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 and draws from global shipping and freight data.
4 challenges for Trump
Supply chains never sleep, and global trade policy is in continual flux. Since late December 2019, there have been a series of U.S. trade-policy related events that will have an impact on global supply chains in early 2020.
U.S. President Donald Trump has stated that the "phase one" trade deal with China will be signed on Jan. 15, with the legal text set to be agreed as soon as Jan. 4. The Chinese government has also signed off on imports of GMO-type products from Dow Chemical Co. and Monsanto Co. That is partly a matter of necessity given Chinese soybean imports surged 40.9% year over year in November 2019.
Trump’s year-end declaration sets the scene for trade-policy campaigning ahead of November's U.S. elections. While the administration’s benchmark U.S. trade-in-goods deficit fell 13.3% year over year in November 2019, it was at the expense of a 4.0% drop in total trade activity and leaves the deficit in the 12 months to Nov. 30 16.6% higher than in 2016.
Mexico is the only country to have ratified the U.S.-Mexico-Canada Agreement. With a 1.7% slide in non-petroleum exports in November 2019, the motivation for Mexico was clear. Yet, passage through Canada’s Parliament and the U.S. Senate is unlikely to be completed until February.
The Trump administration’s historic combination of trade and defense policy may present an early challenge in 2020. Turkey has recommitted to Russia’s S-400 missile system rather than Raytheon Co.'s Patriot, despite the threat of U.S. sanctions and has cut imports of military equipment from the U.S. by 50.7% in the 12 months to Oct. 30, 2019, compared to 2016. An airstrike against Iranian targets in Iraq raises the prospect of renewed disruptions in the Strait of Hormuz and related trade in oil and gas.
Talks, reflation and decline in global policy
The last two weeks of 2019 recorded a series of global trade policy events and data points that are relevant for global supply chain operators as 2020 gets underway.
Brexit proceeds apace with the U.K. having passed the Withdrawal Agreement Bill, though the EU has signaled post-transition trade talks may need to be extended. The U.K. may be under more economic pressure than the EU to get on with talks. British exports to the EU fell by 2.8% year over year in the three months to Oct. 31, 2019.
China has cut duties on 850 tariff lines, representing 9.9% of all tariff lines, as part of the government’s economic reflation policies. India, meanwhile, plans to further increase duties on imports of steel, chemicals and industrial goods. "Make in India" tariffs have already contributed to a 14.0% slide in imports in the three months to Nov. 30, 2019.
Global trade activity fell 2.1% year over year in October 2019 and 0.5% on average in the past 12 months, marking the first decline on the latter basis since 2010. The rest of 2019 was unlikely to have been much better, with an average 2.9% drop in November on the basis of the reported figures of 24 countries.
South Korea, the first to report December data, showed a 1.4% year-over-year slip in exports, excluding shipping, which is the slowest rate of decline over the past 12 months. Ongoing regional tensions with Japan, which is losing out in the two countries’ trade spat, may lead to concerted regional action, including with regards to North Korea despite the latter’s apparent rejection of negotiations with the U.S.
Tesla navigates tariff risks, ArcelorMittal hits a bump
Global supply chain operators are in the midst of long-term regulatory and strategic upheaval, driven only in part by the U.S.-China trade war.
The U.S. government plans to continue exemptions from tariffs applied against Chinese exports for at least another year, suggesting that the tariffs themselves are here for the long run. Yet, the rate of exemptions granted is just 3.6% of requests related to tariffs applied in September 2018.
Among the localization strategies is Tesla Inc.'s move with a new factory in Shanghai, which has started production. Local production instead of imports may cut total U.S. automotive export growth, which reached 6.9% year over year in November 2019.
The energy industry is also embroiled in trade policy upheaval. Forthcoming EU-U.S. talks in mid-January will be overshadowed by sanctions against the Nord Stream 2 AG pipeline. That is unlikely to derail the 7.9% expansion seen in U.S. energy exports in the 12 months to Oct. 31, 2019, that has led to a balance between imports and exports.
Policy volatility has extended to metals supply chains. Tariffs on Brazilian steel threatened by President Trump in early December 2019 have been abandoned. The threat had, however, led to a drop in seaborne imports of steel and aluminum to the U.S. from Brazil, which fell to 108 shipments in the month to Dec. 29, the lowest since 2016, with shipments slashed by ArcelorMittal and Vallourec SA.
Maersk, Matson raise logistics consolidation debate
The end of 2019 presented an opportunity for the global logistics industry to get to grips with five major elements of change.
First, new sulfur emissions rules from Jan. 1, 2020, led to a 6.5% rise in China-outbound shipping rates in December, though the fourth quarter overall was down 3.3% year over year.
Second, the shipping industry may be set for a new round of restructuring after A.P. Møller - Mærsk A/S's CEO Søren Skou, raised the prospect of purchasing land-side logistics assets.
Third, Matson Inc. aired concerns about legislation that could repeal the Jones Act regarding the ownership of U.S. shipping. Consolidation in U.S.-inbound shipping is largely done, however, with the largest 10 liners representing 87.4% of U.S. imports in the 12 months to Nov. 30, compared to 64.1% in 2009.
Fourth, container-lines also face expanding competition on Asia-to-Europe routes from increased rail services, most recently from Xi’an, China to Gdansk, Poland, which cut shipping time to 12 days from 50 days. A 5.5% drop in the number of container shipping vessels using the Suez Canal in the 12 months to Nov. 30 on a year-earlier basis shows there is already an impact.
Finally, continued consolidation among shipbuilders may be threatened by an EU review of the deal between Hyundai Heavy Industries Holdings Co. Ltd. and Daewoo Shipbuilding and Marine. Consolidation in vessel construction remains necessary despite a 4.9% year-over-year rise in exports by shipbuilders in South Korea, China and Japan in the three months to Nov. 30.
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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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