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Brexit brink blown back; alliances matter more than competition

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Brexit brink blown back; alliances matter more than competition

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.

Brexit brink blow back, port capacity should not be a problem
The British Parliament has voted to request an extension to the Brexit negotiating process with 67.1% of votes in favor. Permission from the European Union should be forthcoming at a summit meeting starting March 21 with EU President Donald Tusk likely to request a "long extension" to ensure a resolution to negotiations. A second referendum to abandon Brexit still has a low likelihood, particularly given a whipped, but heavily abstained, parliamentary vote rejected such a concept.

Uncertainty for industrial supply chains continues. Bottlenecks at Britain's ports are likely to be administrative rather than physical in nature. Indeed, growth in activity in British ports has been lackluster with a 0.1% year-over-year reduction in the fourth quarter of 2018. A three-year annual decline of 0.5% has meant volumes have yet to return to pre-financial crisis levels.

The best-performing ports have seen more growth though and so may need additional investment. Peel Ports Group Ltd. saw a 12.9% year-over-year growth in the fourth quarter of 2018 in Liverpool and DP World Ltd.'s London port experienced a 6.9% improvement.

(Panjiva Research - Policy)

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Alliances matter more than competition as freight activity dips
Container shipping firms operating U.S.-inbound routes saw a 3.9% year-over-year decline in volumes in February, largely due to reduced shipments from China. Evergreen Marine Corp. (Taiwan) Ltd. and Orient Overseas (International) Ltd. were the only shipping firms to see improved handling while the biggest losers were Cosco Shipping Holdings Co. Ltd. and Hyundai Merchant Marine Co. Ltd.

MSC Mediterranean Shipping Co. SA saw the biggest reversal of fortunes with a 3.9% slide, compared to a 15.5% rise in the prior three months. Yet, when MSC's performance is combined with that of its 2M Alliance partner, A.P. Møller - Mærsk A/S, the two together saw a decline of just 4.5%.

The other two major shipping alliances of Ocean — CMA CGM SA, Evergreen, Cosco and Orient — and THE — Ocean Network Express, Hapag-Lloyd AG and Yang Ming Marine Transport Corp. — saw a similar performance. That suggests that much of the differential in shipping lines' performance is down to intra-alliance arrangements, while also showing minimal competition between the alliances. The latter comes just as the EU is reviewing the exemption of alliances from its competition rules.

(Panjiva Research - Logistics)

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Pemex's joint venture delay could exacerbate Mexico's oil export downturn
The Mexican government may delay the launch of oil drilling joint ventures for foreign firms with state-owned Petróleos Mexicanos SA de CV due to prior underinvestment by such partners. That may jeopardize the energy security strategy of the government but comes as Mexican exports of oil have been in decline.

Exports dropped 6.0% year over year in January after a 14.2% slump in the fourth quarter of 2018. That was led by a drop in shipments to the U.S., which accounted for 57.7% of deliveries in 2018. In turn, that means Pemex will become more reliant on customers in India, including Indian Oil Corp. Ltd. and Hindustan Petroleum Corp. Ltd., and South Korea, among others.

(Panjiva Research - Energy)

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CMA-CGM secures Ceva majority, closer coordination already started
Container-line CMA-CGM has acquired 89.5% of the shares in Ceva Logistics AG. That allows it to continue with the process of closer operations, but not a complete merger, with the freight forwarder. Ceva Logistics has aggressively built up its market share on U.S.-inbound routes over the past year with a 20.0% year-over-year surge in shipments in the three months ended Feb. 28.

There are already signs of closer coordination between the two firms. During the three-month period, CMA-CGM's share of Ceva's shipping increased to 27.4% year over year from 18.6%. There may be room for further developments in that regard if the members of CMA-CGM's Ocean Alliance shipping group use Ceva preferentially too.

(Panjiva Research - Logistics)

Chinese exporters shoulder US tariff burden with further price cuts
U.S. import price deflation continued for a third straight month in February. There was a 1.3% year-over-year drop in headline prices and a 0.3% decline when excluding food and fuels. The price of imports from China fell for a fourth month with a 0.7% decline from 0.6% in January. That would suggest Chinese exporters may be bearing some of the burden of U.S. import duties by cutting their quoted prices. The suspension of tariff increases may slow that effect. Yet, a 1.2% drop in prices for imports from ASEAN would suggest there is a wider challenge from slowing global trade.

(Panjiva Research - Policy)

Tariff leniency backlog could jump to 35 months
U.S. Trade Representative Robert Lighthizer is due to announce a process for providing exemptions to tariffs on Chinese exports that were applied in September 2018. There are two major issues to be addressed. First is that the whole process could become unnecessary if U.S.-China trade talks reach a successful conclusion. That is unlikely to occur until at least April. Second is that only 40.1% of the 13,738 cases filed in relation to tariffs applied in July and August 2018 have been completed. It will take another six months to complete those. Given the September 2018 tariff round was 4x the size of earlier rounds, it could take another 29 months to assess the full range of tariffs.

(Panjiva Research - Policy)

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.

The Supply Chain Daily has an editorial deadline of 7:30 a.m. ET. Some external links may require a subscription. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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