To Our Valued Customers:
Market Conditions– The ongoing coronavirus epidemic impact is far from being realized however the first clear signal of things to come is the flurry of cancellations for shipments that were booked prior to the Lunar holiday with ship dates later in February. As some factories are reportedly not opening until March 1st sourcing diversity within importers supply chains will face an immediate test. For importers that have diversified sourcing outside of China, they are certainly not resting easy. Many of the raw materials and parts are manufactured in China, once inventory runs out the purchase orders outside of China will also face production delays.
The Mother’s Day shipping season is also at risk as pending orders will be canceled rather than delayed as retailers will have a little appetite on carrying inventory until Mother’s Day 2021. Products associated with Mother’s Day range from fashion accessories to glassware & picture frames along with other GDSM (general dept. store merch) that consumers purchase in appreciation.
Can we see a peak season situation develop in April or May? Some industry experts say “absolutely” as a back log in manufacturing on products ranging from auto parts to general department store merchandise will cause a surge of cargo that runs right up behind back to school orders that typically ship in May & June. Inventory levels were at extremely high levels for all of 2019 due to the strong import volumes before the trade war tariffs went into effect. Some products might have sufficient inventory levels to weather the coronavirus storm, others will not be as fortunate.
Tariff Exemption Update – On February 5 the Federal Register posted 119 newly granted tariff exclusions for items on Section 301, List 3. These are product-description specific, so importers should review them carefully. If they apply, these exclusions can be used in two ways: first, to avoid paying additional tariffs moving forward, and, second, to reclaim duties already paid on imported products.
As with the other exclusions announced in recent months, these are available for use whether importers initially applied for them or not. Further exclusions are still being evaluated and may be granted for products on Lists 3 and 4A.
This announcement comes just ahead of the tariff rollback for Section 301 List 4A, which will fall from 15% additional duty down to 7.5% on February 14th.
Blank Sailings - Ocean carriers already planned to remove a significant amount of capacity through blank sailings during the China Lunar Holiday with 60 blanks announced through week 8. Due to the extended work stoppage caused by the coronavirus an additional 20 blank sailings that equate to over 150,000TEU in capacity will be removed through the remainder of March. This is a clear signal that ocean carriers are expecting volumes not to pick up until at least mid-March.
Market Rates - As freight volumes are very slow to recover after the extended Lunar New Year rate levels have remained fairly flat from the general market rate increase back on January 1st. The abundance of blank sailings coupled with IMO 2020 low sulfur fuel costs are keeping rate levels fairly stable where under normal circumstances downward rate pressure would be evident. Current expectations are for market rates to remain stable until manufacturing out of China recovers sometime in March.
Air Freight - Total airfreight capacity in/out of Mainland China has been limited to approximately 40% of total capacity. Mostly all passenger flights have been canceled for the remainder of February with many canceling through the end of March.
This has put a strain on outbound cargo flight operations which have remained, for the most part, as usual. Limited space capacity and an increase of demand, related to Coronavirus aid efforts, have resulted in an overbooked situation. As a result, many carriers are only accepting priority/express bookings at a premium rate.
Inbound conditions are expected to become strained as China normalizes. With factories returning back to operation over the next few weeks, and production beginning to catch up to meet urgent U.S. demand, we are expecting a shift from ocean freight to air freight in effort to replenish inventory or to meet order deadlines. With space expected to remain limited through the end of March, we will most certainly see a surge in import airfreight rates.