Trade agreement hinges on Chinese agriculture purchases

USTR clarifies Section 301 duties

Agriculture purchases are at the current heart of tensions between the US and China. The United States agreed to a preliminary “phase one” negotiation expecting China to increase purchases of US crops to the tune of $50 billion but the purchases haven’t manifested entirely. The negotiators in China want a rollback of the US tariffs to happen before increasing the agriculture imports. President Donald Trump has advised there will not be a rollback of tariffs but a significant increase in them if China doesn’t move forward.

China has made some consolations regarding the negotiations; recently unbanning US poultry imports and sourcing purchases from approved US plants. The proteins exported are crucial to China as one third of their hog farms were wiped out earlier this year when African swine fever swept the country. The Chinese diet depends heavily on proteins and almost immediately their imports of poultry and beef began climbing rapidly. China has also purchased some US soybeans, a big issue in the negotiations. Unfortunately, due to the trade stagnation, the importers of the soybeans are waiting up to 28 days to recover their freight after paying 30% up front for the expected duties.

As December 15th looms ever closer, all eyes are fixed on the trade negotiations between the US and China. A year of back and forth talks, tariff increases, postponements, and stalemates has lingered on as predictions fall apart, information changes by the day and the solutions seems just out of reach. When an agreement to prepare a “phase one” deal was announced, both sides were expected to come to the table in Chile at the APEC Conference, later cancelled due to civil unrest in the host nation. Since the cancellation no updated location has been selected and as the two sides continue to come to just the first part of the agreement.

Recently, the US Treasury Secretary intimated that the US may be willing to accept a $40-50 billion agriculture purchase over two years if it would expedite the agreement. We at Edward J. Zarach & Associates understand this is a paramount topic for the New Year and we’ll keep updating the situation as more information becomes available.

Upcoming low sulfur fuel rules tricky for carriers.

The increasing spread in cost between low- and high-sulfur fuels is an impetus towards container lines doubling down on scrubber installations for the vessels in their respective fleets. Ten percent of the total container ship fleet is on track to have scrubbers installed by 2020, double the estimate at the beginning of this year.

The cost spread in fuel prices is such that Maersk has accelerated plans of scrubber installation purchases to third-most orders of any line to date. Of the top ten lines, only Ocean Network Express (ONE) remains with no scrubber orders confirmed, citing further studies of the feasibility of scrubbers on some of their larger ships. In the meantime, ONE will continue to rely on low-sulfur fuel to meet IMO 2020 regulations in the short term. It is thought that the increased installation of scrubbers will spur lines to reach for further market share with the continued use of high-sulfur fuel seen as a competitive advantage.

While at the moment scrubber installations appear to present a good business case for mitigating rising fuel costs, the risk remains that the advantage provided could be short lived, as the production of high-sulfur fuel has downshifted in production from 3.5 million barrels per day to just 1 million barrels per day. Coupled with the potential of smaller bunkering hubs phasing out their high-sulfur supply reducing the number of ports where scrubber-outfitted vessels can operate, the risk of investment in scrubber installations becomes more significant.

Along with fuel supply limitations, scrubber regulatory backlash looms over carrier lines with several ports already banning the use of open-loop scrubbers. A representative of a scrubber manufacturer stated that two pending studies will help to relieve concerns regarding open-loop technology and result in a repeal of open-loop scrubber bans in the near future.

Edward J. Zarach & Associates proudly announces Richard Kenyon joined our team in New York.

“Richard will work out of our New York office and will be responsible for overseeing our current offices as well as our future growth plans for Miami and Atlanta. Richard joins us after a successful career with ECU Lines and brings a broad level of experience in the logistics business to our company.”

Allan Zarach, Executive Vice President

Richard joined the freight forwarding industry in 1989, entering a two-year apprenticeship program with Samson Transport (DSV). He began handling European trailer services and progressed to air export and sales positions in both London and Manchester. 

He was transferred to DSV Los Angeles in 1994 to handle air export but quickly progressed to a sales executive position. He then joined SBS Worldwide as Vice President of Media. During this time, he built SBS into one of the media’s most recognized logistics companies.

After his tenure with DSV, Richard moved to Scan Shipping as General Manager. He spent three years growing the office when ECU Line brought him on as their Regional Manager for the ea coast st. Richard then spent the next two years at ECU Line.

Richard is a firm believer that people are the product. Investing time, support and promoting growth in employees is ultimately what leads to positive experiences. He believes in being customer-centric in terms of anticipating, determining, and delivering customer solutions.

Trade & Tariffs – an update

USTR clarifies Section 301 duties

The last two weeks have been wild with speculation, information and updates regarding the U.S. positions on trade with a number of our partners. The duty increase on the first three lists of Section 301 duties on Chinese goods that was to happen on October 15th (itself a date that was originally postponed for two weeks as a gesture of good will towards China’s 70th anniversary happening October 1st, 2019) was delayed indefinitely as both parties found some common ground in negotiations that we hope will lead to a strong trade agreement. The US and Japan reached a preliminary agreement on a new trade deal that should see 90% of US imports to Japan become duty free or receive preferential trade status. Late last week, Mexico offered to provide almost a billion dollars to improve labor conditions over three years, in an effort to seal up the USMCA agreement that’s stalled over human rights issues.

While the world waited for the increase in Chinese tariffs set for October 15, 2019 we were thrilled to hear that the negotiations between the US and China, often halted over difficulties reaching agreement, had improved to the point a 5% increase in the first three lists was postponed indefinitely. The tariffs haven’t been cancelled or eliminated, neither have they been repealed by the talks. If negotiations break down, it’s still very possible the increase will happen. The final half of the list 4 tariffs, most of which are consumer goods, was originally delayed until December 15th to unburden the holiday shopping season. Those tariffs have not yet been postponed or cancelled, instead they’re still pending as a reminder to the Chinese negotiators that the US is operating in good faith for a solid resolution for both parties. We will continue to update this as more information becomes available.

The US and Japan agreement is still in the early stages, but looks very promising as Japan will begin buying up large amounts of US agriculture products, including beef and pork, at little to no tariffs. These industries have been hard hit by the trade tensions between the US and China, so it’s a welcome relief that other outlets are being found for farmers. Digital trade also features heavily in this agreement and the notice/fact sheet states this agreement will meet the gold standard on digital trade rules set by the USMCA.

Speaking of the USMCA, on October 17th, Mexican President Andres Manuel Lopez Obrador pledged $830 million more over the course of three years to improve labor conditions and build strong worker’s unions to protect laborers working in Mexico. The pay gap between our countries has been a sticking point for years as US companies exploit Mexican workers at a lower price and with a lower standard of employment to improve their profit margins. Democrats in Congress are far more supportive of this agreement now that there are worker provisions and promises attached to the USMCA. The $830 million is in addition to $69 million that was pledged for 2020, bringing the total investment into labor to roughly $900 million over three years.

As more information becomes available, you can count on us to keep you updated. If you want to know which new or pending tariffs impact your cargo, feel free to call your Edward J. Zarach & Associates’ representative to discuss.

Incoterms® 2020

Announced this month and effective January 1, 2020, the 9th iteration of Incoterms ® is finally available from the International Chamber of Commerce (ICC). Updated from Incoterms ® 2010, Incoterms ® 2020 has been modernized address issues that weren’t prevalent a decade ago. Incoterms ® are the internationally standardized trade terms used to cover the primary obligations of buyers and sellers, insurance, and the division of costs. Contracts signed before September 2019 will be able to use the Incoterms ® 2010 even if the contract extends into 2020 unless otherwise specified in the contract; contracts signed between September 2019 and January 2020 should take care to specify which iteration will apply; after January 1, 2020 all parties should expect that any reference to Incoterms ® and the governing Incoterms ® of the contract will be Incoterms ® 2020.

One interesting modernization for Incoterms ® 2020 is the introduction of a mobile application that will include information, updates, training opportunities and event information. The new publication can be purchased from the ICC for both print and digital formats.

According to the ICC, significant changes include:

  • Incoterms® 2020 provides for demonstrated market need in relation to bills of lading (BL) with an on-board notation and the Free Carrier (FCA) Incoterms® rule.
  • Incoterms® 2020 aligns different levels of insurance coverage in Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP).
  • Incoterms® 2020 includes arrangements for carriage with own means of transport in FCA, Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP).
  • There is a change in the three-letter name for Delivered at Terminal (DAT) to DPU.
  • Incoterms® 2020 includes security-related requirements within carriage obligations and costs.

For further information we encourage you to reach out to your Edward J. Zarach representative to discuss how the changes may impact your freight. Also, if you’re looking for a great breakdown on the differences and updates to Incoterms ® 2020, Hellenistic Shipping News has a great chart for handy reference!

Customs fees increase on October 1st.

On October 1, 2019 US Customs and Border Protection will increase Customs user fees and fee caps as established by the Consolidated Omnibus Budget Reconciliation Act (COBRA) for the fiscal year of 2020. Crucial changes include the MPF minimum rising to $26.79 from $26.22; the MPF maximum increased to $519.76 from $508.70; and the dutiable rate will be $5.89, up from $5.77. The increased fees will be effective from October 1, 2019 in accordance with the FAST Act, a 2015 law that requires CBP to make inflation adjustments to fees.

Other fees set to increase and their annual cap:

  • Commercial Truck Arrival: $5.85 / $107.17 annual cap (FY2019 $5.75 / $104.89)
  • Rail Car Arrival: $8.84 / $107.17 annual cap (FY2019 $8.65 / $104.89)
  • Commercial Vessel Arrival: $468.32 / $6381.77 annual cap (FY2019 $458.35 / $6245.97)
  • Barge and Other Bulk Carrier Arrival: $117.88 / $1,607.50 annual cap (FY2019 $115.37 / $1573.29)
  • Private Vessel or Aircraft First Arrival/Calendar Year Prepayment: $29.47 (FY2019 $28.84)
  • Commercial Vessel or Aircraft Passenger Arrival: $5.89 (FY2019 $5.77), or $2.07 from a U.S. Territory
  • Customs Broker Permit: $147.89 (FY2019 $144.74)
  • Express Consignment Carrier/Centralized Hub Facility, per Individual Waybill/Bill of Lading: $0.38 minimum, $1.07 maximum (FY2019 $0.37 / $1.05)
  • Surcharge for Manual Entry or Release: $3.21 (FY2019 $3.15)
  • Informal Entry or Release Not Prepared by CBP Personnel: $2.14 automated, $6.43 manual (FY2019 $2.10 / $6.29)
  • Informal Entry or Release Prepared by CBP Personnel: $9.64 (FY2019 $9.44)

The updated information about the COBRA fees was announced in the Federal Register on August 2.2019. If you have any questions or need guidance on your customs clearance, please reach out to your Edward J. Zarach & Associates representative.

Triennial CITES meeting updates

Geneva, Switzerland is currently hosting the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) which occurs every three years to determine what resolutions to expand, adapt, and strengthen from myriad government submissions. CITES is based on a 1975 treaty that works to encourage international trade while protecting species from extinction.  The discussions set to take place encompass everything from the ivory trade, rhino horn trade and even timber concerns about rosewood used for musical instruments.

Over 34% of the new proposals are in direct response to amphibians and reptiles that have become endangered or threatened because of the exotic pet trade. Some species have seen up to an 80% loss of population due to smuggling. While the proposal to list the Union Island gecko on Appendix I was passed unanimously, other amendments weren’t so well received.

A proposal to list the extinct woolly mammoth on Appendix II was withdrawn before a vote when it became clear that it wouldn’t pass. The idea to list woolly mammoths comes from an attempt to further protect elephants from the ivory trade. Mammoth ivory is virtually indistinguishable from elephant ivory and as climate change begins melting the permafrost, more ivory mammoth tusks are being exported.

The Asian small-clawed otter was listed on Appendix I, which bans all international trade of the adorable critters that are facing decreasing numbers thanks to their popularity on social media and the loss of their wetland habitats in Southeast Asia.

Not all resolutions had a clear yes or no. The saiga antelope was denied a move up to Appendix I banning all trade, but was given an annotation that placed the quota of wild caught saiga at zero which leaves open trading of captive raised saiga.  Other animals given protections include giraffes, which were added to Appendix II that restricts their export to only legally hunted giraffes that aren’t compromising the species’ survival. The black rhino had its quota raised from five to “a number not exceeding half a percent of the country’s total black rhino population.”

We at Edward J. Zarach & Associates understand how important these changes are to many of our readers. As we move forward, we encourage everyone to reach out to our trophy hunting division to discuss your planned hunts or imports and know what pitfalls to avoid with your specific trophy.

Section 301 tariff face-off escalates

USTR clarifies Section 301 duties

Today, in apparent retaliation for the 4th tranche tariffs placed on the remaining $300 billion in Chinese imports by President Trump – some of which will be effective on September 1, 2019 and the rest on December 15, 2019 – China announced they would be placing an additional 5% to 10% in tariffs on $75 billion of US imports on the exact same timetable.

After the announcement by China, President Trump urged American manufacturers to return their businesses back to US soil to avoid these duties and advised a reciprocal action would be coming soon.

Just an hour ago President Trump announced an increase in tariffs against Chinese imports that will become effective on October 1, 2019. According to the United States Trade Representative, the tariffs will increase by 5% on $550 billion worth of Chinese imports.

You can find the USTR statement here. Some important points:

  • The first 3 lists totaling $250 billion in imports dutiable at 25% will increase by 5%. Effective October 1st, the duty on List 1, 2, and 3 goods will be collected at 30%.
  • The last list, split between 4A and 4B, with the effective dates of September 1st and December 15th respectively, which was to be set at a duty of 10% will increase by 5% to 15% with the same September and December effective dates.

We at Edward J. Zarach & Associates are carefully watching this unfold and will continue to bring you the most up to date information as it becomes available.

USTR clarifies 4th list of Section 301 duties.

USTR clarifies Section 301 duties

Two weeks ago, President Trump tweeted out that the trade negotiations between the US and China had faltered and a 4th tranche of tariffs, set at 10% would be applied to the remaining $300 billion of Chinese imports that aren’t covered by the first three sets. On August 13th the USTR announced that certain goods on the list wouldn’t have the September 1st effective date and would be effective on December 15, 2019 to avoid higher prices during peak season.  As of August 15, 2019 we’ve learned that these tariffs will be applied based on the date of entry and not on the date of departure.

“We’re doing this for the Christmas season,” Trump told reporters Tuesday afternoon, according to associated press. “Just in case some of the tariffs would have an impact on U.S. customers.” The list of goods on the extension include many consumer products including electronics, clothing, shoes and some toys, all of which are the backbone of the holiday shopping season. The USTR also declared they’d be removing any products on the list that had health, safety, national security or other concerns.

Though the USTR will be conducting the same exclusion process for List 4 (A&B) so importers can request an exclusion for individual products, the dates for that process have not yet been set. Unfortunately, the bifurcation of the list may be too late as some companies have already started ramping up orders for the holiday season in anticipation of the tariffs that were announced two weeks ago.

The crux of the issue for us here at Edward J. Zarach & Associates is the planning and timing that goes into the shipments we handle for our clients. We understand how important it is to have foreknowledge of issues that can impact their supply chains and we’re committed to giving you the best information we have. We’ll keep monitoring this situation to counsel on the best way to plan for your 4th quarter. If you have any questions or need help on this at all, please reach out to your Zarach representative for assistance.

Our previous coverage of these issues between the US and China can be found here and here.

CBP Trade Symposium Highlights

Customs and Border Protection this week held their annual Trade Symposium in downtown Chicago. The event draws importers, exporters, attorneys, customs brokers and anyone who does business with the agency in a trade capacity. CBP puts a lot of time and effort into this event every year and the commitment of the agency’s senior leadership to attend and speak and be available was on display. On the first day alone the event featured the acting head of CBP Mark Morgan as well as acting DHS Secretary Kevin McAleenan who was elevated from the position of CBP Commissioner into his current role.

The agency reiterated to the trade they are committed to transparency, collaboration and communication. Given the fluidity with which the agency is responding to threats and new business models like e-Commerce, narcotics and synthetic opioids, agricultural initiatives and enforcing trade remedies like Section 232 and Section 301 investigations, it is no wonder they reiterate the reliance on the private sector to help them in their mission.

Importers know that CBP has opened their Centers of Excellence and Expertise (CEE’s) and that those groups are responsible for the processing and handling of entries of major commodity groups. Africa Bell, the Acting Executive Director of the Office of Trade Transformation, shared that the Base Metals CEE are responsible for the enforcement of the trade remedies of Section 232 steel and aluminum and fully 74% of the total lines for steel and 50% of the lines for aluminum fall under their jurisdiction.

Finally, there was a major takeaway about the evolution of e-Commerce and how it is changing CBP’s business processes. For example, while there were 35 million formal and informal entries filed over the course of a year, in the same period of time there were 625 million small package shipments through e-Commerce, the postal service and other means. Coupled with the increase in de minimus amounts to $800, many retailers are moving their supply chains further upstream into countries like China where they are packaging direct to consumer rather than into distribution centers in the United States. A representative of Zulily, the online clothing retailer, said they scaled up testing the concept in 2016 to shipping 9 million packages direct to buyers in 2018.

There were additional sessions focused on forced labor, illicit trade and changing processes at land border ports of entry. The takeaway is that while CBP’s mission of trade has been diversified greatly over time, there is no less focus on facilitating legitimate trade and importers should continue to take steps for compliance for product safety, security and ensuring accurate sourcing as potential transshipment routes are exploited to evade trade remedy duties.