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Amazon, Flexport show way forward; phase 1 turns down tariffs, not risks

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.

Amazon, Flexport show way forward in tough month for logistics sector
The U.S. freight forwarding sector had a tough start to the fourth quarter with U.S. seaborne import volumes down 5.2% year over year in November after an 8.7% slide in October. The top three forwarders all saw a downturn with Expeditors International of Washington Inc. and C.H. Robinson Worldwide Inc. down 7.9% and 7.6%, respectively, in November. Europe-focused Deutsche Post AG and Deutsche Bahn AG outperformed their peers with growth of 8.0% and 13.3%, respectively.

The main challengers continued to surge with Inc.'s volumes up 179% and Flexport Inc.'s rising 342%. Both have a long way to go, however, with market shares of around 0.2% each. Amazon's China-centric business may become an issue if the trade war is not resolved, while Flexport is diversifying its business to expand in Europe.

(Panjiva Research - Logistics)

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Phase 1 deal doesn't remove supply chain uncertainties
A phase 1 trade deal between the U.S. and China is imminent. Press reports suggest the U.S. may reduce existing tariff rates and postpone further coverage extensions while China may make firm commitments on agricultural purchases, intellectual property protections and financial market access. Should China not deliver on its commitments, the tariff program could snap back into place.

The tariff roll-back could reduce the economic impact of the trade war. List 3 products were initially subject to 10% duties in September 2018, leading to a 25.5% year over year drop in imports in May 2019. An increase to a 25% duty rate in May was followed by a 32.6% drop in imports in June.

Most recently, total list 1 to 3 product imports in fell 32.3% year over year in October. The positive impact on list 4B products, where tariffs were set to come in place from Dec. 15 but now won't be imposed, should be minimal given their seasonality.

The snap back possibility means that corporate supply chains will continue to face uncertainties. Nonetheless, there's the possibility that some strategies to switch away from China have been accelerated too quickly.

The most "switched" imports of list 3 products so far include wooden furniture — seaborne imports of which from China fell 14.3% in the 12 months to Nov. 30, while those from the rest of the world rose 10.1%. Imports of auto components have also been switched, with imports of wheels from China down 26.0% while those from the rest of the world were up 15.8%.

Network devices, including modems and smart devices, saw a 25.5% drop in shipments from China and a 23.7% rise from elsewhere. Importers of network devices that have diversified their supply chains include NETGEAR Inc. and CommScope Holding Company Inc. with 30.2% and 26.3% of imports from China, respectively. Importers that are still focused on China include Hon Hai Precision Industry Co. Ltd.'s Cloud Scape and Amazon’s Ring with imports still fully sourced from China or Hong Kong, according to Panjiva data.

(Panjiva Research - Policy)

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Hardest Brexit averted, deals with the EU, U.S. and CPTPP needed
The U.K. elections have resulted in the Conservative Party holding over 55% of the seats in the new parliament. That will likely lead Prime Minister Boris Johnson to bring the Brexit Withdrawal Agreement Bill to Parliament by the end of the year, averting a so-called hard Brexit and starting the clock for completing a trade deal with the EU by Jan. 31, 2021. An extension to the negotiating period is possible, but would require Johnson to break a pre-election commitment.

Post-Brexit deal making with non-EU states was a major reason for Conservative support for Brexit, with the automotive, materials and luxury goods sectors particularly exposed to exports outside the EU.

A trade deal with the U.S. would cover 16.2% of total British exports in the 12 months to Oct. 31, including the EU, but may be complicated by existing tariffs and a proposed digital services tax. Exports to the U.S. have nonetheless been expanding with a 14.2% surge.

EU trade deals with Japan and Canada, which represented 2.0% and 1.6% of British exports respectively, won't be carried forward. However, British membership of the CPTPP trade area in Asia could provide access to both Canada and Japan as well as the ASEAN group and several others covering at least 6.9% of British exports.

Making a deal with China, representing 5.8% of the total, could prove more challenging while talks with the U.S. are ongoing.

(Panjiva Research - Policy)

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Lululemon aims to squeeze growth from current segments, import mix changes
Lululemon Athletica Inc. reported better-than-expected like-for-like revenue growth in the fiscal quarter to Nov. 3. The firm is also making new investments in improving its product lines to ensure growth continues.

Panjiva's seaborne shipping data shows U.S. imports linked to the firm surged 36.6% year over year in the three months to Sept. 30, but have since seen a drop of 11.6% in October and November combined.

There's already been a change in the mix of imports as the company has diversified its product offering. The share of women's pants has fallen to 15.4% in the three months to Nov. 30 from 23.2% a year earlier. There's also been a drop to 6.6% from 11.2% for men's pants, alongside increases in bras, sweaters, t-shirts and accessories.

(Panjiva Research - Apparel)

Maersk's Vietnam expansion could provide new service to New Balance
A.P. Møller - Mærsk A/S is setting up a new logistics center in Bac Ninh to take advantage of the rapid expansion of containerized exports from Vietnam. The country has been a major winner from the U.S.-China trade war with seaborne shipments to the U.S. from Vietnam climbing 19.4% year over year in the 12 months to Nov. 30.

In Maersk's case, the growth in shipments from Vietnam equated to 23,890 twenty-foot equivalent units, or TEUs, of extra business year over year. Yet, that only offset 20.9% of the 114,500 TEUs drop in shipments from China, while traffic from the rest of Asia only covered 13.6% of the decline.

The increased capacity in Vietnam will need new customers to fill it. The largest Vietnam-to-U.S. shipper that Maersk currently only has minor dealings with is Samsung Electronics Co. Ltd., which is currently served mostly by COSCO SHIPPING Holdings Co. Ltd.. Other potential targets include printer-maker Brother Industries Ltd. and training shoe manufacturer New Balance Inc., which are served by Ocean Network Express and CMA CGM SA, respectively.

(Panjiva Research - Logistics)

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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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