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.
2019 outlook: Innovation could help rebuild profitability
The global logistics industry had a challenging 2018 due to rising fuel costs and overcapacity, and 2019 won't be any easier. Services offering innovations in terms of routings may be needed to help rebuild profitability, which fell by 2.4 percentage points at the EBITDA line for container lines and 0.6 percentage point for freight forwarders. However, cross-alliance offerings could run afoul of antitrust reviews being conducted by the European Union.
Mergers and acquisitions are more likely to be vertical in nature — between shipping companies and forwarders — as already seen with CMA CGM SA and Ceva Logistics AG. Proof of strategy is needed, though: for example, A.P. Møller - Mærsk A/S's container line handled only 26.0% of its in-house forwarders' U.S.-inbound volumes in 2018.
Investments in sulfur emissions control equipment and new fuel surcharges are well underway ahead of new rules due to take effect in 2020. Yet, with low-sulfur fuels costing 48.5% more than high-sulfur there is a lot at stake in successfully delivering on those plans.
Operational risks from port congestion should subside early in 2019, assuming the trade war between the U.S. and China trims trans-Pacific volumes. In turn, that likely will increase competition between the Panama and Suez canals.
Finally, the new global container lines' technology alliance should ensure investments in high technology generate useful solutions for the industry, from nearly ready blockchain and multi-stack container systems to autonomous vessels and even hyperloop.
Shipping's lunar holiday cheer rests in trade negotiators' hands
Trade negotiations between junior-level trade ministers from the U.S. and China in the week beginning Jan. 7 may provide details on what concessions China may make on commodity purchases and economic policy and whether the U.S. will back away from its tariff-led negotiating strategy. The results will determine whether a wide-ranging deal to suspend the trade war is possible before the March 1 deadline.
The talks may have an impact on the fortunes of the container lines, which had benefited from a prior pre-tariff surge in shipping in the fourth quarter. Container rates for shipping from China to the U.S. have fallen by 13.8% on West Coast-bound routes and 15.2% on East Coast routes since the Dec. 2, 2018, summit between President Donald Trump and President Xi Jinping.
The negotiations also come at a time when container rates normally surge ahead of Asia's lunar new year holiday, which occurs Feb. 5. Over the past five years, global shipping rates have risen by an average 7.5% in the six weeks ahead of the lunar new year. Successful talks may depress rates as industrial supply chains are already replete, reducing the need for increased shipping ahead of the holiday. But failed talks, leading to a renewed rush to build inventories and higher shipping rates, remains a possibility.
Steel supply chains start 2019 with EU policy distortion
The European Commission has confirmed it will apply 25% tariffs on steel imports over the "level of traditional flows." That comes as a response to U.S. tariffs applied in March 2018 and could further distort global steel supply chains. EU imports of all iron and steel products climbed 15.5% year over year in the three months to Oct. 31 compared to an 8.4% increase in U.S. imports over the same period.
China, Turkey and South Korea accounted for 63.0% of the increase in EU imports in euro terms. China and Turkey — as a result of a trade war or sanctions — have been subjected to higher tariffs than average by the U.S. Should the EU's move be accepted by the WTO, it is likely other countries will follow suit.
9th year of logistics payroll growth leaves dockworkers behind
U.S. logistics employment grew at a faster rate than the economy at large for a ninth straight year in 2018. The growth in the industry's payroll expanded by 3.6% year over year versus 1.8% for all nonfarm payrolls as a result of surging growth in the courier and warehousing sectors. A recovery in the fortunes of rail, which rose by 2.2% from a 2.4% drop in 2017, and trucking assured accelerating growth overall. The one sector to miss out has been waterborne employment, which fell 0.3% despite a 6.1% increase in U.S. seaborne imports. Further port automation and the risk of a continued rise in U.S. protectionist trade policies bode ill for 2019.
Trans-Pacific sentiment mismatch may reflect differing policy outlooks
U.S. business sentiment may reflect hopes that the U.S.-China trade truce will become permanent. Import order expectations in the most recent ISM survey fell to 52.7 from 53.6 in November 2018 (a figure over 50 indicates expansion) while the export outlook improved to 52.8 from 52.2. There are reasons to be cautious. First are signs of an economic slowdown; the overall manufacturing expectation reading fell to its lowest level since November 2016. Second, Chinese businesses expect declines in exports and imports. Chinese expectations for imports fell to their lowest since July 2012 in December 2018. German sentiment also has declined, though that may indicate concerns regarding Brexit more than global issues.
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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