In sport, the wounded player is the one rivals tend to ignore because he seems to be limping and isn’t regarded as too much of a threat – until he stages a miraculous recovery, boots five goals, and wins the game on his own.
In business there can be a similar tendency to misread the signs of a struggling customer who has developed a habit of either being late paying bills, or makes sudden changes to quality specifications or delivery instructions.
China today is a wounded business partner, as can be seen by the wild gyrations of its stock market, panic buying of shares by government agencies, and slowing economic growth.
Warning bells are ringing in China and while no one on the outside really knows what’s going on, and perhaps no-one on the inside knows how to fix the problem, it would be wise to expect more bad news from the world’s biggest consumer of commodities.
One way of reacting to the erratic and annoying behaviour of a wounded customer is to become more aggressive and demand prompter payment for goods delivered and a stop to fiddling around with quality specifications, which is starting to happen with some coal deliveries.
Another reaction, and the one The Hog advocates, is to get closer to the customer, ask what’s wrong and offer to help.
There are a number of reasons for suggesting a calm and rational approach to China’s changing treatment of coal imports, the most obvious is that Australian coal miners need China as a customer more than China needs Australian coal.
Another reason is from the first page of the handbook used by smart retailers and hotel managers, advice that reads: “the customer is always right”
But a third reason is that 40 years ago a similar dispute over price, which is what this dispute with coal deliveries to China is all about, engulfed the relationship between Australia and Japan when the customer refused to take delivery of sugar in clear breach of a contract.
Back in 1974, when sugar prices were sky-high, Australian sugar farmers signed a contract to supply Japanese sugar mills. By 1977, after an early version of a global financial crisis caused by a Middle East war that sent the oil price through the roof, the Japanese mills asked for a change to the deal because they couldn’t afford to pay the 1974 price.
What started as a dispute between growers and sugar mill customers quickly escalated into an international war of words with Queensland’s ultra-nationalist Premier, Joh Bjelke-Petersen, demanding that the terms of the contract be enforced or retaliatory action would be taken, including the removal of landing rights in Australian ports for Japanese tuna boats.
Even the Prime Minister at the time, Malcolm Fraser, got into the act and while he did not support tit-for-tat retaliation he broke a number of diplomatic rules by publicly berating the Japanese Ambassador and contacting the Japanese Prime Minister directly, bypassing the Australian Embassy in Tokyo.
It was a futile series of protests by Australia because the Japanese sugar mills simply refused to take delivery of several sugar-loaded ships because the Australians were demanding adherence to the 1974 pricing agreement.
Eventually, Australia lost the dispute in multiple ways. The sugar growers never got the 1974 price, sales to Japan fell away, and hard times descended on the Queensland sugar industry.
China’s claims that some recent coal shipments have not been at the required specifications is a re-run of the Japanese sugar dispute, and it’s likely to have a similar result if Australia follows the Bjelke-Petersen style of negotiating – blunt demands that deliveries be taken whether the customer can afford it or not.
The coal problem, like sugar, is all about money with an estimated 85% of China’s domestic thermal coal producers said to be operating at a loss and with 35% of the metallurgical coal miners in the same loss-making position.
That grim situation for its own coal industry, and its potential to trigger widespread job losses, is a problem for the Chinese government which craves social harmony.
It is also a problem for Australian coal exporters because of the potential for the Chinese Government to further raise coal-import barriers, even if it means using spurious arguments such as quality specifications when a ship arrives at a Chinese port.
China today is a wounded player in the economic world and that means it should be watched carefully with offers of help rather than hit with demands that contracts be enforced because it’s far better to work with a customer than against him – and apart from that “the customer is always right”. (Even when he’s wrong.)
