Small signs point to recovery

As much as we are seeing bad news and difficult stories, there are positive signs that recovery is beginning in China and should follow across the supply-chain as more disruption is settled and cargo begins moving. For the first time since early February, China saw an increase in exports to the US beginning the second week of March. While there are still impediments to the complete recovery, repositioning efforts, air freight solutions and time can work together to keep cargo moving steadily where everyone needs it most.

After almost a month, the second week of March saw an increase in shipments by 45% according to customs information. International loaded rail saw a jump of 64%, a solid indicator that more cargo is finally moving in the US as these containers are loaded directly from ships onto trains, which is a faster economic measure of the state of US imports. While pandemic social behavior, including hoarding and store-emptying panic buying has caused a lull in supplies, there’s been a boost in domestic trucking as shippers race to get store shelves stocked to keep communities safe during “shelter-in-place” and other quarantine restrictions.

Because equipment scarcity is a big problem for ocean freight shippers, MSC has deployed MSC MIA, a 23,000 TEU vessel instead of smaller ships to pick up cargo from Asia and empty containers to be repositioned where they’re needed. Though the larger vessels can lead to increased wait times for truckers, the extra cargo will improve the shipping timeline as more containers can be filled and returned. Air freight capacity will be supplemented by passenger airlines that deploy aircraft with no passengers, only belly cargo. Belly space is a critical part of air capacity and as travel restrictions remain in place the all freight airlines can’t keep up with demand.

We’re thrilled to be reporting a light at the end of the tunnel. While we can’t predict the future, signs point to a slow, steady recovery for our industry. We at Edward J. Zarach & Associates are still working to ensure your cargo is moving the fastest and most efficient way possible. We pay close attention to how the numbers look to keep you abreast of the coming logistics issues and hopefully we can help you plan for unforeseen circumstances far enough in advance to prevent delays. If you’d like to talk about some creative solutions to your cargo concerns, reach out to your Zarach representative today for a chat. We hope it’s okay that we meet by video, just for now.

Coronavirus update

With passenger flights cancelled, borders closing and much of the country practicing social distancing, the logistics industry is in a precarious place. Equipment imbalances demand creative solutions and new ways of thinking to navigate. Here at Edward J. Zarach & Associates, our team is still hard at work both in the office, where we stringently follow the CDC guidelines and remain more than 6 feet apart, and remotely whenever possible. It is our goal to keep our team safe and your cargo secure.

Airlines have been suspending passenger flights for more than a week and this action dramatically reduces the belly cargo capacity that many shippers depend upon. Without belly capacity, air charters are soaring and capacity on all-cargo freighters is almost non-existent. This has led some airlines to use passenger planes to move all of the cargo and none of the people.

Trucking in both the US and Europe is moving steady despite border closures and quarantines to keep store shelves stocked. The restriction of travel between countries has been carefully implemented to maintain the transport ability of shippers while trying to flatten the curve of the virus as it impacts the population.

China’s recovery, signaled by their return to work and production helps ensure US supplies will remain steady. As more states enact time, place, and manner restrictions on the public in an effort to slow the spread of the virus, we’re all cautiously working as safely as possible, enabling remote options and cleanliness protocols as directed.

We understand our clients have concerns about the status of businesses and we want to reassure everyone that Edward J. Zarach & Associates will remain open and working. We’re also happy to have Skype calls or Zoom meetings if there’s something you’d like to discuss face to face but cannot meet in person. We pride ourselves on developing creative solutions to complicated cargo problems, and this is one of the most complicated problems our industry has faced. By utilizing technology and a dash of common sense, we’re able to keep working to the best of our abilities. Reach out to your representative with concerns or needs and we will do our best to accommodate them during this time.

Port of Oakland faces congestion from Coronavirus

Though throughput is increasing at the Port of Oakland, the Coronavirus and subsequent actions taken to minimize the spread are causing serious congestion on the west coast. Reductions in trade threaten to upend trade growth, a huge problem considering the “phase one” trade deal has finally been signed between the US and China. As cargo backs up, equipment becomes scarce and the effects are felt all along the supply chain.

If the blanked and voided sailings of the last few weeks are any indication, it could take a while for exports to China to start moving at a good clip. China may not have reduced its need for imports but outside demands for Chinese exports is falling due to worry about the Coronavirus and labor shortages. People who aren’t working can’t produce exports. Without exports, containers remain empty and if containers are empty, why send a ship? This creates a loop of problems from which it will take time to recover. These conditions impact the Port of Oakland by leaving cargo bound to China to sit, awaiting a ride. With fewer ships headed to Mainland China, there are fewer opportunities to send and return cargo and equipment.

Reefer containers are especially vulnerable as they must remain plugged in once tendered to the port. Some parts of China won’t accept any more reefer containers as they have no spots open for connection. Some rerouting of cargo in Asia will help keep shipments moving and work to alleviate the port congestion we have in the US. We have to remain patient and there is no better way to ensure the smoothest voyage than planning ahead for the cargo journey. By making preparations for equipment in advance we can try to mitigate any surprises.

Feel free to contact your Edward J. Zarach & Associates representative to come up with a plan to keep your cargo moving despite the delays.

Coronavirus delays

The extended Lunar New Year holiday is ending in China and as more than 150 million people head back to work the threat of the Coronavirus, now officially named COVID-19 by the WHO (World Health Organization), is still causing shipping delays and capacity issues. Though shippers, suppliers, manufacturing and transportation workers are returning, the impact on logistics has yet to be measured.

Ocean freight – With more than two dozen blanked sailings in the past two weeks, ocean carriers are working to catch back up on cargo that’s been waiting at ports and shippers since the holiday shutdown started on January 25th. We can expect shortages on equipment as traffic starts to move, especially impacting reefer containers that have been held at ports, idling to maintain their cargo. Most carriers are working to update their customers on service outages and individual messages can be found here:

Air Freight – Facing capacity issues and an ever increasing load of urgent cargo that could have gone by ocean but has been delayed, carriers are trying to move cargo, but finding that picking up or delivering to mainland China is precarious at best. Some areas like Shanghai are moving smoothly, all things considered. Other areas, in outlying provinces are having trouble as quarantine laws and health risks are keeping trucks from being able to cross through and traffic is reduced to approved trucks only. In those cases, we’re working directly with suppliers preferred companies who are able to move more freely in many cases.

With demand falling as fears rise, American Airlines has suspended flights between the US and China until late April, adjusting as necessary. Reuters has an excellent alphabetical listing of the airlines who have cancelled / reduced service to and from China that we suggest bookmarking.

We’ll continue to bring updates as they come in but urge customers to contact their suppliers for the most updated information regarding the factory hours and labor shortages.

US and France postpone sparkling wine tax until the end of 2020

Hot on the heels of a “Phase One” agreement between the US and China, President Trump and French President Macron have agreed to suspend talk of the 100% tariffs on French sparkling wine that the US Trade Representative proposed on $2.4 billion in imports from France in retribution for the French digital services tax. That tax on some wines could top 100% as many European products are already taxed at 25% in response to the WTO Airbus decision. These taxes are expected to reduce wine sales overall by 2% which would cost the economy $2 billion and 17,000 jobs, with an overall cost for the complete European tariffs costing $10 billion in lost revenue, 78,000 jobs lost.

Currently the US is France’s largest importer of wine, and consumers aren’t likely to switch brands and types in light of the tariffs, so analysts expect an across the board reduction in consumption. The French government announced the initial tariffs against US technology companies based on their annual revenue. While the taxes are on hold for now, the negotiations will continue between the US and France until an equitable solution of tariffs for digital taxes. The negotiations will not impact the current 25% tariffs on European wines that are currently being applied in response to the WTO Airbus decision.

The WTO is currently deciding a very similar case against the US and Boeing that could result in a wash between the countries instead of a tit-for-tat increasing of taxes, benefiting nobody. This extension of time between the nations to negotiate could result in shortages and disruptions of cycles as more people buy up their favored products before any possible tariffs go into effect, a phenomenon seen during the escalating US-China tariff disputes that led to a lower than average holiday shipping season.

2020 Chinese New Year is upon us!

UPDATE: Chinese New Year has officially been extended to end on February 13, 2020 due to the Coronavirus outbreak currently happening in China. Factories and other businesses will remain closed through most of the following week unless other factors intervene to expedite the reopening of business in the nation. We’ll bring more information as it develops.

On January 25th, factories, shippers, and everyone else in China will shut down for a two-week celebration of their New Year and remaining shut until February 8, 2020. This year marks the restart of the Chinese zodiac with the first animal, the Rat. With such a broad shut down of services, there is typically a bump in imports from China so the inventory on had can last the duration, however this year, that bump has been minimal as trade tensions caused front-loading earlier in 2019 that’s kept stock on shelves.

The Rat is the first animal in the Chinese Zodiac, as the legend tells. The Jade Emperor planned a party and invited a rat, ox, tiger, rabbit, dragon, snake, horse, goat, monkey, rooster, dog, and pig to attend. The order in which they arrived is their order in the zodiac, with the rat being first because it hitched a ride on the ox but jumped down, arriving first.

People born in the Year of the Rat are industrious, clever, stubborn, adaptable organized and excellent team players. They make good engineers and architects as natural builders and able workers in a large group.

The Year of the Rat doesn’t typically bring much luck to those born in the year of the rat, but 2020 is predicted to be more auspicious for careers and rewards, though health and love may be a struggle. Lucky things for those born in the Year of the Rat are:

  • Colors: blue, gold, and green
  • Numbers: 2 and 3
  • Time of day: midnight
  • Flowers: Lily and African Violet
  • Directions: Northeast and Southeast

We at Edward J. Zarach & Associates will keep an auspicious eye on the import situation before and after Chinese New Year to report back on whether the bump in imports came late this year or not at all.

CTPAT minimum security criteria updates January 1, 2020

In the aftermath of the terror attacks of 09/11 the logistics industry came together to create CTPAT the Customs Trade Partnership Against Terrorism, to take preliminary steps to secure supply chains and work as a whole to combat terrorism. The process has been a remarkable success, featuring more than 10,000 members across all sectors of the logistics industry working together.

After two decades of partnership, the program was starting to show its age and in need of an update to encompass new technologies and address new threats that have materialized since the inception. The new minimum security criteria will go into effect on January 1, 2020 and members are encouraged to begin striving for compliance as the updates are available to read now and compliance should attained as soon as possible. Even though many members aren’t due for a validation in 2020, it’s important to be vigilant with the updates to keep the supply chain secure.

Part of CTPAT’s remarkable success is the culture of security it fosters among members. We are each a link in the chain protecting against terrorism and should be encouraged to discuss this compliance with other members in your chain to confirm they’ve updated their minimum security criteria and actively remain engaged in this program.

New criteria will cover the following areas:

  • Management commitment to a culture of security throughout the organization
  • Cyber security and protection for social engineering threats regarding the trade data they store or exchanges throughout the supply chain
  • Agricultural security against contamination and pests
  • Prevention of money laundering and terrorism financing in trade areas

Feel free to reach out if you have any questions about CTPAT membership.

Phase one agreement between the US and China, confirmed.

USTR clarifies Section 301 duties

Just recorded this morning in the Federal Register, the United State and China have come to a “phase one” agreement. After months of escalating tariffs and false starts, both sides have come to an agreement on a preliminary solution that will prevent the full implementation of the List 4B Section 301 duties and reduce the List 4A duties to 7.5% from the initial 15% levels set to happen on December 15, 2019.

“The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election,” explained President Trump.

Reforms to China’s policies regarding intellectual property and currency manipulations are included as key points of the agreements as agricultural buys have been a paramount issue across months of negotiations. The intellectual property theft that occurs between the two nations has been on of the top instances of trade tensions alongside the lack of agriculture buys that crippled American farmers earlier this year.

“The phase one agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years,” said the United States Trade Representative, Robert Lighthizer. “Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.”

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.