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 and draws from global shipping and freight data.
Late arrivals, indigestion and a nightingale: What we got wrong in 2019
Panjiva's 2019 outlook provided views on 25 different global trade policy, logistics and supply chain topics. We got some of those wrong — this report looks at why and what might happen next.
U.S. import tariffs in the automotive sector never arrived — we underestimated the degree to which it was simply a negotiating tactic versus Japan and the EU. Weaker auto sales — which dropped 4.1% year over year in the 12 months to Oct. 31, 2019, cutting imports by 5.7% — were a bigger issue. Autos will be back in focus in 2020 should EU-U.S. relations deteriorate over the issue of digital services taxes.
The trade war between the U.S. and China worsened rather than improved throughout the year — the proposed "phase one" trade deal has yet to be formally signed. There has nonetheless been a $41.9 billion drop in the U.S. trade deficit with China in the 12 months to Oct. 31, 2019, compared to a year earlier, leaving the deficit at $369 billion due to wider tariffs. Even once a "phase one" deal is signed in mid-January, most tariffs will remain in place and the rivalry between the two countries is set to continue in 2020.
Brexit dragged on for longer than most people expected, while the Regional Comprehensive Economic Partnership in Asia made more progress than we anticipated. We also didn't foresee the trade spat between South Korea and Japan, though that is now dissipating after Japan's exports to South Korea dropped by 17.0% year over year in November.
India remained more closely wedded to tariffs than we expected. Success in the form of a 23.4% year-over-year drop in imports of phones in the three months to Aug. 31, 2019, may have emboldened the Modi administration to continue its "Make in India" policy. If anything, tariffs may be widened further in 2020.
Congestion at U.S. seaports dissipated more quickly than expected, in part due to the ports' own efforts as well as the drag to activity from tariffs. Total U.S. seaborne imports in the fourth quarter were down by 8.0% sequentially versus the third quarter and are 8.5% lower than a year earlier, suggesting congestion is unlikely to return.
Finally, the only black swan risk to emerge were disruptions to Middle East oil supplies — Saudi Arabia has paid the price with a 90.0% year-over-year drop in oil shipments to the U.S. in the 2019 fourth quarter. Disruptions may widen in the new year given recent events in Iraq.
US Steel, CAP show steel tariffs don't always deliver their aims
U.S. Steel Corp. is cutting back on hot-strip steel manufacturing with capacity reductions at its facilities near Detroit. That has come despite a wide range of tariffs on U.S. steel imports, including the section 232 national security tariffs applied in March 2018.
Total U.S. imports of hot-rolled steel more broadly climbed 25.8% year over year in the three months to Oct. 31, 2019, and reached their highest since February 2010 in October. Imports from Canada accounted for 47.6% of the total in the past 12 months while South Korea accounted for 10.7% and Mexico represented 7.6%.
Tariffs can also lead to diversions to other markets, mitigating the impact on overseas manufacturers. Exports from Mexico to the U.S. fell 9.0% year over year in October 2019 but exports to the rest of the world surged 61.3% higher, resulting in a 28.0% rise in the total.
The surge in exports was led by CAP SA, which represented 35.7% of Mexican exports in the 12 months to Oct. 31, while exports by Ternium SA and ArcelorMittal also increased.
(Panjiva Research - Metals & Mining)
Japan Tobacco, Philip Morris face pressure after cigarette imports light up
The U.S. government received four new requests to investigate trade regulation infractions in December 2019, bringing the total to 65 for the year. That was similar to 2018 but well below the 95 cases in 2017. A resolution to the uncertainty regarding tariffs on Chinese imports under the "phase one" trade deal may lead to more cases being brought in 2020.
One of the December cases covers alleged dumping of tier-four packaged cigarettes from South Korea. Imports to the U.S. from South Korea jumped 69.8% year over year in the 12 months to Oct. 31 — putting pressure on importers from elsewhere in the world, as well as domestic producers. Evidence of dumping can be seen in the average import value per pack which dropped to its lowest since at least 2009 in October.
The largest importer from South Korea since the start of 2018 has been KT&G Corp., shipments associated with which accounted for 15.7% of total U.S. seaborne imports in the past two years. The largest overall importer was Japan Tobacco Inc. with 21.4%, while Philip Morris International Inc. accounted for just 7.2%, despite a surge in shipments in 2019.
(Panjiva Research - Consumer Staples)
Electrolux leads as tariffs change the shape of US washer imports
The U.S. government has adapted section 201 quotas on washing machine imports to be applied quarterly instead of annually. That may reduce the volatility of imports.
The tariff-quota system applied since early 2018 has been successful given Samsung Electronics Co. Ltd. and LG Electronics Inc. have opened assembly plants in the U.S. to mitigate the impact of tariffs.
Furthermore, imports fell 61.4% year over year in the 12 months to Oct. 31, compared to 2016. Exports from China and Mexico now dominate U.S. imports with shares of 29.0% and 25.2%, respectively, in the past 12 months. AB Electrolux in turn led exports from Mexico with an 85.0% share after a 36.3% surge in shipments in the three months to Oct. 31. Samsung was second with a 9.3% share.
(Panjiva Research - Capital Goods)
Cargill key to Zimbabwe's Mexican corn call
The government of Zimbabwe will start corn imports from Mexico, South Africa and Ukraine in response to the latest harvest failure. It's notable that the U.S. and Brazil are not included in the plans despite exporters in both countries looking for market opportunities after the loss of customers in China and Japan, respectively.
Additionally, Mexico was a net importer of corn in the 12 months to Oct. 31, with $3.15 billion of imports and just $230 million of exports. The largest exporter from Mexico in the January 2016 to October 2019 period was Cargill Inc. with 25.7% of shipments. It may choose to divert exports from other African markets including Kenya and South Africa depending on the price offered in Zimbabwe.
(Panjiva Research - Commodities)
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Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. 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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