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: Supply chains face change as uncertainty lingers
Trade policy uncertainties in 2019 will force companies to address their supply chain strategies internally and with investors. Most businesses are less upbeat about the outlook for global trade than a year ago, according to the latest sentiment surveys. Some companies will use the U.S.-China trade war to justify earnings guidance adjustments while others will use it to inform strategic change.
Out of 20 companies analyzed following the third-quarter earnings season, eight, including Mitsubishi Corp., Johnson Matthey PLC and AB Electrolux (publ), are relying on price rises to pass through tariffs. Three companies, including Navistar International Corp., are cutting costs elsewhere to maintain profitability.
Many industries have increased inventories to pre-empt tariff increases from the 10% applied by the U.S. in September 2018. That is a strategy followed by the chemicals, auto-parts and electrical equipment industries, whose U.S. imports climbed 34.1%, 16.0% and 15.9% year over year, respectively, in the three months to Oct. 31, 2018. Industries that already have suffered 25% tariff rates have either cut purchases — such as semiconductors, where imports fell 25.8% — or applied for tariff exemptions.
But tariff exemptions are not a panacea as only 18% of requests by over 1,400 companies, including Nestlé SA and Uber Technologies Inc., have received responses as of Jan. 4. To date, few companies have outlined responses that include shifting production out of China, although an increasing number are doing so, such as GoPro Inc. and Samsonite International SA. Over the longer term, expanding markets and improved manufacturing automation may make geographic supply chain re-engineering a necessity rather than a reaction to tariffs.
China tariff worries buoy US imports in December
U.S. seaborne imports surged 8.8% year over year in December 2018, including a 13.4% increase for containerized freight, defying expectations of a slowdown. Imports from China were the main driver with a 14.6% improvement. The agreement between President Xi Jinping and President Donald Trump to suspend tariff increases was reached only at the start of December and trans-Pacific shipments take four to seven weeks to complete.
Consumer-related products continued their steady expansion. Furniture imports led the way with a 23.4% jump. Industrial supply chains were mixed with auto imports down 1.2% and chemicals up by 2.3%, while machinery and electronics imports surged 12.6%. Machinery and electronics imports were the main areas where 10% duties were applied to Chinese exports in September 2018.
The outlook for early 2019 for U.S. seaborne imports, which grew 6.4% in 2018, is susceptible to strong forces. Full industrial inventories and a reduced threat of tariff increases until March may lead to slower shipments in January. Yet, the earlier lunar new year versus 2018, continued strong (but declining) consumer and industrial sentiment, and the narrow window for a U.S.-China tariff deal may continue to buoy imports on a year-over-year basis.
Samsung switches on to iTunes as LG and Funai pull ahead
The annual Consumer Electronics Show often reveals new products and strategies that can reshape corporate supply chains. Samsung Electronics Co. Ltd., for example, has announced a deal with Apple Inc. to distribute iTunes movie content via its TVs in the spring.
The U.S. television market has undergone a resurgence with 6.7% year-over-year growth in imports to reach 44.3 million sets in 2018. That followed a 1.9% decline in 2017. Yet, Samsung has fallen behind with its imports down 3.4% in the 12 months to Nov. 30 compared to a year earlier, explaining its desire to add content as well as hardware upgrades. By comparison, LG Electronics Inc. saw a 14.0% rise while Funai Electric Co. Ltd., sold under the Philips and Sanyo brands. climbed 6.8%.
Samsung and Foxconn prepare for tariff changes in India
Over three-quarters of Indian mobile phone factories may face closure as a result of tariffs due to be applied by the Indian government later in 2019, according to the India Cellular and Electronic Association. Indian imports of telecoms components have begun to decline with a 16.1% year-over-year drop in the third quarter after a 14.9% increase in the prior three quarters on average. There has been a shift in supply chain structuring, too, with imports from China falling more than average while those from Vietnam and South Korea — by Samsung Electronics and Hon Hai Precision Industry Co. Ltd., also known as Foxconn, among others — surged 49.1% and 47.6%, respectively.
Trade pact challenge in US could attract Mexico's ire
The finalized U.S.-Mexico-Canada Agreement has yet to achieve passage through each country's legislatures, yet already there are challenges regarding rules that were left out. Sen. Marco Rubio, R-Fla., and others have introduced legislation requiring U.S. antidumping cases to consider seasonal rather than annual average import figures to be used when assessing agricultural cases. That would have a significant impact on the fruit industry. U.S. imports of berries have climbed 13.6% year over year in the 12 months to Oct. 31, 2018, with Mexico accounting for 65.8% of the total over that period.
Aside from complicating supply chains for major produce handlers including Fresh Del Monte Produce Inc. and Mission Produce Inc., it could trigger a negative reaction from the administration of President López Obrador. The U.S. accounted for 84.7% of Mexico's $9.11 billion of fruit exports in the 12 months to Nov. 30, 2018, with exports of raspberries and strawberries, where the U.S. represented more than 95% of Mexican exports, particularly vulnerable.
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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