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China's reforms at 40; K+N could use a hand from Hapag-Lloyd

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.

China's reforms at 40 — Trade growth fades, policy risks rise
The 40th anniversary of China's "reform and opening up" era comes as the country faces slowing trade growth and widening trade policy challenges. China's global trade has expanded by 16.1% annually between Jan. 1, 1981, and Oct. 31, 2018. That has slowed to a 7.7% growth in the past 10 years.

The evolution from basic to advance manufacturing in terms of exports may be largely completed too. Apparel has dropped to 7.8% of exports in the past 12 months from 22.8% in 1992, while machinery and electronics reached 43.7%, from 13.6% in 1992.

Looking ahead, there is room for further growth resulting from new trade deals like the Regional Comprehensive Economic Partnership and broader initiatives such as Belt-and-Road. Yet, rivalry with the U.S., China's largest trade partner with whom it held a $295.2 billion trade surplus in the 12 months to Nov. 30, could be the defining factor for China's trade activity in at least the next two years.

(Panjiva Research - Policy)

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K+N could use Hapag-Lloyd's help as US freight growth slows
Freight forwarders saw growth in U.S.-inbound, seaborne traffic of just 1.9% year over year in November, down from an average 7.2% in the prior three months on average. That was due in part to U.S. tariffs on Chinese exports as well as a drop in traffic from Europe. Of the top 20 forwarders, 16 saw either an outright drop in volumes or a slowdown in growth.

Ceva Logistics AG managed to reduce its rate of decline to 1.1% in November from 8.2% on average in the prior three months, possibly as a result of its new strategic alignment with container-line CMA CGM SA. Kuehne + Nagel International AG, or K+N, saw the harshest deceleration with a 10.5% drop in volumes in November from 1.3% growth on average in the prior three months.

Closer relations with container-line Hapag-Lloyd AG may help K+N given the two companies have a joint stockholder in Kuehne Holding AG and given Hapag-Lloyd was K+N's largest liner service provider at 17.7% of its volumes in the past 12 months. Some help may already have been forthcoming after Hapag-Lloyd's handling of K+N volumes rose 7.8% year over year in November after declining in the prior three months.

(Panjiva Research - Logistics)

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Retailers bet on Baby Alive, PlayStation to win slow toy season
The U.S. toy retail industry may suffer a third year of lackluster growth after imports climbed just 1.1% year over year in the July to November peak shipping season. That followed 1.8% year-over-year growth for the same period in 2017 and 0.8% year-over-year growth for the 2016 period. Slow growth makes getting the mix of toy imports right more important than ever as competitive pressures weigh. Target Corp.'s imports rose by just 3.1% despite ambitions to dominate the sector.

Total U.S. imports of 2017's most wanted lines, Hatchimals and Fingerlings, slumped while established brands including Hasbro Inc.'s Baby Alive and TOMY Co. Ltd.'s Beyblade saw 141.1% and 10.3% improvements, respectively. A similar picture can be seen for video games, where imports grew by just 4.4%. Sony Corp.'s PlayStation outpaced Microsoft Corp.'s Xbox and Nintendo Co. Ltd.'s Switch due to the launch of the PlayStation Classic console.

(Panjiva Research - Retail)

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AMLO's oil ambitions start production versus export earnings race
Mexican President Andres Manuel Lopez Obrador has announced plans to raise the country's oil production by 45% from current levels by 2025. The demands of domestic use can be seen in crude oil export growth of just 6.0% in the 12 months to Oct. 31 versus five years earlier. Petróleos Mexicanos SA de CV, or Pemex's main export market is the U.S., which accounted for 57.6% of shipments in the past 12 months. Yet, the U.S. is also becoming more energy independent. U.S. oil exports surged 92.8% year over year in the 12 months to Oct. 31 to reach 1.4x those from Mexico. That raises the risk that Pemex may lose export earnings quicker than it can build sales of oil products domestically.

(Panjiva Research - Energy)

6 ports suggest a 22nd increase in the US trade deficit
Preliminary data from six major ports shows U.S. export growth likely underperformed imports' markedly in November. Container handling through Savannah, Ga., and its neighboring ports climbed 11.4% year over year, including a 17.3% surge in loaded containers. The latter was mostly the result of a 22.4% jump in shipments from China as importers sought to get ahead of tariff increases that have now been delayed. Exports by contrast fell 4.4%. That repeats a pattern seen at ports in Texas, Virginia and California. When combined, the six ports' exports fell 5.5% compared to a year earlier, in part due to Chinese tariffs on imports from the U.S. That compared to imports, which rose 1.0%. That differential implies there was likely to have been a 22nd year-over-year increase in the U.S. trade deficit since the start of 2017.

(Panjiva Research - Logistics)

Liners still doing fine as signs of tariff rush slowdown meet oil price collapse
Container-line shipping companies have seen a decline in average rates for shipping out of China for a fourth straight week to Dec. 14. On average, rates are now 1.4% below their recent peaks after a 4.3% drop in rates for China-U.S. West Coast services and a 5.9% decline for China-U.S. East Coast. That likely reflects a reduced urgency for shippers seeking to beat tariff increases on Chinese exports that have been delayed to March 1, 2019, from Jan. 1, 2019. Lower rates have been more than offset by a slump in fuel prices though, which have now dropped to their lowest level since April 4. As a result, gross profit margins for the container liners in December are already 3.5% higher than they were in November. Conditions could yet change, however, with liners ranging from CMA-CGM to Ocean Network Express Pte. Ltd. updating their fuel cost pass-through formulas for the new year.

(Panjiva Research - Logistics)

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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