ApprovedBusinessBusiness and finance

Logistics companies fear the return of hard borders

DURING the day, Leipzig’s airport is quiet. It is at night that the airfield comes to life. Next to the runway a yellow warehouse serves as the global sorting hub for DHL, a delivery firm owned by Deutsche Post of Germany. A huge extension, which opened in October, means it can sort 150,000 parcels each hour, says Ken Allen, DHL’s CEO. It was built as business soared. But the express-delivery industry faces a new challenge: the return of trade barriers due to the protectionist bent of Donald Trump and because of Brexit.

The slower-moving shipping and air-cargo business has long been in the doldrums as a result of slow overall growth in trade in recent years. Yet the rise of cross-border e-commerce has still meant booming business for express-delivery firms. On January 31st UPS revealed record revenues for the fourth quarter of 2016; FedEx and DHL are expected to report similarly buoyant results next month. Since 2008 half of the increase in express-delivery volumes has come from shoppers buying items online from another country.

Falling trade barriers have greatly helped them. When DHL and FedEx were getting going, in the 1970s,…Continue reading

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The challenges for ExxonMobil’s new boss

WITH an institutional culture that lies somewhere between the marines and the boy scouts, ExxonMobil tends to avoid personality cults. Even so, it is surprising how little is known about Darren Woods, the chief executive who last month succeeded Rex Tillerson, America’s new secretary of state. Mr Woods’s Wikipedia biography is a few lines long. Rather than reveal the year of his birth, ExxonMobil just says he is 52. Never mind: the most significant fact about him is that he comes from the refining and chemicals side of the business, which hums along so efficiently that ExxonMobil is widely considered the world’s best “integrated” oil company. Yet it is upstream—the exploration and production part—where his hardest tasks lie.

On January 31st the company reported another year of plunging profits, which have buffeted its share price since 2014 (see chart). It earned less in a year than it used to earn in a quarter, and also less than Exxon made before its $80bn merger with Mobil in 1999. Profits among its “Big Oil” peers have likewise been clobbered by falling oil prices over the past two and a half years. It is also not…Continue reading

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Emerging markets’ Trump tantrum abates, except in Turkey

THE Syrian consulate in Istanbul’s elegant Nisantasi quarter is a busy spot. Men huddle outside in the cold, waiting for their turn to slip through the building’s ornate doors. The rest of the neighbourhood is, however, unusually subdued. A string of terrorist attacks in the city and an attempted coup in July, followed by a purge of suspected sympathisers, has dampened spirits. “After a bomb goes off, no one goes out. A week is lost,” says one shopkeeper.

Besides war next door and terror at home, Turkey’s economy has been rocked by political upheaval farther afield: the lira has plummeted by over 15% against the dollar since America’s election on November 8th. Many tenants cannot now afford Nisantasi’s rents, often priced in foreign currency. Even the childhood home of Orhan Pamuk, Turkey’s best-known novelist (pictured), has a “for rent” sign on the door. 

Back in November, Turkey had a lot of company in its economic misery. Other emerging markets also reacted badly to America’s election result, prompting talk of a “Trump tantrum” to match the “taper tantrum” after May 2013, when America’s Federal Reserve…Continue reading

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What if interest expenses were no longer tax-deductible?

ONE reason why the American equity market has rallied since the election of Donald Trump is the hope that taxes on corporate profits will be cut. But that measure has to be paid for, and analysts are only just starting to figure out where the burden might fall.

The initial focus has been on the idea of border-adjustment taxes. But another way of raising revenue is to remove companies’ right to deduct their interest expenses from their taxable income. That proviso has been in place since 1918, when it was introduced to help firms struggling with the impact of the first world war—evidence that tax breaks, once granted, are hard to remove.

Allowing interest payments, but not dividends, to be deducted from corporate profits before tax is paid is a huge distortion to the system. It is a perk worth around 11% of the value of corporate assets. It has tended to encourage companies to take on more debt. By doing so, it may make the economy more risky at the margin: in a recession, highly-indebted companies are likely to go bust more quickly, whereas companies with lots of equity capital can ride out the storm. As a result, this…Continue reading

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The custodian-bank business

NO ACTOR has ever sat nude in a bathtub to explain the intricacies of the bank-custody business, as Margot Robbie did for mortgage-backed securities in “The Big Short”, a successful film. The blame lies with the custody business’s virtues, not its flaws.

Instead of the 2% fees Ms Robbie mentions for offloading rubbishy securities onto suckers, bank-custody fees are tallied in hundredths of a percentage point. Custody bankers are generally neither glamorous nor crooked. They are accountants and software engineers catering to well-informed clients: the owners and managers of huge amounts of financial assets. The services they offer include: holding, valuing and transferring securities; receiving interest and dividends; and providing notice of corporate actions. The business grows with the financial markets, but more slowly. Years of almost seamless and scandal-free performance have made the business well-nigh invisible. But not quite.

Custody has habitually been “sticky”: the loss of a large account is unusual. But on January 25th BlackRock, a gargantuan asset manager, announced that it was moving custody assets worth $1trn from State…Continue reading

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India floats the idea of a universal basic income

Basic needs

NOVEMBER 8th was not just the day of Donald Trump’s election. It was also when Indians found out most banknotes would lose all value unless promptly exchanged. Ever since, many have expected their patience in enduring the ensuing chaos to be rewarded in some way. Might scrapped cash unredeemed by presumed tax-dodgers be recycled into a lump-sum payment to each and every citizen? Or would the annual budget, presented on February 1st, be full of giveaways ahead of a string of state elections? In the event, the budget was restrained to the point of dullness. But the government’s closely-watched “economic survey”, released the previous day, hinted at a much bigger giveaway in the works: a universal basic income (UBI) payable to every single Indian.

The idea of a cash payment made to citizens irrespective of their wealth is centuries old. It has become newly fashionable in some rich countries, among both left-wing thinkers (who like its redistributive aspects) and their right-wing foes (who think it results in a less meddlesome state). The idea has had its fans in India: a small UBI scheme was launched as a pilot…Continue reading

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Snap’s IPO will be the largest in years

WHEN Snapchat first became popular in 2013, many thought the messaging app would disappear almost as quickly as its vanishing messages. Instead, it has become one of the most intriguing internet firms to emerge in years. When Snap, Snapchat’s parent company, goes public at an expected valuation of $20bn-25bn—the IPO is expected in March—its market debut will be the most closely watched since Alibaba, a Chinese e-commerce giant, floated in 2014. Snap’s offering documents may be filed publicly as soon as this week.

Snapchat has captivated youngsters in the West with its quickly disappearing content and playful features. It appears to have connected with youth more successfully than older rivals such as Facebook (or its messaging service, WhatsApp). Users share digitally enhanced photos and videos of themselves vomiting rainbows and morphing their faces into animal masks. Around 41% of Americans aged 18 to 34 use the ephemeral messaging service every month, and 150m people globally spend time on it every day.

Older grown-ups should pay attention too. Snapchat is experimenting with new technologies, such as augmented reality (AR) and…Continue reading

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