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.
Hogs and washers — tariffs take a toll across the board
The 2018 fourth-quarter earnings reports for Harley-Davidson Inc. and Whirlpool Corp. illustrate the varying challenges being faced by U.S. businesses as a result of U.S. tariffs. Harley Davidson's CFO, James Olin, expects a mixture of EU tariffs on U.S. motorcycle exports and duties on U.S. component imports to cut up to $120 million, or 15%, from pretax profits in 2019. U.S. exports of motorcycles by all manufacturers fell 36.1% year over year in the fourth quarter of 2018.
Whirlpool meanwhile was a beneficiary of tariffs applied in January 2018 on imports of washing machines, which have cut imports by Samsung Electronics in the 2018 by 26.1% versus 2016 levels and LG Electronics' by 39.3%. Yet duties on metals and components from China are expected by Whirlpool's CFO Marc Bitzer to add $300 million to 2019 costs, or 30.8% of 2018 pretax profits. Bitzer has also taken a conservative stance and included an increase in tariffs in March to 25% from 10% on U.S. imports from China.
CH Robinson delivers, gives an upbeat but risky outlook
Freight forwarder C.H. Robinson Worldwide Inc. reported fourth-quarter EBITDA that was 7.6% higher than analysts' expectations, resulting in an EBITDA margin of 6.8% compared to 5.9% in the same period a year earlier. That was predominantly driven by improved conditions in North American surface freight, echoing J.B. Hunt Transport Services Inc.'s results.
There was also a surge in profitability in the global forwarding operations, helped by an increase in market share. For example, U.S. seaborne imports climbed 13.0% year over year in the fourth quarter of 2018 compared to 7.7% for its peers. The firm expects a "balanced freight market" and continued economic growth in 2019. With 58.7% of C.H. Robinson's U.S. seaborne inbound freight coming from China both those assumptions will require a successful outcome to this week's U.S.-China trade talks.
Brazilian beans' perfect storm could swamp Louis Dreyfus, Bunge
The European Commission has approved the use of U.S. soybeans in the production of biofuels, a move that could help improve relations ahead of forthcoming trade talks with the U.S. EU imports of soybeans from the U.S. had already surged 37.3% higher in the 12 months to Nov. 30 compared to a year earlier, while Brazil's only increased 12.9%.
Brazilian farmers also face dryer-than-normal weather and so may see less production next season. Should China — which took 75.9% of Brazilian beans in the past 12 months — cut tariffs on imports from the U.S. and should swine fever continue to spread in China, there could be a marked drop in demand. The fastest-growing shipper of soybeans from Brazil in the past 12 months was Louis Dreyfus Co. B.V. with a 60.4% expansion in shipments, while Bunge Ltd. remained the largest with a 16.4% share of exports.
Worst export development since 2009 for Savannah confirms US export crash
Container handling through Georgia Ports Authority Inc. facilities in Savannah climbed 8.7% year over year in December 2018 due to a 19.1% surge in imports. That in turn was the result of a 26.6% jump in shipments from China as importers sought to pre-empt tariffs that were due Jan. 1 but are now delayed to March 2. Imports from China accounted for 44.1% of Savannah's imports in 2018, leaving the port exposed to the outcome of this week's U.S.-China trade talks. The December data for exports was significantly worse with a 16.7% drop being the worst result since February 2009. When added to data from six other U.S. ports it appears U.S. maritime exports could have fallen by 9.1% year over year in December 2018.
Graco expects bumpy ride, but safe passage, through tariffs
Kids' car seat manufacturer Graco Inc. reported fourth-quarter pretax profits that were 3.2% below expectations. The firm also provided guidance that U.S. tariffs on Chinese exports could add $25 million to costs in 2019. That takes the conservative assumption that tariffs will rise to 25% from 10% in March. The increase is equivalent to 6.1% of 2018 pretax profits. CFO Mark Sheahan has indicated the company will "be able to more than offset the tariff impact" through price increases. The tariffs also likely led the company in the fourth quarter of 2018 to cut seaborne imports from China, which dropped 24.7% year over year, with shipments from Hong Kong. Further substitution is possible, though limited, with sourcing from South Korea.
Manila congestion could cause local supply chain changes
Congestion at the Port of Manila has led foreign manufacturers to consider moving factories to other countries to ensure efficiency operation of their supply chains. The port has expanded steadily with an 8.2% compound annual growth in handling in the three years to Sept. 30. The congestion has yet to take a toll on Trans-Pacific shipping — U.S. imports surged 29.1% higher year over year in the fourth quarter — though could rapidly become a problem. The food industry, which represented 29.2% of U.S. inbound traffic in 2018, is particularly at risk due to perishability of goods. Major U.S. importers that rely on the ports' efficient operations include apparel-maker Kukdong Corp. and building products manufacturer Hampton Products Inc.
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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