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May 2019 Newsletter

A monthly roundup of our Industry Updates, Blogs and Market Information

Recent Developments in China Tariffs

With just two Tweets on Sunday, May 5th, President Trumps sparked another round of China tariff actions. As your logistics provider, we strive to keep you updated on ongoing events related to tariffs on goods imported from or exported to China. Our previous Industry Updates on this topic have provided information on the recent tariff increase from 10% to 25% on 'List 3' Chinese-made products beginning May 10, 2019.

June 1, 2019 China Tariff Retaliation 

In response to this action, the Chinese government has announced they will increase tariffs on $60 billion in US export products. Tariffs on this list of 5,000 US products which are currently at either 5% or 10% will increase to either 20% or 25% beginning June 1, 2019.

Additional Tariff on List 4 is Possible  

President Trump has announced his intention to increase tariffs on 'List 4' which includes $267 billion in Chinese-made products. The effective date of the proposed additional tariff of 25% has not been determined however it includes nearly all remaining goods originating from China. On May 13th, the USTR released the proposed list which would be subject to additional Section 301 tariff of up to 25%. That list can be reviewed here

 A public hearing will be held by the USTR on June 17, 2019 and requests to appear at that hearing are due by June 10th. Written comments must be submitted by June 17th. The implementation date of this latest proposed tariff action is not known, however it could be any time after June 24th.

A Recap of US Tariff Actions

Section 301 Summary 051319-1We recognize this situation is fluid and has the potential to affect your supply chain processes. As your logistics partner, we will continue to offer our support. Meanwhile, if you have questions regarding how these tariff actions may impact your shipments do not hesitate to contact our customer service team. You can also refer to our Section 301 Tariff FAQ's.

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The Low-Sulfur Fuel Mandate - What you need to know 

The International Maritime Organization (IMO) has mandated ocean carriers begin using low-sulfur fuels by January 1, 2020 and that date is fast approaching. We have discussed the impact of transitioning to low-sulfur fuel in previous newsletters. In short, the low-sulfur mandate came about as an effort to cut sulfur-oxide emissions in Emission Control Areas (ECA), a 200-mile buffer around the U.S. shoreline and other designated areas around the world. Ocean carriers can comply with the new mandate by retrofitting vessels with special fuel scrubbers, a costly and time-consuming process or burning the new, more costly low-sulfur fuel. As we approach the deadline, there are some things you need to know about how the low-sulfur mandate will soon impact your bottom line. 

  • As carriers prepare to meet the January 1, 2020 deadline, vessels may be pulled from service to retrofit scrubbers or perform other maintenance required in order to burn low-sulfur fuel. This could result in blank sailings for some routes in the 4th quarter of 2019
  • The potential BAF (or Low Sulfur Fuel) cost increases are estimated to be anywhere from $200 - $400 per TEU.
  • Some analyst have predicted bunker fuel (BAF) fees could increase as follows:
    • Asia-to-Europe 40% or $270 per 40' container 
    • Transpacific Eastbound 33% or $150 per 40' container
  • Ocean carriers have indicated the cost of low-sulfur fuel will add an additional $10-15 billion to their annual fuel costs. It is reasonable to expect these will be passed through to shippers in one way or another. 
  • There is a potential for shippers to see in increase in spot rates in the 4th quarter of 2019.

The common theme in terms of low-sulfur fuel and its potential impact on your supply chain is to expect some increase in shipping costs. How much the BAF or Low Sulfur fuel factors will increase remains to be seen however shippers should prepare now.  

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Recent Section 301 Tariff Actions Could Result in Capacity Issues 

In 2018 the traditional increase in shipment volume associated with Peak Season was affected by Section 301 tariff increases. Many importers rushed to move shipments early in an effort to get ahead of increased tariffs. 

It is likely that recent Section 301 tariff actions could cause shortages in air and ocean capacity as we approach the 2019 Peak Season. There may be a repeat of 2018 as some shippers decide to rush to get their transpacific eastbound shipments on the water ahead of potential List 4 tariff increases.

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Update on US-Mexico Border Congestion

Cross border congestion and delays are still a severe problem along the US and Mexico border and continue to affect cross-border shipments. In March the CBP was forced to transfer roughly 750 agents to US-Mexico border crossing centers in response to increases in illegal immigration. The result of this reallocation of resources has been a 30-40 loss in freight capacity. 

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Updated Report: Panama Canal Draft Restriction has been Reduced

A severe drought brought on by El Nino weather conditions has forced the Panama Canal Authority to impose a 43' draft restriction on vessels moving through the Neopanamax locks, effective May 28, 2019. The draft restriction for vessels moving through the Panamax locks has also been reduced to 38.5', effective May 28, 2019. Precipitation levels are 90% below historical average causing water levels in Gatun and Madden lakes, which supply the water required for lock operation to drop below expected levels. 

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