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.
Andeavor, Valero could be indirect losers from Trump's Mexico tariffs
President Andres Manuel Lopez Obrador has reiterated calls for improved energy independence for Mexico. The issue of energy supplies has become sensitive recently given the potential imposition of tariffs on crude oil exports from Mexico by the administration of President Donald Trump.
The U.S. accounted for 58.1% of Mexico's crude exports in the 12 months to April 30. Lower export earnings may support the Mexico president's plans to use Mexican instead of imported crude in six new oil refineries. Mexico's imports of refined oil outnumbered exports by 7.6:1 after an annualized growth of 17.6% in the past three years.
Leading U.S. suppliers of refined oil to Petróleos Mexicanos SA de CV who may lose out to new plants are Marathon Petroleum Corp.'s Andeavor with $369 million shipped in the 12 months to April 30, followed by Valero Energy Corp. and Exxon Mobil Corp.
Noble stitches up the market as US cotton exports wither
Cotton prices have dropped significantly as a result of trade tensions and as U.S. seaborne exports have dropped 41.2% year over year in the three months to April 30. Shipments to China fell 71.3% though there were also lower shipments to Asia more broadly.
The performance of the major trading houses has diverged significantly. The biggest loser has been Louis Dreyfus Co. LLC with an 82.8% slump in shipments, which historically have been focused mostly on China.
Meanwhile Noble Group Ltd.'s exports have surged 51.2% with improved shipments to Turkey. Cargill Inc. has increased its shipments by 13.6% year over year after targeting sales to Indonesia.
Trade war redux, forwarders fight — May 2019 in 10 reports
The rapid reversal in U.S.-China trade negotiations could have a long-term detrimental impact on global supply chains and was the center of our readers' interest in May. The relative effectiveness of tariffs went in favor of the U.S. in March with a 29.2% drop in Chinese exports that were subject to 25% duties in May.
This may have contributed to the Trump administration's increasing assertiveness on trade policy with regards to China, migration-related tariffs against Mexico and slow progress in negotiations with the EU.
Corporate reactions to tariffs varied. Retailers plan to pass higher costs through to consumers while tech firms such as Hon Hai Precision Industry Co. Ltd. are relocating manufacturing to outside China.
In the logistics sector the first signs of renewed competition between the freight forwarders could be seen with United Parcel Service Inc. and C.H. Robinson Worldwide Inc. losing out.
May aids container-lines as rates stabilize, fuel falls
The container shipping industry had a period of relative calm in May with global shipping rates falling by 0.7% during the month. Rates for routes from China to the U.S. East and West coasts rose 6.7% and 2.5%, respectively, despite the imposition of new tariffs and potential weakening of trade. S&P Global Platts sees the additional demand from the forthcoming peak season offsetting the risk of lower volumes due to the tariffs.
Marginal profitability for the container lines improved due to a 10.9% drop in fuel prices during the month to their lowest since January. This may result in improved profit margins on a year-over-year basis in the second quarter, following the increase experienced by A.P. Møller - Mærsk A/S and Hapag-Lloyd AG in the first quarter.
Technology trade drags South Korea exports down for 6th month
Export activity has slowed across Asia. Malaysia has become the ninth out of 12 Asian countries to report lower exports year over year in April with a 4.5% drop in dollar terms.
South Korea's preliminary data for May suggests more of the same with a 9.4% year-over-year slump in exports. Excluding shipping, the drop was 10.3% and was led by a 30.5% collapse in exports of semiconductors.
The latter represented an acceleration from an 18.5% slide in the prior three months. Slowing trade elsewhere in the electronics supply chains was only partly offset by a 13.5% year-over-year jump in automotive shipments, which may reflect a rush to beat U.S. tariffs that have now been delayed.
Better sentiment does not mean world trade will get any better
U.S. businesses' export expectations improved in May, according to the latest ISM survey, with a reading of 51.0% — over 50% indicates expansion — from 49.5% a month earlier. Yet, eight industries expect exports to decline versus five expanding. Import expectations fell to their lowest since January 2017 to 49.3%, suggesting the impact of widening tariffs on Chinese exports is being felt.
The survey was also completed before the latest round of tariff threats against Mexico by the Trump administration. The worsening U.S. import outlook comes alongside declining export sentiment from China and in Europe, suggesting this year's downturn in global trade may continue.
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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