trade confidence index - British Chambers of Commerce

1ST QUARTER 2013

The DHL / British Chambers of Commerce

TRADE CONFIDENCE INDEX

CONTENTS

44 Introduction/Methodology.................................................................................

2

44 Executive Summary...............................................................................................

3

44 Export Index.............................................................................................................

4

44 Focus on Business Confidence..........................................................................

5

44 Focus on Export Sales..........................................................................................

6

44 Focus on Export Orders.......................................................................................

7

44 Focus on Employment..........................................................................................

8

44 Firm Size Breakdown.............................................................................................

9

44 Destination Focus - Asia .....................................................................................

10

THE BRITISH CHAMBERS OF COMMERCE

DHL – THE LOGISTICS COMPANY FOR THE WORLD

The British Chambers of Commerce (BCC) is the national body for an influential network of Accredited Chambers across the UK. Representing 104,000 businesses, who together employ more than 5 million employees, no other business organisation has the geographic spread or multi-size, multi-sector membership that characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing representation, services, information and guidance to member businesses and the wider local business community.

DHL is the global market leader in the logistics industry and “The Logistics company for the world”. DHL commits its expertise in international express, air and ocean freight, road and rail transportation, contract logistics and international mail services to its customers. A global network composed of more than 220 countries and territories and about 275,000 employees worldwide offers customers superior service quality and local knowledge to satisfy their supply chain requirements. DHL accepts its social responsibility by supporting climate protection, disaster management and education.

For more information visit:

DHL is part of Deutsche Post DHL. The Group generated revenue of more than 53 billion euros in 2011.

www.britishchambers.org.uk

For more information visit: www.dp-dhl.com

B

FOREWORD

In my last TCI foreword of 2012, I argued that the UK export sector needed to speed its reorientation towards the fastest-growing markets as European economies stagnated. So it was disappointing to see the weak economic data continue to pour out of Europe this quarter - rising unemployment across the Eurozone – now at 12% - and a slowdown in German manufacturing highlighting the risks now facing UK exporters which are overly dependent on these markets for orders.

John Longworth Director General British Chambers of Commerce

The mixed results in this report highlight the risks and opportunities of global markets at this time and the transition the export sector is undergoing. Confidence in the future dipped slightly on the previous quarter. But confidence levels remain high by historical standards, especially for services. That responding firms are more confident about the future than their recent export sales results suggests that many are on the verge of breaking into new markets and securing new contracts. At the BCC, we continue to press the case for more government investment in trade promotion. We must expose more SMEs to the opportunities of global trade through greater support for promotional activity and tradeshow attendance by matching the world’s best schemes. The UK spends considerably less than its foreign competitors on tradeshow access – it’s about time this was addressed.

The results of the Q1 2013 Trade Confidence Index point to a slight diminishing in exporter confidence. Having been rocked by international and domestic headwinds, UK businesses are operating in a muted domestic market. Elsewhere in the Eurozone, manufacturing and services sectors’ outputs have continued to fall, fuelling business and consumer uncertainty. However, despite this restrained setting, the DHL/BCC Trade Confidence Index shows there are clearly still opportunities for British businesses to expand into overseas markets. The report shows that there has been a marginal increase in exports, and despite diminished confidence, with 21% of businesses believing that turnover will worsen over the coming year, the Export Index remains at historically high standards, a fundamentally positive indicator. Phil Couchman CEO DHL Express UK & Ireland

In light of the serious problems facing the Eurozone, which remains a major trading partner for small businesses in the UK, in this report we have provided a guide to making the most of opportunities in Asia, an exciting prospect for many UK exporters. Steps must continue to be taken to support exporters, particularly SMEs, who are less able to ride the trends of the economic cycle than their larger counterparts. The government has already pledged to help this community with new export finance products, targeted support, and an enhanced role for British embassies to promote trade, but there’s still more to be done. Now is the time for businesses to expand into international markets. With our collective support we can help SMEs exploit the global opportunities open to them, and in turn boost Britain’s trading potential.

INTRODUCTION

METHODOLOGY

The DHL/BCC Trade Confidence Index (TCI) is a measure of the UK’s exporting health. By analysing trends in trading activity and key factors of exporting firms’ performance, the TCI gives a truly comprehensive picture of the UK’s internationally trading business community.

The TCI generates its results from two data sources:

The index casts new light on exporters’ levels of confidence and employment intentions, and paints a picture of regional exporting performance. Those wishing to obtain more information on the Index’s methodology and data sources are invited to contact the British Chambers of Commerce.

Questionnaire responses submitted by over 1,800 exporters, derived from the BCC’s Quarterly Economic Survey (QES). The QES is the largest and most representative business survey of its kind. ––

Data generated from exporting activity that requires supporting documentation. ––

THE SURVEY Fieldwork for the survey was conducted between 18 February and 13 March. Results are split into the following firm size categories: ––

0-9 employees (micro firms)

––

10-49 employees (small firms)

Written and researched by:

––

50-249 employees (medium firms)

Tom Nolan, Policy Adviser

––

250+ employees (large firms)

Mike Spicer, Head of Research Sukhdeep Dhillion, Economic Adviser Acknowledgements:

Printed by The Javelin Partnership Ltd. Printed on 75% recycled paper from a managed sustainable source, using pulp that is TCF and ECF and printed with vegetable soya based inks. www.thejavelinpartnership.com Tel: 0118 907 3494 The British Chambers of Commerce

65 Petty France St. James’s Park London SW1H 9EU Tel: 020 7654 5800 www.britishchambers.org.uk

Unless otherwise stated, results refer to all exporters responding to the survey. Where results are split between the service and manufacturing sectors, this is stated clearly in the text. Results that are not split by firm size are weighted by the contribution of firm size to total exporting turnover. Results are represented by either a balance figure or a pure percentage figure. Balance figures are determined by subtracting the percentage of companies reporting decreases in a factor from the percentage of companies reporting increases. Where a balance figure is positive it represents growth; where it is negative, it represents contraction. EXPORT DOCUMENTATION DATA Many types of exports require supporting and commercial documentation to ensure the timely delivery of goods and timely payment. Chambers of Commerce administers documentation required for exports outside the EU, and have amassed a significant dataset around UK goods exports as a result. The TCI uses data collected from this process to show both an index of documentation and regional comparisons of exporting activity.

2

EXECUTIVE SUMMARY

Q1 2013

44 Export Index rises 0.95% on previous quarter but falls 1.5% on previous year 44 Exporters’ confidence in future turnover and profitability remains high 44 Key survey indicators fall sharply for manufacturing firms The results for the Q1 2013 DHL/BCC Trade Confidence Index (TCI) are mixed for UK exporters. The index number used to calculate the volume of trade documents administered by Chambers of Commerce across the UK now stands at 114.84 (see Table below); this represents a rise of 0.95% on the previous quarter and the index is now at its second highest level since our records began. However, compared to Q1 2012 the index recorded a fall of just under 1.5%. EXPORT INDEX OVER THE PAST YEAR

Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

116.59

114.74

112.16

113.75

114.84

The TCI is also compiled from responses submitted by over 1,800 exporters, derived from the British Chambers of Commerce’s Quarterly Economic Survey (QES). According to the results, confidence levels amongst exporters remain high, but there was a slight fall from the near record confidence levels reported in the last quarter. When broken down between manufacturing and service firms the decline was more noticeable in the manufacturing sector. Figure One represents how confident exporters are that their turnover will improve over the coming twelve months. Confidence Indicator 60 ----Recession----

----Recession----

50 40 30

% of firms

20 10 0

-10 -20 Confidence levels -30 -40 Q3 07

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

Figure One: Balance of firms who are confident that turnover will improve over the next 12 months

Other key results from the survey followed a similar trend to the confidence indicators. Export sales and orders declined but manufacturers reported a sharper fall than service firms. And while the service sector indicators continue to be high by historical standards, the manufacturing results are well below the highest recorded. 3

Export Index

Q1 2013

44 Volume of trade documents issued remain high by historical standards NATIONAL TRADE DOCUMENTS VOLUME There was a slight increase in the volume of trade documents issued on the quarter and the Export Index remains at historically high levels. The number is now the second highest since records began. There was an increase of 0.95% on Q4 2012, but compared to the same quarter in 2012 there was a fall of -1.49%. PERCENTAGE CHANGE

Volume index of export documentation

Index number 2007 = 100

Most recent quarter on a year earlier

114.84

-1.49%

Most recent quarter on previous quarter

0.95%

REGIONAL PICTURE A number of areas experienced a fall compared to Q4 2012, however only two areas, Scotland (down 17.61%) and Wales (down 10.70%), experienced a sharp fall. The highest increases for the quarter were recorded in the South West (up 10.60%), the East Midlands (up 9.94%) and the East of England (up 7.03%). London (up 5.67%) recorded one of its highest ever increases. The areas with the highest yearly increase were the South West (up 11.15%), the West Midlands (up 11.07%) and Yorkshire & the Humber (up 7.88%).

Figure Two: % change quarter-on-quarter (Q1 13 on Q4 12) and change on the same quarter a year previously (Q1 13 on Q1 12) 15 10 5

% change

0 -5 -10 -15 -20

Quarter on a year earlier

-25

Qtr on Qtr

-30 -35 -40 London

4

S East

N West Scotland

Y&H

East

W Mids

E Mids

S West

N East

Wales

N Ireland

FOCUS ON BUSINESS CONFIDENCE

Q1 2013

44 Moderate fall in number of firms who expect turnover and profitability to improve,4 following on from a significant increase in the previous quarter While exporters’ confidence that their turnover and profitability will improve over the next twelve months fell in Q1 2013, the confidence indicators remain high by historical standards; and they are now considerably more confident than in the 2008-09 recession. They are many explanations for the slight fall in confidence. The economic decline in Q4 2012 as well as weak global growth prospects, especially in the Eurozone, would have an effect on business sentiment. Overall 59% of exporters feel that their turnover will increase throughout 2013; unchanged from the previous quarter. As Figure Three shows when asked about future profitability the figure was 50%, also unchanged from the previous quarter. There was an increase in the percentage of firms who felt that turnover (up 3 points to 15%) and profitability (up 4 points to 21%) will worsen over the coming year. When broken down into its component parts it shows that 63% of manufacturers feel their turnover will improve and 54% feel they will see an improvement in their profitability. For service firms the figure was 57% for turnover and 49% for profitability.

60

Figure Three: Percentage of firms who expect profitability to improve over the next 12 months ----Recession----

----Recession----

50

% of firms

40

30

20 Profitability

10 Q3 07

5

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

FOCUS ON EXPORT SALES

Q1 2013

44 Export sales indicator reported a decrease in the first quarter of 2013 The export sales balance fell by 3 points to +27%, in the first quarter of the 2013. However, this figure is high by historical standards and the results show that it is service sector firms who are performing the strongest. Figure Four shows that after a relatively strong upward trend following the 2008 recession, in 2011 the balance managed to average just below +20%, but there was a modest upturn in 2012. Further break down of the export sales balance reveals that 41% of exporters reported that their export sales increased in Q1 2013. 14% of respondents stated that they decreased, and 45% stated that sales remained constant.

% Balance

In the services sector the balance of exporters reporting that sales had increased fell to +34%, from +35% in the previous quarter. In the manufacturing sector the export sales balance having more than doubled in Q4 2012, halved in the latest quarter, from +30% to +14% in Q1 2013. Breakdown at the firm level reveals the large firms saw a fall in sales as opposed to the rest reporting an increase.

6

40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30

Figure Four: Balance of firms reporting an increase in export sales -----Recession---------Recession-----

Export Sales Q3 07

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

FOCUS ON EXPORT ORDERS

Q1 2013

44 All firm size categories posted an increase in their export order balances with the exception of micro and larger firms The export order balance decreased by three points in the first quarter of 2013 to reach +27%, as shown in Figure Five. When broke down into the four firm size categories it reveals that small (10-49 employees) and medium (50-249 employees) sized firms experienced an increase in their export order balances, but micro (0-9 employees) and large (250+ employees) firms showed a decline. The balance figures are for large firms +35% to +25%; medium firms +21% to +32%; small firms +28% to +30%; and micro firms +28% to +25%. Within the manufacturing sector there was a fall in the percentage balance of all firm sizes that recorded an increase in export orders. The total balance figure for the manufacturing sector declined to +16% from the previous quarter. The service sector balance fell 5 points to +33%, but this remains very high by historical standards.

40

Figure Five: Balance of firms reporting an increase in export orders ----Recession----

----Recession----

30 20

% balance

10 0

-10 -20 -30 Export Orders -40 Q3 07

7

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

FOCUS ON EMPLOYMENT

Q1 2013

44 There is an increase in the number of firms expecting to take on new staff The overall employment expectations balance increased by one point to +14% in the first quarter of 2013. Although this is a small increase in the overall employment expectations it is worth noting that the change in expectations was largely seen within medium and larger firms. Splitting the balance figure into its component parts reveals that the percentage of firms reporting that they expected to increase staff climbed from 27% to 28%. The percentage of firms expecting to decrease staff remained unchanged at 14% (see Figure Six). At the sector breakdown level, manufacturers employment expectations declined by fourteen points to +3%, while the figure for service sector firms increased eight points to +19%. Within both the services and manufacturing sectors the largest movements were seen amongst the larger firms whilst the micro, small and medium remained fairly stable.

50

Figure Six: Percentage of firms reporting expectations to reduce workforce ----Recession----

----Recession----

40

% of firms

30

20

10 Expect to decrease staff

0 Q3 07

8

8

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

FIRM SIZE BREAKDOWN

Q1 2013

44 There is a rise in the percentage of medium sized firms reporting pay settlements as adding to price pressure When all respondents to the survey were counted together, the percentage of firms reporting pay settlements costs are adding pressure to raise prices increased marginally from 20% in Q4 2012, to 21% in Q1 2013. Despite the increase it is still low figure by historical standards. When this is broken down into the four firm size categories, those respondents with over 250 employees saw a rise from 21% to 24%, between 50 and 249 employees saw an increase from 22% to 25%, between 10 and 49 employees recorded a fall from 22% to 19%, and firms with less than 9 employees saw a fall from at 11% to 9%. When broken down by sector it shows how manufacturing firms are more acutely affected. Figure Seven shows the average results on this question across firm size and split by sector. None of the firm size categories in the service sector have a result above 30%. The highest figure in the service sector was seen amongst the medium firms, who recorded a figure of 25%. In the manufacturing sector the highest figure was seen in large sized firms, a figure of 29%.

30

Figure Seven: Percentage of firms reporting pay settlements are adding to price pressures

% of firms

25

20

15

10

5

0

0-9

10-49

Firm size by number of employees

9

50-249 Manufacturing

250+ Services

DHL ASIA FOCUS

Q1 2013

ARE YOU MAKING THE MOST OF OPPORTUNITIES IN ASIA? 1. CHINA

2. INDIA

3. HONG KONG

Capital: Beijing

Capital: New Delhi

Capital: N/A

Population: 1,349,585,838

Population: 1,220,800,359

Population: 7,182,724

GDP: $12.38 trillion*


GDP: $363.7 billion*

KEY FACTS: – No. 1 success story of the past 30 years

KEY FACTS: – 2nd fastest growing economy after China

– Economy grew 9.2% in 2011 and although down from 10.3% in 2010, the Chinese government is committed to maintaining growth

– Opportunities now exist in emerging cities like Nagpur, Ahmedabad, Chandigarh, Pune and Jaipur as well as traditional Mumbai, Delhi and Bangalore

KEY FACTS: – UK exports of goods to Hong Kong were valued at £5.1 Billion in 2011, up by 20% over 2010 making it the UK’s 3rd largest market in Asia (after mainland China and India) and the 13th largest export market worldwide

4. SINGAPORE

5. SOUTH KOREA

New Delhi

6. MALAYSIA

I N D I A

7. VIETNAM

Capital: Singapore

Capital: Seoul

Capital: Kuala Lumpur

Capital: Hanoi









KEY FACTS: – UK’s largest trading partner in South-East Asia

KEY FACTS: – 12th largest economy worldwide and 4th largest economy in Asia

KEY FACTS: – UK exports to Malaysia in 2011 were valued at £2.25 billion, 14% up on 2010

KEY FACTS: – Joined the WTO in 2007

– South Korea’s economy grew by 3.6 per cent in 2011, the fastest in the OECD (Organisation for Economic Co-operation and Development)

– UK’s second largest export destination in South-East Asia

– Bilateral trade increased by over 26% in 2011 with UK exports of goods and services to Vietnam reaching £520m.

– Currently the UK’s 12th largest goods export market outside the EU – UK exports in 2011 amounted to £3.6 billion, up 11% from 2010 – Ranked 1st globally by the World Bank in terms of the ‘Ease of Doing Business’

*Gross domestic product (GDP) or value of all final goods and services produced within a nation in a given year. Figures are 2012 estimates. Source: www.cia.gov/library/publications/the-world-factbook/index.html Population data estimated for 2013 (Source: www.cia.gov/library/publications/the-world-factbook/index.html) Key Facts source: UKTI

10

– GDP growth in the 4-year period after accession averaged 6.5%

– Registered UK investments exceeded £1.6bn in 2011

DHL ASIA FOCUS

Q1 2013

Beijing

C H I N A

Seoul

SOUTH KOREA

The export revolution: For the first time since the 1970s, Britain sells more goods to countries outside the EU than those inside Hanoi

8. THAILAND Capital: Bangkok Population: 67,448,120 GDP: $645.7 billion* KEY FACTS: – 2nd largest economy in South East Asia

HONG KONG

– Bilateral trade in goods and services is valued at £5 billion – UK exports of goods to Thailand increased by 28% in 2011 to £1.36 billion

THAILAND Bangkok

– UK exports of services to Thailand in 2010 were valued at £459 million

VIETNAM

9. INDONESIA Capital: Jakarta Population: 251,160,124 GDP: $1.212 billion* KEY FACTS: – Indonesia is 4th most populated country and the largest economy in South East Asia

Kuala Lumpur

M

A

L

A Y

S

I

A

– Exports of UK goods to Indonesia in 2010 were worth £438.9 million, an increase of 25% over 2009

SINGAPORE

Jakarta

11

I

N

D

O

N

E

S

I

A

DHL ASIA FOCUS

Q1 2013

DHL Express: key facts 2. India

3. hong kong

4. Singapore

DHL Vehicles: 1819

DHL Vehicles: 405

DHL Vehicles: 219

DHL Vehicles: 226

DHL Flights Per Week: 476



DHL Flights Per Week: 2,613

DHL Locations: 481

DHL Locations: 219

DHL Locations: 39

DHL Locations: 34

KEY EXPORT ITEMS / SECTORS:




– Energy efficiency technologies

– Urban infrastructure – Automotive

– Infrastructure & construction, transport

– Engineering machinery

– Environmental materials – Infrastructure materials (sustainable energy)

– Biotechnology

– Information and Communication Technology

Customs TIP: A Packing List is mandatory for WPX (non-doc) shipments when a) more than two pieces; b) over 100kg; c) shipment value (CIF) is over CNY5,000 (approx. USD 760)

Customs TIP: No tax applied when shipment value is below SGD400. If consignee is a company then consignee’s Central Registration Number will be required to allow customs clearance

MALAYSIA

Customs TIP: Consignee should have valid Import Export Code Number (IEC). Personal imports for personal use do not need IEC

Customs TIP: Consignee must have a license from Office of the Communications Authority (OFCA) to receive telecommunication equipment

SOUTH KOREA

– Semiconductors

– Information and Communication Technology

– Information and Communication Technology SINGAPORE

– Pharma

CHINA

– Aerospace and automotive,advanced engineering

– Infrastructure & construction: TOTAL DHL EXPRESS VEHIC rail, oil and gas storage, water

HONG KONG

– Media equipment

– Education facilities

– Environmental, renewable energy support

INDIA

– Telecoms - growing market

– Healthcare technology

– Defence & security

– Education/ training materials

VIETNAM

1. CHINA

DHL FLIGHTS PER WEEK

12

DHL FLIGHTS PER WEEK

INDONESIA

THAILAND

VIETNAM

MALAYSIA

SOUTH KOREA

SINGAPORE

HONG KONG

NUMBER OF DHL LO

MALAYSIA

SOUTH KOREA

SINGAPORE

HONG KONG

INDIA

Key Export Items / Sectors source: UKTI Asia Task Force

CHINA

DHL fact source: www.dhl.com/worldmap/intro.html

INDIA

CHINA

INDONESIA

THAILAND

VIETNAM

MALAYSIA

SOUTH KOREA

SINGAPORE

HONG KONG

INDIA

CHINA

TOTAL DHL EXPRESS VEHICLES

DHL ASIA FOCUS

5. South Korea

6. Malaysia

7. Vietnam

8. Thailand

DHL Vehicles: 409

DHL Vehicles: 133

DHL Vehicles: 123

DHL Vehicles: 180





DHL Locations: 69

DHL Locations: 60

DHL Locations: 53

DHL Locations: 25





– Automotive supply

– Defence & security

– Retail goods

– Agriculture

– Consumer / luxury consumer products

– Education & training

– Teaching equipment

– Engineering

– Healthcare/ medical technology

– Environmental control equipment

– Environmental

– Education materials

– Aerospace

– Environmental/ renewable energies

Customs TIP: Information and Communication Technology shipments often require consignee to have an ITE certificate

– Rail infrastructure

– ecurity, ports

Customs TIP: Term of trade (Incoterms® 2010) eg. CIF, FOB, C&F, etc, are to be specified on the invoice for customs’ valuation

– Pharma

– Energy utilisation/ renewable energy

– Infrastructure & construction, ports & rail

– Oil recovery solutions

– Information and Communication Technology / embedded software / technology

– Oil & gas exploration aids

– Telecoms

– Infrastructure & construction

INDONESIA

– Aerospace

Customs TIP: Commercial Invoice must state clearly itemised product and value. Term of trade (Incoterms® 2010) is required to be stated on the invoice. If no Incoterm then a local Freight charge will be applied to the shipment for tax and duty calculations

INDONESIA

THAILAND

VIETNAM

MALAYSIA

SOUTH KOREA

SINGAPORE

HONG KONG

INDIA

CHINA

NUMBER OF DHL LOCATIONS

– Low cost Information and Communication Technology Customs TIP: For exhibition and personal shipments, Consignee needs to provide a copy of passport or Thai ID card to register with TH customs for clearance

9. Indonesia DHL Vehicles: 240 DHL Flights Per Week: 179 DHL Locations: 140

13

INDONESIA

THAILAND

VIETNAM

MALAYSIA

SOUTH KOREA

SINGAPORE

HONG KONG

INDIA

NUMBER OF DHL LOCATIONS

CHINA

THAILAND

CLES

Q1 2013

KEY EXPORT ITEMS / SECTORS: – Retail goods, consumer goods – Infrastructure – Healthcare, food supplements – Mining equipment – Oil & gas support products – Renewable energy/ biomass – Security Customs TIP: Indonesia Customs state that all shipments exceeding 100kg require formal declaration regardless of value Documents required for a formal declaration are: a. Letter of Authorisation from consignee (POA) b. Tax ID Number (NPWP) c. Import Identification Number (API) d. Customs Identification Number (NIK) If information not available from consignee on shipment arrival, delay in clearance may be experienced.

British Chambers of Commerce 65 Petty France London SW1H 9EU United Kingdom T +44 (0)20 7654 5800 www.britishchambers.org.uk

DHL International (UK) Ltd 178-188 Great South West Road Hounslow Middlesex TW4 6JS united kingdom T +44 (0)844 248 0844 www.dhlguide.co.uk