US shippers step up imports from China ahead of trade tariff hikes

Lines benefitting from buoyant Transpacific freight rates.

US container imports remain at unseasonably high levels ahead of tariff hikes in January 2019  keeping freight rates buoyant and causing rollovers at ports in Asia.

Freight forwarder Flexport noted that space on Asia to US West Coast and US East Coast liner services was “full/rolling”, adding that  postponed November 1 General Rate Increases (GRI) are  now set to be implemented by leading lines on November 15.

“There’s a reason why China-West Coast prices have been at 18-month highs for 13 straight weeks,” said Zvi Schreiber, CEO, Freightos. “It’s not just that it’s peak season – they have been largely spurred by advance shipments before each successive tranche of China trade tariffs takes effect.

“Right now, people are trying to beat the January 1, (2019) tariff increase. If President Trump holds good on his threat to slap a tariff on the remaining $257 billion worth of imports should his meetings with President Xi at G-20 fail to break the deadlock, then expect transpacific prices to remain strong in January ahead of yet another tariff hike”.

Lloyd’s Loading List reported at the end of last week that Drewry’s latest World Container Index (WCI) showed that spot rates from Shanghai to New York  had gained $363 per FEU in the week to November 8 leaving rates on the trade at $3,803 per FEU, up 11% week-on-week and 80% compared to a year earlier.

“We expect rates to increase next week on this trade”, it said.

Shanghai-Los Angeles rates on November 8 were $2,696 per FEU, stable compared to a week earlier but up 73% compared to a year ago.

According to the monthly Global Port Tracker report produced by National Retail Federation and Hackett Associates, imports at US major retail container ports remain at unusually high levels this month as retailers continue bringing in merchandise before tariffs on a large proportion of US imports from China increase from 10% now to 25% on January 1.

“Imports have usually dropped off significantly by this time of year but we’re still seeing numbers that could have set records in the past”, said Jonathan Gold, NRF Vice President for Supply Chain and Customs Policy. “Part of this is driven by consumer demand in the strong economy, but retailers also know that tariffs on the latest round of goods are set to more than double in just a few weeks.

“If there are shipments that can be moved up, it makes sense to do that before the price goes up”.

After box imports set a record of 1.9m TEU in July, the latest Global Port Tracker report forecasts that imports almost reached the same level in October when 1.89m TEU was estimated to have been delivered, while a further 1.81m TEU is forecast to be shipped this month.

“President Trump’s trade war with China and the threat of even higher tariffs in 2019 have created a mini-boom in imports and businesses have rushed to bring goods into the country ahead of the tariffs,” said Hackett Associates Founder Ben Hackett. “We are clearly in a politically motivated trade environment.”

US ports covered by Global Port Tracker handled 1.87 million teu in September, the latest month for which after-the-fact numbers are available. That was down 1.3% from August but up 4.6% year-over-year.

October was estimated at 1.89 million TEU, up 5.5% year-over-year. November is forecast at 1.81 million TEU, up 2.8% year-over-year, while December imports are forecast at 1.79 million TEU, up 3.8% compared to a December 2017.

January 2019 is forecast at 1.81 million TEU, up 2.8% over January 2018; February at 1.7 million TEU, up 0.4% year-over-year, and March at 1.59 million TEU, up 3.3%.

“Imports set a monthly record of 1.9 million TEU in July ahead of 10% tariffs on $200 billion in goods from China that took effect in September and are scheduled to rise to 25% in January,” said the report.

“While not overall records, October, November and December’s numbers are each the highest on record for those months. Before this year, the highest monthly number on record was 1.83 million TEU set in August 2017.

“While cargo numbers do not correlate directly with sales, the imports mirror this year’s strong retail sales. NRF forecast last week that 2018 holiday season retail sales – excluding automobiles, restaurants and gasoline stations – will increase between 4.3% and 4.8% over last year. Retail sales for all of 2018 are forecast to be up at least 4.5% over 2017.

In its latest Container Insight Weekly report, Drewry underlined that with US tariffs slated to be increased to 25% on January 1, 2019 there is clearly scope for yet another artificially stimulated shipping season in November and early December.

“The danger is that there won’t be much left in the system for the early months of next year when carriers will depend on having a strong market to support negotiations for annual contracts, generally to be signed for May 1.

“There is the possibility of further tariffs to come, which could instigate yet another cargo rush, but if there is a dearth of demand in 1Q19 carriers will be forced to consider service suspensions to prop up ship utilisation and boost their hand for contract talks”.

It added: “The extraordinary situation that the tariffs have created means that it is very difficult to pin down the underlying demand that exists in the Transpacific. Our rolling 12-month average suggests that it is fairly weak even with the stimulus provided by President Trump’s foreign policy”.

 

Source: Lloyd’s