The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains.
US tariff exemption denials rise
The U.S. Trade Representative has continued to review requests for exemptions from tariffs on Chinese exports despite the government shutdown. In the period Sept. 1, 2018, to Jan. 10, 2019, 1,592 companies made 13,348 applications. Decisions have only been made on 2,716 applications – or about 20.0% of the total – with 63.7% of those having been denied. All but one of the petitions reviewed in the past three weeks have been rejected. Going forward the USTR has reduced capacity due to the shutdown, making further decisions less likely for now.
There is a risk that investment in manufacturing infrastructure is delayed or becomes financially unattractive as a result of the denials and delays. For example, applications from BASF SE and Fluor Corp. regarding heat exchangers have been blocked. Imports of heat exchangers from China in October 2018 fell 70.6%, compared to October 2017. With 19.9% of imports in the past 12 months having come from China, there will be alternatives available, though likely at a higher cost.
Fiat and Ford feel rising costs and uncertainties from tariffs
U.S. automakers are increasingly feeling the cost of tariffs that the administration of U.S. President Donald Trump has applied to steel, aluminum and Chinese exports as well as planned tariffs on the automotive sector.
Fiat Chrysler Automobiles NV's CEO, Mike Manley, has indicated that tariffs on steel and aluminum will increase the firm's costs by up to $350 million in 2019, equivalent to 5.4% of consensus estimates of pretax profits.
U.S. seaborne imports of steel and aluminum only fell 1.8% in the fourth quarter of 2018 compared to a year earlier, suggesting companies have not radically changed their supply chains. Indeed, Fiat Chrysler has markedly increased its shipments recently.
Ford Motor Co. Chairman Bill Ford Jr. has flagged that a lack of certainty regarding tariffs may be holding back the company’s supply chain developments. The firm nonetheless increased its U.S. seaborne imports 6.6% year over year in the fourth quarter, though it has slashed imports from China already.
(Panjiva Research - Autos)
Kansas City Southern gets ready for USMCA
Kansas City Southern will shortly start construction of a new cargo processing facility to improve the flow of goods across the U.S.-Mexico border at Laredo, Texas. The completion of U.S.-Mexico-Canada Agreement negotiations will allow companies to make the longer-term supply chain plans that can include a switch to intermodal rail from trucking. So far rail accounted for 15.0% of Mexico's northbound exports in the 12 months to Nov. 30, 2018. Diversification will also be important given the auto sector accounted for 73.4% of the value of railborne exports from Mexico over the same period.
Maersk and MSC make Peel Ports shift permanent
A.P. Møller - Mærsk A/S and MSC Mediterranean Shipping Co. SA have decided to permanently shift the U.K. base of their TA4 U.K.-to-U.S. service to Peel Ports Group Ltd.'s facilities in Liverpool from Hutchison Port Holdings Trust Felixstowe. That has come in response to the latter's reliability issues. The initial switch in the fourth quarter of 2018 resulted in a 29.7% year-over-year surge in shipments on Liverpool-to-U.S. routes in that quarter versus the prior-year period. The same routes are also served by Hapag-Lloyd AG, among others. The decision comes as Maersk and MSC experienced a downturn in its U.K. to U.S. operations more broadly. Fourth-quarter 2018 volumes handled on all U.K. to U.S. routes fell 33.2% year over year as a result of reduced shipments ranging from beverages to auto parts.
Forwarder consolidation gets underway, DSV may not get its way
Freight forwarder DSV A/S has launched an unsolicited takeover offer for its competitor Panalpina Welttransport (Holding) AG at CHF170 per share. That is equivalent to a 24% premium to Panalpina's stock price on Jan. 11 and will be a mixture of cash and stock. Assuming DSV is successful the enterprise value (debt plus equity) of Panalpina would be equivalent to 30.1% of DSV's at Friday's closing stock price on the basis of S&P Global Market Intelligence data.
As discussed in Panjiva's 2019 Outlook for logistics there is increasing pressure for the freight forwarders to become more efficient this year. So far DSV has not detailed potential strategic benefits or quantified them financially.
DSV may need to fend off a "white knight" bidder. In Panalpina's case that may be another forwarder such as K+N or one of the other shipping lines that has already committed to the forwarding business. The latter include CMA CGM SA, which acquired a stake in Ceva Logistics AG, or Maersk.
Christopher Rogers is a senior researcher at Panjiva, which is part of S&P Global Market Intelligence. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.
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