Joe's View

Unemployment is down, wages are on the uptick, and consumer spending reflects an economy with ample disposable income to spare. Despite all signs pointing toward a happy, healthy economy, businesses and consumers alike would do well to brace for impact as an unpredictable trade war between China and the United States continues to churn.

In summary, Q4 2018 embodied the very essence of chaos, as impending tariff deadlines goaded panicked ordering decisions within global supply chains several months ahead of schedule. As supply chain professionals, we pride ourselves on our penchant for planning, but even the best-laid plans stand to be devastated by President Donald Trump’s threat of 25% tariffs on all Chinese imports. To avoid paying unprecedented duties, many retailers rushed to collect their entire Q1 2019 inventories ahead of Trump’s initial January 1 deadline (since delayed until March 1), which spurred a chain of events leading to sky-high spot rates and a severe bottleneck in trucking.

Tough questions still remain: Will we see a second front-loading push before the next round of tariffs? How will supply chains mitigate tariff-related pitfalls? Will the 25% duties on Chinese goods ever even come to fruition?

These are the mysteries plaguing forwarders and the shipping industry at large. The truth is, we are just as much in the dark about the future of tariffs now as we were in October, and we can expect a lot of the same uncertainty in 2019.

We may not have all the answers, but what we do have is a wealth of strategic knowledge derived from decades of experience tackling every freight forwarding difficulty head-on, and a dedicated network of preferred partners who have our backs as staunchly as we have theirs.

We will continue to monitor the situation, and continue to provide unprecedented freight forwarding and logistics services to our clients, no matter the seas ahead.

JOE'S VIEW

Tariff Update: A Tale of Two Deadlines

At the start of the last quarter, businesses were told to prepare for the worst. July and September tariff adjustments were set to increase once again, this time from 10% to 25% at the start of the new year, January 1, 2019. On the same day, previously unaffected Chinese goods were also to be introduced to the tariff list.

News of the January 1 deadline helped fuel an importing boom, as supply chains were forced to make timely decisions regarding their inventories. For many businesses, this meant front-loading entire Q1 inventories ahead of January 1. In doing so, importers inadvertently intensified a persistent trucking shortage that seems guaranteed to worsen before improving.

Tensions spiked at the end of November during the G20 Summit in Buenos Aires, where talks between President Trump and China’s Xi Jinping resulted in a surprising 90-day tariff truce until roughly March 1. Suddenly, the dramatics of Q1 inventory acquisition—namely, strategic planning, financial gambling, warehousing turmoil, struggle for cargo capacity, driver scarcity, etc.—seemed all for naught.

A vague commitment to the 90-day pause is the only major detail of the three-hour meeting between the two leaders that’s been released to the public. The White House is keeping this one close to the vest, but Trump has suggested a favorable position for the United States in several tweets.

SYNOPSIS

The shipping industry’s fourth quarter reflected a healthy U.S. economy, albeit one that’s been kept on its toes as a touchy trade war with China continues to brew. The industry was taken by surprise when, on December 1, a so-called 90-day tariff “ceasefire” began, which leaves supply chains, once again, to make drastic ordering decisions based largely on indeterminate variables.

JOE'S VIEW

The Breakdown

90-Day Strategy:

• “People who are not way over inventory, who have cash, will buy. As we get closer to that deadline—60 days in or maybe 45 days in—we’ll see another push of people trying to get their goods in before the increase because that 15% increase (from 10% to 25%) is a big difference. The interesting thing is, when that happens, we’ll be at the beginning of the second quarter, so if people work through their first quarter inventories, they can do the same thing again. So, depending on how the talks go, we may see an uptick again toward the deadline.”
• The proposed 25% tariffs on the remaining $200+ billion in Chinese goods that are still in tariff limbo will be too hefty a burden for supply chains to absorb. The targeted products are more consumer-centric, so if the additional duties are implemented, consumers will experience the change in the form of inflated prices.

Oil:

• In an effort to reduce harmful shipping emissions, the International Maritime Organization (IMO) will lower the global sulfur cap on fuel content from 3.5% to .5% in 2020. Ahead of this mandate, all lines are said to be preparing to set low sulfur surcharges (also referred to as Green Fuel Surcharge, Emission Control Area Surcharge, and Low Sulfur Fuel Surcharge), beginning January 1, 2019.
• “Some carriers have already implemented their own mandatory low sulfur surcharges. As a result, forwarders aren’t necessarily experiencing the reduced cost of oil, because the mandates are increasing the actual cost of the bunker. They’re using cleaner burning fuel, so the actual cost is more, because the fuel has to be refined further.”

Joe's View

Trucking Shortage

• The main issue facing importers right now is an intensifying trucking shortage. There are simply not enough trucks/drivers to keep up with booming consumer/importer demand.
• Drayage providers have been hit hardest by the shortage, especially in L.A. and New York, where container traffic is very high. Some carriers are even pulling back on their door-to-door services because they know they will be faced with unfavorable drayage handling timeline when they arrive in terminal.
• One way trucking companies are combating the driver shortage is by raising wages to attract new drivers and improve current driver retention rates. There are also talent acquisition initiatives in place that target the industry’s most underrepresented demographics; namely, young women.
• In December 2017, truckers were introduced to what’s known as the electronic logging device mandate. The rule is meant to improve driver safety by limiting the number of hours spent on the road daily, in accordance with labor laws. Despite the admirable intentions of the rule, many truckers cite reduced salaries, loss of freedom, and insufficient parking capacity at truck stops in their arguments against it.