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.