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 tensions weigh on sourcing strategies, survey shows
A resolution, or otherwise, of the U.S.-China trade war will be one of the defining issues for global supply chains in 2019. Panjiva surveyed over 270 corporations in the past three weeks to determine views and plans regarding the imposition of bilateral tariffs. Only 8% of respondents had not been affected by tariffs since July 2018, with 43% postponing investment or other decisions as a result.
Additionally, 71% of respondents plan to formulate new strategies while the level of tariffs will make a meaningful difference to companies' willingness to act. Two-thirds of companies have already increased prices while three-quarters will do so if tariffs increase further. There already is a significant impetus to shift sourcing strategies, with 71% planning to do so at current tariff rates and 87% at higher tariff rates.
Many companies will shift sourcing away from China as a result of tariffs — 82% versus 50% before — but only 31% plan to increase U.S. purchasing. Trade tensions may not be a short-term issue: While 67% of respondents expect reduced tensions in the coming 12 months, only 38% see a significant lessening before the 2020 U.S. presidential election.
Agreement in U.S.-China talks seems some way off still
The first round of trade talks between the U.S. and China ahead of a March 1 deadline appear to have covered the economic policy and trade deficit issues required by the U.S. The terse statements from each side — 180 words from the U.S., 74 from China — would suggest that final agreements are still some way off.
The U.S. remains focused on cutting the "persistent trade deficit" with China. Cutting it in a meaningful way will prove difficult. While U.S. imports will fall due to an end of pre-tariff inventory build, each 25% cut in the U.S. trade deficit would require a 69.5% rise in Chinese exports to the U.S.
China's "pledge to purchase a substantial amount of agricultural, energy and manufactured goods" will rely on state-owned enterprise purchases. If China meets 50% of its soybean needs from the U.S., receives 100% of all U.S. crude oil and LNG exports, and 100% of its aerospace imports from the U.S., there would be an additional $52 billion of annual imports from America. However, that is only 12.7% of the trade deficit and relies on U.S. harvests, volatile energy prices and aerospace order books that already are full.
The requirement for "ongoing verification" on the U.S. side and a need to make progress on Chinese industrial policy may make a March 1 deadline for a final agreement difficult to achieve. No formal timetable is set for the next round of talks, suggesting tariff uncertainties for industrial supply chains will last longer.
Honda, Jaguar scale back imports as US auto sales grind to a halt
U.S. auto sales inched ahead in December 2018 with a 0.1% year-over-year rise in sales, capping a year that has seen growth of just 0.3% compared to 2017 to reach 17.2 million vehicles. Overseas manufacturers likely outperformed domestic ones — full details are not available due to the government shutdown. Exporters to the U.S. may be anticipating a further slowdown with seaborne shipments down by 1.2% year over year in December.
The main unknown for overseas automakers is the impact of the Section 232 review of the industry, which the U.S. Commerce Department is due to report on Feb. 17. That is likely to focus on components rather than completed vehicles, perhaps explaining why most manufacturers have slowed their imports rather than stockpiling. Honda Motor Co. Ltd. cut shipments in December by 14.1%, Tata Motors Ltd.'s Jaguar Land Rover by 12.3% and Mazda Motor Corp. by 6.2% while most others increased U.S. imports by less than one 1%.
Los Angeles leads growth and momentum as ports end 2018 on a high
U.S. ports ended 2018 on a high note after a 13.4% year-over-year rise in containerized freight in December led the full-year total to climb 7.7% and reach 28.9 million twenty-foot equivalent units, or TEUs. The December surge was led by increased shipments from China.
The Los Angeles/Long Beach complex saw the fastest acceleration in growth, with a 19.2% rise in inbound shipments from 6.0% on average in the prior three months. LA's success has hinged on a handful of new and expanding users, including Amazon.com Inc., IKEA AB and Home Depot Inc. Most eastern seaborne ports also saw an acceleration in growth, with Savannah up 17.1% from 8.8% on average in the prior three months.
Many ports, including LA, are becoming a victim of their own success as congestion builds. A drop in volume may already be on the cards. A.P. Møller-Mærsk A/S and MSC Mediterranean Shipping Co. SA have increased their blank sailings for the forthcoming Lunar New Year shipping season while reduced shipments are possible if the tariff truce between the U.S. and China holds.
Train takes the strain to reduce congestion risks in New York
The Port Authority of NY/NJ has completed a five-year investment in rail capacity that should increase rail shipments from the port by 40.0% compared to the level seen in the 12 months to Nov. 30, 2018. That should help address rising congestion issues arising from waterside investments that have driven a 6.8% rise in containerized freight handling in the 12 months to Nov. 30 compared to a year earlier. Imports, which accounted for 71.0% of port throughput, will benefit, in particular. Consignees located more than 200 miles away from the port accounted for 69.7% of imports in the past 12 months and include Home Depot and Anheuser-Busch InBev SA, among others.
Cosco aims to tackle competition with Hong Kong port alliance
Cosco Shipping Ports Ltd. has launched an alliance for operating ports in Hong Kong with three other companies as a response to "growing regional competition" for services as well as rising market power held by the big container line shipping alliances. Container handling at Hong Kong ports fell 5.9% in the 12 months to Nov. 30 compared to a year earlier to 19.73 million TEUs, compared to a 3.4% rise at Chinese mainland ports. The potential for further shipping alliance integration and the outcome of the U.S.-China trade war cast further doubts on the prospects for the Hong Kong ports. The top 10 container lines accounted for 93.2% of Hong Kong-to-U.S. shipping in 2018, with the top three alone — Cosco Shipping Holdings Co. Ltd., CMA CGM SA and Ocean Network Express — representing 57.6% of volume alone.
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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