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The costs of Trump's tariff wall; FedEx in China's firing line

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The costs of Trump's tariff wall; FedEx in China's firing line

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.

Trump imposes tariffs to bolster Mexico wall
The Trump administration has threatened to impose tariffs of 5% on all Mexican exports from June 10, rising by 5% on the first of each month, if Mexico does not tackle rising northbound migration. Panjiva analysis shows that U.S. imports from Mexico in 2018 were worth $346.2 billion, implying each 5% of tariffs will cost U.S. importers — who pay tariffs in the first instance rather than Mexican exporters — $17.3 billion.

The largest sector facing tariffs is autos, with $82.5 billion of imports in 2018 led by General Motors Co. at $17.3 billion, Fiat Chrysler Automobiles NV at $14.7 billion and Volkswagen AG at $8.5 billion. Energy imports by Petróleos Mexicanos SA de CV were worth $18.6 billion.

The tech hardware sector includes Hon Hai Precision Industry Co. Ltd. (Foxconn) at $14.3 billion, Wistron Information Technology & Services Corp. at $4.3 billion and Jabil Inc. at $3.2 billion. Other sectors with a significant exposure include food/beverages, capital goods, healthcare and metals.

(Panjiva Research - Policy)

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FedEx in firing line of China's new trade war weapon
The Chinese government is introducing a new weapon in the trade war with the U.S. The State Council has released a white paper indicating the country will "never give in on major issues of principle."

The Ministry of Commerce is launching an "unreliable entities" list including those where activities "deviate from the spirit of" contracts. The government has also launched an investigation of FedEx Corp.'s operations on behalf of Huawei.

While no formal sanctions are yet identified, it is possible that FedEx may see its business in China, which represented 60.1% of its U.S.-inbound seaborne shipments in the 12 months to April 30, being limited. The biggest three China-based users of its services are technology hardware companies Quanta Computer Inc., Qisda Corp. and Foxconn.

Among the other big U.S.-domiciled forwarders, United Parcel Service Inc. is the most exposed to China with 73.5% of its inbound seaborne shipments coming from China.

(Panjiva Research - Logistics)

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Vale's dam disaster — market, supply chain, pricing, corporate impacts
Vale SA's iron ore mining disaster in February has had a knock-on effect across commodity markets. The disaster has led to a rapid decline in iron ore stocks, with Vale's production falling 11.1% year over year in the first quarter.

That has led S&P Global Market Intelligence's Metals and Mining Research team to cut its global output expectations, which will result in a global seaborne deficit of production versus supply of 36 million tons in 2019 and 11 million tons in 2020.

Panjiva's data shows that Vale's exports to China have been cut slightly less than average, with a 29.2% year-over-year decline in March, leading China to represent 60.2% of Vale's exports in the first quarter. The offset from other producers including CSN has not made up the difference though.

S&P Global Platts said Chinese buyers have also suffered from the resulting change in the chemistry of their iron ore import mix, increasing so-called alumina penalties to $6 per dry metric ton May 16 from $1.70/dmt on Jan. 25. That has helped Trafigura Beheer BV and BHP Group, among others.
(Panjiva Research - Metals & Mining)

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Worst export drop under Trump could be down to tariff push
U.S. international trade activity fell 2.0% year over year in April. That was largely the result of a 3.6% drop in exports, the worst, and only second, decline since July 2016 and, therefore, the largest decline under the Trump administration. The U.S. also joins 14 of the 20 countries that have reported April trade data that has shown a drop in exports, extending a trend of slowing growth since the third quarter of 2018.

While U.S. imports fell too, the trade-in-goods deficit rose to $72.1 billion, the highest for April since 2008. The downturn in exports was broad based and included a 3.3% slide in capital goods, 7.7% in autos and 3.3% in industrial supplies. All three are exposed to China's retaliatory tariffs. Chemicals, for example, had already dropped 17.9% in the first three months of 2019 compared to a year earlier.

(Panjiva Research - Policy)

Savannah brews up new connections to serve Anheuser-Busch
The Georgia Ports Authority will invest $220 million to connect the port of Savannah to the rail hub at St. Louis, Mo. That is part of a wider growth plan that has seen the port's container handling surge 8.4% higher year over year in the 12 months to April 30. Shipments to consignees in the 100 kilometers around St. Louis have climbed 14.9% year over year to reach 165,800 twenty-foot equivalent units.

Shipments from Savannah specifically represent only 11.9% of the St. Louis total despite a 38.0% surge in the past 12 months. The largest consignee in the territory is brewer Anheuser-Busch InBev SA with 23.0% of shipments to the area, followed by furniture company Dorel Industries Inc. with 5.7%.

(Panjiva Research - Logistics)

CMA CGM's rebound illusory, restructuring of routes necessary
CMA CGM SA reported a strong rebound in profitability on face value in the first quarter, with an EBITDA margin of 10.5% compared to 4.1% a year earlier. Yet, excluding lease accounting and the acquisition of Ceva Logistics, that margin dropped to 3.6% in the first quarter. By contrast, almost all other container lines reported an improvement in profitability.

Shipments by the group from Asia, excluding China, to the U.S. surged 16.3% year over year in the first quarter and by 11.8% in April, indicating a more aggressive stance toward market share. That underscores the need for CMA CGM to deliver its cost-cutting program.

Part of that program involves rescheduling its routes to remove APL from its Asia-Europe business. It is not yet clear whether the eponymous container line will withdraw from Transpacific routes. APL accounted for 45.0% of the combined entity's Asia-U.S. volumes in the 12 months to April 30.

(Panjiva Research - Logistics)

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. 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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