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FedEx faces trade war toll; LG, Electrolux let tariffs wash over them

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FedEx faces trade war toll; LG, Electrolux let tariffs wash over them

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.

Trade war takes toll on FedEx, tariffs aren't the only issue
FedEx Corp. reported unchanged revenues compared to a year earlier for its fiscal first quarter, as well as a drop in its EBITDA margin to 10.9% compared to 11.7% a year earlier. That marks the 14th straight quarter of declines. Weak volumes in international trade are a major contributor. IATA data shows that global airfreight handled by all carriers fell by 3.8% year over year in the three months to July 31.

Similarly Panjiva data indicates U.S. seaborne imports fell 0.1% in the three months to Aug. 31. FedEx's volumes on U.S. inbound seaborne routes fell 7.8% over the same period, losing out to competitors including C.H. Robinson Worldwide Inc. and United Parcel Service Inc.

The firm has cut its earnings guidance in part due to "increasing trade tensions and policy uncertainty" according to CEO Fred Smith. While the China-U.S. trade war is hurting volumes because of tariffs, FedEx may also be at risk from non-tariff measures. Imports from China represented 61.6% of its inbound traffic to the U.S. by sea in the 12 months to Aug. 31. Being added to the government’s forthcoming "unreliable entities" list or receiving a low "social credit" score could put those volumes at risk.

(Panjiva Research - Logistics)

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LG Electronics, Electrolux refuse to be washed out by tariffs
The Trump administration's tariff-led approach to trade policy has had varying success. Imports of solar panels have begun to increase despite tariffs, while steel and aluminum duties have been largely successful in reducing imports. The combination of tariffs and quotas in the case of washing machines have both cut imports and driven leading overseas firms to build U.S. factories.

Panjiva data shows U.S. imports of washing machines fell 45.7% year over year from Jan. 1 to July 31 and were 38.1% lower than the same period in 2015. The major importers have followed different import strategies.

Panjiva's seaborne shipping data suggests Samsung Electronics Co. Ltd. cut its imports by 12.4% year over year in the year to Aug. 31. By contrast, LG Electronics Inc.'s shipments rose by 19.2% potentially as a result of struggling to ramp up production at its new U.S. factory. Electrolux meanwhile may have seen a 44.1% rise in its shipments.

(Panjiva Research - Consumer Durables)

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Intel, ON tackle semiconductor volatility from trade friction
Semiconductor manufacturers are facing a mixture of slowing demand and complications from the U.S.-China trade war. Intel Corp. has noted it is not expecting a rebound in enterprise demand due to "macroeconomic uncertainty and trade wars."

ON Semiconductor Corp. has flagged that Chinese customers did "preload their inventories, either in anticipation of increased tariffs or other kinds of trade actions." Demand has slipped, with U.S. imports of memory chips and processors falling by 48.3% and 15.3%, respectively, in July compared to a year earlier.

Yet, there are signs of a slowing rate of decline globally. Combined exports from China, Japan, South Korea and Taiwan have fallen by just 0.9% year over year in August after a 5.0% slide in the prior three months. There has been significant divergence by country, with Chinese exports up by 33.7% and South Korean exports down 30.7%.

(Panjiva Research - Tech. Hardware)

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Paris could sink USMCA passage, fish industry's protection
Over 100 Democrats in the U.S. House of Representatives have called on the Trump administration to make "fundamental changes" to the current form of the U.S.-Mexico-Canada Agreement, or USMCA, by incorporating into the three-way deal a commitment to remain in the Paris climate change deal. If the Democrats hold the line, it may prevent the passage of the USMCA or cause a split-party vote.

Given President Trump has issued a notice to withdraw from Paris, a showdown seems likely at a minimum. Indeed, the administration has used the environmental chapter of the USMCA to promote enforcement of rules on trade in fisheries and timber rather than to push for greenhouse gas mitigation.

The incentive to protect U.S. fish exporters including Conagra Brands Inc.s Trident Seafoods is clear given U.S. exports fell 11.0% year over year in the past 12 months to July 31. There was a 4.2% reduction in shipments to Canada and Mexico as well as a 31.2% drop in exports to China.

Ironically, the main growth market for U.S. fish has been Europe, with a 3.2% increase, where a trade war is brewing and where a trade deal would require remaining in the Paris climate deal.

(Panjiva Research - Policy)

India looks to cut coal imports, U.S. suppliers may pay the price
The Indian government will allow foreign firms to tender for coal mine developments for the first time, in part to reduce the growing Indian reliance on imported coal and in part due to reduced financing capacity at Coal India Ltd.. Indian imports surged 18.5% higher in the second quarter and reached $19.9 billion in the 12 months to June 30.

Panjiva data shows Australia has represented the single largest share with 36.8% of the total in the past 12 months, focused on thermal coal for power generation. Indonesian shipments represented 29.3% and may be protected in order to preserve related deals regarding rice and palm oil. An outlier has been imports from the U.S., which fell 13.8% in the second quarter and may have fallen by a further 47.9% in July on the eve of a new trade deal between the two countries.

(Panjiva Research - Energy)

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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