The Quarterly Forecast


 A range of global issues continue to create uncertainty amid fears of an economic slowdown. However, a disappointing “peak season” for shipping may have more to do with improved technologies and processes than the impact of trade wars.


Joe’s View

Executive Summary by Joseph Barry, President & Founder

Joseph Barry

Ongoing trade war tensions between the United states and China continue to create uncertainty and add to fears of a global economic slowdown. However, recent negotiations between the Trump administration and China provide some hope that upcoming tariffs affecting approximately $160 billion in goods may be avoided.

Although August through October typically marks peak season for shippers, third-quarter intermodal volumes have seen their sharpest decline since 2016, as predicted in the previous CAF quarterly forecast.

Current-US-Import-Tariffs-on-Chinese-ProductsChina Tariffs

The United States levied a 15-percent tax on a combined $120 billion of Chinese imports (List 4A) in its latest round of tariffs. A second list of products, worth approximately $160 billion, is slated for the same 15-percent import levy come December. This latest salvo in the continuing trade war followed a series of tweets from President Donald Trump in which he ordered U.S. companies to move manufacturing out of China and urged companies such as FedEx to search Chinese shipments for Fentanyl, a synthetic opioid.

Implementation of List 4B tariffs was delayed until Dec. 15 amid concern that it would negatively impact holiday shoppers, especially those hunting for electronics. The combined lists include all apparel, footwear, and manufactured textile products, among others, but exclude specific medical and pharmaceutical goods, rare earth materials, and critical minerals. The administration also suggested that it may still be possible to avert the 4B tariffs altogether, if a new trade deal with China can be struck in the meantime.

While affected supply chains are certainly sourcing elsewhere or moving resources outside of China, the tariffs associated with these goods are still very new and many importers who believed apparel goods were safe from tariffs were not prepared. Since wearing apparel is a difficult industry to suddenly pick up and transport en masse, the tariffs may force the industry to identify long-term changes in that sector of international shipping.


Will the trade war be resolved ahead of the next round of tariffs? Well, recent history suggests a resolution in the near term is quite unlikely. China may be counting on President Trump leaving office before his first term is up and hoping his successor would be more amenable to ending the prolonged trade dispute.

There are signs of tensions thawing, however. The United States and China have held high-level discussions and there were reports of a “phase one” agreement, but the details remain unclear. The fact both leaders have been talking does allow for some optimism that something will get done to relieve tensions. China is being hurt more than they are willing, or permitted, to admit through their media outlets. The tit-for-tat tariffs are affecting China as much as, if not more, than they are impacting the United States. One major difference, however, is that the Chinese government can toe the line on messaging, which makes it difficult to say with any degree of certainty what the endgame will look like, or when it will come to fruition.

Are Weak Peaks the New Normal?


Synopsis:  Although August through October has historically marked peak season for shippers, third-quarter intermodal volumes have seen their sharpest decline since 2016, as predicted in the previous CAF quarterly forecast. However, ongoing challenges and tariff-related disruptions to the normal business cycle may not account for the drop; improvements in technologies around supply chain management, inventory tracking, and demand prediction may also be playing a role in flattening out these historical peaks, along with shifts in consumer behaviors.


The Breakdown

  • Compared to the same period in 2018, intermodal traffic dropped 4.6% in Q3 of 2019.
  • The lack of a true “peak season” may be part of a systemic change in the industry. In the past, importers moved a ton of cargo in the months leading into the key Christmas shopping period. However, with more sophisticated supply chains, both components and manufactured goods can be imported more evenly throughout the year, meaning the holiday rush may well become a thing of the past--at least in the shipping industry.
  • This seasonal shift isn’t completely new. Looking back to 2017 and 2018, we didn’t see the kind of well-defined peak seasons that were common as recently as 10 or 15 years ago.
  • Of course, it’s impossible to overlook the impact of tariffs completely. Even with the aforementioned shift in the cycle, it’s clear that volumes are out of sync with demand in the consumer cycle. That’s not to say that imports are down. Part of the drop we’re experiencing now—and will continue to experience throughout the quarter—is due to frontloading earlier this year as importers raced to stock up ahead of the tariffs.


Debate Over Port Automation Gets Political

Synopsis:  Election season has exacerbated passionate discussion surrounding plans for further port automation and its supposed negative effects on union laborers. United States and Canadian governments will be forced to respond to pushback against increased automation of work previously handled by humans amid a significant decline in union membership. Although the decision to automate is ultimately between the employer and labor, government support for longshore workers could have a ripple effect on the greater labor market.


The Breakdown

  • The share of unionized U.S. workers was 10.5 percent in 2018 compared with 20 percent in 1985, according to the U.S. Department of Labor Statistics.
  • Labor unions have emerged as an election topic as candidates in the Democratic  primary jockey for support. Both Elizabeth Warren and Bernie Sanders have signaled their support for strengthening unions, while Andrew Yang has made headlines specifically citing the threat of automation as a high-priority issue that could bring on “Great Depression-level unemployment.”
  • After six months, the International Longshoremen and Warehouse Union (ILWU) was declared unsuccessful in blocking the automation of the Port of Los Angeles, the largest shipping terminal in the country. However, the Long Beach City Council has ordered officials to study the economic impact of automation on the city.
  • The National Defense Authorization Act is proposed legislation that would authorize a $600 million Maritime Administration grant program. There is language in the proposed legislation that would block funding from going toward “fully automated cargo handling equipment that is remotely operated or remotely monitored with or without the exercise of human intervention or control,” if the secretary of the transportation department determines it will cause a net loss of jobs relating to port and rail operations.
  • Union laborers should rest assured knowing marine terminals in the United States and Canada will only consider automation when physical limitations force them to optimize their procedures. That said, they should also be aware that their employers’ labor contracts allow them to automate as needed. For example, the ILWU’s contract explicitly allows for full terminal automation. The International Longshoremen’s Association’s (ILA) contract specifies semi-automation on the United States’ East and Gulf coasts.


Trade Lane Notes

Insights from Torie Coleman, Director of Operations

Torie Coleman


Air cargo continues to slump heading into the quarter, while blank sailings are on the rise. These may indicate smoothing of demand following pre-tariff frontloading, but both metrics bear watching.

World Container Index: Assessed by Drewry, $/40ft container
Source: The World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to/from the United States, Europe, and Asia

The Breakdown

  • According to the International Air Transport Association (IATA), August signaled the 10th consecutive month of declining air cargo volume. Global demand declined by nearly 4% and the Asia-Pacific air freight demand dropped by 5% compared to August the previous year.
  • Blank sailings are coming. Carriers are not enjoying the same boon in spot prices that they experienced last year due to the influx of cargo that was frontloaded ahead of jarring tariff increases and the holiday season. Additionally, U.S. imports from China fell for the fifth consecutive month in September, tumbling 9.3 percent year-over-year, while overall imports from Asia grew just 0.6 percent. Combine this with a nonexistent peak season and voila!—more blank sailings. Speaking of which, there were 37 blank sailings in October and November, to be exact.


Global Economic Forecast


The IMF indicates that global growth is slowing, while trade wars are costing the average U.S. household around $800 annually. In response, the Fed has cut interest rates to try to alleviate the blow on domestic businesses.


Following public scrutiny from President Trump, who has been calling for deep cuts in interest rates to alleviate the blows of his trade war on domestic businesses, the Fed cut interest rates for the second time in seven weeks, reducing the rate by a quarter point, from 2.0% to 1.75%.

Despite reduced interest rates, the International Monetary Fund (IMF) recently warned that the trade war—among other factors—would result in the slowest global growth rate since the 2008-2009 economic crisis. The world economy is expected to grow 3% this year, down from 3.2% predicted in July, with the 2020 estimate lowered to 3.4% from 3.5%.

Research by the Federal Reserve Bank of New York suggests the trade war will cost the average U.S. household more than $800 per year. That estimate was released prior to the most recent tariff increases, which affect such consumer products as children’s toys, smartphones, wearing apparel and footwear.

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