Cum si, cum sa
True to form, the week’s news includes many of the same challenges we’ve been dealing with the past few months. There were not a lot of new positive developments, but not too many new negatives either.
One notable exception is the labor strive in Montreal which is coming to a head. On Friday, the longshoremen at the Port of Montreal announced an indefinite strike beginning Monday, April 26 at 7am. This is an escalation of a partial strike that began less than two weeks ago. The union, which represents over 1,100 longshoremen, said the full strike comes in response to the MEA changing its regular schedules.
In other global shipping news, there’s been some progress in the Port of L.A.’s intense cargo bottlenecks. Unfortunately, much of that traffic has shifted up north to Oakland where, as of last Friday, “25 container carriers were waiting to enter the Port of Oakland at anchor in San Francisco Bay and in a holding area offshore, up from 21 at the beginning of the week and little changed from a month earlier… Outside the adjacent ports of Los Angeles and Long Beach, the queue was 21 ships long, also about the same as in mid-March.”
A topic that’s still weighing heavy on UK supply chains is Brexit. While there has been some notable growth in Britain’s construction sector, smaller businesses definitely have some concerns regarding Brexit’s role in causing major delays for trading construction materials, which has resulted in a spike in these materials’ prices that only larger companies have been able to afford.
Another key issue that’s been building up for a while is the shipping industry’s goal to reduce maritime carbon emissions. According to JOC.com, BIMCO, the International Chamber of Shipping, and the World Shipping Council (WSC) recently just submitted a proposal to the IMO last week “asking it to start talks for adopting industrywide ‘market-based measures’ (MBMs) to reduce carbon dioxide emissions” as a way to speed up the process.
Lastly Vivo, who ranked fifth globally based on mobile phone shipment volume, is currently under fire — quite literally — for causing a pallet fire at Hong Kong airport last weekend. According to The Loadstar, an increasing number of airlines are starting to ban “all Vivo products containing lithium batteries (ion and metal) for direct or indirect carriage … as a precautionary temporary measure until further notice.”
To learn more about how this congestion could last throughout the entire summer or to read up on any of the other issues we’ve touched on here, check out the following links:
What You Gonna Do When the SCA Comes for You?
In this week’s global freight updates, we’ve got a vessel under arrest, underlying causes for U.S. port congestion, solid increases in import prices, a partial strike at Eastern Canada’s biggest port, and the ongoing, pandemic-induced container crisis. Up first, let’s dive into the latest news in the Ever Given saga which is the Suez Canal Authority’s (SCA) formal arrest of the vessel that can’t seem to stay out of trouble.
After an Egyptian judge officially released a court order allowing the SCA to seize the Ever Given last week, the SCA has announced that it will continue to hold the ship in Egypt until its $916M compensation claim is paid in full, causing quite the stir amongst the ship’s managers and insurers. As a result, the vessel’s charterer, Evergreen, is launching its own investigation against the scope of the claim and court order while also urging all of the parties involved to try and reach a settlement agreement in an attempt to free the trapped freight as soon as possible.
Over in the U.S., severe cargo delays stemming from the current container crunch keep plaguing the LA-LB ports with the blame largely falling on the rise in pandemic-induced demand for physical goods. However, these problems existed well before the COVID-19 breakout. According to JOC.com, “huge cost increases, limited ability to automate terminals, chronic avoidable disruption during contract negotiations, and far lower productivity and working hours compared with ports in Asia and elsewhere around the world are at the core of the issue.”
While industry leaders work to fix these problems, U.S. import prices are rising higher and higher because of the limitations these supply chain constraints are placing on the pent-up demand that’s being financed by fiscal stimulus checks and sustained by increased access to coronavirus vaccines. Based on Reuters’ data, “import prices rose 1.2% last month after advancing 1.3% in February. The fifth straight monthly gain lifted the year-on-year increase to 6.9%, the largest rise since January 2012. Import prices rose 3.1% on a year-on-year basis in February.”
And the cherry on top of all of this is the partial strike at the Port of Montreal that was scheduled to start this past Wednesday. Not only will this strike further escalate the port congestion across North America (given the projected 30% drop in the port’s capacity), but it will also most likely add to the already lengthy waits and soaring shipping costs logistics professionals are encountering worldwide. At one point in time, transporting a standard 40-foot container from China used to average around $1,000, but now that there’s an ongoing container crisis, some shippers and forwarders are having to pay in excess of $10,000 for the same exact space.
To learn more about how these issues are similarly affecting European ports or to get the details of the other top stories for this week, check out the following article highlights:
Jaguar Freight Expands Suite of Services with Innovative Trade Finance Solution
FOR IMMEDIATE RELEASE: April 8, 2021 (Valley Stream, NY, USA):
Jaguar Freight, a leading global freight forwarder and U.S-based NVOCC, together with King Trade Capital, the largest purchase order finance company in the U.S., have announced the addition of a new trade and purchase order finance solution to Jaguar’s portfolio of services.
“By providing access to purchase order and trade finance as a part of Jaguar Freight’s suite of services, including our best-in-class logistics technology, customers can now extend their business reach and maximize their sales opportunities with fewer limits,” said Jaguar Freight’s CEO Simon Kaye.
The inclusion of trade finance means importers now have access to a turnkey supply chain partner in Jaguar Freight. Customers can now take advantage of new purchase order and supply chain financing opportunities and ensure a more seamless delivery to market.
“Jaguar Freight has been a trusted freight forwarder for a number of King Trade’s clients over the years,” said King Trade Capital’s Managing Partner, Edward King. “The expanded relationship with Jaguar will mean that King Trade can introduce Jaguar’s innovative systems and technology to more companies in need of freight forwarding services.”
Through the partnership, customers will benefit from this unique blend of trade and purchase order finance solutions between Jaguar Freight and King Trade Capital by gaining better control over their supply chain operations and improving their bottom line.
About Jaguar Freight
Jaguar Freight is a licensed freight forwarder and NVOCC and an expert in global supply chain logistics. Founded in 1993 in New York and London, Jaguar Freight has set itself apart by developing and serving customers with state-of-the-art technology expertise that transforms logistics and shipping services into world-class supply chain solutions.
Visit: www.jaguarfreight.com
E-mail: trodriguez@jaguarfreight.com
Phone: 516-239-1900
About King Trade Capital
For almost 30 years, King Trade Capital, or “KTC,” has helped good companies grow their sales and profits by providing PO and supply chain finance solutions. KTC is operated by its founder and its entrepreneurial team that understand the financial needs of operating and growing a business. As pioneers in purchase-order financing and non-bank trade finance, King Trade Capital has developed the expertise and unrivaled financial capacity to help companies become more prosperous by providing stable and unique PO and supply chain finance solutions.
Visit: www.kingtradecapital.com
E-mail: bprust@kingtradecapital.com
Phone: (214)-368-5100
How the Pandemic Has Shaped Today’s Supply Chains
If you were to describe the way the world has changed over the past year to your pre-pandemic self, it would probably sound like something straight out of a bad sci-fi movie. From the moment COVID-19 entered the scene, it has been one disruption after another — especially for those of us tasked with figuring out how to keep supply chains running smoothly in the midst of all this chaos.
The global economy started to decline almost immediately at the outset, governments began imposing trade restrictions, and demand became volatile. The cracks within many companies’ manufacturing and transportation processes quickly surfaced as well. Now, the pressure is on as companies scramble to readjust their strategies to mitigate risks and maintain the flow of goods while dealing with severely volatile rates, capacity constraints, service failures, and extended manufacturing lead times.
But onward we must go. Here are a few of the ways the industry is adapting to keep itself afloat in the pandemic’s wake:
Work from Anywhere (WFA) Model
Over the years, the evolution of technology made the WFA business model possible well before COVID-19 came into the picture; however, no one really knew how people would perform outside of an office setting. Many businesses were too concerned about all of the unknowns surrounding WFA’s influence on things like communication, efficiency, and data security to make the transition.
That all changed when the pandemic lockdowns made it a necessity rather than a choice. Despite being forced into it, most companies have come to realize how beneficial the WFA model actually is from improving employee engagement, to reducing property costs, to increasing workforce retention. For shippers, the importance of having tech-enabled logistics partners became a must-have overnight.
E-commerce Explosion
Just as the pandemic accelerated the WFA trend, it also accelerated the move from shopping in brick-and-mortar stores to primarily purchasing goods online, permanently altering the retailing landscape. The domino effect of this rapid explosion in e-commerce sales not only triggered a huge jump from intermodal and truckload shipments to parcel and LTL, but it also caused a shift from B2B to B2C deliveries.
Ocean liners, in turn, are having to race to reposition empties across Asia-Pacific trade lanes to overcome severe capacity constraints and meet e-commerce demand, while shippers bear the weight of excessive freight rates.
The New On-Demand Mentality
Given the unprecedented (sorry, we had to) market uncertainty, more and more shippers are also working to preserve their cash flow by shifting away from a traditional high-volume, low-frequency inventory strategy. Instead of trying to predict erratic consumer spending patterns, some manufacturers have decided to stop ordering larger volumes of a product that they then have to store in favor of ordering smaller volumes at a more frequent rate.
As a result, their transportation partners have had to up the agility of their processes, specifically in regard to the last mile, to keep pace with these leaner inventories. At the same time, the inverse is also true for other companies.
Some importers are ordering in larger quantities out of the usual seasonality to stockpile goods in the U.S. as a way to ensure they have sufficient quantities to meet the ever-increasing demand. The result has been high demand and higher costs for warehouse space and drayage services. Again, the technology provided by freight forwarders and other logistics providers is key to making this shift possible.
Long-Term Impact
Competition for shippers of all types was tough before the pandemic, but it’s only going to get more intense from here. Plus the expectation of faster and cheaper deliveries that existed before the pandemic is only going to increase too. This means supply chain professionals are going to have to get imaginative with how they use their resources.
Long-term success requires finding that balance between increasing the efficiency and resiliency of your logistics operations (without breaking the bank) while also maintaining a competitive edge with your customers. In order to step up to the challenge, it’s important for companies to take the time and energy now to identify and understand the weaknesses within their own supply chain operations.
After you’ve thoroughly picked your processes apart, then you can use your new outlook to take further action, whether that involves diversifying your supply base, upgrading your logistics partners, capitalizing on innovative technology trends, or even reevaluating the types of products you offer.
The underlying theme of all your decisions should be focused on nimbleness and agility. If the past year has taught us anything, it’s that things can change quickly. Shippers and their supply chain partners need to be better positioned to respond accordingly.
Resetting your supply chain is not something you have to do all on your own though. Visit Jaguar Freight to learn more about how our proven expertise and industry-leading software can better prepare your supply chain for a post-pandemic world.
How PO Management Software Can Turn the Lights on in Your Supply Chain
In our highly connected digital world, supply chain visibility involves more than just your standard track and trace technology. While once considered ‘cutting-edge,’ the ability to know the physical location of freight should be a given for any shipper of any size. Today, when progressive shippers think about terms like visibility and transparency, their expectations include having a view of their entire supply chain, from sourcing to manufacturing to final delivery, irrespective of the number of suppliers or logistic providers.
The importance of visibility to a large extent is about problem avoidance and mitigation. Companies can’t wait for problems to snowball through their supply chain operations, because by the time they’ve been identified, it’s often too late. The extra costs and disruptions have already occurred whether you realize it or not. If you want to avoid delivery challenges before they make their way downstream, you’ll need a way to increase transparency further upstream prior to when the shipping process even begins.
Solving the Supply Chain Puzzle To Prevent Late Deliveries and Extra Logistics Costs
A key step in the supply chain where these types of problems can be addressed relates to how Purchase Orders (PO) are managed. Paper-based PO processes and primarily manual workflows can leave most supply chains vulnerable to problems that only really manifest themselves during shipping.
Identifying when production delays and orders shipping incomplete or late will impact transportation plans is exceptionally difficult, especially when sourcing and manufacturing are happening overseas. To be successful, shippers have to adopt tools that are sophisticated enough to handle the complexity of global supply chains. This is where tech-enabled PO management is a critical piece of the supply chain puzzle.
The best digital PO management solutions will automate and align a company’s manufacturing and shipping operations from end to end by allowing issues to be addressed upstream before they have a chance to become issues downstream. This eliminates the need to manually mine through fields of data to identify problems.
In other words, close alignment between a company’s PO management processes, supplier manufacturing schedules, and the shipping function creates a win-win-win situation.
There are several important and quantifiable benefits of tech-enabled PO management including:
• Expedited shipping expenses lowered by 15-20%
• Extraneous email traffic reduced by more than 80% almost instantly
• Overall freight costs decreased by 20%+
Additional supply chain efficiencies:
• Improved transportation budgeting with better control over costs and accuracy
• More optimized title transfer and inventory management
• Integrated cross-functional collaboration and more accessible data
• Standardized PO processes
• Improved vendor relations
• Data-enabled score carding
Purchasing and procurement professionals have a lot on their plate, from ensuring contractual compliance to overseeing vendor communication. Unfortunately, the chances of experiencing delays with your purchase order requests are a lot higher when you’re forced to wait around for phone calls and email responses, or you’re having to wade through various outlets to pull data on specific assets. And, like it or not, keeping the shipping department ‘in the loop’ can often slip down the priority ladder.
Running a Tighter Ship
With a centralized web-based PO management software system that corrals all communication, companies also lower the risks associated with miscommunication and error-filled POs. Also, by having an intuitive traffic-light filtering system, users will be able to quickly focus on addressing the real issues rather than data-trawling to try and find them. The key to effectively solving these challenges is visibility throughout the entire supply chain.
While some ERPs claim to do PO management, none of them do it very well. It’s important for shippers to find a solution that can help them lower costs, optimize supply chain performance, and gain a competitive edge. And remember: the alignment of PO management, shipping department, and all stakeholders is the key to a synchronized supply chain.
To learn more about a collaborative online PO management platform that provides immediate visibility and opportunities for continuous improvement with an innovative carrier-agnostic approach, visit Jaguar Freight.
The Aftermath of Brexit on Supply Chains
Britain’s decision to leave the European Union (EU) back in 2016 set off a series of events that have impacted supply chains ever since, and now seem to be reaching their peak as companies learn to live in the post-Brexit world. Now that the transition period has come and gone, many companies are still struggling to adapt to the absence of the added trade perks that come with being an EU member.
In an attempt to avoid the harsher realities of failing to form a new agreement, the United Kingdom (UK) brokered the Trade and Cooperation Agreement (TCA) with the EU on Dec. 24 at what was effectively the fifty-ninth minute of the last hour. Although any deal was better than no deal, new challenges like longer delivery times and more extensive export documentation have shown how businesses in the transportation industry need to start rethinking what supply chain efficiency means in the aftermath of Brexit.
Here are some of the surprising and not so surprising outcomes of the new border control practices we’ve noticed since the UK’s exit at the end of last year:
- Delivery Delays
Manufacturers were hit hard by the overwhelming and costly customs declarations, health checks, and certifications Brexit introduced. Exporters in the food and beverage sector are particularly struggling to get their perishable products to buyers in time while they’re still fresh because it’s simply taking too long to complete the paperwork process.
Despite the efforts companies are making to find a solution for these delays, “about a fifth of small and medium-sized businesses that export to the EU have temporarily halted sales,” according to Reuters. Some food producers are even avoiding the process altogether and going directly to other markets.
- Higher Logistics Costs
With surges in taxes, tariffs, and additional customs fees, it’s becoming increasingly expensive for logistics service providers to bring goods into the country. Lofty tariffs, for example, are forcing firms to switch up their sourcing strategies. Rising trucking costs are pushing customers to EU competitors, while stricter COVID-19 testing requirements are removing the incentive for drivers to accept shipments coming from the island.
Trade with Ireland is also on the rocks as gaps start to emerge throughout retail supply chains, and they may only get worse once the three-month grace period for supermarkets in Northern Ireland ends. Some “Northern Irish logistics groups have warned that prices are rising as trailers return from Britain empty, without a return load to cover the cost,” based on Reuters’ findings.
- Rules of Origin Complications
A lot of traders were under the impression that trading with the EU post-Brexit simply involved filling out some forms, so the new rules of origin requirements came as a surprise to many companies. Although the government released 60 pages worth of guidance on the subject, some believe that the information failed to help forwarders and shippers in light of the current capacity shortage and marketplace conditions.
The UK has responded to these complaints by defending its Border Operating Model and stressing the other ways it has been offering support for companies — e.g., export helplines, trade advisers, policy exports, and the Brexit Business Taskforce. Many in the industry, however, have expressed frustration over when the publication was released since it went public a mere 6 months before the transition period came to a close and any deal was made.
What’s Next?
If the delays and inconsistent pay continue to keep EU drivers from coming to the UK, the driver shortage could very likely turn into a serious capacity crunch, which would only place more pressure on spot rates and European supply chains. The risk of spoiled produce is also leading shippers to hold on to their goods instead of moving them, which could increase congestion in warehouses. These disruptions will hopefully ease up over time as the industry adjusts to the new changes, but there are still quite a few bumps in the road ahead that need to be addressed before goods start flowing freely again between these two trading partners.
JOC Analysis: Forwarders Face Technology Investment Crossroads in 2021
We get it. The freight forwarding industry is not exactly known for being tech-savvy; however, that’s about to change. As a result of increasing competition from emerging e-commerce platforms, tech startups, and even large ocean carriers, investing in new logistics technology has fast transitioned from a want to a need for the entire shipping industry.
The decision of whether or not companies should embrace the recent wave of digitization is no longer being questioned. With this newfound awareness, however, comes a new dilemma: what approach should companies take with new technologies? The answer to this question depends on what a forwarder wants to accomplish with their investment.
According to a recent article published on JOC.com, there are several different routes forwarders can take. One approach can be to focus on technologies that enhance front-end processes to reduce your sales costs and expand your market reach. Another can be to focus on optimizing your back-end operations to eliminate any inefficiencies.
In the past, the popular choice was often to try and automate workflows behind the scenes, but then, it started becoming more about simplifying applications for consumers. Now, the marketplace has cycled back to a back-end focus, with the key differences being ease of integration and simplified interfaces.
There is also the buy vs. build debate. On this topic, the article’s author, JOC’s Senior Technology Editor, Eric Johnson, mentioned Jaguar Freight specifically.
“Individual forwarders and non-vessel-operating common carriers (NVOs) are tackling the mandate to be more technologically proficient head-on … New York-based Jaguar Freight is using a mix of in-house-developed systems and off-the-shelf software to build a framework that helps it attract and retain customers.”
But, not every company is ready to tackle it all at the same time. When asked, Jaguar CEO Simon Kaye recalls that after founding the company in 1993 he very quickly realized freight forwarding is an information business as much as it is a logistics business. So over the last 25+ years, Jaguar has been focused on developing technology to improve the user experience internally as well as for its customers and partners. Regardless of the specific approach, every company needs to maximize the value of technology and create the best possible customer experience.
To learn more about one company that is doing just that, visit Jaguar Freight; click here to read the full article from JOC.
Global Freight Updates Delivered to You!
In this week’s international freight updates, we’re covering everything from the shortage of shipping containers, to the transition from ocean to air and rail, to research on supply chain risk management, to El Paso’s new role in trade, to the concerns surrounding COVID vaccine distribution, to efforts to limit detention and demurrage at key U.S. ports. Well, that was a mouthful. There’s clearly a lot going on, so let’s get to it.
Here’s our timely take on the most important issues that are currently affecting the day-to-day lives of logistics professionals everywhere around the globe:
We’re sure you’re already aware of the major container capacity crunch that’s going on in the ocean freight marketplace. While demand remains strong and volumes soar, shippers are pleading with authorities to help them as carriers focus on backhaul empties and rates on less popular lanes climb. Thanks to Chinese regulators discouraging any further rate increases, however, prices on China-U.S. lanes have continued to stay relatively untouched for over two months.
These equipment shortages are even impacting China-Europe rail capacity due to those who are jumping ship as a result of canceled sailings and rising air freight rates. According to JOC, “Rail demand is being driven by shippers balking at the sky-high air freight rates on Asia-Europe with most of the long-haul passenger fleet — source of half the available capacity on the route — still grounded. And unexpectedly high and ongoing peak season demand on the ocean trades is limiting Asia-Europe container shipping space.” Let’s also not forget about the significant disruptions many, especially those managing pharmaceuticals, will face once companies start distributing COVID-19 vaccines.
With their complex cold chain storage and transportation requirements, industry leaders are striving to proactively improve shipping visibility and efficiency by developing strategies that will address critical logistics gaps and stressors. Even if you aren’t directly dealing with these pharma problems, it’s probably a good idea to start reevaluating your shipping reliability and risk management based on the findings of a recent report on manufacturing costs in a post-pandemic world.
A topic every shipper hates is detention and demurrage and it turns out some shippers have finally decided enough is enough. A coalition has gotten the attention of the FMC and the situation at several U.S. ports is being investigated.
Last, but certainly not least, El Paso well-positioned as a key trade portal between the U.S. and Mexico. With a focus on improving logistics infrastructure, many large industry players are making big investments in the area. There is a lot going on at the border.
Want to go straight to the source? We understand. Check out the article highlights below:
6 Ways Supply Chain Stability Is at the Mercy of the Coronavirus
Just when supply chain instability caused by the trade war with China seemed to be easing, the coronavirus struck, crippling businesses and causing concern for people around the world.
- According to Britain’s MRC Centre for Global Infectious Disease Analysis, one percent of those who contract the virus will die from it
- After one of their China employees came down with the virus, Singapore’s largest bank evacuated hundreds of staff
- The US State Department has given Hong Kong consular staff the option to leave, though most are expected to stay
Soon, the hardest times of the trade wars might seem like the good old days. Here are six ways the coronavirus impacts supply chains today and will continue to do so for an unspecified time.
- Internal Disarray | There are factories and shipping facilities that that have been closed by local government that the Chinese Communist Party (CCP) insists be opened. Factories that remain closed even though they could be open may strike us as wasteful, but what if those facilities are potential hotbeds of disease? Who is going to win these battles, governments or the party? No one knows.
- Reports of Factory Openings Can’t Be Trusted | Your factory may tell you that they will reopen on a given date, only to tell you on that date that they are still not open and won’t be for another week. As noted in #1, factories are at the mercy of local governments and the CCP as to when they can open. There are rumors that some factories will not open until March. Some analysts have advanced the theory that picking opening dates that are advantageous to its stock market is more important to China than facility safety.
- Open Doesn’t Mean Operating at Full Speed | As CBS reported on February 10, two of Apple’s Foxconn factories have reopened, but only about 10% of their workforce has returned to work. These facilities are responsible for most iPhone production. A substantial percentage of Chinese workers are migrants who may be caught up in travel restrictions. Until factories actually open, they have no idea how many workers will show up to work. If a company with the economic power and influence of Foxconn can have its productivity stifled, just think how difficult reopening is for smaller factories.
- Chinese Factories Often Rely on Foreign Suppliers | Even if a factory is open and its entire workforce reports to work, it can’t make goods if the parts it needs are held up due to shipping constraints. Just as airlines have stopped flying to China, shipping lines have stopped going there as well. Plus, there are major workforce shortages on the docks and an inability to move goods inland via truck, train or plane. Even with much less traffic to handle, China’s ports can’t keep up due to the lack of workers.
- Factories in Other Asian Nations Rely on Chinese Suppliers | This is the flip side of #4. In recent years many manufacturers have moved their factories out of China to reduce costs and keep their goods tariff free. But if the factory has moved to Vietnam or another country in Asia, it’s almost surely reliant on parts and supplies they receive from China. That means their factory is subject to most of the supply-chain problems Chinese factories cope with.
- In Vietnam, 50 percent of component parts in goods manufactured there are sourced from China. In additions to the problems in China, the government of Vietnam is blocking imports from China to block importation of the virus.
- According to the Washington Post, garment manufacturers in Cambodia get 60 percent of their raw materials from China. Reduced production has manufacturers considering layoffs.
- A Hyundai plant in Korea suspended operations because it was receiving no parts from China.
- Problems Won’t End When the Virus Does | If the coronavirus ends tomorrow, your Chinese factories will still feel the economic impact of having been shut down for weeks. Add to that all of the pre-virus problems that started to emanate from China as relationships with factories and suppliers changed due to the trade war and many manufacturing operations being moved out of China. For many American companies, relationships with Chinese companies were already starting to suffer. The coronavirus has only intensified the problem.
Final Thoughts
Navigating the logistical twists and turns of the coronavirus is a major challenge, and will remain so for some time. Trade with China in particular and Asia in general is a major part of Jaguar Freight’s business. You can be sure that we will stay on top of the coronavirus situation.
For manufacturers looking for a new, more stable source of goods, take a look at our article, Mexico: An Increasingly Attractive Option for Sourcing US-Bound Goods.
To learn more about how Jaguar Freight can help you through these troubling times, contact us today.
Incoterms® 2020 Takes Effect: Your Questions Answered
Incoterms® 2020 went into effect on January 1, 2020. Here are answers to many common questions, including what changes have been made in the newest version of Incoterms®.
What are Incoterms®?
Incoterms® are 11 predefined rules, or terms, published by the International Chamber of Commerce (ICC) to reduce uncertainties and ambiguities in contracts for international trade. Use of an Incoterm® three-digit code in a contract removes the need to write out the full text of that rule.
As described on the ICC website, “The Incoterms® rules are the world’s essential terms of trade for the sale of goods. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms® rules are there to guide you. The Incoterms® rules provide specific guidance to individuals participating in the import and export of global trade on a daily basis.”
What Do Incoterms® Cover?
In a sales contract, Incoterms® delineate the primary obligations and responsibilities of the buyer and the seller, including:
- When delivery takes place
- When risk is transferred from seller to buyer
- Export and import clearance and insurance
- How any other costs that pertain to the delivery of the goods are divided
What Do Incoterms® Not Cover?
A complete contract cannot be written with the use of Incoterms® alone. Important elements of a contract that Incoterms® do not cover include:
- Price of the goods
- Title transfer
- Payment obligations and terms in detail
- Vessel requirements
- Unforeseeable circumstances that prevent either party from completing the contract (force majeure)
- Termination
- Trade restrictions
- Compliance issues
- Jurisdiction-specific laws and regulations
How Are Incoterms® Created?
Incoterms® have been a project of the ICC since 1936. For each revision the ICC assembles an international panel to work out the specific terms. Incoterms® 2020 is the fourth revision in the last 30 years. Each of those revisions have been published in the first year of a new decade: 1990, 2000, 2010 and 2020. Incoterms® 2020 marks the first time that authors from China and Australia were included on the panel. Other Incoterms® 2020 authors are from the United States and the European Union.
Are Incoterms® Laws?
No, Incoterms® rules are not laws. Parties to a contract may agree to use Incoterms® as a convenient way to make sure they understand the specific details of a contract without having to write out those details. However, the parties may decide to not use Incoterms® and fully customize their contract instead.
What Are the 11 Terms of Incoterms® 2020?
Here’s a general overview of the 11 rules of Incoterms® 2020. Each rule includes sections and subsections. For detailed versions of the rules, see the answer to “How Do We Get a Complete Copy of Incoterms® 2020?” below.
These seven terms are for any mode of transport:
- CIP/Carriage & Insurance Paid To | The seller delivers the goods to the carrier or the buyer’s appointed agent and pays for international carriage and insurance.
- CPT/Carriage Paid To | The seller delivers the goods to the carrier or buyer-appointed agent and pays for international carriage.
- DAP/Delivery At Place | The seller delivers the goods by making them available to the buy at a named place.
- DDP/Delivered Duty Paid | The seller delivers the goods by placing them at the buyer’s disposal, already cleared for import with duties paid and ready to be unloaded at a named place.
- DPU/Delivered at Place Unloaded | The seller delivers the goods by unloading them at a named place.
- EXW/ExWorks | The seller makes the goods available to the buyer at the seller’s premises. At that point the buyer is fully responsible for the cost and risk.
- FCA/Free Carrier | The seller delivers the goods (or pays to have them delivered) to the carrier or agent named by the buyer. The seller accepts the risk and cost of loading the goods on the means of conveyance provided by the carrier. Once the carrier is in possession of the shipment, responsibility is transferred to the buyer.
These four terms are for ocean and inland waterway transport only:
- CFR/Cost & Freight | The seller pays for the costs and freight of the goods to a named destination and delivers when the goods are on board a vessel nominated by the buyer.
- CIF/Cost, Insurance & Freight | The seller pays for the costs, freight and insurance to a named destination and delivers when the goods are on board a vessel nominated by the buyer.
- FAS/Free Alongside Ship | The seller delivers the goods by placing them alongside a vessel nominated by the buyer.
- FOB/Free on Board | Once the goods are on board a vessel nominated by the buyer, they are considered delivered by the seller. At that point they become the responsibility of the buyer. Until then, the seller is responsible for delivering the goods, loading them onto the ship and all costs of duties including the terminal handling charge.
What Significant Changes Have Been Made in Incoterms® 2020?
Several significant changes from Incoterms® 2010 have been made in Incoterms® 2020, including:
- DAT (Delivery at Terminal) has been renamed DPU (Delivered at Place Unloaded) for 2020. The reason for the change is that goods frequently need to be delivered directly to a factory or warehouse rather than to a terminal.
- FCA (Free Carrier) has been updated to fix what was a common problem with transactions involving letters of credit. Banks often require the seller to present a Bill of Lading with an On-Board notation so the bank could recognize that the transaction was complete before making payment on the letter of credit. Incoterms 2010 did not provide for the option of an On-Board notation; Incoterms 2020 does.
- The level of insurance required for CIP (Carriage & Insurance Paid To) has been raised, while the requirement for CiF (Cost, Insurance & Freight) remains the same. The difference in requirements is because CIF is far less likely to cover goods with a high value per unit. In both cases, the seller is responsible for the cost of insurance.
- Unlike Incoterms 2010, Incoterms 2020 recognizes that sellers might deliver goods using their own vehicles (DIY seller) without the involvement of a third party to make the delivery for them.
- Security has become a greater concern since 2010, and Incoterms 2020 recognizes the heightened security requirements now in effect. Incoterms 2020 rules detail those requirements when discussing buyer/seller responsibilities for each trade item.
Is Incoterms® 2020 Now the Only Version that Can Be Used?
No, Incoterms® 2020 is not the only version of the rules that can be used. In fact, any previous edition can be cited in a contract simply by stating the year of that version. For example, the rule for Cost, Insurance & Freight (CIF) has changed for 2020. If the parties to the agreement wanted to use the rules from 2010, that rule would be cited in the contract as CIF 2010. If the contract were to state CIF with no year following it, then CIF 2020 would apply, as it is now the default rule. To avoid confusion, it is best to always state the version year for each Incoterms® rule in the contract.
How Do We Get a Complete Copy of Incoterms® 2020?
Any business that engages in international trade on a regular basis would be well-advised to become familiar with the details of the Incoterms® 2020 rules and to keep a copy of the complete rules on hand for reference. Here are two ways to get the complete rules. Please note that Jaguar Freight does NOT receive a commission for sales of Incoterms® 2020.
If you’re paying in euros, you can purchase a copy of Incoterms® 2020 as a book or eBook directly from the International Chamber of Commerce.
If you’re paying in US dollars, Incoterms® 2020 is available in paperback on Amazon.com.
What Should We Do If We Aren’t Sure We Understand Certain Rules?
Jaguar Freight is always here to help. If there are Incoterms® 2020 rules or rule changes that you find confusing. don’t hesitate to contact your Jaguar Freight agent at (516) 600-0170 or send us a message.
10 Essential Year-End Trade Stories You May Have Missed
At the hectic ending of one year and the beginning of another, it’s easy to miss items you would have paid attention to at any other time of year. Jaguar Freight has put together this overview of 10 items that may have escaped your attention. It’s a good read that will help get you caught up in a hurry.
1. Full Senate Approval Is Last Step for USMCA
The United States-Mexico-Canada Agreement, the replacement for NAFTA, was passed by the Senate Finance Committee on January 7 and awaits passage in the full Senate. After being ratified by Canada and Mexico, the original version of the trade pact was held up in the House of Representatives as Democrats negotiated to secure higher labor and environmental standards. The House passed the bill with negotiated changes last month and sent it on to the Senate.
Source: CNBC
2. Europe Leads Descent Into Worldwide Export Recession
The heady high-export days of 2018 gave way to three consecutive declining quarters of export activity for all regions, including Asia, Americas, Europe, and Middle East & Africa (MEA), statistically putting the world in an export recession. The downturn was led by Europe, which had enjoyed the greatest export growth in Q1 and Q2 of 2018. The global decline in exports accelerated throughout 2019, reaching a low point in Q4. Looking ahead, the US trade deficit with the EU could trigger a new trade war in 2020.
Source: Panjiva
3. Trade Volume Expected to Grow in 2020
IHS Markits forecasts that world trade volume will grow by 2.7 percent in 2020. This follows increases of only 0.6 percent in 2018 and 0.3 percent in 2019. IHS Markits acknowledges that their forecast is vulnerable to several key factors, including:
- Lower growth in the US and Canada
- Unpredictability of US trade policies
- Impending presidential impeachment and upcoming election
- Outcome of US-China trade negotiations
- Brexit
Source: IHS Markits
4. Trade War Leaves Scars
Bilateral trade between the US and China fell 15.2 percent over the 12-month period ending November 30, 2019. Comparing that period with the previous 12 months, US exports to China dropped 21.6 percent, while China exports to the US fell only 2.2 percent. Some analysts believe the new trade agreement announced between the two countries will strongly favor the US, but the deals of Phase 1 purchase commitments have not been completed.
Source: Panjiva
5. Experts Disagree on Trade War’s Biggest Loser
Foreign Affairs asked a large pool of trade experts whether they agreed or disagreed with the following statement: “The trade war has hurt the United States more than it has hurt China.”
Here’s how they responses broke down:
- Strongly Agree – 5
- Agree – 13
- Neutral – 9
- Disagree – 12
- Strongly Disagree – 4
Obviously, there is no clear consensus on the question of who the trade war’s biggest loser is. Click the link below to see who responded and read their thoughts on the matter.
Source: Foreign Affairs
6. British Industry Starts Pullback From EU
Boris Johnson’s recent landslide victory is a clear sign that a final Brexit agreement may be near. British industrial firms aren’t waiting to update their supply chains. Over the 12 months prior to October 31, 2019, the proportion of intermediate industrial supplies and equipment sourced from Europe declined from 51.6 percent in 2015 to 48.5 percent in 2016 to 45.9 in 2019. This number is almost certain to decline substantially over the next 12 months.
Source: Panjiva
7. Continued Slow Growth Forecast for 2020
Due to a slower recovery in trade and investment, the World Bank lowered its global growth forecasts for 2019 and 2020. Calling out 2019 as the weakest economic expansion since the global great recession of a decade ago and citing continued vulnerability to trade volatility and geopolitical tensions, the World Bank reduced forecasted growth for both years by 0.2 percent in its Global Economic Prospects report. The growth forecast is now 2.4 percent for 2019 and 2.5 percent for 2020.
Source: World Bank
8. US Trade Deficit Reduced but Not Eliminated
Trade deficits are the Trump administration’s favorite way of measuring the fairness of trade relationships. So, it’s notable that the trade war with China reduced that year-to-year trade deficit by 10.2 percent. Also notable is that the current deficit is still 6.4 percent higher than it was in 2016. The second-largest contributor to the trade deficit is the EU, where the deficit has grown by 22.4 percent since 2016, including a 6.4 percent rise in the past 12 months. According to the Financial Times, the US Trade Representative is focusing on the deficit with the EU.
Source: Panjiva
9. Three Factors Could Prove Problematic for Positive Growth Outlook
The International Monetary Fund is predicting a strong rebound in 2020, with global growth expected to reach 3.4 percent. Though less aggressive, the World Bank is also forecasting healthy growth figures. These predictions could be in trouble if any of three potentially problematic factors come into play:
- Trade wars
- Slowing of the economy in China
- Global debt.
Follow the link below for an in-depth look from Foreign Policy.
Source: Foreign Policy
10. Businesses Getting Used to Trade Volatility
While trade volatility is never preferred to certainty, businesses seem to be getting used to the uncertainty of today’s trade policies. At least that’s what the conference call monitoring data shows. Since October 31, the proportion of calls that included mention of tariffs or Brexit dropped to 20.9 percent, the lowest since Q2 2018.
Source: Panjiva
Whether you were already aware of all 10 of these items (if so, go to the head of the class) or every one of them was new to you, Jaguar Freight wants to assure you that we stay on top of everything in the world of global shipping. Whenever you need our insight or help with a specific shipment, reach out to your Jaguar Freight contact at (516) 600-0170, or send us a message.
4 Factors Impacting Maritime Shipping’s Slow Switch to Low Sulfur Fuels
A 2016 report by Finland estimated that failure to reduce sulfur oxide emissions from ships would contribute to more than 570,000 additional premature deaths worldwide between 2020-2025. The International Maritime Organization (IMO) decided to take action. The result was IMO 2020, which sharply reduces acceptable sulfur content from a maximum of 3.5 percent to 0.5 percent.
Even though the IMO 2020 rule takes effect on January 1, 2020, ship owners have not been quick to switch over. Here’s why.
1) Dropping cost of high-sulfur fuel oil (HSFO)
With HSFO ceasing to be a fuel option for most ships (those without scrubbers, see below) on January 1, 2020, suppliers are doing everything they can to sell it. Even with supplies falling fast, prices remain very low. In some areas the price of HSFO has dropped by as much as 30 percent, making it a much cheaper alternative to compliant fuels.
It looks like many ship owners will continue to use HSFO until supply dries up completely or the year ends, whichever comes first. As Stephen Jew, director of global refining and marketing at IHS Markit said in an interview with JOC, “There’s no incentive for carriers to burn it yet. They’re waiting for the very last minute.”
2) Dependable track record of motor gasoil (MGO)
The easiest and most conservative course of action for ship owners will be to switch to MGO, the equivalent of heating oil. Low-sulfur MGO is already in use in designated emission control areas, where the sulfur content standard is currently 0.10 percent. That requirement will not change under IMO 2020, though new areas may be designated as emission control areas.
The quandary for ship owners is that the low-sulfur fuels now in production are priced significantly less than MGO. But they have no experience with these fuels. They have to decide whether to go with the lower-priced fuel or the one they know they can depend on.
3) Questions about very low sulfur fuel oil (VLSFO)
There has been very little demand for VLSFO to date. With the exception of some parts of Taiwan and in small emission control area zones in China, there is virtually no market for VLSFO. As explained above, there is no demand VLSFO today because of the extremely low cost of HSFO. But ship owners also have questions about VLSO.
No one doubts that ships will run on VLSFO, that has already been proved. But what will be the short- and long-term effects on the ships themselves? Will there be an impact on maintenance requirements? Will it cause parts to break down that are not affected by long-relied-on fuels like MGO and HFSO?
As the head of one freight shipping executive put it, “It would not be acceptable to have even one ship drifting powerless at the mercy of the ocean.”
4) Use of scrubbers
The one way that ships will be able to continue to use HSFO will be if they are equipped with exhaust gas cleaning systems (EGCS) known as scrubbers. By removing sulfur oxide from the ship’s engine and boiler gases to a point equivalent to the reduced sulfur limit, scrubbers comply with IMO 2020.
However, scrubbers use a lot of water, which needs to be discharged as wastewater after use. IMO guidelines for wastewater discharge, last updated in 2015, are currently under review. A change in the guidelines could result in unanticipated costs for ship owners using scrubbers. Also, some ports have already banned wastewater discharge.
IHS Markit estimates the number of ships fitted for scrubbers will reach 2,600-2,700 in 2020.
It’s important to note that ships powered by liquid natural gas or biofuels will not be affected by IMO 2020. An increase in the use of LNG to power ships is anticipated.
Expect cost increases
Whether ship owners choose to install scrubbers or change fuels, the additional costs to the container shipping industry are expected to be in the $10 billion to $15 billion range. Naturally, a portion these cost increases (if not all) will be passed on to shippers.
At this point it looks like we are in for an adjustment period until a new “normal” is established. As things change, Jaguar Freight will keep you informed.
If you have questions or concerns about how IMO 2020 will affect your shipments, don’t hesitate to call your Jaguar Freight agent at (516) 600-0170 or send us a message.
EU Large Civil Aircraft Final Product List
Note 1: This list of products subject to additional duties is provided for information purposes only. The definitive product coverage will be determined by amendments to the HTSUS that USTR will publish in an upcoming Federal Register notice. The effective date of the additional duties is October 18, 2019.
Note 2: As specified below, in certain cases, the product description defines and limits the scope of the additional duties. Otherwise, and unless explicitly stated to the contrary, the product descriptions are provided for informational purposes only, and do not limit the scope of the additional duties. In the product descriptions, the abbreviation “nesoi” means “not elsewhere specified or included”. Any questions regarding the scope of a particular HTS statistical reporting number should be referred to U.S. Customs and Border Protection.
Download Section 301 Investigation – EU Large Civil Aircraft Final Product List
If you’re interested in learning how Jaguar Freight can help you navigate the scope of additional import duties, contact us today.
Mexico: An Increasingly Attractive Option for Sourcing US-Bound Goods
According to the Office of the United States Trade Representative, at $611 billion, Mexico was the third-largest trade partner of the U.S. in 2018. Only China ($737.1 billion) and Canada ($714 billion) ranked higher.
In 2019, the intersection of three circumstances points to the likelihood that trade with Mexico will increase significantly in the coming years. Those three circumstances are:
- The ongoing trade war with China showing no signs of abating
- Repercussions of the US-China trade war in Southeast Asia
- A new trade deal with Mexico and Canada on the horizon
Fallout of the US-China Trade War
The U.S.-China trade war continues with no end in sight. The U.S. recently postponed new tariffs on many consumer goods from China (including cell phones, laptop computers and toys) until after the start of the Christmas shopping season. But that postponement followed quickly on the heels of the U.S. labeling China a currency manipulator, opening a new front on what had been exclusively a trade war.
Fred Bergsten, director emeritus of the Peterson Institute for International Economics said this of the action. “The trade war has now become a currency war, and the Chinese are undoubtedly going to take further action.”
Many manufacturers and suppliers have already relocated or considered moving their China operations to Vietnam, but that has prompted outcries from the Trump administration that Vietnam is an unfair trade partner. The U.S. has not ruled out tariffs on shipments sourced from Vietnam, which some observers seem as likely.
The only thing clear in the current situation is that China and Southeast Asia are becoming less stable and less inviting sources of goods and supplies as the short and long-term costs of doing business remain uncertain.
Replacing NAFTA With USMCA Promises Stability
On November 30, 2018, the United States, Mexico and Canada signed the USMCA trade agreement. Negotiations had begun in 2017 to create a new trade deal that would replace the North American Free Trade Agreement (NAFTA), which had governed trade between the three North American countries for 24 years.
The agreement has been ratified in Mexico and Canada, but not in the United States. Democrats in the House of Representatives refuse to ratify the agreement until changes are made in the areas of labor, environment, pharmaceuticals and enforcement. Objections of this type are not unusual, and have been handled in the past in several ways.
NAFTA was not ratified until two side agreements were added: the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation.
The United States-Korea Free Trade Agreement (KORUS FTA) was signed in 2007, but congressional objections to treatment governing bilateral trade of automobiles and U.S. Beef Exports delayed ratification. After several years (and a change in U.S. presidential administrations), the U.S. and Korea renegotiated the agreement to the mutual satisfaction of all stakeholders. When the agreement went into effect on March 15, 2012, it became the first free trade agreement between the United States and a major Asian economic power. It was also the largest trade deal since NAFTA.
These precedents indicate it is highly likely that the USMCA will be revised as necessary and ratified by all three nations. Given the way trade in all three countries has benefitted from NAFTA, it’s clear that the stakes are too high for there not to be an agreement.
One recent incident that points out just how desirous Mexico is of continuing free trade with the United States occurred when President Trump threatened to levy tariffs on Mexican shipments unless Mexico did more to stem the flow of illegal migration to the United States. Mexico responded immediately, meeting with U.S. representatives and outlining new steps they would take to help reduce the number of migrants entering the U.S. outside legal channels. As a result of Mexico’s cooperation, the U.S. rescinded its tariff threat.
Once the USMCA is in effect, it promises to bring another generation of stability and cost certainty to U.S.-Mexico trade relations, something that cannot be said of U.S. trade with Asian nations today.
The timing is perfect. As was published in the Journal of Commerce last year, “(Mexico’s) $1 trillion economy now has developed businesses and capital that can meet rising emerging market demand for its goods, both in the Americas and in other world regions.”
Having a Partner You Can Depend On
If you haven’t been sourcing goods and supplies from Mexico, getting started can be daunting, especially since shipping from Mexico has historically been associated with poor service and delays.
Fortunately, in Jaguar Freight you have a friend in the business that has successfully and seamlessly managed freight on the Mexico-USA trade lane for years.
In Mexico, as throughout the world, we’ve built our reputation on providing supply-chain leadership in the form of first-class logistic services. To that end, we’ve developed our own, proprietary, supply chain software solutions — such as the CyberChain™ software suite — and marry them with logistic experts in ocean, air, and truck freight to deliver excellence to our clients.
As our client, you have a personal point of contact assigned to you, so you always have one consistent voice to rely on no matter where you’re shipping.
Three Things You Should Do Now
- Make sure your representatives in Washington know you support USMCA
- Watch for ratification of USMCA in the US
- Contact Jaguar Freight to discuss how we can meet your needs in Mexico
Given the turbulence of today’s trade environment, all importers should feel reassured to see Mexico poised to become an even more prominent — and stable — source of goods and supplies.
If you’re interested in learning how Jaguar Freight can help you with shipments from Mexico, contact us today.
US Trade Representative Lists Exclusions and Additions to China Tariffs
Exclusions — Third Tranche
The first set of exclusions from the third tranche of $200 billion in Section 301 tariffs on goods from China have been announced by the U.S. Trade Representative and published in the Federal Register.
These exclusions are in effect retroactively from September 24, 2018 — the date the third tranche went into effect — and will remain in effect until August 7, 2020 (one year after their publication date).
Special product descriptions have been prepared for each of the excluded goods. To take advantage of these exclusions, goods must satisfy the full description below.
- Container units of plastics, each comprising a tub and lid therefore, configured or fitted for the conveyance, packing, or dispensing of wet wipes (described in statistical reporting number 3923.10.9000)
- Injection molded polypropylene plastic caps or lids each weighing not over 24 grams designed for dispensing wet wipes (described in statistical reporting number 3923.50.0000)
- Kayak paddles, double ended, with shafts of aluminum and blades of fiberglass reinforced nylon (described in statistical reporting number 3926.90.3000)
- High tenacity polyester yarn not over 600 decitex (described in statistical reporting number 5402.20.3010)
- Nonwovens weighing more than 25 g/m2 but not more than 70 g/m2 in rolls, not impregnated coated or covered (described in statistical reporting number 5603.92.0090)
- Pet cages of steel (described in statistical reporting number 7323.99.9080)
- Carts, not mechanically propelled, each with three or four wheels, of the kind used for household shopping (described in statistical reporting number 8716.80.5090)
- Truck trailer skirt brackets, other than parts of general use of Section XV (described in statistical reporting number 8716.90.5060)
- Inflatable boats, other than kayaks and canoes, with over 20 gauge polyvinyl chloride (PVC), each valued at $500 or less and weighing not over 52 kg (described in statistical reporting number 8903.10.0060)
- Inflatable kayaks and canoes, with over 20 gauge polyvinyl chloride (PVC), each valued at $500 or less and weighing not over 22 kg (described in statistical reporting number 8903.10.0060)
Be sure that your teams are made aware of these exclusions so you can take full advantage of them.
Exclusion requests may still be submitted through September 30, 2019. As stated in the June 24 announcement of the exclusion process, requests must address the following scenarios:
- Whether the particular product is available only from China and specifically whether the particular product and/or a comparable product is available from sources in the United States and/or third countries.
- Whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests.
- Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
If more exclusions are granted, they will be announced on a periodic basis. Watch for news of those announcements here.
Additions — Fourth Tranche
The USTR has posted the more than 5,000 products included in List 4 of the Section 301 China tariffs. These products will be subject to an additional tariff of 10%. Certain products that appeared on the proposed list on May 17, 2019 have been removed and will not face an additional tariff of 10%.
The complete list has been broken into two sub-lists. Click the links below to see each list.
List 4A (Effective September 1, 2019)
List 4B (Effective December 15, 2019)
There will be a process for requesting exclusions, but that process has not been announced at this time.
Jaguar Freight is committed to keeping you informed. Contact us here.
3 Reasons to Pause Before You Shift Sourcing from China to Vietnam
As companies impacted by U.S. tariffs on shipments from China scramble to find reliable and tariff-friendly countries of origin, shifting sourcing to Vietnam has emerged as the most popular solution.
In the first quarter of 2019, as trade was diverted to other countries, China suffered a 13.9 percent drop in exports to the United States. The biggest beneficiary of this trade diversion was Vietnam, which enjoyed a 40.2 percent increase in exports to the U.S.
But as more shipments that used to come from China now emanate from Vietnam, there are three reasons to pause before shifting your sourcing to Vietnam.
1. Vietnam could be next on the tariff hit list
The U.S. has already started taking steps to reverse its substantial trade deficit with Vietnam, and more may be on the way. Consider these points:
- Vietnam was added to the Treasury Department’s list of possible currency manipulators in May, which could result in the application of financial penalties
- In early July, the Commerce Department imposed duties of more than 400 percent on steel imported from Vietnam
- On July 29th, U.S. Trade Representative Robert Lightizer wrote to the Senate Finance Committee, stating that, “The United States has been clear with Vietnam that it has to take action to reduce the unsustainable trade deficit”
In June, in response to a Fox Business News question on whether he wanted to impose tariffs on Vietnam, President Trump called Vietnam, “almost the single worst abuser of everybody”.
The next action could be the imposition of tariffs on a broad range of goods from Vietnam, an action that could wipe out the benefits of shifting sourcing to Vietnam. The executive director for Southeast Asia at the US Chamber of Commerce warns that, “There is a real possibility that this administration could slap tariffs on Vietnam.”
2. Vietnam’s infrastructure poses challenges
Vietnam is a rapidly-growing nation with an inexpensive labor supply, stable government and business-friendly environment, but its infrastructure is not mature or sophisticated. Already, Vietnam’s ports, airports and roads are straining to keep up with demand as companies fleeing China set up shop in Vietnam. And the rise in demand shows no signs of abating.
More than 1,720 projects were granted investment licenses in the first half of 2019, a 26 percent spike over the previous year.
Meanwhile, the World Bank ranks Vietnam’s logistics network 39th in the world (13 places behind China). A Ho Chi Minh City metro rail project has suffered major delays and cost overruns. As the need for infrastructure improvements grows, the government hopes that foreign direct investment will ease the crunch.
A healthy supply chain relies on a healthy infrastructure. Vietnam’s may be nearing the breaking point.
3. Capacity of Vietnam’s ports is limited
Four of the five top container ports in the world are located in China. Combined, they handled just under 118 million TEU in 2018.
The top two ports in Vietnam (the only ones to make the worldshipping.org Top 50 list) combined to handle less than 10 million TEU in 2018.
If the current boom continues, Vietnam will need to expand its ports or face a capacity crunch.
The bottom line
Shifting your sourcing might be a good idea, but it also might be too soon to make that move. With such rapid growth and a trade war in progress, circumstances are bound to change. At this point, taking a pause to see what’s next might be your best option.
This is a developing story. Stay tuned for updates. If you’d like to discuss your particular circumstances with us, contact Jaguar Freight today.
Do You Trust Your Supply Chain?
Trust cannot be purchased, for it is not for sale. Trust in a business relationship is an intangible value, inherently earned. But what about supply chains? It seems like the question needn’t be asked, but do we place blind trust in supply chains?
Trust is playing a bigger role than ever, and more vital, role in supply chain decision making. With the intervention of sophisticated technologies that enable us to track shipments down to the second, do we still view supply chain management as a statistical endeavor, or on the inverse, is the technology leading us towards more relationship-focused supply chain management?
How do we calculate trust?
It doesn’t appear in ledger sheets, or the bottom line, or the profit margins, yet it is an aspect that we cannot go without. Interpersonal relationships are at the heart here at Jaguar Freight Services, so we can’t help but wonder: Do you trust your supply chain?
A recent study conducted by Penn State University found that “trust” reduces opportunistic behavior only when both sides have similar levels of trust. However, a buyer or supplier with a higher level of trust than its counterpart is more likely to be perceived as being more opportunistic, not less opportunistic.”
Opportunism in Supply Chains
When speaking of opportunism in the supply chain, we can derive it means placing value in bid offers, making different offers to suppliers based on your relationship with them, artificially driven pricing, and so on – all factors that play a crucial role when considering the bottom line. So that is where the line tends to get blurry between trust in an established or new relationship, and the security of finding the best deal to maximize profits. In a world driven by technological statistics and analytics, we find relationships cannot be replaced, furthermore emphasizing the importance of having a good team on your side.
Always a step ahead, our team of Freight Architects can assist your company and ensure you have excellence in your supply chain, Visit our services page for more.
Getting to know the 3 New Ocean Carriers
As of April 2017, the new ocean shipping alliances are fully merged and operational, and they represent a stunning ~80% of global container trade, and an even more impressive 90% of container capacity on major trade routes. Last month we looked at how these mergers have and are affecting competition in the contemporary shipping industry in our article titled Competition & Carrier Alliances. This month we want to take a look at how these 3 alliances that comprise most of the industry are structured, and what their trade routes are.
What are the new Ocean Carrier Alliances?
Ocean Alliance:
CMA CGM, COSCO, OOCL, APL and Evergreen (APL is now owned by CMA CGM)
The Alliance:
NYK Group, MOL, “K” Line, Hapag Lloyd, UASC and Yang Ming (UASC has merged with Hapag Lloyd)
2M Alliance:
Maersk Line and MSC, with HMM and Hamburg Sud (Hamburg Sud is now owned by Maersk Line).
Major Shipping Trade Routes
The Trans-Pacific trade route is the largest trade route in the world by volume. It is the route between the Far East and North America, mainly dominated by containers hitting US West Coast ports.
The Asia-Europe trade route is between Asia and Europe (most going to Western Europe) with the majority of vessels going through the Suez Canal.
The Trans-Atlantic trade route is the route between Europe and North America, mainly between Europe and the US East Coast.
The main trade lane that is highly affected by this change and the main reason for the new alliances is the North America-Asia a.k.a. “East-West” trade lane between the Far East and North America which will represent 96% of East-West trade.
Weekly Sailings
Ocean Alliance will have 13 weekly services between Asia and the US West Coast, 7 weekly services between Asia and US East Coast and 3 Trans-Atlantic services.
The Alliance will have 16 weekly services for the Trans-Pacific trade and 7 weekly services for the Trans-Atlantic trade.
2M Alliance, which has a slot agreement with Hyundai Merchant Marine, will have 16 weekly services.
We’ll be covering the changes throughout the year, so stay tuned to our blog, or subscribe to our newsletter at the bottom of this page. Always a step ahead, our team of Freight Architects has deep and current knowledge of international supply chain management. To learn more about how we can assist your company and ensure you have excellence in your supply chain, visit our services page.
Competition & Carrier Alliances
Changes are on the horizon for the shipping industry, and as with all change, some of it is good, and some of it is not so good. In January, we anticipated alliance consolidation to be a common theme throughout the year. Now less than six months into the year, the major alliances have formed, sacrificing competition as an opportunity cost for tighter efficiency across the industry.
Three Alliances, One Industry
The recent consolidation trend has narrowed down the shipping alliances, which were once many, to a mere three. This month we saw the formation of three major alliances. They are:
- 2M Alliance: Maersk, MSC
- THE Alliance: NYK, MOL, K Line, Yang Ming, Hapag-Lloyd (with UASC)
- Ocean Alliance: CMA CGM, Evergreen, OOCL, COSCO Shipping
These three alliances represent 77.2% of global container capacity and 96% of all East-West trades. While this isn’t a monopoly, the rising concern is that the formation of three mega alliances has halted competition, leaving the consumer with virtually no options except the alliance-issued standard.
A Suffocating Competitive Landscape
Competition is what drives businesses to be better; to provide better products, better customer service, better options, and overall set the bar high for other businesses to enter. What happens when competition is no longer at the forefront? B2B markets will bear the brunt of diminishing competition; particularly when it comes to having options, therefore cutting off the ability to negotiate a better deal. Less competition in shipping isn’t good news for exporters who currently benefit from low freight rates.
Restructuring for the Future
Without doubt, there is concern among the shipping community and forwarders that the new mega alliances are inevitably creating disruption to global supply chains. The obvious problem is the lack of options that limited competition provides, but a more subtle, equally as important, problem is the absence of the customer from the discussion. The alliances left the customer out of the equation – and that’s where the new market structure can fail us. When we remove the customer out of the equation, we lose sight of value and customer service.
We’ll be covering the changes throughout the year, so stay tuned to our blog, or subscribe to our newsletter at the bottom of this page. Always a step ahead, our team of Freight Architects has deep and current knowledge of international supply chain management. To learn more about how we can assist your company and ensure you have excellence in your supply chain, visit our services tab.
Antitrust Law Investigation
Last month US antitrust investigators raided the biannual Box Club meeting in San Francisco, handing subpoenas to the CEOs of major container lines. US Antitrust regulations are taking a more prominent role in an era of consolidation, big shipping alliances, and a new government administration.
Investigations, not allegations
Maersk Line, and Mediterranean Shipping Co. are among the many companies who received subpoenas, which do not set any allegations against the company itself. All CEOs are cooperating with the investigations – but why the investigations at all? With consolidation being the main theme this year, the Department of Justice is taking particular interest in preventing the carrier alliances from setting fixed rate guidelines. Carriers retained limited antitrust immunity in the last major revision of US shipping law: the Ocean Shipping Reform Act (OSRA) of 1998. Before the OSRA, carriers jointly set rates through conferences, and shippers and carriers were prohibited from negotiating confidential contracts with each other. The DOJ is trying to prevent rate-fixing.
A history of price fixing
Antitrust investigators are having a difficult time laying down tighter regulations again, mostly due to the fact that the industry lacks discipline when it comes to discussing price fixing, as they’ve been operating under antitrust immunity for years. The investigation comes at a time where alliances are setting standard rates, in an attempt to control the wild fluctuation of shipping rates. Over capacity at ports, on ships, and throughout the industry has caused rates to drop below profitable margins, spurring bankruptcies, like Hanjin, and consolidations like the three new alliances — THE, Ocean, and 2M. Historically, antitrust immunity allowed the industry to operate under protection from unfair competition; now the lack of competition as it relates to antitrust immunity is raising alarms, spearheading the DOJ’s investigation.
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