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.
U.S. relations with China after the elections: scorched earth or lasting legacy?
U.S. President-elect Joe Biden's ability to deliver trade policy changes will be a function, in part, of the outcome of the Senate election races, which may not be completed before January 2021.
In the meantime, President Donald Trump has around 11 weeks to continue deploying his trade policies via executive action. With regards to China, at least two scenarios present themselves.
First, Trump may seek to preserve the legacy of his tough-on-China stance by leaving current tariffs in place, leaving the "phase one" trade deal in place and continuing with the marginal tightening of technology export restrictions.
The second scenario would be to pursue a scorched-earth policy by declaring China out of compliance with the phase one deal and reapplying higher tariff rates. Total U.S. exports to China climbed 34.2% year over year in September, but remain well shy of the level stated by the phase one deal.
U.S. exports of the 548 products covered by the trade deal reached $8.56 billion in September, below the monthly target of $11.9 billion and leading to a year-to-date shortfall of $38.9 billion. Agriculture exports were on track in the month of September while energy was running at just 52.3% of target and manufacturing at 62.8%.
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Tariff increases would likely cover Section 301, list 4A consumer goods products where duties could be increased to 15%, or even 25%, versus the current 7.5%.
For context, U.S. imports of list 3 products, which already have 25% duties applied, dropped 36.8% year over year in the 12 months to Sept. 30. Imports of list 4A products actually increased 5.1% year over year in the month of September and fell just 18.7% in the past 12 months.
The differential partly reflects rising consumer demand and inclusion of medical face coverings, textiles and clothing in list 4A. After those two categories the fastest growth in absolute terms was in exercise equipment.
A resurgence of tariffs on those products could raise costs for Icon Health & Fitness Inc. and Nautilus Inc., though they will be just two of the many U.S. companies across the consumer goods sector that will face such extra costs should Trump pursue a scorched-earth approach.
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Samsung, Honda face higher costs as Thailand loses preferential tariff status
The Trump administration has announced the suspension of Thailand's reduced tariff privileges under the Generalized System of Preferences, or GSP. The administration cited a lack of market access to Thailand for U.S. exporters as the main reason, continuing a process that started with the suspension of a subset of privileges in 2019.
Product categories eligible for GSP represented 21.6% of Thailand's shipments to the U.S. in the 12 months to Sept. 30 and increased by 14.6% year over year in the third quarter. In dollar terms, the largest GSP category imports from Thailand are electrical and mechanical machinery with $1.8 billion and $1.5 billion, respectively, shipped in the 12 months to Sept. 30, followed by auto-parts worth $0.6 billion.
Importers of Thai GSP-eligible products will face higher costs once the new rules are applied from December. Those include Samsung Electronics Co. Ltd. with shipments that rose 70.3% year over year as the company dealt with tariffs on imports from China. Honda Motor Co. Ltd., meanwhile, saw a decline of 58.9% as it suffered coronavirus pandemic-related demand destruction.
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Crest of the wave: S&P Global Platts container update, Oct. 2020
Global demand for container shipping services remains strong, but not by as much as the industry may have expected. U.S. seaborne imports climbed 16.2% year over year in October, though the North Asia-to-U.S. East Coast container shipping rate dropped by $150 per 40-foot equivalent units, or FEUs, to $4,500/FEU.
Equipment shortages remain endemic as demand remains strong after Golden Week, particularly in India with the president of Adani Ports and Special Economic Zone Ltd., Sandeep Mehta, stating, "Exports moving through Indian ports were now back to pre-COVID levels, while imports would be back to normal by December."
Cyberrisk also reared its head during the month with the ransomware attack on CMA CGM SA. That does not appear to have affected trade significantly, though, with U.S. seaborne imports handled by the company having risen 17.5% year over year in October.
While container rates dipped on U.S.-inbound routes, so did bunker fuel costs, with a 1.5% decline. As a result, bunker-excluded rates on North Asia-to-U.S. West Coast routes — a proxy for shipping companies' profitability — increased 0.8% in October on average versus September. Continued strong profit margins may be driving the confidence shown by some shipping companies, including Orient Overseas (International) Ltd., in ordering new vessels.
Rates for shipping into Europe from North Asia jumped 14.3% higher during the month, though most expectations for demand are "bleak," according to one U.K.-based freight forwarder. The complexity of a no-deal end to current trading arrangements between the EU and U.K. may be overhanging the market. Should talks finally be abandoned, there may be a wave of stockpiling in the fourth quarter followed by customs disruptions in the first quarter of 2021. This research is based on a report written by George Griffiths of S&P Global Platts, augmented with commentary from Panjiva Research.
(Panjiva Research - Logistics)
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Trane sets supply chain shift in motion, avoids constraints in Q3
Air conditioning equipment manufacturer Trane Technologies Co. LLC reported a 0.7% year-over-year increase in revenue in the third quarter of 2020. COO David Regnery noted the company is "not seeing any constraints in our supply" because it "reconfigured all of our factories" as far back as March.
The company may be utilizing both onshoring and reshoring strategies. Total U.S. seaborne imports linked to Trane dropped 49.0% year over year in the third quarter, including a 65.7% slide in shipments from China.
Signs of stockpiling in 2019 likely led to imports of air conditioners dropping 77.2% in the third quarter while shipments of refrigeration units and motors dropped 53.7% and 20.4% respectively. Compressors may still be a key import with volumes increasing 8.4% year over year in the same period.
(Panjiva Research - Capital Goods)
PCM, Mitsubishi Imaging costs could rise as thermal paper imports face audit
The U.S. International Trade Commission received seven petitions to investigate trade policy infractions in October, including two cases alleging dumping of polyester yarn and thermal paper imports. The polyester yarn investigation appears to be an addition to a 2019 case that targeted China and India.
The thermal paper case, meanwhile, covers shipments from Germany, Japan, Spain and South Korea. Imports from South Korea and Japan already fell 57.8% and 42.3% year over year, respectively, in the three months to Aug. 31, while those from Germany declined by just 6.1%. Shipments from Spain, meanwhile, climbed with the petition indicating that imports were miscategorized.
U.S. seaborne imports of the broader category of thermal paper products include shipments linked to Papeles y Conversiones de Mexico SA de CV and Mitsubishi Imaging Inc. from Germany and imports from Japan associated with Nippon Paper Industries Co. Ltd. and Dai Nippon Printing Co. Ltd.
(Panjiva Research - Paper & Packaging)
Christopher Rogers and Eric Oak are researchers at Panjiva, 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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