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.
ACES may be Trump's card for autos tariff solution
The U.S. Commerce Department may present three options for President Donald Trump to take action in the Section 232 national security review of the automotive sector. Broad-based tariffs on all vehicles and components could be worth $23.8 billion per year at a 10% rate. Their application would be limited as Mexico, Canada, the EU and Japan, which together account for 80.1% of imports, initially would be exempted due to existing trade deals. Such duties also would accelerate attempts by Congress to limit the president's use of Section 232 of the Trade Expansion Act of 1962.
A specific focus on automated, connected, electric and shared vehicles, or ACES, and parts seems more likely than the third option of a middle ground. Care would be needed even with the ACES option. While the U.S. imported 493,600 electric and hybrid vehicles in the 12 months to Oct. 31 — including those made by Bayerische Motoren Werke AG and Toyota Motor Corp. — it also exported 190,800 vehicles, including those made by Tesla Inc., which could attract retaliatory duties.
A focus on ACES parts could include lithium-ion batteries, a category in which U.S. imports reached $340 million in the 12 months to Oct. 31. That would impact mostly shipments from South Korea including products imported by General Motors Co. and Hyundai Motor Co. Tariffs applied further upstream to lithium, in which U.S. imports rose 19.5% year over year in 2018, seems unlikely given the wide-ranging problems it would cause for the domestic battery industry.
Tough 2019 beckons for UPS, ground lost to CH Robinson
The freight forwarding sector had a bumper end to 2018 with 8.8% year-over-year growth in U.S.-inbound, seaborne volume in December resulting in a full-year gain of 6.4%. Increased imports from China — ahead of the now-delayed tariff increases — was a major driver.
Most of the major forwarders saw increased volume with C.H. Robinson Worldwide Inc. ahead of Expeditors International of Washington Inc. and Kuehne + Nagel International AG with a 16.2% rise. Ceva Logistics AG was an outlier with a 6.1% drop, perhaps casting doubt on the early benefits of vertical integration with container line CMA CGM SA. United Parcel Service Inc. continued its downturn with a 7.6% slide in December leading to a full-year decline of 7.7%, although that followed a strong performance in 2017.
As a result, UPS lagged its U.S. peers, including FedEx Corp., as well as forwarding specialists Expeditors and CH Robinson. Further challenges may lie ahead for UPS as it goes through a restructuring given China accounted for 66.8% of volume in 2018. By contrast, CH Robinson's China ratio was 57.8% and Fedex's 51.7%.
2019 outlook: The year ahead for global supply chains
Panjiva's 2019 outlook series has identified over 25 issues to watch for global supply chains, including in the fields of global policy, the logistics industry and corporate strategies.
In U.S. trade policy, negotiations with China are the key issue in focus. We expect a transactional deal involving goods will be reached by the March deadline, but a wider settlement of the trade war will be elusive. In the global trade policy field we are most concerned about Brexit: a pause in proceedings may be a more likely outcome than a no-deal end to Britain's membership of the EU.
The logistics industry may see a return to consolidation as a response to weaker profits, with vertical integration between shipping lines and freight forwarders a likely result. Industrial strategies already have factored in price increases as a response to tariffs and will move on to a relocation of production outside China on a broad basis later in the year. A survey of over 270 businesses draws a similar conclusion.
Finally, the biggest black swan risk for the year could be bad technology — whether cybersecurity or physical interdiction — causing widespread chaos in global supply chains.
(Panjiva Research - Outlook)
It may make sense for ZIM to join 2M alliance
A.P. Møller-Mærsk A/S and MSC Mediterranean Shipping Co. SA, via their 2M Shipping alliance, have agreed to run joint services with ZIM Integrated Shipping Services Ltd. on Asia to U.S. West Coast and Mediterranean routes. While volumes on Asia to U.S. West Coast lanes have been robust recently, rising 10.9% year over year in the fourth quarter, there is a risk of a drop as pre-tariff stockpiling and an economic slowdown take effect. The motivation for ZIM Shipping is clear. Its share of Asia to U.S. West Coast volume was just 0.2% in 2018 despite a 25.1% rise in volume year over year. 2M, meanwhile, had a 15.3% share after increasing volume by 7.3%. Longer term, it may make sense for ZIM to join the 2M alliance entirely, given it has already brought its significant Asia to U.S. East Coast operations to the fold.
Bangladesh strikes raise supply chain challenges for H&M
Strikes at apparel factories in Bangladesh have continued in 2019 with 100 factories on strike in the Dhaka region. Continued disruptions could lead international clothes buyers to switch sourcing strategies. Bangladeshi exports to the U.S. had begun to accelerate with a 13.7% year-over-year surge in seaborne shipments in the fourth quarter of 2018. Shipments are led by H & M Hennes & Mauritz AB (publ), which represented 9.4% of the total in 2018, followed by Levi Strauss & Co. and PVH Corp. H&M faces challenges if it chooses to re-engineer its supply chain. Bangladesh represented 24.0% of its sourcing to the U.S. in 2018. Switching purchases of sweaters to China would be relatively simple, but its supply base for t-shirts and skirts/dresses outside Bangladesh is thinner and would be more expensive to change.
GM lags Ford in Mexican auto export performance
Mexican automotive exports had a robust 2018 with 6.0% year-over-year growth to reach 3.45 million vehicles. Yet, the year ended on a weaker note with shipments rising by just 1.8% in the fourth quarter. GM saw the worst performance with a 13.7% drop while most other manufacturers saw improvements. With regulatory risks settled — including the U.S.-Mexico-Canada Agreement and the Section 232 review, to which Mexico is exempted — exposure to slowing U.S. auto sales may be a key factor for success or otherwise in 2019. Ford Motor Co. is most exposed with 90.2% of its $4.77 billion of Mexican exports headed to the U.S. in the 12 months to Nov. 30. Volkswagen AG and it subsidiary, Audi, are least exposed at 51.3% and 46.3%, respectively.
Christopher Rogers is a senior researcher at Panjiva, which is part of S&P Global Market Intelligence. 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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