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.
Trump unlikely to relinquish tariff cape, pressure on China is working
The U.S. and China may be struggling to make progress toward an initial trade deal, with the Chinese commerce ministry arguing "tariffs should be reduced" rather than simply averting further increases as part of a phase 1 trade deal
Based on the latest data, it seems unlikely that the Trump administration will want to relinquish its tariff-based policy after the trade-in-goods deficit fell 27.4% year over year in October. That brought the 12-month trailing total goods deficit of $369.2 billion to its lowest since September 2017, just after the section 301 review of Chinese trade practices — the basis of the tariffs — was launched.
Imports of list 1 and list 2 products, where tariffs were applied at a 25% rate in July and August of 2018, fell 15.0% and 50.6% year over year, respectively, in October, suggesting corporate supply chains are still being realigned. Imports of list 3 and list 4A, applied in September 2018 and September 2019, fell by 34.8% and 29.7% — potentially indicating weaker consumer products demand in response to tariff rates of 25% and 15%, respectively.
Imports of list 4B products, led by phones and laptops, fell 10.0%, which would suggest no stockpiling ahead of the Dec. 15 imposition of duties — i.e. the perceived risk of a deal failure was low.
U.S. exports of tariff-afflicted products were much slower. That was largely down to a 5.5x surge in soybean exports — related to "goodwill" purchases by China — as well as increased autos exports by Daimler AG and Bayerische Motoren Werke AG, among others. Finally, a 41.6% surge in electronic circuit shipments to China from the U.S. suggests concerns about a CFIUS-type arrangement for technology export controls may be rising among Chinese importers.
Guess? has strategy answers for tariffs, cuts China reliance
Apparel retailer Guess? Inc. is starting to deal with U.S. tariffs on Chinese exports, with CEO Carlos Alberini stating the firm is "reducing significantly our dependency on China to reduce tariff costs." It's not all about tariffs though, as the firm "will also reduce our base from 529 vendors last year that we had between [China and Europe], to about 200 next year."
Nonetheless, tariff risks remain and likely explain the drop in China as a proportion of U.S. seaborne imports associated with Guess to 41.8% of the total in the three months to Nov. 30 from 46.9% a year earlier. Guess faces other regulatory risks. Imports from Hong Kong, whose special trade status with the U.S. may come under threat, represented 15.6% of the total.
Avnet learns to deal with tariffs, Micro-Star might be a winner
The electronics distribution industry is beginning to cope with the imposition of tariffs on U.S. imports from China since September 2018. While Avnet Inc.'s earnings before interest, tax, depreciation and amortization were below consensus in the third quarter, CFO Thomas Liguori has stated "we learned how to manage through tariffs and we've learned how to really prevent profit leakage, either by changing the supply chains or by, in some cases, billing it to the receiving party." There's still uncertainty about the outlook for tariffs given the faltering talks between the U.S. and China.
Panjiva's seaborne import data shows Avnet may have cut its imports from China to 35.8% of the total in the three months to Oct. 31 from 42.2% a year earlier, while increasing shipments from Mexico to 52.2% from 47.7%.
At the macro-level, total U.S. imports of computer components — Avnet's main import line — dropped 84.6% year over year, partly offset by a 141.9% surge in shipments from Taiwan. Exporters from Taiwan that may have benefited from that trend include Chenbro Micom Co. Ltd., Micro-Star International Co. Ltd. and Thermaltake Technology Co. Ltd..
U.S. import drop mostly about the trade war, but not entirely
U.S. international trade activity contracted 3.3% in October, driven by a 5.5% slide in trade-in-goods, while services expanded 3.6%. The contraction in imports of goods far outstripped the decline in exports, with the result that the overall trade deficit fell 7.6% to $47.2 billion — a sign of success in the eyes of the Trump administration.
The trade war with China can also be defined as working. U.S. imports from China fell 23.1% while exports only declined 2.8%, suggesting U.S. measures are proving more successful than China's.
Unlike prior months, though, imports excluding China also fell with a 9.5% slide. That would suggest a weakening of U.S. industrial and consumer demand that goes beyond the trade war.
In terms of other major U.S. relations, the trade deficit with Canada and Mexico increased to $12.1 billion. That was the highest for the month of October since 2007 and may cast a pall over the latest round of U.S.-Mexico-Canada Agreement discussions.
New year, new rules - S&P Global Platts container update, November 2019
November has seen a reversal in some of the pessimism expressed by container-lines early in the year. Container rates globally at the start of December were 2.1% above the level seen at the start of November.
That's been driven by the container lines' increased use of void sailings as well as a slight uptick in demand ahead of the early Lunar New Year. North America routes, however, suffered another month of weak rates, with spot rates struggling to retain general rate increases. North Asia to West Coast U.S. rates dropped 25% and those to the East Coast fell 13.5% during November. Panjiva's data shows China-to-U.S. shipping could have fallen by as much as 15% year over year in November.
The big unknown is the impact of the IMO's new sulfur rules, which come into force from January 2020. Most liners' fuel surcharges started to include low sulfur fuel from Dec. 1. Platts Bunker Charges, which moved to reflect 0.5% fuel as of Nov. 1, 2019, show the new pricing increased the PBC1 North Asia to North Continent bunker charge element by 45% to $335 forty-foot equivalent unit at the start of November from the end of October.
This article is based on a report, including eight pages of data and commentary, written by George Griffiths of S&P Global Platts. More details are available at https://containers.plattslabs.com.
S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
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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