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: Trade war may be the least of the worries facing supply chains
The integration of global supply chains leaves them vulnerable to black swan events, or those that have a low likelihood but a high impact.
The U.S.-China relationship may worsen should North Korea back away from denuclearization. America may blame China, jeopardizing a trade deal even though China's trade with North Korea fell 52.6% year over year in the 12 months to Nov. 30, 2018.
U.S.-China naval rivalry in the South China Sea and China's more hawkish stance toward Taiwan could become a military confrontation, albeit by accident. That would cause significant shipping issues in the region. There were 3.11 million 20-foot equivalent units of freight transited in 2018 to the U.S. from eight markets around the South China Sea, excluding China.
Similarly, the Hormuz and Bab-El-Mandeb straits remain at risk of conflict with implications for oil and for shipping via the Suez Canal. President Donald Trump has repeatedly threatened to close the border with Mexico, putting at risk the 70.5% of Mexican exports that move to the U.S. and Canada by land.
Technological threats involving cybersecurity and unmanned aerial vehicles interdiction were well established in 2017 (for A.P. Møller-Mærsk A/S and FedEx Corp.) and 2018 (for Gatwick airport) and could cause significant localized problems for supply chains.
Finally, most financial analysts expect an economic slowdown rather than a recession in 2019. A recession would be significant for the container-shipping industry given its weakened profitability and the potential for a rapid slowdown in trade volumes.
Trudeau-Trump talks go nowhere as US aluminum imports climb
Prime Minister Justin Trudeau and President Donald Trump have held discussions following the signing of the U.S.-Mexico-Canada Agreement. Tariffs on steel and aluminum were a source of controversy during the negotiations and may yet dog passage of the enacting legislation through the Canadian parliament.
Aluminum is the main sticking point for Canada, whose $7.1 billion of exports to the U.S. are 1.3x its steel shipments and have fallen by 8.8% year over year in the three months to Oct. 31. In the meantime, U.S. seaborne imports of aluminum have continued to climb with a 17.6% rise in the fourth quarter. That has been driven by increased shipments from South Korea and India by manufacturers such as Hindalco Industries Ltd. and Vedanta Ltd.
Sony faces tough choices if tariffs become permanent
Sony Corp. may restructure its supply chain in response to tariff increases with Ichiro Takagi, executive vice president for home entertainment, saying that the Japanese consumer electronics company would "consider manufacturing in other countries and regions" if U.S. duties on Chinese exports rise to 25% from 10% currently. Sony's U.S. seaborne imports have been in decline, falling 9.9% year over year in the fourth quarter of 2018.
That has been the result of Sony scaling back Chinese shipments, which represented 43.3% of the total in 2018 and fell 24.6% in the fourth quarter. The company already is increasing shipments from elsewhere, including televisions from Mexico. Further developments in its supply chain — including the PlayStation video-game console — will likely take years rather than months.
Airfreight stalls in November as seafreight steams ahead
Global airfreight growth ground to a halt in November 2018 with volume unchanged year over year after a 2.5% rate of expansion in the prior three months. A 2.3% drop in volume handled by Asian airlines is to blame, likely reflecting the effect of U.S. tariffs on Chinese exports, in part. Capacity growth continued with the result of a fourth straight month of lower load factors, which could suppress profitability for the airlines and freight forwarders.
The airlines likely underperformed marine freight. Seaports in China, Hong Kong and Singapore saw a 4.3% increase in containerized freight volume in November while those in North America experienced a 3.3% improvement.
2018 ends with a whimper, but Panama Canal diversion effect continued
Shipping via the Panama Canal ended 2018 on a low note with a 3.2% year-over-year decline in vessels transiting the canal in December. That meant the full year saw an increase of just 0.3%, though the increased use of the canal by larger vessels likely meant volume handled rose 8.0%. The start to 2019 will be driven by rising interest in the canal from larger vessels, offset by the risk to volume from the U.S.-China trade war.
The diversion of traffic from Asia to the U.S. East Coast caused by the canal continued apace in 2018. There was a 10.8% rise in U.S. imports from major Asia markets to the east coast compared with a 5.2% rise to the West Coast. A continuation of that trend in 2019 in part will be a function of continued competition with the Suez Canal.
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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