10 Most Read Panjiva Research Reports in July 2018 — Panjiva
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10 Most Read Panjiva Research Reports in July 2018

Global 722 Most Read 31

#1 From $300 Billion to the Midterms (July 4): The first half of 2018 brought significant challenges for global supply chains ranging from shifting trade policy to rising costs. The second half of the year won’t be any quieter. The most pressing issue is the emerging tariff battle between the U.S. and China which could inflict duties on at least $300 billion of trade by year end. The second half of the year could be defined by the U.S. midterms – a flip in Congressional control could restriction use of the section 232 mechanism. China is also trying to close the RCEP trade deal while the U.K. struggles with Brexit terms and sanctions against North Korea, Iran and Venezuela continue. The container-lines are facing a decline in profits, while the ports may have to contend with technological and weather disruptions and the freight forwarders need to decide whether to consolidate. The logistics industry overall may face a “peakier” peak season as the prospect of tariffs leads to earlier-than-normal imports in the U.S.

BIGGER TARGETS BRING BIGGER RISKS, FOR CONSUMERS

Chart segments U.S. imports by product (HS-6) from China in the 12 months to April 30 (horizontal axis) and vs. global average imports of that product (vertical).   Source: Panjiva

#2 Corporate reactions to tariffs (July 27): Our review of over 90 companies’ comments shows 43% of companies have seen higher costs (including 80% of healthcare companies) while 13% have seen or expect lower sales (including one third of autos companies) as a result of duties in the metals sector, implemented against China and planned for the autos sector. Corporate reactions have centered on price increases with 44% of companies either having already implemented them or planning to. That rises to 80% of capital goods conglomerate. Supply chain retooling including changing suppliers (18%) or moving own factories (17%) has been less popular, though often that’s because tariffs are not seen as being permanent.

CONGLOMERATES RELY ON PRICE RISES, ELECTRONICS ON SUPPLY CHAIN SHIFTS

Chart segments commentary on reactions to tariffs from 93 corporations’ transcripts. Shading based on relevance to total impact group. Data based on S&P Global Market Intelligence recordings.   Source: Panjiva

#3 The $200 billion nuclear option (July 11): The USTR has detailed 10% duties that will be applied to 6,031 Chinese products with imports worth around $200 billion in the past 12 months. The new list of products, due for consultation through end-August, is dominated by chemicals (1,051 lines), textiles (935) and food (925). By value though electronics ($50 billion of imports from China the 12 months to May 31), capital equipment ($42 billion) and furniture ($30 billion) are the major categories. As expected the IT industry is a major focus including network equipment ($23 billion) and PC components ($17 billion) which will likely cause significant lobbying by corporations including Facebook and Alphabet.

ELECTRONICS, CAPITAL GOODS AND FURNITURE IN THE CROSSHAIRS BY VALUE

Chart segments U.S. imports from China by products (HS-2) targeted by the proposed $200 billion tariff lists for the 12 months to May 31.    Source: Panjiva

#4 July 6 was just a prelude (July 2): The long-threatened tariff-battle between the U.S. and China takes on a tangible form on July 6 with the application of duties on $34 billion of products by both countries. America’s list is driven by its concerns about Chinese industrial development and so focuses on PC components ($1.4 billion) and capital goods (e.g. $869 million of fuel pumps) as well as cars ($1.6 billion). China is more focused on retaliation and so is targeting American cars ($10 billion) as well as soybeans ($11 billion) among a wide range of other agricultural produce. There are at least three more stages in the putative trade war to go though. A second round of duties is being considered for implementation by the end of August on products worth $16 billion by each country including semiconductors ($2.9 billion) on the U.S. side and crude oil ($3.9 billion) for China.

ROUND 1: BEANS VS DISCS

Chart segments U.S. imports from, and exports to, China by products (HS-6) targeted by each country’s “phase 1” tariff lists for the 12 months to April 30.    Source: Panjiva

#5 Trump goes all-in with China (July 23): President Trump has pronounced himself ready to extend duties on Chinese exports to all products, not just the $250 billion currently subject to – or being investigated for – tariffs of 10% to 25%. Extending duties would cover 2,757 product lines (HS-8) worth $261 billion in the 12 months to May 31. By number that’s led by apparel and footwear at 31% of products and $49 billion of value, though electrical and electronics products lead by value at $138 billion. The important issue is the level of duties that will be set. Many companies have indicated that duties rates of 10% are being passed through to customers. A higher level of duties may be needed to lead contract manufacturers in the electronics industry to change their production centers. Chinese suppliers to Apple, Dell and HP among others exported $46 billion of mobile phones (81% of U.S. phone imports) and $38 billion of laptop computers (94%) to the U.S. in the past year and may not have readily available facilities to shift production to avoid duties.

THE BIGGEST TRADE POLICY DECISION – WHAT DUTIES FOR IPHONES AND MACBOOKS?

Chart segments U.S. imports from China that have not already been identified for section 301 duties by product (HS-8) for the 12 months to May 31.    Source: Panjiva

#6 Trump’ trade strategy wins (July 6): The U.S. trade deficit fell 6% on a year earlier in May, the first decline since February 2017. That can be counted as a success for the Trump administration’s trade policy given it has specifically targeted the trade deficit. Around one third of the improvement was due to a drop in the goods deficit, though with a 13% rise in exports there are risks from the retaliatory duties being applied by China, the EU, Canada and Mexico among others. The remainder of the decline in the deficit was due to a 7% increase in the services surplus, led by a 12% rise in banking and investment management fees and 10% rise in transport services. The goods deficit with China increased by 5% ahead of the July 6 tit-for-tat tariff exchange. The deficit vs. the EU rose 5% – likely supporting the section 232 review of autos – while the NAFTA deficit actually fell 6%.

NAFTA’S REALLY NOT THE PROBLEM

Chart segments U.S. trade deficit by counterparty on a monthly (dotted) and annual average (solid) basis. Calculations based on U.S. Census Bureau data.   Source: Panjiva

#7 Juncker and Trump’s $160 billion path (July 26): President Juncker and President Trump have reached an important, but early stage, agreement to liberalize trade between the EU and the U.S. While unlikely to be as extensive as the defunct TTIP it could cover all industrial products outside of autos as well as cutting trade barriers in agriculture, healthcare and energy. That should help reduce the EU’s $160 billion trade surplus vs. the U.S. which has been central to Trump administration’s trade policy. Challenges will abound though. The EU’s GMO rules may limit the increase in imports of soybeans – a particular target for the new deal – within the 4.8 billion euros ($5.6 billion) the EU imported in the 12 months to May 31. An aim to import more liquefied natural gas (LNG) is more significant opportunity but the EU has liberalized energy markets where purchases cannot be targeted.

AMERICA’S SHARE OF EUROPEAN BEAN BUY DECLINING

Chart segments EU imports of soybeans by origin. Calculations include Eurostat data.   Source: Panjiva

#8 AMLO set to go food shopping (July 3): The Mexican government will implement retaliatory duties against America’s section 232 metals duties on July 5. It is possible that the AMLO administration may revise the list of products targeted later in 2018 should consumer prices rise significantly. Mexican imports of the consumer goods, which are mostly agricultural, represented 64% of the total. One challenge is a high dependence on the U.S. for some of the products, making alternative sourcing difficult. With 19% of the products by value depending on America for 90% of supplies (e.g. 99% of apples worth $301 million) and 41% relying on the U.S. for 75% or more sourcing (e.g. fresh pork cuts worth $969 million at 89%) the government may just choose different products to target. The reliance on American for steel ($3.3. billion) is just 38%.

INDEPENDENCE IN FOOD SOURCING FROM AMERICA WILL TAKE MORE THAN A DAY

Chart segments Mexican imports from the U.S. targeted for retaliatory tariffs by product (HS-6) for the 12 months to May 31.    Source: Panjiva

#9 Big Brown in the red (July 12): The freight forwarders operating U.S.-inbound marine services saw a 7% surge in volumes in June vs. 3% in the prior three months. That was due to an 11% rise in China volumes ahead of the imposition of duties by the Trump administration on $34 billion of products on July 6. Asia-specialists including OEC (32% higher) and Kerry (22%) did best though not all did as well with Honour Lane rising by just 10%. UPS saw the weakest performance among the top 12 with a 3% drop in the month and 6% for the quarter. That may reflect a desire to improve profitability after a drop in its 1Q EBITDA margin to 12% from 14% a year earlier. UPS’s marine operations will face significant challenges from the new China duties with 64% of its volumes originating in China in 2Q. That’s similar to OEC’s 63% and Kerry’s 60%. Expeditors and DP-DHL are much less exposed at 31% and 39% respectively.

CHINA MATTERS FOR EVERYONE, JUST LESS FOR EXPEDITORS

Chart segments U.S. seaborne inbound shipments by NVOCC SCAC and shipment origin in the second quarter of 2018, denominated in number of shipments.    Source: Panjiva

#10 K+N and Panalpina’s delivery routes (July 19): K+N reported revenue growth of 15% on a year earlier in 2Q, reaching a record high. That was due to a surge in handling, including an 11% rise in ocean freight volumes in 2Q vs. a market increase of just 4%. That markedly outperformed its peer Panalpina which fell 1%, illustrating K+N’s volume-driven approach to profit growth vs. Panalpina’s margin-driven route. For example on U.S.-inbound seaborne routes K+N’s volumes rose 8% in 2Q vs. Panalpina’s 4%. K+N’s profit margin fell to 6.1% from 6.6% a year earlier as a result of the grab for market share. That may become a problem if underlying costs recover or if volumes become restricted by the expanding reach of tariffs being implemented by the U.S.

RISING REVENUES RELY ON EXPANDING HANDLING

Chart segments U.S. seaborne inbound volumes by freight forwarder.   Source: Panjiva

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