Trade War Negotiations With China Restart

July 8, 2019/in Articles

US and China Trade War Negotiation Updates

Recent China trade war tensions are raising risks of a freight recession despite market indicators of a late 2019 recovery. However, the recent 2019 G20 Summit held in Osaka, Japan gave way to good news. President Trump and Chinese President, Xi Jingping, agreed to restart trade talks. There is no official timeline for the trade talks, showing a potential repeat in the succession of events from early 2019. According to the vice president and senior analyst for ACT Research, Tim Denoyer, freight volumes will not rebound any time soon.

Additionally, President Trump recently suggested the U.S. may implement tariffs on Vietnamese goods. The claim is that companies are re-labeling products to “Made in Vietnam” to avoid the 25% China tariffs. The White House is using tariff threats as a prime negotiating strategy for the forseeable future. The threats started with China, and branched out to Mexico, Vietnam, the E.U. and more.

Industry Response to the Trade War Tariffs

According to the president and CEO of Consumer Technology Association (CTA), Gary Shapiro, the China import tariffs are costing the U.S. tech industry an additional one billion dollars every month. However, on a positive note following the G20 Summit, a suspension was placed on list 4 tariffs in addition to Trump and Xi Jinping agreeing to re-open trade talks.

Additionally, companies are finding ways to navigate the new trade war tariffs. Walmart is investing $1.16 billion into a new facility in China to service nearly 25% of the country’s 443 store network. The company is also making additional investments into same-day delivery and blockchain technology for full supply chain visibility and food safety. Furthermore, Apple is making investments in India to eventually move up to 30% of their supply chain operations there.

The uncertainty for U.S. businesses is a constant in the trade war with China. Apple, Walmart and other major companies are setting examples of how to move forward and navigate the new import/export tariffs.

Is your company being impacted by the trade war tariffs? Reach out to one of our supply chain experts today for your personalized strategic business solutions.

Port Automation Vote Goes To Los Angeles City Council

July 2, 2019/in Articles

Port Automation Vote

Friday, June 28 the Los Angeles City Council voted on the issue of automation in the Port of Los Angeles. The topic is a controversial one which is why the city council is holding the vote. The implementation of automation will lower labor requirements for the port by up to 70%. Furthermore, labor at the port currently consists of nearly 50% of the port’s costs. Not only will this save on labor costs, but also will save on the facility’s energy and maintenance costs. The Board of Harbor Commissioners plans to do this via the implementation of hybrid/electric motors.

Prior to the vote being brought to the Los Angeles City Council, the Port of Los Angeles Board of Harbor Commissioners approved a permit to begin development of automated straddle carriers. The International Longshore and Warehouse Union (ILWU) presented an appeal to stop the permit from approval. The appeal was denied in a 3-2 vote. Those who voted against the plan stated it is incomplete and noncompliant with the Port Master Plan due to the economic impact of the plan not being “fully thought out”.

Furthermore, the Los Angeles City Council voted to veto the construction permit of the automation project in a 12-0 vote. According to the president of ILWU Local 13, the union seeks to continue negotiations with the Port of Los Angeles to find a solution to reduce the number of job losses that normally come out of the implementation of automation.

Impacts of Port Automation

Forecasts suggest that the implementation of automation at the Port of Los Angeles will double operations from 5,000 containers per acre to nearly 10,000 containers per acre. Furthermore, the Port of New York and New Jersey is a good example of the impact of port automation on employment. In 1956 the port employed 35,000 managing 35 million metric tons of cargo, but in 2011 the port employed 3,500 managing 79 million metric tons of cargo.

The Los Angeles City Council vetoed the permit in a landslide vote. City council members hope the Board of Harbor Commissioners bring to the table a proposition that minimizes the impact on port jobs. Furthermore, the 2019 State of Logistics Report specifies that within the next 3 years 5G mobile broadband will be implemented into the supply chain. 5G mobile broadband allows for more data to transfer more quickly between networks. Therefore, the maritime consulting firm, SeaIntelligence, predicts that nearly 600,000 shipping containers will have real-time tracking implemented by 2025.

Knowing the above facts helps paint a picture of the motives behind the port automation push. The Port of Los Angeles is pushing for automation to maintain market share in the coming years. The higher the throughput of container traffic, the greater the market share.

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List 4 Tariffs Force Companies To Consider Alternatives

June 25, 2019/in Articles

USTR Hearing on List 4 Tariffs

On June 17, a 7-day-long hearing on the proposed list 4 tariffs opened.

Over 300 witnesses, most notably representing large technology companies, voiced opinions on the fourth list of proposed tariffs. Notable organizations represented at the hearing include Apple, Intel, Microsoft, and the Port of Los Angeles.

Furthermore, nearly 50% of the list 4 tariff items include tech commodities. As a result, Apple is exploring the possibility of moving up to 30% of their production capacity outside of China. One of Apple’s main manufacturers recently made investments in both India and Vietnam that may become production alternatives for the tech giant.

Additionally, Dell, HP, Microsoft and Intel presented a statement to the USTR regarding the list 4 tariffs citing that their prices would go up by at least 19% should the tariffs go into effect. The joint statement seeks to remove laptops from the final tariff list. The statement goes further to address that should the companies pursue production alternatives, the venture would be a time and cost heavy process that would take money away from R&D. Furthermore, Apple has taken the first step towards moving their supply chain out of China. The company is rushing production and stockpiling key components ahead of the upcoming G20 summit on June 28 where Presidents Trump and Xi Jingping will resume tariff talks.

Approaching G20 Summit

June 28-29, the Japan G20 Summit will take place. President Trump announced on June 18 that he will meet with Xi Jingping to resume trade talks at the summit. The previous G20 meeting between the 2 leaders led to a 90-day truce on the tariffs with list 3 tariffs coming soon after followed by the current list 4 tariff talks. The announcement followed a conversation in which he and Xi agreed to resume trade talks at the Osaka G20 Summit.

The circumstances of the situation changed since the last of the trade talks in May, however… 25% tariffs are already in place on lists 1-3. Because of this, China may be more pressured to make a deal, although uncertainty still remains. In addition to Apple, Intel, Microsoft, and Dell exploring supply chain alternatives to China, other large organizations like GoPro, Hasbro, Steve Madden, Black & Decker, Brooks Running, Whirlpool Corp. and Intel are also planning to move production away from China in the coming year.

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Canada ELD Mandate Officially Announced

June 17, 2019/in Articles

Two Year ELD Mandate Rollout Plan

Thursday, June 13, the Canadian government officially unveiled plans to implement the Canada ELD Mandate. Canadian officials plan to set this mandate into full effect on June 12, 2021. The Canadian government hopes to reduce fatigue related crashes in the country by 10% with the new mandate. In the period between 2010 and 2015 Canadian officials cited over 55,000 HOS violations. Nearly 50% of these violations were for failing to maintain or even produce an HOS log. Additionally, 25% of the violations were for exceeding maximum hours of service, and 11% for operating 2 logs at once and falsifying information.

Furthermore, Canadian officials announced that the 2005 paper log rules will remain unchanged… only now hours of service and other key safety metrics will be logged electronically. The initial implementation of the ELDs in Canada will only apply to federally regulated carriers. Additionally, the new mandate does not apply for trucks rented less than 30 days and vehicles with model year less than the year 2000. The new mandate also allows a 14-day period to use paper logs in the even that a logging device malfunctions.

Canadian officials also included in the announcement that the Canadian logging devices will be compatible in both the United States and Canada to ensure optimized cross-border trade. Currently almost 50% of all federally regulated Canadian carriers already use the U.S. mandated ELDs for cross-border lanes into the U.S.

Differences Between the Canada and U.S. ELD Mandates

While both the Canadian ELD mandate and U.S. ELD mandate were implemented for the same reasons there are some differences between the two that should be noted. The Canadian ELD mandate requires carriers to transfer/share 14-day log data, whereas the U.S. ELD mandate states that carriers must send detailed reports to enforcement every 8 days.

Furthermore, the U.S. ELD mandate requires the ELD manufacturers to use the Geographic Names Information System (GNIS) to map all locations and identities in the United States. On the other hand, the Canada ELD mandate states the government should supply ELD manufacturers and vendors with the location and identity file for Canada.

Personal conveyance specifications are also different in the U.S. and Canada. For the Canada ELD mandate, drivers are allowed 75 kilometers of personal conveyance every 24 hours before the system automatically switches from ‘personal conveyance’ to ‘driving’. For the U.S. ELD mandate, however, there are no time or distance restrictions on personal conveyance.

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Mexico Import Tariffs Off The Table After Agreement Reached

June 10, 2019/in Articles

Mexico Import Tariffs

April 4, 2019, the White House announced a “one-year” warning for Mexico to fix the flow of illegal immigrants into the United States, or there will be new penal tariffs introduced as a result. However, this past week President Trump announced a series of escalating Mexico import tariffs set to go into effect on June 10. These tariffs are pending U.S. and Mexican officials do not take immediate steps to stop the illegal immigration flow. The tariffs are set to start at 5%, and will increase to 10% on July 1, 15% on August 1, 20% on September 1 and eventually 25% on October 1.

The tariffs are set to stay in place until “Mexico substantially stops the illegal inflow…” of immigrants coming through their country. The level of sufficiency of Mexico’s actions is “at the sole discretion” of the White House.

However, on Friday, June 7, according to a tweet from President Trump, the United States and Mexico reached a deal to avoid the 5% tariffs on all imported goods. The tweet stated that “Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border…”, thus indefinitely suspending the tariffs that would have went into effect today.

Industry leaders warn that these tariffs would have a devastating effect on the supply chain with Mexico. Roughly 32,000 United States truck drivers engage in cross-border shipments to Mexico every day. This avenue of trade between the United States and Mexico sees over $1.1 billion worth of cargo every day.

Price Inflation for the End Consumer

The effects of the new tariffs on Mexico imported goods affect end consumer prices specifically for apparel suppliers, and especially denim. Mexico is currently the United States’ 8^th largest apparel supplier, and is the largest men’s jeans denim source for the United States.

Furthermore, Chipotle recently reported that they expect their costs to rise at the tune of $15 million for 2019. The majority of the vegetables imported to the United States come from Mexico. Additionally, nearly 50% of fruits imported to the United States also come from Mexico. Tomatoes are set to be tariffed at 17.5% by mid-June. The price of avocados are also on the rise due to a rough season. Prices for the end consumer will continue to climb if tariffs are applied, specifically to these goods.

Additionally, with the southwest capacity already being tight from produce, the added tariffs would send supply chain costs skyrocketing. Capacity is especially tight at the major ports of entry along the United States/Mexico border, specifically El Paso. For exact border-crossing wait times, follow this link.

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ILWU Canada Port Workers Threaten Strike

June 3, 2019/in Articles

ILWU Canada Core Issues

February 2018, negotiations began between International Longshore and Warehouse Union (ILWU) Canada and the British Columbia Maritime Employers Association (BCMEA). The purpose of these negotiations is to renew a labor contract between the two parties with agreements on how to move forward for the ports of Vancouver and Prince Rupert. One of the main issues being discussed is the introduction of port automation. Recently escalated tensions between the two parties have given way to the possibility of an ILWU Canada strike with a landslide vote on the issue this past week.

Furthermore, for ILWU Canada, the loss of jobs for dockworkers would be devastating to communities. According to Robert Ashton, president of ILWU Canada, job losses due to automation could be as much as 85-90 percent. However, the official estimate is that job losses will vary from 40-70 percent. Combined, the ports of Vancouver and Prince Rupert account for 2/3 of Canadian import retail traffic. The implementation of expansion plans for the ports of Vancouver and Prince Rupert will launch in the mid-late 2020s.

With increased support for the ILA on the U.S. East and Gulf coasts, ILWU is standing firm on the issue of automation. Early this past Thursday morning negotiations came to a standstill, and as a result the BCMEA made the decision to lockout employees from the ports of Vancouver and Prince Rupert. However, later on that day, BCMEA lifted the lockout following a tentative agreement being reached between the two parties. The details of the agreement are unknown at this time.

Port Strike Ripple Effect

Should negotiations take a turn for the worse and an ILWU Canada strike ensue, port operations at both Vancouver and Prince Rupert will come to a halt. This will result in shippers finding alternative routes for their western Canada imports and exports. The most viable supply chain alternatives are the ports of Seattle and Tacoma. This causes capacity to tighten and freight rates to go up in these regions of the U.S.

Furthermore, supply chain costs would go up for cross-border lanes and added variables would increase shipment time. The effect of a strike will be felt the most at mom-and-pop stores. Many bigger shippers import enough product that if assets get locked up at one location, then they can divert their future shipments to alternative ports like Seattle, Tacoma and Los Angeles. However, for smaller shippers with import volumes that may only partially fill containers every few months, alternative routing for their supply chain is not an option. Once the product is locked up at a port, it is stuck there until the port operations resume.

BM2 Freight Services, Inc.

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Freight Rates Searching For Market Bottom

May 28, 2019/in Articles

Spot Market Freight Rates and Contracted Freight

While contracted freight is enjoying a relatively stable market recently, the spot market has taken some serious hits with rates down 36% since June 2018. Contract freight has found a mutual stability in the early months of 2019. Shippers are afraid to pull their loads from carriers for fear of tight capacity market conditions. This could potentially hinder supply chains should trucks not be available in the right areas. However, this stability hinges on shipment volumes remaining consistent as well as spot market instability.

On the flipside of the coin, carriers living on the spot market are feeling the pressure as rates are down amidst a capacity surplus. In a push to combat the new ELD mandates in 2018, carriers faced a driver shortage issue. This resulted in higher driver pay and better incentives to find drivers with the right qualifications to seat their trucks. Fast-forward to April, 2019, truckload capacity was up 5% over 2018, but there was not enough volume in the market to satisfy the added demand.

However, on May 10 the 15% tariff hike on all Chinese imports caused a 6% drop on the Outbound Tender Volume Index in a 6-day period causing a shift in the stability of contracted freight. The Outbound Tender Volume Index measures the total amount of contracted freight in the market. With the shipment volume drying up, a tight labor market has been created. Miles dry up and drivers pursue different employment options. This in turn forces carriers to increase driver pay and thus inflate market rates. Shippers are moving to the spot market for better rates than their inflated contracted rates.

The capacity surplus in the spot market is driving market rates down, while the drop in shipment volume to contracted carriers is driving rates up forcing the market as a whole into a race to the bottom for freight rates. In addition to freight rates falling, oil prices are up nearly 32% since the start of 2019 that will cost carriers on average a $0.07 per mile increase in fuel expenses… further driving fleet costs up.

Early June Capacity Crunch

The Commercial Vehicle Safety Alliance (CVSA) International Roadcheck inspection is fast approaching. June 4-6 commercial vehicle inspectors will be doing inspections of drivers and their trucks. Each year the focus of these inspections changes with 2018’s focus placed on hours-of-service violations. 2019’s International Roadcheck event will be primarily focused on steering and suspension components of trucks. The CVSA administers Level 1-5 inspections with the Level 1 inspection being a 37-step procedure of both the driver and vehicle. This 3-day event is expected to cause a momentary tightening of capacity due to added over-the-road hours for truck drivers.

Furthermore, the inspections include checking items such as: coupling devices, frames, exhaust systems, fuel systems, steering mechanisms and more. For a full list of items included in inspections click here. Additionally, drivers are required to show their driver’s license, medical examiner’s certificate and skill performance evaluation certificate, record of duty status and vehicle inspection report(s).

BM2 Freight Services, Inc.

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Freight Market Insights In Southwestern U.S.

May 19, 2019/in Articles

Freight Market Sees Uptick in Southwest

Over the past week, freight going out of Texas has increased dramatically. This is indicative of the spring produce rush, specifically watermelons and cabbage, for this time of year. Southern Texas border cities have also started to see an uptick in volume and rates over the past week. Arizona has also recently been experiencing tight capacity due to produce season. We recommend searching for vented vans as a cost-efficient alternative to reefer trucks for your produce supply chain needs.

However, the high freight volume warrants increased lead times on outbound loads. Tight capacity means increased rates, and—as of this past week—Southwestern U.S. rates have seen an average increase of $0.09 per mile per day. The current lead time threshold recommended for outbound loads from Texas, Arizona and other southwestern U.S. states experiencing this capacity crunch is at least 4 days.

Texas to the Midwest U.S. are more notable tight capacity lanes due to the low volumes shipping from the Midwest. Meaning carriers will have to deadhead to their next pick-up if they don’t have a load booked near their arrival point. Furthermore, due to this scenario, rates will trend slightly upward in those regions to account for deadhead costs.

Other notable points in the freight market for this past week include the following:

Northeast U.S. volumes to Canada are down as well as rates. Thus making it somewhat difficult to deliver loads to this region currently.
Rates for outbound Georgia lanes, specifically dry van, are up due to high produce volumes. This also means that rates for lanes going into Georgia are down thus making it easier to send shipments there.
New Jersey reefer rates are down currently indicating lower volume and loose capacity.
Flatbed rates going out of Houston, Texas are currently up indicating tighter flatbed capacity and higher flatbed freight volumes.

Year-Over-Year Decline in Freight Market

In general, the first 4 months of 2019 have seen on average 16.9% less loads than the first 4 months of 2018 according to the Cass Freight Index. VP and senior analyst of ACT Research, Tim Denoyer, reported that the freight market slow-down started in the second half of 2018. Furthermore, DAT data shows April year-over-year spot market metrics for dry van loads are down 58.9%, flatbed loads are down 16% and reefer loads are down 60.9%.

BM2 Freight Services, Inc.

Phone: (859) 308-5100

Email: Sales@BM2Freight.com

Tariffs On $200 Billion In China Imports Rise To 25%

May 13, 2019/in Articles

Updated Timeline of Trade War

Tariffs on over $200 billion in imported goods from China went from 10% to 25% Friday, May 10. According to U.S. Treasury Secretary, Steve Mnuchin, the talks with representatives from China were “constructive”, but offered little more detail than that. However, according to a document in the Federal Register, commodities in transit from China prior to May 10 are exempt from the new tariffs.

According to a document in the Federal Register, the tariffs apply to goods “entered for consumption, or withdrawn from warehouse for consumption” and goods “exported to the United States on or after May 10, 2019”. At this point, the topic of exempt goods is still up for discussion according to a recent tweet from President Trump stating “waivers on some products will be granted, or go to new source!”. In addition to the newest tariff hike, Trump also announced on Friday that the White House has begun the process of applying the 25% tariffs to an additional $325 billion worth of Chinese imported goods which would make nearly every good imported from China subject to the 25% import tariffs.

Furthermore, in addition to the U.S. raising import tariffs 15%, China has announced they will be applying in kind countermeasures. Little detail is known on China’s response at this time. It is predicted that they will either implement more import tariffs or withhold necessary permissions for U.S. companies to operate in China.

Tariff Exclusions & Cost Mitigation

The recent 15% increase on Friday applies to all listed items on ‘List 3’ despite prior uncertainties regarding the items on this list. However, in the Federal Register document announcing the tariff increase, the document goes further to say that the USTR will be establishing a process by which businesses may submit requests for exemptions on the import duties. The USTR plans to publish a separate document highlighting the exclusion process, but an exact publish date has not been specified.

With the new duties applied, it is important to explore cost mitigation strategies. Of those strategies, President Trump cited in a recent tweet for businesses to explore new sourcing options, which seems to be the most notable cost mitigation tactic. For a full list of cost mitigation strategies click here. Additionally, spring and summer import volumes from China are expected to be exceptionally high as the U.S. explores a fourth round of tariffs on the remaining $325 billion in Chinese imports.

BM2 Freight Services, Inc.

Phone: (859) 308-5100

Email: Sales@BM2Freight.com