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.
Delivery in doubt - Logistics industry prospects in 2020
The logistics industry faces a series of challenges in 2020 which have their roots in a period of upheaval from the past three years. Container shipping rates start the year at their highest since April 2015, but much of the improvement is down to higher fuel costs.
Indeed, S&P Global Platts data shows bunker-excluded container rates fell to $852 per forty-foot equivalent unit, or FEU, on Asia-to-Europe lanes in the fourth quarter of 2019, compared to $924 per FEU a year earlier due to the need to use low-sulfur fuel. Further cost increases due to EU regulations of carbon emissions also face the industry though the impact on costs could be more modest than for sulfur, at least initially.
While container line profitability improved in the third quarter of 2019 to an 11.1% EBITDA margin that included a benefit from lease accounting changes at Maersk and Hapag-Lloyd and only leaves the ratio at third-quarter 2017 levels. The shipping industry may therefore need to cut costs.
Improved productivity is one answer. The ratio of growth in shipping employment in the U.S. to shipping volumes improved by 3% per year in 2011 to the third quarter of 2019, but reversed by 8% in the fourth quarter of 2019. Yet, cutting headcount to compensate could generate labor unrest.
Consolidation may be another route to improved profitability. The container-lines' consolidation is already done — the top 10 liners represented 87.4% of U.S. inbound shipping in 2019, but in the freight forwarder sector, the ratio is just 14.1%.
Consolidation between freight-forwarders — seen in the DSV Panalpina A/S merger in 2019 — as well as between container lines and forwarders, shown by A.P. Møller - Mærsk A/S and CMA CGM SA, may make sense if the right mix of seaborne, land and airfreight services can be achieved on top of providing geographic diversity. In terms of the latter, a combination of Europe-centric operators such as Kuehne + Nagel International AG or Deutsche Bahn AG's Schenker with Asia specialists such as Honour Lane or Kerry Logistics Network Ltd. may make sense.
New York has 2020 drinks problem as US ports end 2019 with a dive
U.S. seaports had a tough end to 2019 with a 10.6% year-over-year drop in inbound containerized shipments in December. The West Coast ports saw the worst performance with Los Angeles and Long Beach suffering a drop of 22.3% and 15.5%, respectively, due to their higher-than-average exposure to China. Shipments from China have declined due to tariffs as well as the timing effect resulting from tariff worries in late 2018 and fall 2019.
The East Coast ports were not immune. New York's total inbound traffic fell by 7.2% in December after a 1.8% improvement in the prior three months. It was not just China that drove New York down — shipments from Europe also dropped by 5.5%. New York may see more of the same if relations between the U.S. and EU continue to worsen and lead to widening tariffs.
The drinks sector, which represented 15.3%% of traffic through the port from Europe in 2019, is particularly exposed and may see lower shipments from spirits makers such as Diageo PLC, beer producers including AB InBev SA and even soft drinks shippers such as Red Bull GmbH.
Fish fight 1st of the post-Brexit free trade frictions
British trade growth reversed in November with a 4.4% yearly slide following growth of 2.8% in the prior three months. That included a 10.9% drop in trade with the EU that was in large part down to the delay in a "hard Brexit" and subsequent destocking.
Formulating a new trade deal with the EU after the transition exit period which runs from Jan. 31 to Dec. 31 will prove far from easy. Both sides want zero tariffs on merchandise but are well apart on regulatory and non-merchandise issues. In any event, the EU is unlikely to have its own stance settled until March.
Even at a detailed level, there are already differences regarding access to British fishing waters with the EU wanting "reciprocal access" while Prime Minister Boris Johnson has stated the U.K. wants to "take back control" of territorial fishing grounds. Fishery exports from the U.K. were worth £2.05 billion in the 12 months to Nov. 30 after growth of 11.8%, with the EU accounting for 66.6% of the total.
Fish will also be an important part of a trade deal with the U.S., which represented 15.2% of the total after a 56.3% year-over-year surge. Improved access to U.S. markets potentially help Karro Foods and Pelagia AS, among others.
Treasury's tariff take reached $74B in 2019, could break $90B in 2020
The U.S. Treasury has reported customs duty income of $6.45 billion in December, up by 7.6% compared to a year earlier. That came despite a 5.7% dip in merchandise imports resulting from the drag on demand from tariffs on imports from China.
The ratio of duties to imports of 3.2% in December was below the peak level of 3.7% seen in October due to the effect of demand deflection. Looking ahead, the "phase one" U.S.-China trade deal will only make a small dent in duty income — effectively a tax paid by American importers — of $620 million out of the $4.09 billion resulting from section 301 duties on imports from China.
The full-year 2019 customs duty income of $74.1 billion could rise to $90.8 billion in 2020 as the full impact of tariff increases made in May and September 2019 apply to a full year. That compares to $35.2 billion of tariff income in 2017.
Philippines shows China chip dominance growing, regional trade still weak
The Philippines rounded out a lackluster November performance for exports from Asia. A 0.7% dip in exports from the Philippines compared to a 0.3% rise in the prior three months, largely down to a drop in growth of semiconductors to 2.2% from 8.9% in November.
That may be another sign of China building its market share in semiconductor and circuit production — China's exports of the two jumped 34.8% higher yearly in December, compared to a 24.7% improvement in November.
Overall, exports from Asia fell by 2.7% year over year in November — the fourth straight decline. Evidence from December, including China, suggests there may have been a better performance for the region at the end of 2019.
S&P Global Market Intelligence a S&P Global Platts are owned by S&P Global Inc.
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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