The increase in tariffs from 10% to 25% may be on hold but there is still little sign of an overall de-escalation in terms of the full trade war between China and the United States. As a result, there is a rush of last-minute U.S. imports from China in an attempt to beat the new costs that January is going to bring.
Unlike the changes to the North American Free Trade Agreement, there are few avenues for China to still save face and the United States to achieve concessions they so badly want. As the frustration between the U.S. and China continues, along with the tech theft from state-owned enterprises, both parties will hurt, but especially shippers.
What Experts Say
Experts are all in agreement that there’s not going to be some sort of grand bargain in the end where the extra taxes are removed and everybody goes back to the way they were. Right now the important problems are not going to change even if temporary measures are put into effect. Currently, there is a pause on the implementation of yet another increase in tariffs but that alone is not going to resolve the overall trade war.
Retailers and other businesses are still currently fighting to figure out how much of this increase in cost they can put on to their customers. They have to look at how their competition is sourcing products to figure out how much their competitors are going to change prices as well. This type of measuring means that prices for items sold in the year 2019 can’t necessarily be increased so the main point of impact is going to be 2020.
Other experts agree that long-term there is still a huge question mark hanging above everyone’s head and this uncertainty is causing many businesses and consumers to worry about whether goods will become substantially more expensive and how many customers will be lost as a result. The agreement among experts right now is that they’re likely will not be a large shift in sourcing from China to other areas of Southeast Asia over the next two years.
Shippers note that it will take at least two years to shift production to two different sites that are nearby. This means that carriers can’t shift their capacity next year alone from China to neighboring countries like Bangladesh or Vietnam and obviously the two-year mark from now, 2020, is the main source of customer and company apprehension.
Higher Costs for Shippers
Given that companies cannot move there sourcing immediately, the lack of dramatic changes in the immediate future means that shippers are going to be forced to pass on increased costs to their customers. As goods and gasoline start to increase in costs shippers will have no choice but to force consumers to pay for that cost at which point consumer confidence might start to dampen, the results of which are going to decelerate trade. As it stands now, carriers can enjoy spot pricing power for these final few days of the year and that is what has contributed to a tremendous amount of increased volume over the last few months.
But no doubt 2019 is really the point of no return after which point people will not be able to take advantage of knowing ahead of time what costs are going to fall upon their shoulders. For now, Imports have increased roughly 4.5% from 2017. Carriers are managing to restock before the Lunar New Year celebrations to try and beat the contract negotiations that could result in higher costs to shippers. It seems at any given point shippers have to be on the lookout for an increase in costs and subsequently change how they charge customers.
What Retailers Expect
Retailers are dealing with the potential loss of confidence in the retail markets. As it stands, those who are aware of the timing and severity of the changes between trade rules are taking advantage of that, they are attempting to increase the amount of volume ordered, trying to get as much as they can before that deadline approaches.
Retailers are also trying to make concessions for what they’re going to have to charge their customers and what impact that could have over the long-term. More to the point, retailers have to worry about long-term sustainability. In certain situations, the increase in costs simply might not be something that can be passed on to customers. Customers may not be willing to pay that at which point retailers are simply out of luck.
How This Affects Shippers
So far, carriers and alliance partners have been able to match the demand of retailers trying to get as much as they can before this 2020 deadline. But shippers have faced restraint in the number of extra loaders they can deploy. Capacity constraints have come as a result of miscalculating the initial impact that higher fuel costs combined with increased taxes would have.
In fact, there were two times as many blank sailings in the third quarter of this year as there were in the same stretch of time during 2017. As these changes take place shippers are frustrated because they’re contracted cargo has been rolled or it has been pushed onto later sailings because things were simply booked. This means that shippers have had to renegotiate for slots as the peak season expanded and retailers suffered by extension.
As of now the ability of carriers to discern when their volume will become scarce is starting to manifest as a serious challenge. No doubt with 2019 set to be the point of no return, there will be a great deal of fluctuation in a panic to follow over the course of the next two years as negotiations with China and the U.S. continue.