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:
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.
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.
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.
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.
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.
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:
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.
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.
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 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®.
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.”
In a sales contract, Incoterms® delineate the primary obligations and responsibilities of the buyer and the seller, including:
A complete contract cannot be written with the use of Incoterms® alone. Important elements of a contract that Incoterms® do not cover include:
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.
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.
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:
These four terms are for ocean and inland waterway transport only:
Several significant changes from Incoterms® 2010 have been made in Incoterms® 2020, including:
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.
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.
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.
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.
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.
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.
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:
Source: IHS Markits
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.
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:
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
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.
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
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.
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:
Follow the link below for an in-depth look from Foreign Policy.
Source: Foreign Policy
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.
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.
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.
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.”
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.
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.”
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.
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.
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.
If you’re interested in learning how Jaguar Freight can help you navigate the scope of additional import duties, contact us today.
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 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.
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.”
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
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.
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.
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:
If more exclusions are granted, they will be announced on a periodic basis. Watch for news of those announcements here.
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.
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.
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.
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:
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.”
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.
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.
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.
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.
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?
CMA CGM, COSCO, OOCL, APL and Evergreen (APL is now owned by CMA CGM)
NYK Group, MOL, “K” Line, Hapag Lloyd, UASC and Yang Ming (UASC has merged with Hapag Lloyd)
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.
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.
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:
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.
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.
At this point, the investigation is still underway, stay close to our blog for upcoming updates, or subscribe to our newsletter at the bottom of the page. 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 tab.
Maritime regulators voted to toss the rule requiring container lines to report amendments to service contracts before they go into effect. It’s part of a broader effort by the US Federal Maritime Commission to save beneficial cargo owners, carriers, and non-vessel operating common carriers time and money by simplification of the filing process.
The First of Many Regulatory Rollbacks?
The review of existing rules at the Federal Maritime Commission began under the Obama administration, and continue to be put into motion with the Trump administration. This current regulatory rollback is the first of many planned changes aimed at reducing superfluous and expensive regulations plaguing the logistics industry.
Right and left leaning officials alike are welcoming the regulatory rollbacks, as a means of easing the burdens associated with international shipments and filing amendments with the commission. Nearly 600k service contract amendments were filed last year, and all had to be filed before they went into effect; now shippers have an additional 30 days after they go into effect to file. This change is the first revision to freight forwarding (NVOCC) service arrangements since 2005.
Proceeding with Caution
The same voices that encourage soft deregulation are cautioning against deregulation in other areas, such as possible changes to the infrastructure of service contracts themselves. One thing that is certain is that the NVOCC community cannot agree on the fundamental core of NVOCC regulations. Making too hasty decisions to change things on a larger scale can disrupt the industry much more than anticipated.
Identifying Outdated Rules
Acting FMC Chairman, Michael Khouri stated: “I am committed to continuing to identify rules that are outdated, or impede the efficient operation of business, and eliminating them whenever possible.” We can expect to see continued efforts to review outdated rules and regulations moving forward.
Our team of logistics specialists 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.
2017 marks an unprecedented time for vessels, ocean carriers, and ports; the industry is consolidating to accommodate greater economies of scale. What we’d like to ask is this: what happened to value? In an age where anything from taxi rides to dinner can be summoned from a device in our hands, why isn’t this innovative mentality prevalent in the shipping industry?
One Word: Cost
Well, more specifically, economies of scale. We’re living in historically significant times – on the brink of discovering widely-accepted alternative fuel methods, self-driving cars, custom supply innovations – yet, the shipping industry cannot get off the “bigger is better” wagon. There’s reason behind this, and it boils down to cost. Rates dropped to a historic low, growth is sluggish, and bankruptcies are common core. As a result, shippers have pulled back the reins on virtually all facets of shipping aside from cost. Value is no longer a priority, cost efficiency is king.
To Scale or Not to Scale, That is the Question
Currently ocean carriers and ports alike focus on available capacity and rock-bottom rates. Unfortunately, added value has taken a backseat during these cost-austere times. The current landscape is far too competitive to take any action on the value creation argument, but looking forward the industry is inevitably going to see a demand for better service, niche ports, and more flexibility. This leads the industry to question its own motives for focusing on economies of scale.
Smaller, Faster, Smarter
Congestion, at all levels, is a main concern for logistics professionals. The shift to cost-effective economies of scale has led to local congestion, stress on resources, and overall compromised equipment – which amplifies the challenges to local port communities and the environment. According to a July, 2015 report released by the Federal Maritime Commission (FMC) “…the elimination of congestion is today’s most critical and relevant trade-related issue.”
The market is shifting; demand for smaller, faster, smarter delivery models are on the rise. Scale has replaced service, ironic for an industry prized for its highly complex service-oriented roots. The elimination of product and service options has created a black hole of value – industry professionals are starting to ask: ‘where’s the value?’ Herein lies the solution, rid the system of unsustainable growth patterns, stop trying to be everything to everyone, and divert a large portion of traffic to well-equipped niche-specific ports and routes.
The industry will be healthier, and value-added, given the opportunity to diversify market share for smaller, smarter, efficient ports and vessels. Performance and value will overtake perceived economies of scale, once demand for value rises again.
Dedicated to keeping abreast of our rapidly changing industry, our team at Jaguar Freight Services is here to help you every step of the way. Get in contact with us today to explore more supply chain solutions.
More often than not, transporting commodities internationally includes traveling through oceanic routes on container freighters. Third party logistics providers, freight forwarders, and brokers alike are all too familiar with the levies imposed on the long voyages of international trade.
Understanding ocean freight rates and the ways and means of its applicability is important because if a shipper undertakes to transport goods without proper knowledge, this could have a huge impact on the landed cost of their goods.
We aim to demystify the intricacies behind ocean freight rates. At Jaguar, we value transparency every step of the way. We’ve rounded up 5 main factors that affect ocean freight rates:
Bunker Fluctuations: Bunker fuel is a considerable cost for crude tanker companies. Closely related to the cost of oil, there is a direct relationship with the cost of oil and the cost of bunker fuel and therefore the ultimate cost of freight. When oil prices rise and fall within international markets, there is a direct impact on freight rates. The volatility of oil prices is correlated to fluctuating international ocean freight costs.
Seasons: For many goods, especially reefer cargo, seasons plays a large role in the cost of transportation. Some goods become more expensive to ship during high seasons, due to demand and supply changes. Inclement weather can cause many smaller ships to be docked, decreasing supply while demand increases, spiking shipping fees.
Fees and Service Charges: Terminal fees are charged both at the embarking point, and the intended destination. During Hanjin’s bankruptcy, many of their ships were stuck out at sea due to the inability of the company to pay the terminal fees. Services charges can be any extra charge levied by port authorities.
Currency Fluctuations: The U.S. dollar is the common denomination used for international transactions, however, the currency exchange rates fluctuate on a daily basis. This fluctuation can be a basis of fluctuating ocean freight rates.
Container Capacity: Shipping containers are designed to operate at maximum capacity. Should the container not reach optimum capacity, ‘economies of scale’ come into play, wherein the shipper becomes responsible for the cost of the empty part of the container although the quantity of actual goods shipped is less than what fits in the container. It is therefore vital to get as close to 100% container utilization as possible.
Ocean shipping is a complex operation, often requiring established business relationships with parties on both ends of the shipping and receiving spectrums. Our team of logistics specialists has deep and current knowledge of international supply chain management. Get in contact with us today to explore more supply chain solutions.
In January, the Trump administration announced they are considering a 20% tax on imports, starting with Mexico, that would help finance the building of a border wall between the US and Mexico. This inevitably sparked a flurry of conversation among economists and in logistics circles. International trade laws greatly affect logistics across all channels.
Mexico is currently the U.S.’ third largest partner in the trade of goods, and serves as a prime example of the implications of new taxes imposed on imports. William Gale, co-director of the Tax Policy Center, says “the irony of putting a tariff on Mexican goods is that, to the extent it raises consumer prices in the U.S., consumers will be paying for the wall, not Mexican producers.’’ Mexico is also the U.S.’ second-biggest provider of agricultural products, with imports of $21 billion in 2015; a 20% tax will increase the risk of inflation on essential goods sold within the U.S.
Tom Stenzel, President and CEO of the United Fresh Produce Association said: “Consider the impact on American consumers of a 20% hike in the cost of foods such as bananas, mangoes and other products that we simply cannot grow in the United States. Consider also what other countries would do to block U.S. exports in retaliation.” Aside from the risk of inflation, there is the risk of retaliation from U.S. trader partners. Should Mexico retaliate the imposed taxes, the U.S. would surely suffer in terms of increasing the trade deficit, as Mexico is the third largest importer of U.S. goods.
Ethan Harris, chief US economist at Bank of America Merrill Lynch said: “Imposing tariffs, border adjustment taxes, or other protectionist measures will only reduce gross trade flows, without necessarily reducing the US deficit because trade deficits are related to the intertemporal consumption decision of a country rather than to trade agreements.” The repercussions are clear, imposing a tax on our neighbor will inevitably create a chaotic trade imbalance on U.S. soil, and internationally.
Our team of logistics specialists 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 website.
It’s hard to say what we can expect to see in 2017, especially after the tumultuous year that was 2016. Consolidations, supply and demand imbalances, bankruptcies, and new regulations ran rampant last year, but will the logistics industry see an improvement in 2017?
We’re writing a three part series of what to expect in 2017, in this first part of the series we’re examining consolidation and regulatory changes, next month we’ll explore rates fluctuation and demand predictions, followed by policy changes and international instability.
It’s safe to say 2016 was the year of consolidation, but will that trend continue into 2017? Hanjin’s collapse shocked most people, sending waves of disruption that inevitably affected the entire industry. With the carrier’s collapse, the mergers of Cosco and China Shipping, CMA CGM and APL, Hapag-Lloyd and UASC, and Maersk Line and Hamburg Süd, we can’t help but ask when is it going to end? The driving force behind consolidation is the delivery of new, large vessels followed by a drop in demand, this outpaced growth to demand ratio is forcing immense shipping companies to consolidate or perish. Logistics experts are eager to see the rates go up to sustainable levels, otherwise 2017 will be full of Hanjin-like scenarios. Looks like consolidation is here to stay, at least in the forms of mergers, acquisitions, or complete sell-offs.
Worldwide, regulatory changes are inevitably happening on a constant rate, with the incoming government administration changes in the United States, we can expect a substantial amount of change on the horizon. The new administration is reconsidering NAFTA, freight infrastructure, and trucking regulations. JOC is organizing a webcast on what to expect, so check it out. What we do know about regulatory changes moving forward is the trucking industry may face disruption as the electronic logging mandate could limit capacity, ultimately leading to a driver shortage. With port congestions, and limited driver capacity, 2017 may be a year of frugal yet innovative new shipping practices.
Our team of logistics specialists 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 website.