Logistics Report: Scrambling Over Tariffs; China’s Parcel Target; Slowing Factory Output

Date: Monday, June 3, 2019
Source: The Wall Street Journal

U.S. importers are bracing for threatened tariffs on Mexican goods that would raise costs from farms to factories and scramble supply chains at some of North America’s busiest border crossings. Logistics and trucking companies say big shippers already are trying to figure out how to rush goods from Mexico into the U.S., an acceleration that could strain a congested border region marked by tight trucking and warehouse capacity. The rush for solutions comes after the Trump administration it would impose 5% tariffs on all Mexican imports starting June 10 unless Mexico stems the flow of undocumented migrants to the U.S. The tariffs would escalate by 5 percentage points each month, reaching 25% by October. The WSJ’s Sarah Nassauer and Heather Haddon report produce importers face tough questions, with margins thin and shipping timelines particularly tight. Excluding bananas, Mexico is the largest exporter of produce to the U.S.

Automotive companies face pressing financial and supply chain questions raised by President Trump’s threat to impose escalating tariffs on Mexican imports. Mexico-built cars accounted for 17% of Detroit auto makers’ overall U.S. sales in 2018, the WSJ’s Mike Colias and Adrienne Roberts report, and the U.S. imported more than $110 billion in vehicles and parts last year from Mexico. Automotive lobbying groups warned that tariffs on Mexican-built vehicles and parts would be passed on to buyers and dent car sales, hitting a pillar of the American economy. The tariffs are a blow to the industrial sector after many manufacturers saw Mexico as a potential low-cost refuge from the escalating tariffs that have hit goods produced in China. Even the initial 5% tariff could trim earnings by as much as 10% for the most exposed auto companies, and will have some weighing the costs of shifting their supply chains.

Economy & Trade

American parcel carriers are getting caught up in U.S.-China trade tensions. Chinese authorities are investigating FedEx Corp. over allegations it damaged the interest of customers, the WSJ’s Trefor Moss reports, in an ominous sign that a trans-Pacific dispute marked by escalating tariffs will start taking in broader business operations. Chinese state media reports said FedEx harmed customers by not making “deliveries according to the name and address” the intended recipients. FedEx last week apologized for mishandling packages for Huawei Technologies Co., the Chinese telecom giant at the center of an escalating confrontation between Beijing and Washington. The action comes as package carriers are vying for a bigger share of the growing cross-border e-commerce market. FedEx and United Parcel Service Inc. have invested heavily in China while Chinese homegrown operators such as SF Express and ZTO Express have been seeking to extend their domestic growth into international markets. 

Manufacturing

A rebound in the U.S. manufacturing sector appears to be running out of steam. Factories are on track for their weakest showing this year since 2016, the WSJ’s Bob Tita reports, with output falling in three of the past four months as demand for business equipment and commodities weakens in the U.S. and abroad. Manufacturing growth last year boosted U.S. economic growth and contributed to the freight-market boom. Separate surveys of sentiment among U.S purchasing managers at manufacturing companies have recently hit multi-year lows and the National Association of Manufacturers cut its forecast for factory output growth by more than half. The bleak outlook is showing up in supply chains: a slowdown in rail transports of metallic ores and metals that are fundamental to industrial production accelerated last month, according to the Association of American Railroads, including a 9.7% slide in the week ending May 25.

 

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