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Few options for G7 trade chiefs to alleviate supply pinch

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October 21, 2021

By David Lawder

WASHINGTON (Reuters) – Trade chiefs from the developed world’s economic powerhouses gathering on Friday have few options at hand for a rapid fix to the supply chain woes driving up inflation and crimping growth, a problem trade experts say arises from market forces outside their reach.

The G7 trade ministers meeting in London may call for stronger efforts to clear backlogs at container ports and other transport bottlenecks, more infrastructure improvements to speed goods to market and diversification of sources of key components such as semiconductors, including more domestic output.

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But these are all long-term solutions. Market forces that created excess demand for goods may already be well on their way to correcting the problem.

“These officials have very few arrows in their quiver to address this problem,” said Harry Broadman, a managing director at Berkley Research Group and a former U.S. trade official. “This is ultimately driven by consumer demand.”

With demand and supply out of sync and the logistics struggling to catch up, it could take up to six months for many goods shortages to ease, he said, with much of the shift brought about by market forces and private sector firms filling the gap.

U.S. President Joe Biden last week announced new 24 hour-a-day port operations in Los Angeles and called on private sector logistics firms to “step up” along with big retailers such as Target and Wal-Mart to speed goods to shelves in time for the Christmas holidays. But logistics experts, economists and labor unions have warned that the efforts may be only incremental steps in unwinding the backlog.

U.S. Republican lawmakers, seizing on the bottlenecks for political gain, urged Biden in a letter to “address the global supply chain and ports crisis before Congress even considers any additional social spending and taxation legislation.”

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But addressing some of the most critical supply chain needs will take time, said William Reinsch, a trade expert at the Center for Strategic and International Studies and a former Commerce Department export official.

Adding domestic production capacity for more semiconductors to reduce reliance on a handful of Asian countries will take years and upgrading port infrastructure to increase efficiency and throughput is also a long term effort, he said.

International Monetary Fund European Department Director Alfred Kammer said policymakers can take steps to try to ease transportation bottlenecks, but strengthening supply chains will require investments in infrastructure and diversification of sources of key components. He said the current inflationary effects from supply chain disruptions and energy shortages should fade in Europe next year.

“It’s going to be a very complex issue. The market will deal with some of it, but government policy can support adjusting as well, especially on the infrastructure side,”

TOO MUCH MONEY

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Much of the current problem is a mismatch of strong pent-up demand for goods fueled by coronavirus aid checks and savings built up during pandemic lockdowns against supplies constrained by production shutdowns, dwindling inventories and shortages of workers.

U.S. Treasury Secretary Janet Yellen described the phenomenon as a “very, very unusual shock” that shifted spending away from services such as travel, lodging and restaurants.

“Instead, we’ve been gobbling up goods and commodities like we’ve never seen before,” Yellen told MSNBC in an interview that aired on Wednesday.

British Finance Minister Rishi Sunak last week called on G7 governments to work together to tackle supply chain disruptions.

But the boom in consumption that has pushed U.S. consumer spending on durable goods 25% above trend this year won’t last and will likely be replaced by below-normal demand in 2022, UBS Chief Economist Paul Donovan said in a note to clients. This will slow GDP growth and cool inflation.

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“Once the pent-up demand has been satisfied, there is no further need to spend. The person who has bought a new washing machine this year does not rush to buy another new washing machine next year,” Donovan wrote.

PEAK CRISIS?

Equity analysts at Jefferies said the supply chain crisis may have already peaked with the passing of a mid-October shipping deadline for holiday goods, freeing up capacity for “baseline” shipping of machinery, automotive goods and home furnishings.

“There are signs that we are past the peak pinch and Jefferies’ analysts expect to see significant improvement by the second half” of 2022, the firm said in a research report.

Data from Tradeshift, a digital platform that facilitates and processes business-to-business trade transactions, indicates that an equalization of demand and supply is already underway.

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The group’s index of third quarter order volumes fell by 24 points from the second quarter to 85, well below the 100-point score that is equal to pre-pandemic trend forecasts.

Index – https://2aq8232w304w1v4dpt1zpxs8-wpengine.netdna-ssl.com/wp-content/uploads/sites/3/2021/10/TS-Index-of-Global-Trade-Health-Q3-2021.pdf

“Buyers are starting to question the wisdom of putting fresh orders into a system that is buckling under an enormous backlog,” Tradeshift CEO Christian Lanng said in a statement. “The longer this situation continues, the more likely we’ll see a more prolonged reversal heading into 2022.”

(Reporting by David Lawder; additional reporting by Philip Blenkinsop and Andrea Shalal; Editing by Dan Burns and Chizu Nomiyama)

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Amazon asks India antitrust body to revoke Reliance-Future deal approval

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November 28, 2021

By Aditya Kalra and Abhirup Roy

NEW DELHI (Reuters) – Amazon has asked India’s antitrust regulator to revoke its approval for Future Retail’s $3.4 billion sale of retail assets to Reliance, saying it was “illegally obtained”, violating an order suspending the deal, a letter seen by Reuters shows.

The approval for the deal was a “nullity in the eyes of law” as an arbitrator’s order was still in force, according to the letter sent by Amazon.com Inc to the Competition Commission of India (CCI) last week.

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The battle between two of the world’s richest men, Amazon founder Jeff Bezos and Reliance Industries Ltd boss Mukesh Ambani, marks a contest for preeminence in India’s booming, nearly trillion-dollar retail market.

The winner in the fight for Future Retail Ltd, India’s second-largest retailer and Amazon’s estranged local partner, will get pole position in the race to meet the daily needs of more than a billion people.

The CCI, Amazon, Future Group and Reliance did not respond to requests for comment.

Future has said the arbitrator’s suspension order was invalid but Indian courts have declined to overturn it.

If the regulator agrees with the previously unreported letter, it would be a major setback for oil-to-telecom conglomerate Reliance.

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Amazon won an injunction against the deal from a Singapore arbitrator last year, alleging Future had violated contracts that prevented it from selling the assets to entities including Reliance.

But the CCI later cleared the deal.

Future misled the CCI and continued to seek approval for the deal, Amazon said in the letter dated Wednesday, calling the injunction a “brazen attempt to subvert the rule of law”.

Amazon asked for a personal hearing from the CCI to make its case.

The letter comes as Amazon is also battling allegations that it misrepresented facts and concealed information while seeking antitrust clearance for a 2019 deal with Future Group.

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Amazon has so far successfully used this deal’s contracts to block Future’s deal with Reliance.

(Reporting by Aditya Kalra and Abhirup Roy in New Delhi; Additional reporting by Zeba Siddiqui; Editing by William Mallard)

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Exclusive-Visa complains to U.S. govt about India backing for local rival RuPay

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November 28, 2021

By Aditya Kalra

NEW DELHI (Reuters) – Visa Inc has complained to the U.S. government that India’s “informal and formal” promotion of domestic payments rival RuPay hurts the U.S. giant in a key market, memos seen by Reuters show.

In public Visa has downplayed concerns about the rise of RuPay, which has been supported by public lobbying from Prime Minister Narendra Modi that has included likening the use of local cards to national service.

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But U.S. government memos show Visa raised concerns about a “level playing field” in India during an Aug. 9 meeting between U.S. Trade Representative (USTR) Katherine Tai and company executives, including CEO Alfred Kelly.

Mastercard Inc has raised similar concerns privately with the USTR. Reuters reported in 2018 that the company had lodged a protest https://reut.rs/3cQA2La with the USTR that Modi was using nationalism to promote the local network.

“Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India” (NPCI), the non-profit that runs RuPay, “over other domestic and foreign electronic payments companies,” said a USTR memo prepared for Tai ahead of the meeting.

Visa, USTR, Modi’s office and the NPCI did not respond to requests for comment.

Modi has promoted homegrown RuPay for years, posing a challenge to Visa and Mastercard in the fast-growing payments market. RuPay accounted for 63% of India’s 952 million debit and credit cards as of November 2020, according to the most recent regulatory data on the company, up from just 15% in 2017.

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Publicly, Kelly said in May that for years there was “a lot of concern” that the likes of RuPay could be “potentially problematic” for Visa, but he stressed that his company remained India’s market leader.

“That’s going to be something we’re going to continually deal with and have dealt with for years. So there’s nothing new there,” he told an industry event.

‘NOT SO SUBTLE PRESSURE’

Modi, in a 2018 speech, portrayed the use of RuPay as patriotic, saying that since “everyone cannot go to the border to protect the country, we can use RuPay card to serve the nation.”

When Visa raised its concerns during the USTR gathering on Aug. 9, it cited the Indian leader’s “speech where he basically called on India to use RuPay as a show of service to the country,” according to an email U.S. officials exchanged on the meeting’s readout.

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Finance Minister Nirmala Sitharaman said last year that “RuPay is the only card” banks should promote. The government has also promoted a RuPay-based card for public transportation payments.

While RuPay dominates the number of cards in India, most transactions still go through Visa and Mastercard as most RuPay cards were simply issued by banks under Modi’s financial inclusion programme, industry sources say.

Visa told the U.S. government it was concerned India’s “push to use transit cards linked to RuPay” and “the not so subtle pressure on banks to issue” RuPay cards, the USTR email showed.

Mastercard and Visa count India as a key growth market, but have been jolted by a 2018 central bank directive for them to store payments data “only in India” for “unfettered supervisory access”.

Mastercard faces an indefinite ban on issuing new cards in India after the central bank said it was not complying with the 2018 rules. A USTR official privately called the Mastercard ban “draconian”, Reuters reported in September.

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(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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