JOC —With trans-Pacific eastbound spot rates falling for a third straight week, China imports declining, and time running out for a beat-the-tariff import surge, container lines have only one option to prevent the loss of peak season gains: more blank sailings.
Container lines have already announced three blank sailings for June. A blank sailing occurs when a carrier or a vessel-sharing alliance cancels a regularly scheduled weekly sailing, something they did with regularity last yearduring slack periods. Carriers demonstrated earlier this year that pulling capacity when cargo volumes soften was still in their playbook as they blanked 35 sailings in February and March in the trans-Pacific.
“We expect an uptick in voided sailings in July, and a further uptick in August,” Blake Shumate, COO at American Global Logistics, said Friday.
Containerized imports from China have already dropped 6 percent through April, according to PIERS, a JOC.com sister company within IHS Markit. Further declines are likely because of the ongoing US-China trade war that began in the summer of 2018 with the Trump administration’s announcement of 10 percent tariffs on imports from China. Additional tariffs of 25 percent followed earlier this year. The next round of tariffs on the remaining $300 billion of imports from China is likely to take effect later this summer unless next week’s meeting between US President Donald Trump and President Xi Jinping of China at the G 20 summit in Tokyo can put an end to the trade war.
However, as the eastbound Pacific prepares to enter the summer-fall peak season, carriers are keeping their options open for rate increases by giving the required 30-day notice for planned general rate increases. Hapag-Lloyd, for example, announced this week a GRI of $480 per TEU and $600 per FEU effective July 20. It is common for carriers to announce GRIs at this time of year, although coming so early in the season, carriers normally don’t achieve the full rate increase that they post.
In addition to managing capacity with planned blank sailings, the likelihood of ad-hoc blank sailings in the fourth quarter is emerging as carriers drydock vessels for about a week to flush high-sulfur fuel from the tanks and refill them with low-sulfur bunkers ahead of the Jan. 1, 2020 deadline for global implementation of the International Maritime Organization’s low-sulfur fuel requirement.
Although both beneficial cargo owners (BCOs) and carriers anticipate imports this year will be down significantly from the 15.5 percent increase in imports from Asia in the fourth quarter of 2018, carriers appear determined to prop up spot rates through strict capacity management.
In the June 16 Sea-Intelligence Sunday Spotlight, Alan Murphy, co-founder and CEO of Sea-Intelligence, said spot rate erosion in the eastbound trans-Pacific has continued rather steadily since the Shanghai Containerized Freight Index (SCFI) peaked on Nov. 2, 2018 at $2,606 per FEU to the West Coast and $3,739 per FEU on Nov. 16 to the East Coast. The SCFI, which is published in the JOC.com Shipping and Logistics Pricing Hub, on Friday listed the West Coast spot rate at $1,382 per FEU, down 2.4 percent from last week, and the East Coast rate at $2,404 per FEU, also down 2.4 percent.
Managing capacity is critical
Spot rates in the past almost always increased during the August-October peak season, so the forecast of softening imports in the second half of the year leaves carriers with only one option to avoid a sharp decline in freight rates — managing capacity, Murphy said. “If the current erosion levels continue, any gains in the peak season would be lost in a matter of weeks,” he said.
Commenting on the likelihood of more tariffs, Eytan Buchman, CMO of Freightos, stated in Tuesday’s newsletter that “US Secretary of Commerce Wilbur Ross said the administration would be ‘perfectly happy’ to apply tariffs on remaining untaxed Chinese imports.”
In letters to US Trade Representative Robert Lighthizer, West Coast port directors said the tariffs already in effect, and the uncertainties surrounding a further round of tariffs, are devastating to the imports and exports at their gateways, which are tightly linked with China.
Gene Seroka, executive director of the Port of Los Angeles, said the Los Angeles-Long Beach gateway handles close to 40 percent of US containerized imports, and China is by far the largest source, representing about 64 percent of the gateway’s imports by TEU volume. China accounts for more than one-third of Oakland’s containerized imports and exports, said Chris Lytle, executive director of the Port of Oakland. Both importers and exporters in Northern California say the tariffs and threat of additional tariffs are playing havoc with their international supply chains, he said.
Importers are already shifting whatever production they can from China to factories in Vietnam and other Southeast Asian countries, but “repositioning of manufacturing will take time,” Shumate said. Additionally, carriers are indicating their preparedness to increase vessel strings from Southeast Asia to the US, but time is running out. Back-to-school merchandise is already beginning to enter the country so that it will be on store shelves by early August, he said.
Shumate said that although peak season holiday merchandise has not yet begun to move, it has been difficult getting accurate forecasts from BCOs about their “desired” production schedules in Asia and their “true” production schedules. This makes peak-season forecasting in terms of actual volumes, and source countries, difficult to ascertain, he said.
Fast-forwarding peak-season shipments also involves choosing a US gateway either on the West Coast or East Coast, as well as warehouses needed to hold the merchandise until it is ready to be shipped to stores, Shumate noted. Warehouses in Southern California are already beginning to fill up, so importers are looking to nearby states for storing merchandise destined for the West. Importers in the eastern half of the country are looking more closely at warehouses in the Midwest, which can be reached either through West Coast or East Coast ports, he said.
While these uncertainties are causing headaches for the logistics managers at retailers and manufacturers, carriers appear to be in the driver’s seat when it comes to ensuring that a disappointing peak season in terms of cargo volume does not translate to a further erosion of freight rates. Carriers learned their lesson well last fall and earlier this year, Murphy stated.
“Carriers culled significant amounts of capacity in 2018-Q4 and 2019-Q1, with near historical highs [if not the highest] number of blank sailings in the last quarter of 2018,” he said.
Carriers will have yet another option for managing capacity in the fourth quarter when it comes time to take vessels out of service ahead of the shift to low-sulfur fuel. A planned one week out-of-service time for the transition could easily extend to two weeks. If import volumes weaken in the fourth quarter, “why wouldn’t they?” extend the layup period, Shumate said.
Sourcing Journal – The evolution of brick-and-mortar stores in the face of the e-commerce era has seen major retailers merge the two and turn their physical locations into fulfillment centers.
While some observers have questioned whether programs, like buy online, pick up in store (BOPIS) and buy online, ship to store (BOSS) are worth it given higher costs and logistical investments, the merchants claim the rewards are there.
On the one hand, they are saving on warehouse space and shipping costs, while on the other hand the programs drive traffic into stores and answer consumer needs for convenience—which brings in added sales.
A new retail model
Target and Kohl’s have been pioneering the movement, instituting major initiatives to answer omnichannel challenges.
John J. Mulligan, Target’s chief operating officer, told analysts recently: “We find efficiency in our operations to lower overall cost of fulfillment…It took us a number of years and lots of technology and process improvements to go from scrappy to smooth. When we had our Pickup down…we took it to the parking lot, giving our guests the convenience of swing it by the local store without even getting out of the car.”
“Across the board, we’ve put some serious technology equipment and automation behind our delivery methods to make us faster and more efficient,” he added. “This operation could be anywhere, a warehouse in Phoenix, Colorado or Virginia. But it’s a local store in Minnesota, doing the work of our fulfillment center just behind the sales floor. With these kinds of investments in every delivery method, we lowered our average unit cost of fulfillment by 20 percent, driven by our fastest growing fulfillment methods by Shipt from store and Drive-Up.”
By fulfilling closer to the store shelf, adding new delivery options and optimizing operations, Mulligan said Target saved “hundreds of millions of dollars in fulfillment costs in 2018.”
Last year, the COO said Target shipped out the back of 1,400 local stores, noting that order pickup through the drive up option costs 90 percent less than fulfilling goods from a warehouse.
For Kohl’s Corp., CEO Michelle Gass said on a recent conference call with analysts, “We continue to benefit from omni-fulfillment capabilities, with stores able to fulfill as much as 40 percent of digital orders.”
Gass said a key focus of Kohl’s omnichannel strategy has been, and will continue to be, amplifying the role and relevancy of its stores, calling them “a key asset and differentiator for Kohl’s.”
Kohl’s investments in fulfillment options like BOPIS and BOSS “are resonating with our customers and driving increased traffic and higher sales,” Gass said. “We are especially encouraged by BOPUS as it drives traffic into our stores and result in savings on shipping.”
The retailer piloted an enhanced ship from store capability called Omni Power Centers in 10 stores equipped with technology and process enhancements that allow them to be more efficient in fulfilling digital orders. As Gass noted, the successful pilot will lead to a 135 store expansion in 2019 to further leverage stores in the peak digital demand.
Fulfillment has been top of mind for many in the industry looking to deliver on today’s consumers’ demands.
“It’s amazing how much demand is coming in to us for orchestrating store fulfillment,”John Konczal, omnichannel product marketing lead at Manhattan Associates, said. “The issue is, whether it’s Target or Kohl’s or anybody else, they’ve really anticipated demand, but stores don’t deal well with time. And store fulfillment is a very deadline-driven function.”
For many retailers, Konczal said meeting omnichannel demand and same-day or two-day delivery or pickup required a substantial overhaul of method and systems.
“That pickup event is a new customer event that’s been added into stores,” he said. “The really good retailers are realizing that the pickup event should be treated just like any other customer service even in the store. That’s why many retailers are saying they want to get their stores organized just like a distribution center. Since we have such a massive warehouse business, we’ve been able to look at that and see what learnings and capabilities we can take and scale for the store.”
When Manhattan works with clients on this issue, the focus is on how much risk and uncertainty can be taken out of the promise to, as Konczal explained, help them “keep the delivery promise to their customers.”
Automated order filling, central order management, electronic notification of incoming orders and mobile-based order picking, have been key for some stores. The next step is giving store associates the tools needed for order picking—such as product photos on a phone and RFID on in-store products—and real-time verification of a successful pick.
Jon Slangerup, CEO of American Global Logistics (AGL), told Sourcing Journal that for the industry, the need to adapt the physical logistical infrastructure to meet to the omnichannel phenomenon has been driving AGL’s business in the last 18 months to three years. This, he said, is primarily in the furniture and automotive parts sectors, as well as consumer products.
“We call it 4PL, or fourth party logistics, where you’re helping companies focus on and optimize their supply chains and zero in on how they’re going to dramatically change their responsiveness to market demands,” Slangerup said. “It’s the technology that’s allowing…clear, end-to-end visibility of your supply chain. One of the most important aspects of our technology beyond the tracking and tracing capability is purchase order management. That allows our customers to initiate a order, book that order and to have full visibility into the manufacturing cycle and when it enters and through the transportation stage to the fulfillment center.”
At the top of the list is inventory and fulfillment center management, “where some of the greatest advancements are taking place,” Slangerup said. “It’s really an adapt or die situation for companies today, and we try to help the middle-sized players compete against the large players.”
Zebra Technologies’ 2018 “Future of Fulfillment Vision Study,” found that reducing back-orders was the biggest challenge to reaching omnichannel fulfillment for one-third of respondents, followed by inventory allocation and freight costs.
Retailers are investing in retrofitting stores to double as online fulfillment centers and shrinking selling space to accommodate e-commerce pickups and returns, the survey noted. Among the executives surveyed, 70 percent agreed that more retailers will turn stores into fulfillment centers that accommodate product.
Adding his perspective, John Andrews, CEO of Celect, said there are labor challenges in the transformation of stores to fulfillment centers. Celect helps devise systems for stores that maximize picking times for store employees that also need to service the store floor.
Globally, 87 percent of respondents agreed that accepting and managing product returns is a challenge. The increase in free and fast product delivery corresponds with an increase in product returns, a costly concern that retailers struggle to manage efficiently across different purchasing models.
Apparently not Kohl’s, which recently said its units across the U.S. will now accept Amazon returns, expanding on an initiative that began in late 2017. By early 2018, Kohl’s revenue growth in the Chicago region was up 10 percent, compared with 5 percent growth across the rest of the country. The area’s sales, transactions and customer growth outpaced the same metrics nationwide in 2018.
The number of new customers in the Chicago area grew 9 percent last year, compared with 1 percent growth for other Kohl’s stores across the U.S. Kohl’s takes care of the repackaging process, eliminating a step for consumers and adding to the program’s convenience.
The Amazon-Kohl’s partnership solves a pain point for Amazon’s customers, giving them an easier and cheaper option to return Amazon products, Anh Hoang, chief investment strategist at Global Hidden Gems Portfolio, wrote in a research report. At the same time, Kohl’s gets additional store traffic from Amazon’s product returns.
“Furthermore, Kohl’s sells Amazon-branded products in its store, transitioning from the store within a store concept to a wholesale relationship with Amazon,” Hoang noted. “With the overall implementation of the Amazon product return program, Kohl’s store traffic and sales revenue will definitely grow quite fast.”
Feature Image Source: Target
Supply Chain Dive -Container ships and real estate deals don’t move as fast a trade policy — at least not these days.
The vessels heading into West Coast ports with goods from Asia are coming into crowded shores. The Port of Los Angeles has been breaking its volume records for months, and April 2019 was the busiest April the port has seen in its 112 years of operation. Volumes reached 736,466 20-foot equivalent units (TEUs) — 4.5% higher than April 2018.
Storage space for these goods continues to wane as U.S. warehouse availability has been on the decline for 35 straight quarters, according to CBRE. Global Chief Economist Richard Barkham predicted a “a nicely balanced industrial sector, with demand and supply broadly in line” in mid-April when the U.S. trade war with China appeared to be rolling to a stop.
Less than a month later, President Trump tweeted negotiations with China were going too slowly, and the tariff rate on $200 billion in Chinese imports — known as tranche three — increased from 10% to 25% on May 10. Plus a new fourth list of goods to be tariffed is heading into a public comment period.
What will happen to warehouse space now, especially on the West Coast where U.S. imports from China most frequently make land? Kurt Strasmann, executive managing director at CBRE, said it all depends on how shippers perceive the current political climate. With negotiations being what they are, shippers must be vigilant of how rapid changes to the trade landscape may impact their ability to secure warehouse space.
A lot can happen in 90 days
Experts consulted for this report contend the recent escalation in trade tensions will not be met with panic. This early in the year, peak season is a still at a comfortable distance, but shippers can only wait and see for so long.
“If this tariff issue becomes a long-lasting ordeal — six to eight months — we do think it will obviously affect the flow of trade goods and will affect not just the Southern California marketplace, but nationally,” Strasmann told Supply Chain Dive in an interview. “But if it’s a month — call it under 90 days — we really see no change whatsoever.”
Strasmann attributed the 90-day grace period to a “big, deep, diverse market” in California. New warehouse construction in the golden state is rising to meet existing and growing demand. San Bernardino County, California, has 22.7 million square feet in new industrial construction projects underway and is the second-fastest growing industrial real estate market in the U.S., behind the Dallas/Fort Worth, Texas region, according to a quarterly review by the real estate company Lee & Associates.
Blake Shumate, chief operating officer for American Global Logistics (AGL), said tariffs or no tariffs, the state of the market for West Coast industrial real estate is still driving his clients to book space for 2020 now. The new construction, he told Supply Chain Dive in an interview, books up right away. His clients are frequently reserving space for product coming in 2020.
For more immediate needs, AGL’s customers are finding space in states slightly farther from the California ports like Utah.
“We don’t even know if we’ll need it, but if we’re going to want that space, we’re going to have to go after it now,” he said. Shumate indicated that at least for now, landlords have been resisting raising prices too high in favor or retaining customers, but if demand spikes, prices will almost certainly go up.
Tariffs can exacerbate a booming market, said Strasmann, but the healthy consumer economy is a more powerful driver when it comes to warehouse space.
Same market, faster pace
Retailers have been working on a just in time model for years now — trying not to hold any more inventory than is absolutely necessary to drive efficiency, boost margins and reduce reliance on additional industrial real estate.
Faster fulfillment commitments have led some retailers to stray from the model, though. 2-day shipping has been the standard definition of “fast” since Amazon Prime debuted in 2005, but last month, fast got faster when Amazon and then Walmart announced transitions to 1-day shipping.
Shumate suggested shippers may return to the just in time inventory model in this new tariff climate. The tranche four tariffs, should they go forward, will likely take effect in the summer — right when peak season merchandising plans are being finalized.
“It’s a little scary no doubt about it,” said Strasmann, adding shippers may choose to bump up volume in a month or so if the trade tensions hold. “All of these customers have separate operating models. They’ll start taking precautions as we get closer [to peak],” he added.
Still, shippers are unlikely to stray away from is the West Coat Ports, according to Strasmann. “The economics still favor, for any type of high-quality product, to ship here. And still, half that product stays here,” he said of the hungry California consumer market.
Feature Image Source: Supply Chain Dive
Supply Chain Dive -Dive Brief:
- The Trump administration’s fourth tranche of tariffs will target $300 billion worth of U.S. imports with up to a 25% tariff. Over $55 billion worth of those goods will include textiles, apparel, footwear and leather.
- The American Apparel & Footwear Association reported last year a 25% tariff rate would result in the average family of four paying an extra $500 per year on apparel alone.
- In a recent CNBC interview, National Retail Federation (NRF) President and CEO Matthew Shay said companies looking to avoid the tariffs by shifting sourcing and production to other countries will run into problems. “The issue is there’s no new China,” Shay said. “You can’t just go somewhere else and replace China with Vietnam or Cambodia or Thailand or South or Central America. You’re talking about replacing the capacity of a firehose with the capacity of a garden hose.”
Although China is currently the country’s largest supplier of textiles and apparel, accounting for nearly 36% of total U.S. importsin 2017, according to the World Bank, previous tariff lists left the industry largely unscathed. The items included were highly specialized apparel categories like “Articles of apparel, of reptile leather.”
However, the fourth tranche includes nearly all consumer apparel categories in addition to a wide range of material inputs like cotton, textiles, rubber and leather.
“(Apparel) Importers and manufacturers are startled,”U.S. Reshoring Institute Executive Director and Chairman of the Board Rosemary Coates told Supply Chain Dive in an interview. “A lot of apparel is included in the fourth tranche, and I think people hoped [Trump]was just using it as a negotiating tactic,”she said.
According to the NRF, the proposed rate of up to 25% is more than businesses can absorb without passing the cost onto their customers.
“The people buying cheap clothing at Walmart and Target are going to be the most affected by this,”Coates said. “These tariffs are a tax on [those]who just can’t afford a 25% price increase. I’m shocked at this.”
The Trump administration’s stated rationale for the tariff increases over the past year has been to rebalance the “trade deficit”between the U.S. and China and to punish Beijing for persisting intellectual property violations and other offenses. “We know China has IP issues, human rights issues, currency manipulation issues, etc.”Coates said, “but the way to address that is through diplomacy not lunacy.” When asked whether she believed the tariffs would actually go into effect, Coates responded that while many in the apparel industry assumed the administration’s announcement was just a scare tactic to bring China to the negotiating table, ultimately she believes American consumers will pay the price as the negotiations drag on.
In anticipation of this, some apparel and footwear companies like Nike and Gap have begun shifting their sourcing, procurement, and manufacturing to other affordable southeast asian countries like Vietnam and Indonesia. While these preventative measures will be helpful if the latest round of tariffs goes into effect, shifting operations at the country level will take will take time and resources that not every company has the capacity to spend.
“With 41% of all apparel currently produced in China, retailers will need to take a close look at their sourcing and logistics strategies to weigh the costs and benefits of moving elsewhere”American Global Logistics CEO John Slangerup told Supply Chain Dive via email.”We’re already seeing a number of our own customers shift production to neighboring countries…As conditions continue to evolve, apparel businesses that combine a technology-enabled supply chain with experienced logistics support will be best-positioned to manage costs while still meeting customer expectations.”
American companies will have the opportunity to challenge the tariffs during the USTR open comment period in June. Bethany Aronhalt, Senior Director of Media Relations at the NRF, told Supply Chain Dive in an interview that if the fourth tranche of tariffs go into effect it could take years for retailers to adjust. She said the organization is ready to testify in Congress during the comment period where they hope to make a convincing case on behalf of the businesses, manufacturers, and consumers who will be negatively affected by the new regulation.
Feature Image Source: Supply Chain Dive
5.16.19—Atlanta, GA: American Global Logistics (AGL) Chairman and Chief Executive Officer Jon Slangerup will deliver the Day 2 keynote address for the Journal of Commerce Gulf Shipping Conference next week in Houston, Tex., May 20-22. On Wednesday, May 22, Slangerup will discuss “Supply Chain Optimization in the Age of Disruption” at 9 AM CT.
“Importers and exporters face growing pressure to streamline their supply chains, or risk missing out on significant cost reductions and performance gains at every stage of their logistics workflow,” said Slangerup. “Leveraging technology in this age of disruption is critical to providing greater visibility into the market shifts and dynamic operating conditions that exist end-to-end within the supply chain.”
Before joining AGL in 2017, Slangerup served as CEO of the Port of Long Beach, a primary U.S. gateway moving more than $180 billion a year in trans-Pacific trade. Earlier, he served as President of FedEx Canada, the country’s leading global logistics provider.
Headquartered in Atlanta with operations centers in Virginia and North Carolina, AGL is one of the industry’s fastest growing and most respected international supply chain and logistics solutions companies. Beginning twelve years ago, AGL initially established itself as a key player in the trans-Pacific trade lanes and since has rapidly expanded its reach by ocean and air into the trans-Atlantic and Latin America lanes, serving customers throughout the Americas, Asia, Europe, Middle East and Africa. The company’s cloud-based technology and 4PL solutions extend the visibility and global reach of its customers’ multi-modal transportation networks and fulfillment requirements.
Held at the Houston Marriott Marquis, the 2019 JOC Gulf Shipping Conference will provide information and insights that cargo owners can use to plan and execute shipments of container, breakbulk, and project cargoes through US Gulf ports. Additional speakers include Beverly Altimore, president and executive director of the US Shippers Association (USSA); Erik Bo Hansen, VP at the Kansas City Southern Railway; Gregory Price, CEO of Shipwell and William Taylor, CEO of TransGulf Shipping.
About American Global Logistics
Founded in 2007, American Global Logistics is a specialized supply chain software and services company that provides end-to-end multi-modal transportation solutions, customs brokerage, compliance consultation, carrier allocation management, warehousing, distribution, and advanced purchase order management to select customers. Its proprietary cloud-based technology provides real-time shipment visibility and forecasting and an accountability-based customer service model allow customers to deliver a consistent experience to their end-users. AGL’s client base represents a broad range of industries including automotive, furniture, chemicals, raw materials, perishables and consumer goods, and represents some of the world’s largest importers and exporters.
Will Haraway Backbeat Marketing
The Loadstar – El Niño is having a major impact on container traffic through the Panama Canal this year.
From May 28, the canal operator is going to reduce the draught at its Neopanamax locks to 43 feet, the latest in a series of depth reductions that have brought the permitted level down from 50ft at the beginning of the year.
The region is suffering from a protracted drought that has decimated the water in a lake that is used to top up water levels in the canal. According to ACP, the Panama Canal authority, after four to five months of almost no rain, the river flow to the reservoir is down 60%.
The draught restrictions at the canal are affecting cargo rates from Asia to the US east coast; while spot rates from Asia to the west coast are up 4.3%, they have climbed 14.7% to the east coast, according to one source.
The Freightos Baltic Index (FBI) of May 9 shows China-USWC container rates up 1% on the previous week, but China-USEC rates were up 6%, a trade that has seen a 23% rise since the beginning of the year, according to the index.
Most customers look predominantly at prices, said Jon Slangerup, CEO and chairman of American Global Logistics (AGL). More than 50% of the forwarder’s east coast traffic comes through the Panama Canal, he estimates.
For the most part, it is a balancing act between price and transit times, but if customers balk at higher east coast rates, AGL can shift its traffic to west coast gateways, he adds.
ACP claims congestion and labour resistance to automation on the west coast are pushing more shippers to use the canal to serve US markets on the east coast.
Mr Slangerup, a former CEO of Port of Long Beach, acknowledged that the west coast ports had struggled with high volumes, adding that merger and acquisition activities at their terminals have not helped. However, he added, there had been signs of improvement.
About five years ago, some 23% of the containers arriving at Long Beach were loaded on dock-to-rail, today the ratio is closer to 30% and is expected to continue towards the 50% mark, he said.
Recent numbers give no indication of a spillage of imports from the west coast to the canal. The ports of Long Beach and Los Angeles both posted record container numbers for April, while up the coast, the port of Oakland reported a 7% rise in import containers.
Mr Slangerup believes the meteoric rise in traffic through the canal after its re-opening in 2016, which has been attributed to a migration from west coast ports, is primarily the result of different dynamics. While the expansion work was going on, the canal lost about 30% of its market share – chiefly to Asian traffic moving via the Suez Canal. The subsequent surge in traffic was largely a matter of recovering lost ground, he said.
With or without draught limitations, the canal cannot handle vessels larger than 14,800 teu, they being too wide to pass through, Mr Slangerup noted. While this produces some constraints, the impact has been negligible, as the larger vessels have not featured to a large degree on the transpacific routes. Moreover, ports in the Gulf of Mexico area cannot accommodate these vessels either, and neither can some east coast ports, he pointed out.
Savannah, which can handle ships of 14,000 or more teu, is not showing any concern that growth momentum could be dented from draught limitations in the canal. Last month, Georgia Ports Authority placed an order for 20 rubber-tyred gantry cranes for the port.
The draught restrictions are estimated to lose the ACP some $15m this year, which is minor next to last year’s revenue of $2.5 billion. However, the prospect of further restrictions in the event of the drought continuing is a different matter.
While the majority of vessels have no issues passing through the canal, Mr Slangerup believes the drought raises the question of whether it might affect the canal’s potential.
“I’m not sure if, and when, it’s going to get resolved,” he said.
ACP has indicated it is looking at plans for a third water reservoir, and a decision on this will likely be made by the end of the year.
Feature Image Source: The Loadstar
Supply Chain Brain —A year after tariffs on more than 1,300 Chinese goods first sent importers reeling, the news supply chain managers everywhere have been dreading is finally here.
Last week’s tariff increase from 10 percent to 25 percent, which went into effect May 10, gave organizations less than a week to plan for the ensuing shockwaves.
Although the future of many supply chains remains murky in light of this news, one thing is clear: the importance of a strong customs compliance program. By combining the right technology, people and processes, importers can help to minimize financial and operational impacts as they navigate a new reality for global trade.
The U.S. bombshell announcement comes after months of negotiations, including recent talks in China after which President Trump hinted the two sides were nearing a deal. As news of the latest move from Washington sends tremors through the economy, supply-chain managers are taking stock and assessing the tremendous impact to their bottom lines.
While shippers and downstream suppliers have largely absorbed the 10-percent tariff hike, an increase to 25 percent would have huge financial implications, while also likely requiring customers to share the economic burden. And beyond the U.S.-Chinese trade battle, news of $11bn in potential tariffs on European Union products is just the latest in a string of brewing trade tensions around the globe.
After breaking import records last year as they stockpiled inventory to beat impending tariffs, many businesses have delayed replenishment to avoid a potential tariff hike when goods reach land. Now, tariff increases are coming as businesses face diminishing inventory levels and strong consumer spending. The Global Port Tracker forecast a 6.9-percent year-over-year increase in April imports, with May expected to climb 2 percent from the previous year. This latest news will make cost efficiency more critical than ever, as the 2019 peak shipping season approaches.
No matter what the future holds for global trade, putting the right strategies in place now can help importers streamline operations, avoid regulatory fines and penalties, and reduce spending while still meeting customer expectations. Here’s where to start.
- Establish a single source of truth. With 13 percent of shippers still relying exclusively on Excel for supply-chain management, tracking the movement of goods from purchase to final destination remains a challenge for even the largest companies. Consolidating all supply-chain data into a centralized, automated platform can help improve customs compliance and efficiency. With details on every shipment at their fingertips, businesses can pull reports to confirm that classifications are correct, examine current sourcing and vendors, and identify cost savings opportunities through mode or carrier adjustments.
- Get compliance you can count on. Whether your business has a full in-house brokerage team or relies on external support, the current environment is a timely reminder of the importance of compliance. An experienced broker can help you stay on top of regulations, minimize the risk of errors and penalties, and ease the strain on internal resources. Key steps to take include double-checking all harmonized tariff classifications, so you’re not paying tariffs unnecessarily or putting yourself at risk for fines for missing duties. In addition, establish a thorough auditing system to avoid errors and fines while reducing the time spent on paperwork and post-summary corrections.
- Consider sourcing alternatives. As tariffs take a bite out of budgets, a growing number of businesses say they’re looking to move production out of China. A centralized platform makes it easier to vet vendor performance and overall costs, so you can weigh the pros and cons of shifting your sourcing. In addition, an experienced supply-chain partner can help you optimize routes and modes to accommodate a move to a neighboring country like Vietnam, Malaysia or India. Some suppliers are also helping to mitigate tariff costs by acting as the importer of record and paying duties for businesses — something to keep in mind as you evaluate your own vendor mix.
- Stay informed. In this rapidly evolving trade environment, businesses need to stay on top of regulatory updates to avoid landing in legal hot water and optimize operations. A partner with its finger on the pulse of the industry can help ensure compliance, aid in lobbying efforts and make sure you’re not paying more than your fair share. For example, when one tire manufacturer received a U.S. Customs and Border Protection notice that its goods were subject to anti-dumping duties, the company worked with its provider to prove that the tariff didn’t apply in its case, saving the manufacturer from significant expense.
For importers steeling themselves for the latest turn in the tariff saga, preparing now can help them stay competitive later. Businesses that invest in a technology-enabled, compliant supply chain will be better positioned to handle whatever comes next.
Article written by Lori Fox, Vice President, Customs Brokerage Services, American Global Logistics
Article written by Jon Slangerup. Jon Slangerup is the chairman and CEO of American Global Logistics, one of the fastest-growing and most respected international supply chain and logistics solutions companies in the world. AGL’s technology solutions extend beyond the walls of ocean, air and domestic transportation services for customers across the globe. Previously, Jon was CEO of the Port of Long Beach, and prior to that he served as president of FedEx Canada.
Supply Chain Dive—Dive Brief:
- U.S. Trade Representative Robert Lighthizer confirmed 10% tariffs on $200 billion worth of Chinese imports will rise to 25% at 12:01 a.m. Eastern Standard Time on Friday, according to multiple news reports. His remarks follow a Sunday afternoon pair of tweets from President Donald Trump stating the existing tariffs will rise and new ones could be coming. The Office of the U.S. Trade Representative (USTR) has yet to issue a formal statement announcing the increase.
- Lighthizer cited an “erosion in commitments by China” and said the country retreated from earlier commitments it had made in the negotiations. In the same press conference, Treasury Secretary Steve Mnuchin said the U.S. would reconsider the tariff increase if trade talks get back on track, CNBC reported.
- A Chinese delegation was scheduled to travel to the U.S. this week for trade discussions. The Chinese Commerce Ministry said Liu He, China’s Vice Premier, is still scheduled to travel to Washington but did not specify what topics would be discussed, according to Reuters.
Trump’s Sunday tweets brought the more than five-month trade truce between the U.S. and China to a grinding halt. The sudden news came as a seemingly 180-degree turn from recent rhetoric surrounding trade talks, which Trump administration officials had described as “constructive” and “productive.”
Less than a week’s notice on a tariff increase leaves companies with little to no time to adjust their supply chains to mitigate the financial burden, though in reality companies have been planning for the possibility of a hike to 25% since it was suggested last year.
For some, that means shifting sourcing away from China. Brooks Running, owned by Warren Buffett, said it will move the majority of its running shoe production out of China and to Vietnam, Reuters reported.
Moving sourcing comes with a new set of risks, however. “Workers in countries such as Bangladesh, Cambodia and Vietnam are at more risk than in China across a wide number of issues,” Ryan Ahearn, head of commodity service for Verisk Maplecroft, wrote in a risk outlook emailed to Supply Chain Dive.
While China is far from risk-free on labor and social rights issues, it’s a “well-trodden” path companies have become accustomed to navigating, according to Ahearn. “Taking the less trodden path could prove to be more perilous than staying put,” he wrote.
The initial announcement of 25% tariffs brought a rush to import goods in the last few months of 2018, and it’s possible the news from the Trump administration could result in another rush, though likely for air freight as it’s only the method shippers can use to bring goods in before Friday morning.
“Importers are more focused than ever on cost efficiency as the 2019 peak shipping season approaches,” Lori Fox, vice president of customs brokerage services at American Global Logistics, told Supply Chain Dive in an emailed statement.
Shippers would have to weigh the cost of air freight with the cost of paying 25% duties to assess the most cost-effective method.
For cargo already in transit by ocean freight, shippers may have no choice but to pay 25% tariffs once the shipments arrive in the U.S.