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PEAK SEASON\\\ >> 22


100% capacity and


space allocations are


tight,” said Kevin Krause, vice president of ocean services at SEKO Logistics. “Some ocean carriers


are quoting five-


hundred dollars per container above the spot rate to get freight moving within a week.” That may be because, as


Downes put it, “spot bookings are being rolled, and in some cases rolled for multiple weeks in a row. This makes the peak season very risky for a lot of importers.” “We’ve seen importers


prioritizing freight, making sure that the most critical products


are getting here


early,” Krause added. The tight capacity, he also noted, has been due also to the carriers’ having removed some tonnage from the transpacific trades. Cosco has seen some of


its vessels overbooked this season, but that, along with the healthy spot market, does not necessarily spell positive news for the carrier, according to Finkel. “Almost everything we carry is based on service contract rates,” he explained. “There is hardly any contract where we have the ability to take a general rate increase.” In addition, fuel rates are on the rise, but, Finkel complained, fuel formulas in today’s ocean service contracts “do not capture the full cost of bunker” on behalf of carriers.


No Financial Relief


So, the robust peak season has not meant a great deal of relief for the financial woes of some ocean carriers. Finkel also frets


Issue 7 2018 - FBJNA


“We are currently seeing strong demand for shipping in 2018.” -- Eric Wilson, Delta Cargo.


both increased by more than 50% since 2009. Made-in-USA apparel accounts now for 2.8% of the US apparel market, and footwear—1.8%. In any case, notes Stephen


Cheung, president of World Trade Center – Los Angeles, it will be impossible to source many imported products domestically, and certainly not overnight. (See sidebar.) “You would first have to find investors, lease manufacturing sites, make improvements, receive approvals, train workforces, and establish networks for everything from


Delta Cargo is seeing strong demand for shipping in 2018. (Delta Cargo Photo)


23


Impact on Southern California


“The trade war is disrupting some long-term confidence in international supply chains.” So said Stephen Cheung, president of World Trade Center–Los Angeles. That organization and the trade community centered in Southern California have big stakes in those supply chains. The front-loading of this year’s peak shipping season demonstrates that many retailers


are fearful about


the prospect of passing along price increases to American consumers. (See main story.) “The Los Angeles area is


going to see price increases for consumer goods and decreases in demand. That’s going to have a negative impact on our local and regional economies. And what happens in LA is going to have reverberations throughout the country.” And it’s not only imports that are going to suffer. China’s retaliatory tariffs mean that US food exports will be more expensive in China. And the beginnings of US e-commerce exporting to China—to satisfy the cravings of a growing affluent class in that country


“The trade war is disrupting


some long-term confidence in international supply chains.”


-- Stephen Cheung, World Trade Center–Los Angeles


number one in the country for international trade,” said Cheung,


“and our number-


on rates. Also problematic for supply


chains is the ongoing shortage of trucking capacity in the US, which is being exacerbated by the early peak surge. “Shippers have pushed up their shipping by weeks and that has placed stress on supply chains,” said


“We are seeing a strong peak season for transpacific eastbound this year, with rate levels at multiyear highs.” -- Gordon Downes, NYSHEX.


implication tariffs


is of the the import possibility


that they will motivate manufacturers to produce more domestically. “We are seeing several examples of additional air exports due to manufacturing in the US,” said Delta’s Wilson. But, according to Herman,


stronger domestic sourcing of footwear and apparel in the US is a phenomenon that dates back a number of years and has nothing to do with the current tariffs. “People have been increasingly looking at


their sourcing matrices


and many are adding small percentages to domestic sourcing for the sake of fast product turns and better product replenishment,” he said.


“It’s a trend that been


that higher rates will motivate some carriers to flood the market with capacity, which would put downward pressure


Herman. “But I haven’t heard of any major disruption yet. We’ll have to see how it plays out.” Another


potential


going on for seven years and it’s happening separate from the tariffs. I don’t think tariffs are accelerating that at all.” Statistics provided by AAFA


show that US production of apparel and footwear have


packaging to distribution,” he said. “Everyone would love to see more manufacturing in the United States, but what will happen in the interim is the major challenge.” “The tariffs are also likely to


negatively impact domestic production,” added Herman, “as many of the textiles and other


finished products the


US exports and the materials and machinery imported for


production are either


currently being hit with punitive tariffs or are under consideration for tariffs.” Hopefully, by this time


next year, the world will have come to its senses and the saber-rattling over trade will be a thing of the past. In the meantime, it’s likely that many of this year’s holiday imports will not arrive in time to avoid


one trading partner is China. Additional tariffs may shake retailers’ commitments to two-way trade with China.” It’s not something that will necessarily play out this year. But Cheung noted that Los Angeles saw a spike in imports in the two months before


the initial Trump


tariffs hit, so it’s reasonable to conclude that the surge seen in July and August is related to the prospect that the president will impose further


tariffs on Chinese


imports, perhaps going as far as to tax the totality of inbound Chinese trade. “Longer term—and I hope this is not the case,” Cheung added, “if tariffs continue to be implemented we are


the current and coming tariffs. “Retailers are going to put the squeeze on their margins and take some of the hit,” Herman predicted. “But some of the costs will have to be passed on to consumers. There’s no way to avoid it.”


“Vessels are operating at 100% capacity and space allocations are tight.”


-- Kevin Krause, SEKO Logistics.


for American goods—may be stillborn. “There


are better ways


than tariffs to get a better trade deal with China,” said Cheung. One would have been to stay


in the Trans-Pacific


Partnership (TPP), a deal that Trump trashed in the early days of his presidency. “It would have been better to negotiate a fair deal with China with friends and allies,” said Cheung. “The US is in a weaker position now. I hope the administration will reconsider and revive the US role in TPP.” That doesn’t sound like much to hang one’s hat on. But given the Trump Administration’s penchant for unpredictability, it may not be out of the question either. – Peter Buxbaum


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