11/13/2018

The Impact of Trade Tariffs on Supply Chains

Boat

The Trump administration announced several rounds of tariffs last spring and as they become formalized, supply chains across the U.S. are feeling the effects. The administration recently implemented a 10 percent tariff on $200 billion worth of Chinese goods, which began on September 21, and plans to apply a 25 percent tariff on $50 billion worth of Chinese imports on March 1, 2019.1

What Markets Will the Tariffs Affect?

The Port of Los Angeles, the nation’s largest container port, expects the tariffs could affect up to 15 percent of all cargo it handles.2 The $200 billion worth of Chinese commodities that are subject to the tariffs include aluminum and various metals, various food items, mineral fuels and oils, inorganic chemicals, textiles, vehicles and parts, and more.3 However, the new tariffs will indirectly affect every industry due to tightened capacity, increasing supply chain costs, and longer production lead times.4

The Effect on Supply Chains

  • Ocean and air: Chinese imports account for almost half of container imports moving through U.S. ports,5 and the 25 percent increase in tariffs is predicted to be devastating for many importers, some of which have no choice but to revamp their supply chains for rest of the year.6 Currently, the rate to ship an ocean container from China to the U.S. is approximately twice as high as it was this time last year.7
  • Transportation: There was an 8/2 percent year-over-year increase in the September Cass Shipments Index. While signaling a strong economy,8 the surge caused by impending tariffs could have impacted the index as well.
  • Warehousing: With capacity, already tight due to labor shortages, shippers across the U.S. are trying to get as much inventory into their domestic warehouses as possible.9 According to CBRE, the amount of available warehouse space in the U.S. fell to 7/1 percent from July to September for the 33rd straight quarter.10

Shippers Rush to Import Goods, Leading to Tighter Capacity

Exporters are rushing to ship cargo before the new tariff is implemented on January 1 to save costs, and therefore, ports are experiencing much higher than normal freight shipment rates.11 This September, the Port of Los Angeles imported 801,264 TEUs,12 compared to last September at 763,784 TEUs13 – a 4.91 percent increase due to the new tariffs.

Right now, it’s important to secure reliable end-to-end solutions to ensure capacity. Now is the time for shippers to work closely with a strategic 3PL. By utilizing 3PL services during these unprecedented times, shippers will be able to utilize their assets as an extension of their own.

 

Sources

  1. https://www.logisticsmgmt.com/article/how_will_the_tariff_war_with_china_affect_u.s._container_ports
  2. https://www.wsj.com/articles/trade-tariffs-could-push-shipping-to-the-edge-1531159351
  3. https://www.businessinsider.com/trump-china-trade-war-list-of-goods-tariffs-2018-9
  4. https://www.joc.com/maritime-news/trade-lanes/trans-pacific/us-importers-warn-jan-1-tariffs-will-crunch-supply-chains_20180920.html
  5. https://www.logisticsmgmt.com/article/how_will_the_tariff_war_with_china_affect_u.s._container_ports
  6. https://www.joc.com/maritime-news/trade-lanes/trans-pacific/us-importers-warn-jan-1-tariffs-will-crunch-supply-chains_20180920.html
  7. https://www.wsj.com/articles/shippers-brace-for-orders-surge-ahead-of-potential-new-tariffs-1540919850
  8. https://www.cassinfo.com/transportation-expense-management/supply-chain-analysis/cass-freight-index.aspx
  9. https://www.joc.com/maritime-news/trade-lanes/trans-pacific/us-importers-warn-jan-1-tariffs-will-crunch-supply-chains_20180920.html
  10. https://www.wsj.com/articles/shippers-brace-for-orders-surge-ahead-of-potential-new-tariffs-1540919850
  11. https://www.joc.com/maritime-news/trade-lanes/trans-pacific/us-importers-warn-jan-1-tariffs-will-crunch-supply-chains_20180920.html
  12. https://www.portoflosangeles.org/business/statistics/container-statistics/historical-teu-statistics-2018
  13. https://www.portoflosangeles.org/business/statistics/container-statistics/historical-teu-statistics-2017