Logistics Report: Bracing Container Lines; Electronics Supply Chains; Raising Oil Risks

Date: Wednesday, May 15, 2019
Source: The Wall Street Journal

Container shipping lines may be in the line of fire in the escalating U.S.-China tariff battle. The levies due to increase on June 1 include electronics, furniture and a long list of consumer goods that are the backbone of container transport, the WSJ Logistics Report’s Costas Paris writes, leaving operators in the sector bracing for a hit to trans-Pacific demand. London-based shipbroker Braemar ACM has already cut its forecast for container demand growth this year to roughly half of last year’s gain, and operators may reduce capacity if trade volumes turn downward. Operators got a boost last year when importers pulled goods forward to get ahead of earlier tariff increases. But U.S. warehouses now are stocked up, with the retail inventory-to-sales ratio recently reaching its highest level in 21 months. Bulk carriers may see a shift in trade flows but expect overall demand to remain steady.

Electronics supply chains already stressed by changing consumer purchasing patterns are getting hit with another shock. New tariff increases proposed by the U.S. and China would pinch technology companies in both production and consumer sales, the WSJ’s Yoko Kubota and Julie Wernau report, potentially affecting business on both sides of the Pacific. The proposed U.S. tariffs would hit finished technology products such as smartphones and smartwatches. Meanwhile, China-ordered tariff hikes of as much as 25% affect some components, including semiconductor packaging materials and certain types of displays. Some companies already are acting on contingency plans. Swedish telecom-gear maker Ericsson AB is preparing to shift some China manufacturing out to the U.S., Estonia, Brazil and Mexico. And Taiwan-based AsusTek Computer Inc. has been moving some production bases to Taiwan and Vietnam from China to limit the impact of a U.S. tariff increase on motherboards and graphic cards.

 

Commodities

Shipping oil in the Middle East could get much more expensive. Recent attacks on Saudi Arabian oil tankers and pipelines are set to increase the cost of insuring and securing crude shipments in the Persian Gulf region, the WSJ’s Benoit Faucon and Summer Said report. The latest attacks came when armed drones damaged a major pipeline run by Saudi Aramco, just days after small explosions hit Saudi tankers in the United Arab Emirates’ oil hub of Fujairah. The attacks signal heightened risks to transport through the region, where the U.S. is sending an aircraft carrier to protect the Persian Gulf’s Strait of Hormuz, which sees a third of the world’s liquefied natural gas and almost 20% of total global oil shipments. The tensions at a key oil transit point will also push authorities and shippers to increase security measures, added costs likely to be passed to consumers.

 

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