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FedEx hit by Thanksgiving, trade war; Boeing cuts MAX, puts trade deal at risk

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.

FedEx's woes not limited to Thanksgiving timing, trade war
FedEx Corp. reported lower-than-expected revenues for the fiscal quarter ended Nov. 30, booking a 3.0% year-over-year decline. Profitability also fell with an EBITDA margin of 9.4% versus 12.1% a year earlier. FedEx's lower revenues included the earlier Thanksgiving holiday as well as the drag from lower Transpacific shipping. Total freight volumes handled by FedEx across all modes and regions fell 6.0% year over year, while seaborne imports to the U.S. dropped 9.6%.

The latter included a 17.1% slide in shipments from China that was only partly offset by a 9.6% rise in shipments from the rest of Asia. Shipments from the rest of the world to the U.S. by sea fell 20.1%, suggesting the firm is losing market share more broadly.

Importantly, management has also cut its guidance for the current year, with assumptions including "no additional adverse developments in international trade policy and relations." The latter should be supported by the recent phase-one trade deal between the U.S. and China. Yet, there are no guarantees the deal will be successfully signed and there's also the risk of tariffs later in the year if China doesn't meet its purchasing commitments.

(Panjiva Research - Logistics)

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Boeing minimizes MAX shipments, hurting trade deal and supply chain prospects
Boeing Co. will pause production of its 737 MAX aircraft from January 2020 as it awaits FAA and other approvals for the jet's operations. While sales will continue from inventory, a prolonged production halt may complicate the implementation of the phase 1 trade deal between the U.S. and China.

The deal includes Chinese commitments to boost imports of manufactured goods from the U.S. Exports of aerospace products to China from the U.S. were worth $13.0 billion in the 12 months to Oct. 31 and had already dropped 29.1% year over year.

There will also be an impact on Boeing's supply chain. U.S. seaborne imports associated with the firm already slumped 26.1% year over year in the three months to Nov. 30. Imports from China only fell 15.5% — switching suppliers in response to tariffs is limited by the regulatory complications associated with parts sourcing.

Shipments from Europe fell 21.8%, with a potential impact on AMAG Austria Metall AG, ERAMET SA and Voestalpine AG, among others. Worsening relations between the EU and U.S. relating to aerospace subsidies and digital services taxes could make Boeing's life even more complicated in 2020.

(Panjiva Research - Aerospace & Defense)

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Costco cuts China, tariffs are now business as usual
Trade policy volatility — including U.S.-China tariffs and Brexit — may have become a business-as-usual matter for corporate supply chains. Panjiva's analysis of over 7,500 company conference calls since Oct. 1 show just 20.9% of firms mentioning tariffs or Brexit, down 3.8 percentage points from the prior quarter.

The fastest decline was among automakers with 35.8% of firms mentioning trade policy in the fourth quarter from 48.6% in the prior quarter. That followed the apparent abandonment of the U.S. section 232 review of the sector. There was a drop to 33.5% from 37.9% among retailers, though the proportion of consumer staples retailers mentioning the topics increased.

Costco Wholesale Corp. CFO Richard Galanti has stated that the firm has "a relatively good mitigation plan" for U.S. tariffs because of its "ability to move in and out of items" to reduce its exposure to China. Yet, Galanti also mentioned that "nobody can do a lot of that, nor can we." U.S. seaborne imports from China linked to Costco represented 69.7% of the total in the three months to Nov. 30 from 70.5% in the year-ago period.

The process may be accelerating. The firm slashed its imports of furniture from China by 26.6% year over year in November while also reducing its imports of consumer appliances and electronics by 9.5%. Alternative supplies are already being sourced from Vietnam, Hong Kong and Thailand.

(Panjiva Research - Retail)

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Textron gets respite from trade war tariffs, still cutting imports from China
The U.S. government has released a sixth round of exemptions from list 3 tariffs on Chinese imports that were applied in September 2018 and increased to 25% in May 2019. The phase-one trade deal between the two countries will leave the list 3 tariffs in place.

So far, only 5.8% of list 3 applications have been approved versus 33.8% for list 1 and 37.4% for list 2. List 3 includes consumer as well as supply chain products and 82.3% of requests are still outstanding.

The latest approval round included 75 requests, of which 20 related to auto parts, including those imported by all-terrain vehicle makers Textron Inc. and Polaris Inc. Textron received one approval and has six more requests outstanding.

In the meantime, the number of shipments from China linked to Textron fell 24.0% year over year in the three months to Nov. 30. Textron has seen a wider downturn though, with shipments from Europe also falling 9.9% over the same period.

(Panjiva Research - Capital Goods)

Electrolux restructuring delay visible in slowing component imports
Home appliance maker AB Electrolux has had to contend with a near three-fold increase in the cost of upgrading its U.S. manufacturing facilities. That's also caused delays in shipments to customers.

The firm has also faced increased tariffs on its imports from China. However, there was still a 7.5% increase in imports from China associated with Electrolux in November. The firm may have used imports to offset the loss of North American production.

A slowdown in assembly production may also be evident in Electrolux's imports of key components. Shipments of pumps fell 25.2% and 21.8% year over year in October and November, respectively.

Similarly, shipments of electrical cabling and power control boards fell 35.2% and 16.7%, respectively, in November. Continued growth in imports of plastic, glass and steel suggest basic manufacturing is secure.

(Panjiva Research - Consumer Discretionary)

Light for tech, shade for trade as Japan's export slump extends
Japan's international trade activity fell for a seventh straight month in November with a 12.0% drop. Exports dropped for the 12th successive month with a 7.9% slide, though that was better than the 9.2% decrease seen a month earlier and included improved exports of medical products and semiconductor machinery. The latter suggests the regional electronics industry downturn may be at an end.

However, trade with South Korea has continued to wane because of the bilateral withdrawal of trusted trader status. Japan's exports to South Korea fell 17.0% as a consequence. Heads-of-state talks due Dec. 24 may improve relations enough to reinstate the trusted status and boost exports.

Shipments to the U.S. have yet to recover after September's mini-deal. Japan's downturn, combined with that seen in South Korea, China and Singapore, have led average Asian exports from the nine countries that have reported so far to drop 2.5% year over year in November, the fourth straight month of decline.

(Panjiva Research - Policy)

S&P Global Market Intelligence is 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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