DEEPER with Brad Skelton >>

FROM my perspective as a mere shipping bloke, my view of what’s happening with mining in Australia and Canada isn’t a crash as some of my younger clients think, it’s actually a ‘normalisation’.

At the risk of showing my age I have been through a downturn or cycle like this before and it’s deja vu for me.

The mother of all mining booms has played out over the last 10 years or so driven by big demand from China, which is still large, however the accompanying investment boom in mining has slowed radically to what I consider to be more normal non-boom dynamics.

Commodity prices are down and while most contracts are written in US dollars, miners in Canada and Australia are suffering from historically high exchange rates when they repatriate their profits. 

On top of that, the OH&S environment is out of control and salaries have been too.

I am not saying safety isn’t important but insane and completely non-commercial things have been going on that only serve to increase production costs and feed the voracious ‘Safety’ industry.

In Australia, sadly, we are seeing lots of people losing their jobs and salaries ‘normalising’ too.

Paying plant operators circa $140,000-plus is simply not sustainable, and anybody on these sorts of salaries surely must have considered this wouldn’t last for them?

From a shipping perspective, the amount of mining equipment moving is well down.

No wonder really with the amount of gear parked up or mothballed currently.

A client in Perth told me there are over 500 mining trucks idle right now in Western Australia.

We are seeing increased exports of equipment which could gain pace if the Australian dollar would normalise too.

 But ... which market in the world could possibly consume this much gear? 

The Depth Logistics Shipping Index for May and June is very telling.

May recorded a 68 percent drop from the previous 12 month high and the index just released for June recorded the lowest import value of equipment into Australia in the history of the index. Only $147 million!

To put this into perspective, some of my clients bigger trucks can cost $4 million each.

I was talking to a mate in Canada (in August). He is very nervous about the Canadian stock market as basically the Canadian index overall is doing well but the miners, who traditionally have contributed greatly to the strength of the index, are not.

He and his buddies are waiting for the correction and with a ‘seemingly’ recovering US economy they think the next move up with US interest rates will be the trigger. Perhaps Australia will be the same?

Meantime, space on ships for my clients is pretty easy to come by and freight rates are still at historically low, 1980s-type levels.

-- Brad Skelton, 2014.

BACKGROUND

Brad Skelton has come a long way indeed from his childhood in Brisbane, when he dreamed of following in his father’s footsteps of owning his own business, while playing with Tonka trucks in the backyard sandpit. Those dreams eventually led him to shipping the real thing, and other heavy cargo, all over the world through his own companies – seeing revenues top $140 million and with 200-plus employees operating in Australia, Japan, New Zealand, Hong Kong and the Netherlands. His ongoing insights and commentary on business experiences have made him known around the world asThe Shipping Bloke. Like most entrepreneurs Brad Skelton has had some setbacks, too, but these have served to provide tremendous lessons along the way and he believes he is a better businessman for those challenging experiences.

Today Brad Skelton is developing, guiding and investing in new businesses under the Depth Industries brand in accordance with the new rules of a truly globalised and constantly restructuring economy. Talking about and helping business leaders to navigate this tumultuous era of business change is his current passion. A past graduate of the prestigious Birthing of Giants programme at MIT in Boston, a current member of the Young Presidents Organisation (YPO), a Fellow of the Australian Institute of Company Directors and a director of companies other than his own, plus a former member and chapter chair of the Entrepreneurs Organisation (EO) in Brisbane, Brad Skelton provides regular astute insights for business leaders on his web log at www.theshippingbloke.com

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DEEPER with Brad Skelton >>

I HAVE been regularly talking about global business changing rapidly and how the internet and modern transportation methods have impacted the landscape of competition for numerous industries. Distance does not matter anymore.

If your overhead structure and prices are not globally competitive you had better get your skates on and make them so before the freight train runs you over.  

To say it again, regardless of international borders, overseas competitors are now able to take you and your company on at home and are doing so.

I follow the McKinsey Global Institute and recently they released a research report with some stats that you cannot afford to ignore. 

Here they are:

  • There was a $26 trillion flow of goods, services and finance in 2012 which is equivalent to 36 percent of global GDP.
  • By 2025 it is estimated that cross border business flow will reach $85 trillion.
  • Global GDP will grow by an estimated $450 billion each year.
  • There was an 18-times increase in internet traffic from 2005 to 2012.
  • About 90 percent of commercial sellers on eBay export their goods to other countries vs 25 percent of traditional businesses.
  • There has been a 500 percent increase in Skype call minutes since 2008.
  • In 2012, China accounted for 12 percent of global trade in goods which was up from 2 percent in 1990.
  • In 2012, emerging economies accounted for 38 percent of the total cross-border flow of goods, services and finance, which was up from 14 percent in 1990.

 

These confirm the trends I have been writing about in this blog for quite some time now about how global competition is developing.

All of the businesses I am growing in Depth Industries are geared to help companies stay globally competitive by accessing the goods and services that will help them not only survive, but prosper in this landscape of truly international competition.

Time to face the brutal fact: International competition is commoditising goods and services more than ever before in history and, whether you like it or not, price is increasingly the driver in the decision making process.

Are you globally competitive and chasing down international markets? If not, why not?

There are some great opportunities if you are rigged the right way.

-- Brad Skelton, 2014.

BACKGROUND

Brad Skelton has come a long way indeed from his childhood in Brisbane, when he dreamed of following in his father’s footsteps of owning his own business, while playing with Tonka trucks in the backyard sandpit. Those dreams eventually led him to shipping the real thing, and other heavy cargo, all over the world through his own companies – seeing revenues top $140 million and with 200-plus employees operating in Australia, Japan, New Zealand, Hong Kong and the Netherlands. His ongoing insights and commentary on business experiences have made him known around the world as The Shipping Bloke. Like most entrepreneurs Brad Skelton has had some setbacks, too, but these have served to provide tremendous lessons along the way and he believes he is a better businessman for those challenging experiences.

Today Brad Skelton is developing, guiding and investing in new businesses under the Depth Industries brand in accordance with the new rules of a truly globalised and constantly restructuring economy. Talking about and helping business leaders to navigate this tumultuous era of business change is his current passion. A past graduate of the prestigious Birthing of Giants programme at MIT in Boston, a current member of the Young Presidents Organisation (YPO), a Fellow of the Australian Institute of Company Directors and a director of companies other than his own, plus a former member and chapter chair of the Entrepreneurs Organisation (EO) in Brisbane, Brad Skelton provides regular astute insights for business leaders on his web log at www.theshippingbloke.com

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EXTRA: PROCLAIMING  products to be ‘Australian made’ is nowhere near enough to win Aussie customers according to a leading local food manufacturer.

Kez’s Kitchen founder and managing director, Michael Carp, has found that even though researchby Roy Morgan shows Australians have become more conscientious consumers of locally made food products, it is hardly carrying through to sales. 

Mr Carp said in his experience, ‘Australian-made’ food brands needed to better understand their customers, know the value of branding, be innovative in their product development, and deliver on promises more than ever.

To fail on those six vital points will see Australian food brands become less competitive and lose market share.

“Consumers may well be more aware that ‘Australian made’ gives them the freshest shelf ingredients, supports local jobs, and helps the economy, but with customers being more committed to buying Australian made, local food brands risk becoming less active in their product development and marketing,” Mr Carp said. “ Being ‘Australian made’ is only one factor among many that influences a customer’s choice to purchase, as well as a buyer’s decision to stock the product on shelves.”

 Mr Carp said local businesses must maximise the advantages of being Australian made.

“A major advantage is easier access to buyers,” he said. “For instance, Kez’s Kitchen recently received confirmation by a major supermarket for five new lines and will have products on the shelves in a couple of weeks.

“If we were importing, we’d lose this lead time in the shipping alone. Always deliver on promises to buyers, because if they’ve had a bad experience with you once, it’s not easy to win them back.”

Having manufactured locally for more than 23 years, and carved a strong market share and buyer loyalty, Mr Carp is well positioned to point out where local manufacturers – particularly the new brands – make their mistakes.

He highlighted six common product and branding mistakes Australian-made companies make: 

1. They don’t offer anything different. Consumers look out for new products that will excite and engage them.

“If ‘Australian-made’ brands offer products that emulate many others produced locally, there’s little motivation for consumers to switch brands,” Mr Carp said. “They will go with a lower cost item or the one they’ve always been buying. Food businesses must remain innovative. An example at Kez’s Kitchen is our development of the Taking Cafe Home range, which unlike other snack products on the market, brings the café experience to your own home.”

2. They focus on price, not quality. Consumers don’t always go for the lowest price shelf item – and the recent research that more Australians are buying locally made regardless of price, is proof.

 “Businesses need to be less concerned about reducing shelf prices and instead focus on producing a product of high quality, with a unique point of difference. A quality product is one that incorporates the best ingredients, is high in taste and texture and sometimes even offers a health benefit,” Mr Carp said

3. They don’t work on their brand. If consumers and buyers know and trust a brand, they’re more likely to buy. But these days, strong brands go further: they tell a story. Brands with a story can better engage customers, and create brand loyalty.

“Many businesses have a great story but don’t tell it,” Mr Carp said. “Ours is the growth of a biscuit business that my sister Kez began in my mum’s kitchen 23 years ago – and we take just as much pride in our products today. If food businesses don’t develop their brand image – whether they have a story or not – they’ll have a tough time reaching consumers, as major supermarkets will be less likely to stock their products. Strong brands can set a higher price and remain confident that buyers and consumers will purchase.

4. They don’t deliver on promises. If your brand and packaging makes bold statements about the products inside, you need to follow through.

“At Kez’s Kitchen, our key brand message is that we’re all about the taste, and we deliver this by producing high-flavour foods that we’re passionate about and consumers know and love. As this is a promise to consumers, we never make sacrifices on ingredients.

5. They don’t invest in packaging. While delivering on promises helps ensure repeat purchases, it’s the packaging that initially draws consumers in.

“Packaging is the most visible part of a food business, and businesses need to invest in research, development and design of the packaging,” Mr Carp said. “The packaging is also the most important platform for telling your brand story.”

6. They don’t adapt to change. Perhaps the easiest mistake is simply standing still.

“Not only are consumer needs and tastes changing, but competitors are getting better at what they’re offering. If you don’t adapt your brand and product you’ll be left behind. In a country as competitive as Australia, we need to get out of our comfort zones to continually improve.”

 

www.kezs.com.au

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Extra research:

1. Roy Morgan research: http://www.australianmade.com.au/media/299171/1309%20Consumer%20research%20summary.pdf

AUSTRALIA risks increasing repair bills from extreme weather events and being unable to access capital for major projects if it does not get its response to climate change right, according to the Committee for the Economic Development of Australia. 

CEDA’s latest report The Economics of Climate Change, warns that the first place Australian governments will feel the effects of climate change is in dealing with infrastructure issues brought on by changing weather patterns.

CEDA chief executive, Stephen Martin said climate change was both an environmental and an economic issue, despite recent comments from senior politicians that seemed to question the latter.

“The undeniable fact is that Australia’s economy will be critically exposed on two significant economic fronts if we do not ensure an appropriate response to climate change,” Professor Martin said.

“The first area that leaves our economy exposed if we don’t take action, relates to the consequences of increasing extreme weather events and the economic and social impact that these events have on Australia’s production capacity.

“We only have to look at the news in recent years, both at home and abroad to see the devastation of these events – Cyclone Yasi, Black Saturday, the Queensland Floods, Hurricane Sandy, Hurricane Katrina and the repeated UK floods.

“Where these events have occurred in Australia they have had a direct impact on industry and on the hip pocket of most Australian’s from taxes used to fund drought relief packages to the Queensland flood recovery levy implemented in 2011.

“While most Australians are happy to help others in need during or following these events, if there are options to reduce impacts before they happen then we should be looking at them now.”

Prof. Martin said a good example of where action could have made a significant difference is Roma, Queensland. Roma has endured several significant floods in recent years.

“If a levee to protect the town had been built in 2005, it would have cost $20 million. However, since 2008 $100 million has been paid out in insurance claims and since 2005 a repair bill of over $500 million has been incurred by the public and private sectors,” Prof. Martin said.

“Statistics show that the number of catastrophic weather events is increasing and the economic losses associated with these events are also trending up which is why we need a national approach to address these risks.

“What Australia requires is a framework for assessing climate risks and considering possible actions that may lower those risks.

“The first step in managing these risks should be the introduction by the Federal Government of a national risk register. This should include strategies to manage risks of adverse climate events both in the public and private sector.”

The second area where Australia stands exposed economically to the effects of climate change relates to the availability of capital to fund its infrastructure and other critical needs.

“Australia is reliant on foreign capital to fund major projects and new developments in international climate change policy are likely to impact international capital flow and investment decision making,” Prof. Martin said.

“Applying climate-related risk assessments when considering investment and financing decisions is an emerging trend globally. This trend is likely to have consequences for nationally significant industries in Australia, such as the resources sector, and associated asset values.

“Australian businesses and governments need to ensure they keep in step with international developments and have the options available to move to less carbon intensive industries and energy sources if we are to remain globally competitive.

“We must invest in research and development to drive technological breakthroughs and have in place regulatory regimes for all energy sources, including nuclear, so that options can be taken up swiftly as technological breakthroughs occur.”

Prof. Martin said these could be undertaken through a ‘direct action policy’ if it was appropriately funded and targeted.

However, he said alone it is still unlikely to be enough to keep us in step with other economies, such as the two biggest – China and the US – who are both pursuing emissions reduction plans and are vitally important to our economy.

“In fact we appear to be one of the only countries trying to wind back its legislative approach to greenhouse gas emissions. Perhaps it’s time for a policy rethink on an emissions trading scheme,” he said.

The report can be accessed from the CEDA website here.

www.ceda.com.au

 

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AUSTRALIA's accounting sector has escaped labour slumps that have plagued other high profile professional sectors in Australia over the last six months, and a modest rise in demand for the profession is being seen as a positive indicator. Image According to the just-released Clarius Skills Indicator, demand for accountants, auditors and company secretaries was largely ‘balanced', rallying in the September quarter with a small surplus of 400 accountants compared with a surplus of 1,000 in the June quarter.

The Clarius Skills Indicator revealed a 2013 "slowdown in mining investment which has now peaked and poor consumer and business sentiment shut the cheque books of business prompting labour demand slides that impaled other sectors".

At this time a year ago, the market cried out for skilled ICT people with a shortage of more than 1,100 professionals. Now it appears to be oversupplied by 1,600 professionals and 200 managers.  

Similarly, demand in engineering slumped from a shortage of 3,000 professionals in September 2012 to an oversupply of 3,200 in the September quarter.

Sales and marketing was the only sector showing a skills shortage, lacking 600 managers.

Paul Barbaro, executive general manager of Lloyd Morgan, a division of the Clarius Group of recruitment companies, said there were small increases in demand for commercial accountants by small-to-medium businesses (SMBs), but these were offset by large companies - especially banks - electing to handle some requirements offshore.

"In a positive sign, there was a slight increase for commercial accountants, particularly with tax and auditing experience, among SMBs especially in Perth and Western Sydney," Mr Barbaro said.

"This was driven by an increased need to review, analyse and better understand their financial viability in the midst of a patchy economy and to stay abreast of tax rules and superannuation changes. 

"On the flip side, banking has been impacted by the cautious economic climate where some bigger players tried to differentiate themselves by keeping staff on-shore, with some actually increasing headcount.

"Offshoring however remained prevalent, particularly among back office administration. At some work sites, back office and non-customer facing contract roles were reduced by up to 90 percent with the majority heading to India."

The Clarius Skills Indicator showed the current surplus of Australian jobseekers of 134,000 greatly exceeded the GFC peak surplus of 90,000. However, focusing on the 10 major occupation categories representing about half of all white collar jobs, or more than four million employees, the oversupply is much smaller at the ‘skilled end' of the market where the surplus is reportedly 17,900.

SALARIES STABLE

Mr Barbaro said salary entitlements across the accounting, banking and finance spectrum had been stagnant through 2013.

According to the Clarius Skills Indicator, the market should expect increased demand for commercial accountants in the second half of 2014 as activity in the housing market ramps up and consumer confidence builds.

The expected abolition of the Carbon Tax and a more business-friendly industrial relations platform under the new Federal Government will also be factors, he said.

"This will become particularly apparent in SMBs where demand for management accountants, fund accountants, tax accountants, business managers and business analysts will become more buoyant," Mr Barbaro said.

"A portion of this activity will be self-correction as business was overzealous in scaling back roles in early 2013 when signs of the mining investment downturn filtered through."

The Clarius report outlined how the Australian labour market had undergone significant swings, driven by the shock and recovery from the GFC.

The Clarius Skills Indicator, previously known as the Clarius Skills Index, is produced in conjunction with Independent Economics, tracking the availability of skilled labour in the entire Australian labour market and providing a forecast for the year ahead.

It draws on data from the Australian Bureau of Statistics and Commonwealth Department of Employment to measure oversupply and shortfalls for 10 major occupation categories, covering approximately half of all ‘white-collar' jobs (more than four million employees).

http://www.clarius.com.au/

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GLOBALLY, economic and trade growth seemed pretty dull throughout 2013. But Australia's Export Finance and Insurance Corporation (EFIC) believes things should finally pick up in 2014.  

According to EFIC chief economist, Roger Donnelly, the US ‘Quantitative Easing' (QE) tapering is expected to mark 2014 but is unlikely to cause an emerging market crisis. However, he said, it could place overextended companies and industries under strain.

EFIC's just-released report, World Risk Developments, which looks back at 2013 and ahead to 2014, pointed out that Australian resource export volumes began to expand rapidly this year as new capacity from the investment boom went into production. However, it is likely to ramp up much further over coming years.

A large medium-term uncertainty for Australia is where commodity prices settle once the supply response to the earlier price boom completes. Commodity prices and the real exchange rate probably have further to fall, which augurs well for the non-resource export outlook.

EFIC is still anticipating a modest world rebound.

"With 2013 proving to be disappointing, most forecasters have shunted their hopes for a global economic rebound into 2014," Mr Donnelly said. "But they have resisted the temptation to forecast a sharp bounceback.

"Most see a return to the historical average of 3.5 percent or a little higher."

Over the longer term, Mr Donnelly sees "QE taper talk" hitting emerging markets. For example, when the US Federal Reserve outlined how tapering was imminent in reports this week, the US stock markets rose, indicating securities markets in the US have already factored in tapering for 2014.

Mr Donnelly said musings by Federal Reserve officials about the scaling-back of quantitative easing caused big sell-offs in various emerging economy financial markets back in May and subsequently until now.

"Some Cassandras even started to worry about Asia-vu all over again," Mr Donnelly said, referring to analytical models seeing another Asian financial crisis.

"In fact, the worst didn't happen, and nor do we think it will in future, because economies have learnt a lesson from the Asian financial crisis and built buffers against capital outflows.


 "Still, it will be important to watch South East Asian companies catering to the domestic market that have reportedly made large unhedged US dollar borrowings in industries like property development, retail and food."

 

Resource exports outpace non-resource exports

Mr Donnelly said it was hard not to see Australian resource exports hold their strength, but in different ways.

"In Australia, resource exports have been outpacing non-resource exports ever since the commodity supercycle got underway a decade ago, and 2013 continues this trend," MrDonnelly said.

"There is, however, a difference this year. Whereas past growth of resource exports was price-driven and volume-constrained, this year it is price-constrained and volume-driven. 

‘Since the commodity supercycle ended, resource exporters are having to absorb price cuts. Yet the large amount of resource investment in recent years has boosted capacity and supported a strong expansion of volumes, particularly of iron ore," he said.

"Resource exports are likely to continue to grow strongly in 2014 and beyond as more and more investments reach completion," MrDonnelly said.

"LNG will expand particularly rapidly, almost four-fold over the next four years."

Though non-resource exports have been struggling, EFIC sees the Australian dollar depreciation since earlier this year, and the likelihood of further currency weakness, will give resource exporters some boost next year.

"The big uncertainty facing Australian exporters into the medium term is how far commodity prices will fall as worldwide supply capacity expands to meet the increased demand that has emerged from ‘Chindia' and other emerging economies," Mr Donnelly said.

"One view is rapidly expanding resource export volumes and prices that plateau well above their long-run average will be perfectly sufficient to enable Australia to pay its way in the world.  The A$ will stay strong, and non-resource exports will stay weak.

"At the other extreme is a view advanced by Professor Ross Garnaut in his just published book, Dog Days: Australia After The Boom. He is much more bearish on resource export volumes and prices, and so thinks non-resource exports will have to make a bigger contribution to the balance of payments, induced through a 20-40 percent fall in the exchange rate."

www.efic,gov.au

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IT IS NO coincidence that senior political and public service figures are prominent at this year's National Small Business Summit in Brisbane this week, July 24-25.

Image
Federal Opposition Leader Tony Abbott will address the National Small Business Summit.

 

Federal Opposition Leader Tony Abbott and current Minister for Small Business, Tourism, Resources and Energy, Gary Gray - who was kept on in those roles when Kevin Rudd became Prime Minister  -- are both speaking at the NAB National Small Business Summit, being staged at the Brisbane Convention and Exhibition Centre.

Mr Gray will close the first day's proceedings and Mr Abbott will deliver his keynote address following the Summit Breakfast on July 25.

Queensland Small Business Minister Jann Stuckey will also present, but perhaps as important to delegates will be the presence of senior public servants including Australian Taxation Office Commissioner Chris Jordan; Australian Competition and Consumer Commission deputy chair Michael Schaper; Productivity Commissioner Warren Mundy and Australian Securities and Investments Commissioner Greg Tanzer.

Peter Strong, executive director of the Council of Small Business Australia (COSBOA) said this was the time for small business owners and operators to be the number one policy issue when it comes to the Australian economy.

"A huge number of votes lay in the balance and policy makers can no longer ignore the needs and issues of more than 2.5 million small businesses around the country," Mr Strong said.

"For too long regulators have refused to give us any leeway and demand that we have the same skills, resources and understanding as a big business. Small businesses are run by real people working to support themselves and their families, and they deserve more careful consideration by our policy makers.

"We implore all of our parliamentary leaders and government representatives to attend this year's summit and hear from small businesses first-hand to gain a greater understanding of the myriad of issues they face."

Mr Strong said the NAB National Small Business Summit brings industry and business representatives, senior politicians and bureaucrats together to keep the issues of small business people on the national agenda, and to ensure they are not overlooked in the lead up to the 2013 Australian federal election.

The Summit also provides small business owners with invaluable networking opportunities, take-home information and ideas, and will showcase the latest small business products and services.

Image
Federal Small Business Minister Gary Gray is expected to make announcements at the Summit.

 

FACE TO FACE WITH FACEBOOK

The Summit Breakfast on Thursday July 25 has been designed specifically for small business owners.

Small businesses wanting to better understand how to use social media will have the opportunity to hear from two of the nation's best social media marketers when

Nick Bowditch, SMB marketing manager at Facebook, and Troy Townsend, co-founder of Tiger Pistol face facts about social media and business.

Mr Strong said small business owners and operators will gain real insights into the world of social media at the breakfast session, themed I'm Liked and LinkedIn, what's next?

"Social media and online marketing are significant areas of opportunity for small business, and we regularly hear that business owners just don't understand how to use social media for business purposes or are just unsure of its potential," Mr Strong said.

"This breakfast session has been designed specifically for people who run small businesses to learn how social media and online campaigns can help grow and promote their business, as well as help engage and communicate with customers.

"Nick and Troy are the best in the business and we're lucky to have them attend and speak at this year's Summit Breakfast. We encourage all the local Brisbane businesses to come along and get a little more social media savvy."

Mr Bowditch has started and sold three online businesses in the last five years, all without a shopfront, staff or having to spend a cent on traditional marketing or advertising.

He was snapped up by Facebook after a representative heard him talk about the future of social media for small business at last year's Summit. Mr Bowditch's focus at Facebook is helping small businesses grow and thrive online.

Troy Townsend has over 10years of experience working in advertising, promotions and social media. Mr Townsend has worked on social media campaigns for some of the world's biggest brands such as NAB, AOL, Kimberly-Clark, Unilever, Pepsi, Subway, Schweppes, American Express and Village Roadshow.

He created Tiger Pistol to allow small businesses to engage with their customers easily, professionally and effectively.

A real life small business case study will also be presented as part of the breakfast session, from Marco Renai, founder and partner of Health Lifestyle Clinic based in Bundall on the Gold Coast. Mr Renai will demonstrate how he uses LinkedIn, Facebook and Twitter to connect and stay in touch with his clients.

http://www.thenationalsmallbusinesssummit.com.au/

http://www.cosboa.org.au/

 

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MANSFIELD QLD 4122