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H&M, Ascena's back-to-school strategies; Southern, AEP face tariff pressure

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H&M, Ascena's back-to-school strategies; Southern, AEP face tariff pressure

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.

H&M, Ascena appear to follow different routes for back-to-school imports
The specter of increased U.S. tariffs on Chinese exports is hanging over the back-to-school shopping season. The breakdown of U.S.-China negotiations in May may have led to stockpiling of back-to-school products. U.S. imports of laptop computers rose 22.3% year over year in the second quarter, led by a 50.6% jump in June. There was a 1.6% year-over-year decline in July, including a slump in shipments associated with Dell and HP Inc., Panjiva data shows.

Imports of backpacks and stationary, meanwhile, fell 8.8% and 20.2%, respectively, in the three months to July 31 — the peak season for back-to-school imports. An extension of tariffs to all imports from China could be particularly controversial if applied to kids' apparel. While total imports of kids' clothes and footwear rose by just 0.7% year over year in the peak three import months to July 31, there was an 8.0% rise in imports from China including an 18.3% surge in June.

Importers are following a variety of strategies. Imports related to H & M Hennes & Mauritz AB climbed 19.4% over the three-month period despite a 0.3% drop in July. Ascena Retail Group Inc., meanwhile, saw a 2.9% growth in shipments associated with it over the past three months, with a 14.5% rise in July.

(Panjiva Research - Consumer Discretionary)

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Southern, AEP feel the power of trade conflict
U.S. electric utilities are starting to feel the impact from the U.S.-China trade war. Southern Co.'s CFO, Andrew Evans, has said industrial sales "were down due to global trade concerns and a strong dollar's impact on trade." Similarly, American Electric Power Co. Inc.'s CFO, Brian Tierney, has said that "more restrictive trade policy [has] challenged export manufacturers within AEP's footprint."

Industrial customers accounted for 35.6% of AEP's sales in 2018 and 32.9% of Southern's. The degree of impact from the trade war will also depend on the proportion of each utilities' service areas' exposure to China.

Taking all the states Southern operates in together, the ratio is 9.1% versus 8.9% for the country in total. Southern's exposure to Alabama — 16.0% of whose exports head to China — is offset partly by Georgia with just 7.9%. For AEP, the overall exposure is a well-below-average 6.2%, though it includes West Virginia at 13.5%.

(Panjiva Research - Utilities)

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ZIM Shipping steams past the competition
The container-lines serving U.S. ports experienced a 2.4% year-over-year growth in inbound traffic in July, reversing a decline seen in June, Panjiva's data shows. Within that slow growth rate, there was a marked difference in the performance of the major container lines. A.P. Møller - Mærsk A/S and MSC Mediterranean Shipping Co. SA saw volumes fall 6.2% and 1.1%, respectively, while Yang Ming Marine Transport Corp. had the fastest decline with a 9.0% drop.

The best performer was ZIM Integrated Shipping Services Ltd. with a 27.5% year-over-year expansion in July. That was mostly down to a surge in shipments from Canada, which reached 29.7% of ZIM's shipments into U.S. ports from 3.3% a year earlier. There is some evidence of weakness due to the trade war between the U.S. and China — ZIM's shipments from China to the U.S. fell 6.0%. ZIM's realignment of routes with Maersk and MSC's 2M Alliance may lead to further shifts in its performance in the coming months.

(Panjiva Research - Logistics)

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Freeport plan needed as British port activity passes Brexit bounce
The British government plans to set up a series of freeports to encourage trade and investment post-Brexit. Details are unlikely to emerge in the short term, and the political risks around Brexit may mean the plans do not come to fruition at all. Nonetheless, British ports need a boost to activity.

While port activity climbed 2.7% year over year in the first quarter, this was largely thanks to a surge in imports ahead of the original, end-March Brexit deadline. Comparing the past 12 months to 2015, growth was an anemic 0.2%, while macroeconomic data for the second quarter shows British trade fell 0.2% year over year.

The fastest-growing port in the first quarter was London with a 13.1% year-over-year expansion, including DP World Ltd.'s London Gateway. Similarly, Liverpool expanded by 12.6%, potentially due to a new service run by COSCO SHIPPING Holdings Co. Ltd. using Peel Ports Group Ltd. facilities. At the other end of the scale, Felixstowe — including Hutchison Ports (UK) Ltd. — saw a 6.5% decline as IT problems continued.

(Panjiva Research - Logistics)

US customs duties reach $6.5B in July, list 4 could add another $2.4B
The U.S. Treasury saw a 55.6% year-over-year increase in customs duties paid by U.S. importers in July, reaching $6.47 billion for the month. That was the highest since January when duties were paid for the pre-tariff increase surge of imports from December. On a fiscal-year-to-date basis — Oct. 1, 2019, to July 31, 2019 — the rise in customs duties has accounted for 26.0% of the rise in total U.S. Treasury income.

The average duty rate across all U.S. imports, therefore, reached 3.0%. That compares to a low of 1.4% in May 2018 before the section 301 duties associated with the trade war with China were first implemented.

President Donald Trump's commitment to applying tariffs on all remaining Chinese imports could lead to a further $2.39 billion of customs duties based on imports of so-called list four products for June.

(Panjiva Research - Policy)

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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