EnThe GSP has been approved by the House, but may need stripping down in terms of countries and products to be approved by President Trump. We preview Prime Minister Trudeau’s visit to India – don’t expect a big trade deal. COSCO is doing well in California, but the market overall is slowing. Also: India’s export performance; Mexican beer’s NAFTA risks; Brazilian soybean prospects; Apple’s NAND flash sourcing plans; Hong Kong’s automation; the (very long term) future of shipping automation according to Maersk; EU-Mercosur talk prospects; and the prospects for U.S. LNG growth.
Daily Datum: $89 billion
Chinese imports of memory chips in 2017
NEED TO KNOW
GSP-Lite May The Way Ahead for President Trump, Eventually
Approval of the U.S. Generalized System of Preferences renewal by the House should open the door to a return of lower tariffs for emerging markets. Yet, the bill will need Senate and Presidential approval. The latter should not be taken as a given. President Trump does not appear to be “anti-GSP” – he allowed Argentina in during December. Yet, imports have increased steadily with a 9% rise in seaborne imports in 2017 from the countries covered by GSP.
The President could choose to exclude countries with large trade surpluses vs. the U.S. , which would be inline with broader trade policy. Six GSP countries (led by India India) had a $85 billion surplus in 2017, which had risen 7% annually for the past five years. Taking those out, alongside the Balkan states that are heading into the EU, could cut GSP seaborne shipments by 57%.
Removing politically sensitive products is another possibility. Of the remaining imports after those 12 countries are taken out, 7% of imports are car parts and 6% are steel or aluminum-related. With plenty of other trade policy irons in the fire though, the President may not be in a hurry to act on GSP.
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Source: Panjiva
Trudeau’s India Trade Trip May Slip On Peas and Other Tariffs
Prime Minister Trudeau’s week-long trip to India will include conversations about trade with Prime Minister Modi, but are unlikely to move a Canada-India FTA forward. Procedurally Canada is part of the CPTPP and India is in RCEP, complicating relations within Asia. Trade between the two certainly needs a spur though, with import and export growth rising by just 4% in 2017 vs. 2016 vs. a 10% annualized growth since 2012.
Another challenge is India’s increasing use of tariffs – both on imports and exports – which may put a crimp in Canadian exports. One example relates to dried peas, where Canada is the second largest supplier to India. Other products, outside energy and food, in which Canada is a significant exporter to India include fertilizers (9% of imports in the past 2 years), forestry (8%) and aerospace (2%).
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Source: Panjiva
COSCO and CH Robinson Crush MSC and Expeditors in Slower Cali Container Market
Container handling at California’s big three ports climbed 4% in January, the 11th straight month of expansion. Patterns established in late 2017 continued. Imports (up 4%) outperforming exports (down 2%) while Long Beach (which climbed 13%) did better than Los Angeles (off by 2%) and Oakland (4% higher).
Among container-lines and forwarders the competition for inbound volumes to California remained fierce. The combined COSCO Shipping and Orient Overseas would have increased volumes by 37% and CMA-CGM climbed by 17%. That came at the expense of Evergreen (down 1%) and MSC (3% lower). Similarly for the forwarders – where consolidation has yet to become a factor – CH Robinson’s volumes surged 36% higher than a year earlier and Apex rose 11%, overcoming Expeditors’ 2% rise.
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Source: Panjiva
GLOBAL TRADE WRAP
Coming back to India, the expectation of increased tariffs may have partly driven a 27% surge in imports on a year earlier in January. While commodity shipments certainly contributed with a 41% increase, machinery imports also increased by 27%. The rise in imports resulted in the largest trade deficit since May 2013. (Panjiva Research – Policy)
A potential loser from regulatory conflict elsewhere could be Mexican beer, the leading import for the U.S. according to Beer Institute figures. Total exports from Mexico climbed 37% higher in 2017 to reach $3.9 billion. However, the industry is highly dependent on the U.S. with 83% of exports heading there. At the same time demand from other markets including Australia (down 44%) have been in decline. Constellation Brands accounted for 64% of U.S.-bound shipments in 2017, and so is exposed to risks from NAFTA negotiations and / or tighter border controls. (Panjiva Research – Industries)
It’s often suppliers in a third country that win from trade conflicts, however. Brazilian farmers look set to increase their soybean exports after post-Carnival break prices reached the highest in two months. Exports climbed 36% in 2017 to reach 69 million tons. They could rise further in 2018 if China implements a trade investigation of U.S. exports. China already accounted for 74% of shipments from Brazil last year. (Panjiva Research – Industries)
Supply chain decisions can sometimes involve a mix of commercial and political requirements though. Apple may be considering buying NAND flash memory chips from state-supported Yangtze Memory. The potential move comes as demand for semiconductors in China has surged on the back of a 15% rise in PC exports and 10% increase in mobile phone shipments in 2017. That led to a 39% surge in memory chip imports to reach $89 billion for the year. The biggest losers from increased internal sourcing would be South Korea (20% of supplies) and Taiwan (9%). (Panjiva Research – Industries)
The changing structure of China’s trade economy means there is little rest for the country’s ports, many of which are in the throes of automation. The most recent is Hong Kong International Terminal (HIT) which has automated its Terminal 9 facility while continuing operations. There is a question as to whether more capacity is needed though. While Hong Kong in total increased handling by 6% in the 12 months to January 31 it had fallen 4% annually since 2012. (Panjiva Research – Logistics)
On the topic of automation, fully autonomous container vessels aren’t likely for quite some time according to Maersk CEO Søren Skou, noting they are not a key part of the firm’s investment or efficiency strategy. That’s not a big surprise from a technological perspective. The long-lead time for new builds and asset lives (even with retrofitting) makes for a decades- rather than years-long proposition for widespread adoption. During the coming year the shipping industry’s investment focus will more be on port automation – as flagged above – and administrative efficiency as highlighted in our 2018 Outlook for logistics technology. (Bloomberg)
Returning to Brazilian agriculture, the next round of EU-Mercosur talks next week will center on an attempt to overcome disagreements on market access. A “political agreement” is possible in March with a “framework” deal due later, according to Brazilian Foreign Minister Aloysio Nunes. That suggests talks – just one of several the EU has in progress as outlined in our 2018 Outlook for global trade policy – could continue for much of the year. (Bloomberg)
The next round of growth in U.S. LNG exports looks set to get underway, with the LNG tanker Methane Spirit having set sale from Japan to Dominion Energy’s Cove Point terminal. It will likely pick up the terminal’s first LNG shipment at the end of March. As outlined in our 1/31 analysis, LNG exports are a central part of the Trump administration’s energy and trade strategies. Yet, shipments to China may suffer the consequences of worsening trade relations between the two countries. (Marine Traffic, MarineLink)
