The evolution of President Trump’s trade policies was the main focus for our readers in January. The potential renewal of the GSP, but excluding India, was the most read report while our review of his first year in office – with 26 specific trade actions identified – came in fifth. Firm policy action by the administration continued during the month. There was a decision on the section 201 reviews of washing machines and solar panels having been taken and a phone call between President Xi and President Trump that set the groundwork for future U.S. tariff action. Indian trade policy actions, particularly with regards to “Make in India” tariffs were another highlight. The potential for consolidation in the freight forwarding sector came to the fore after comments from K+N’s chairman followed a record year in U.S.-inbound activity. Meanwhile CH Robinson and Nippon Express reported better-than-expected results. Finally, the most read element of our 2018 Outlook was the “Black Swan” risk assessment – watch out for conflicts, a border wall, labor disputes and mergers to spoil an otherwise bright start to the year.

#1 Trump’s GSP renewal could leave India out (Jan 4) The Generalized System of Preferences allows duty free imports of 5,000 products to the U.S., with India the largest beneficiary. It has now lapsed, and while the Trump administration is expected to renew it, there may be adjustments. India has  $23 billion trade surplus with the U.S., though only 14% points of the top 65% of its exports are eligible. One alternative is to target specific products for exclusion including auto-parts or aluminum.

Chart segments Indian exports to the U.S. by product (HS-4 for top 200 lines) for the past 12 months. Orange labelled dots are examples of GSP-eligible products. Source: Panjiva

#2 K+N looks east for deals, but has competition (Jan 8) K+N’s Chairman, Joerg Wolle, has indicated the company is looking for bolt-on deals in Asia. That would put it in competition for assets with Panalpina and DSV, though a wide range of consolidation in the fragmented forwarding industry is needed. Potential targets on Asia-U.S. routes would include Kerry Logistics, Orient Express or Honour Lane among larger firms, while mid-sized operators include Hecny or De Well.

Chart segments U.S. inbound seaborne shipping from Asia by port of lading and NVOCC SCAC. Data shown in TEUs for last 12 months. Source: Panjiva

#3 Action on metals possible after Trump-Xi call (Jan 17) A phone call between President Xi and President Trump included a discussion of how to address the trade imbalance between the two countries. Xi called for a continued economic dialogue, while Trump referred to the deficit as being “not sustainable”. That heightens the likelihood of increased U.S. tariffs in the context of the section 301 review of Chinese IP practices. Should the President wish to avoid hitting consumer goods, the largest Chinese export lines to the U.S. where tariffs could be applied include base metals ($12 billion) and plastics ($13 billion).

Chart segments top 200 Chinese exports to the U.S. by product category (HS-4).   Source: Panjiva

#4 201 down, 6 to go (Jan 22) President Trump’s willingness to take action on consumer goods was proven a few days later when he applied tariffs of up to 50% on washing machine imports and 30% on solar panels under the section 201 “safeguarding reviews” of each product. Manufacturers of both had raced to build inventories, with washing machine imports in the fourth quarter being 194% higher than in the first, and solar power equipment 199% higher.

Chart shows U.S. seaborne imports of washing machines (8450.20) and solar cells/modules (8541.40). Source: Panjiva

#5 26 actions taken, deficit still rising (Jan 18) One year on from the inauguration we identified 26 specific actions on trade policy taken by the Trump administration ranging from renegotiations of trade deals, new trade cases of varying stripes (see above) as well as several items left on the to-do list. Yet, while the President has kept his promise to act, the trade deficit has continued to grow and breached $50 billion for the first time in November since January 2012.

Chart compares the U.S. goods deficit (exports less imports) to the total trade deficit including services. Calculations include U.S. Census Bureau data. Source: Panjiva

#6 Black swan risks for 2018 (Jan 5) Out of the eight reports we published in our 2018 Outlook series it was the attempt to spot low-probability / high-materiality risks for global supply chains that got the most attention. Conflicts in the South China Sea or Middle East worry us most, while a simultaneous NAFTA failure / border wall combination could have more mundane but still expensive consequences. Port labor disputes in response to automation plans could strike later in the year, while mega-mergers in the container-line space are still a possibility if profits don’t recover.

Chart segments Chinese exports to countries that require shipping access via the South China Sea by product (HS-4) for the past 12 months. Source: Panjiva

#7 CH Robinson bests Nippon Express (Jan 31) The freight forwarders’ 4Q earnings may be better than anticipated, with both CH Robinson and Nippon Express reporting higher revenues than expected (CH Robinson did slightly better) and profit margins inline with analysts’ forecasts. Yet, both are below the industry average 11% EBITDA margin. The main risk remains a price war that could be triggered by the U.S. tax reform’s impact on corporate tax rates.

Chart compares EBITDA margin (earnings before interest, tax, depreciation and amortization) for freight forwarders. Total includes companies shown plus CH Robinson, K+N, Panalpina, Fedex, Deutsche Post, JB Hunt and XPO Logistics. Calculations based on company financial statements and average analysts’ forecasts gathered from Bloomberg on Jan 3 2018. Source: Panjiva

#8 Record 2017 volumes for forwarders (Jan 11) Freight forwarders had a record 2017 in terms of U.S.-inbound seaborne freight with a 4% rise in December. Orient Express was the most aggressive in expanding in December (16% higher) while Expeditors took a step back (down 1%). That took Orient Express up three places to third in the volume rankings. Our full year trade-lane analysis showed only Expeditors and K+N have more than a handful of top three ranks, indicating the degree of fragmentation and need for consolidation in the industry.

Chart shows ranking of NVOCCs by U.S.-inbound trade lane. Source: Panjiva

#9 Make-in-India comes to the fore (Jan 25) The Indian government announced, or was reported to be ready to implement, several protectionist measures to support the “Make in India” strategy in January. We covered the phenomenon in a series of reports, including an analysis of how it could spoil an attempt to build relations in the ASEAN region. At particular risk are relations with Singapore, Thailand and Vietnam on the basis of their consumer electronics exports to India.

Chart segments Indian imports by country of origin and product (HS-4). Source: Panjiva

#10 NAFTA to die another day (Jan 30) The sixth round of NAFTA talks was to have proven pivotal, and needed an agreement on automotive rules-of-origin to avoid a U.S. withdrawal. Yet, the three parties appeared to consider negotiations beyond the previous March deadline, leaving the process free to continue for now. The U.S. rejected Canada’s suggestions on altering the weightings used in ROO calculations, casting doubt over the supply chains of General Motors and Fiat-Chrysler in particular.

Chart segments Mexican imports of automotive parts by consignee and shipment origin. Source: Panjiva