China Tariffs

Implementation of List 4B tariffs was delayed until Dec. 15 amid concern that it would negatively impact holiday shoppers, especially those hunting for electronics. The combined lists include all apparel, footwear, and manufactured textile products, among others, but exclude specific medical and pharmaceutical goods, rare earth materials, and critical minerals. The administration also suggested that it may still be possible to avert the 4B tariffs altogether, if a new trade deal with China can be struck in the meantime.

While affected supply chains are certainly sourcing elsewhere or moving resources outside of China, the tariffs associated with these goods are still very new and many importers who believed apparel goods were safe from tariffs were not prepared. Since wearing apparel is a difficult industry to suddenly pick up and transport en masse, the tariffs may force the industry to identify long-term changes in that sector of international shipping.

Will the trade war be resolved ahead of the next round of tariffs? Well, recent history suggests a resolution in the near term is quite unlikely. China may be counting on President Trump leaving office before his first term is up and hoping his successor would be more amenable to ending the prolonged trade dispute.

There are signs of tensions thawing, however. The United States and China have held high-level discussions and there were reports of a “phase one” agreement, but the details remain unclear. The fact both leaders have been talking does allow for some optimism that something will get done to relieve tensions. China is being hurt more than they are willing, or permitted, to admit through their media outlets. The tit-for-tat tariffs are affecting China as much as, if not more, than they are impacting the United States. One major difference, however, is that the Chinese government can toe the line on messaging, which makes it difficult to say with any degree of certainty what the endgame will look like, or when it will come to fruition.

Are Weak Peaks the New Normal?

Synopsis:  Although August through October has historically marked peak season for shippers, third-quarter intermodal volumes have seen their sharpest decline since 2016, as predicted in the previous CAF quarterly forecast. However, ongoing challenges and tariff-related disruptions to the normal business cycle may not account for the drop; improvements in technologies around supply chain management, inventory tracking, and demand prediction may also be playing a role in flattening out these historical peaks, along with shifts in consumer behaviors.

The Breakdown

• Compared to the same period in 2018, intermodal traffic dropped 4.6% in Q3 of 2019.
• The lack of a true “peak season” may be part of a systemic change in the industry. In the past, importers moved a ton of cargo in the months leading into the key Christmas shopping period. However, with more sophisticated supply chains, both components and manufactured goods can be imported more evenly throughout the year, meaning the holiday rush may well become a thing of the past--at least in the shipping industry.
• This seasonal shift isn’t completely new. Looking back to 2017 and 2018, we didn’t see the kind of well-defined peak seasons that were common as recently as 10 or 15 years ago.
• Of course, it’s impossible to overlook the impact of tariffs completely. Even with the aforementioned shift in the cycle, it’s clear that volumes are out of sync with demand in the consumer cycle. That’s not to say that imports are down. Part of the drop we’re experiencing now—and will continue to experience throughout the quarter—is due to frontloading earlier this year as importers raced to stock up ahead of the tariffs.

Debate Over Port Automation Gets Political

Synopsis:  Election season has exacerbated passionate discussion surrounding plans for further port automation and its supposed negative effects on union laborers. United States and Canadian governments will be forced to respond to pushback against increased automation of work previously handled by humans amid a significant decline in union membership. Although the decision to automate is ultimately between the employer and labor, government support for longshore workers could have a ripple effect on the greater labor market.

The Breakdown

• The share of unionized U.S. workers was 10.5 percent in 2018 compared with 20 percent in 1985, according to the U.S. Department of Labor Statistics.
• Labor unions have emerged as an election topic as candidates in the Democratic  primary jockey for support. Both Elizabeth Warren and Bernie Sanders have signaled their support for strengthening unions, while Andrew Yang has made headlines specifically citing the threat of automation as a high-priority issue that could bring on “Great Depression-level unemployment.”
• After six months, the International Longshoremen and Warehouse Union (ILWU) was declared unsuccessful in blocking the automation of the Port of Los Angeles, the largest shipping terminal in the country. However, the Long Beach City Council has ordered officials to study the economic impact of automation on the city.
• The National Defense Authorization Act is proposed legislation that would authorize a $600 million Maritime Administration grant program. There is language in the proposed legislation that would block funding from going toward “fully automated cargo handling equipment that is remotely operated or remotely monitored with or without the exercise of human intervention or control,” if the secretary of the transportation department determines it will cause a net loss of jobs relating to port and rail operations.
• Union laborers should rest assured knowing marine terminals in the United States and Canada will only consider automation when physical limitations force them to optimize their procedures. That said, they should also be aware that their employers’ labor contracts allow them to automate as needed. For example, the ILWU’s contract explicitly allows for full terminal automation. The International Longshoremen’s Association’s (ILA) contract specifies semi-automation on the United States’ East and Gulf coasts.