its low-cost labor force," said Alan Kaufman, senior vice president of technical affairs for the Toy Industry Association. In addition, it had world-class ports that made shipping much easier than other sourcing locations such as India, where just getting product to ports is a major headache because of poor roads. JOC Contact Peter Leach at pleach@joc.com and follow him on Twitter: @petertleach. WILL ALLIANCES MEASURE UP? For shippers, the mega-alliances carriers are forming come down to one big concern: service reliability WITH CONTAINER LINES forming new ves- sel-sharing alliances or expanding existing agreements, it's possible to dream up all kinds of scary scenarios about the poten- tial impact on shippers. However, ocean carriers' primary goal is to improve their bottom lines by deploying the biggest ships they can to reduce their per-unit costs. "It is all about cost reduction. It's as sim- ple as that," Lars Jensen, CEO and partner in SeaIntel Maritime Intelligence, told the JOC's TPM Conference this month. The alliance scene in container shipping is hot. The G6 Alliance of APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK Line and Orient Overseas Container Line is waiting for Federal Maritime Commission approval of its plans to expand the ship- sharing accord to the trans-Pacific and trans-Atlantic trades. The G6 cur- rently operates in the Asia-Europe and Asia-U.S. East Coast trades. If its expan- sion plans are approved, the G6 will share space on 240 vessels in the major east-west trade lanes. Evergreen Marine agreed in principle to join China Ocean Shipping Co., "K" Line, Yang Ming and Hanjin Shipping, which have been sharing vessels in the CKYH Alli- ance. The new CKYHE plans to begin the expanded alliance arrangement in April in the Asia-North Europe and Asia-Mediter- ranean trades. Cosco and China Shipping Container Line, meanwhile, entered a strategic coop- eration framework agreement in February. Although the two large Chinese carriers haven't released the details or goals of their agreement, it could lead to an alliance-type structure. The pending alliance that has stirred up most of the interest in the industry, how- ever, is the one involving the world's three largest container lines, Maersk Line, Medi- terranean Shipping Co. and CMA CGM. Announced last year, the P3 Network would begin operations in mid-2014 if it receives regulatory approval in the U.S., Europe and China. The carriers would share space on 250 vessels in the Asia-Europe, trans-Pacific and trans-Atlantic trades. It's not the number of ships the alliances will operate that is key to their formation, but the size of those ships, Jensen said. The G6 and CKYH alliances each will operate ves- sels with an average size of more than 11,000 20-foot container units, and the P3 will have an average vessel size of 13,000 TEUs. These large vessels significantly reduce carrier operating costs. Based on the huge vessels of up to 18,000 TEUs the P3 will have, those carriers will be the clear winners in reducing operating costs, Jensen said. Carriers have been ordering large ves- sels for the past decade, and what appeared to be an excellent idea when container vol- umes were increasing rapidly with no end in sight turned into a major problem with the 2008-09 recession. Since 2010, the car- rier industry has experienced three straight years of losses. "It is all about cost reduction. It's as simple as that." "China is still the gold standard."

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