Maersk feels trade war drag, and other issues
Maersk’s 3Q revenue fell 0.9% year over year in 3Q. In common with fellow container shipping line Hapag-Lloyd that was better than analysts had expected, in Maersk’s case by 1.1% points.
Maersk’s CEO, Soren Skou, has stated that the challenge in 3Q came from «negative effects from escalating trade restrictions (that) also weighed on trade growth«, as well as tough comparators after last year’s accelerated shipping ahead of U.S. tariffs on Chinese exports. The comparator problem can be seen vividly in the 11.3% year over year slump in Maersk’s U.S.-inbound shipments in October.
That compared to a 5.2% slide in 3Q and was largely down to a 30.6% drop in imports from China in October. Maersk has other problems though, with imports from Europe down by 7.9% and growth on lines from Asia ex-China and Latin America rising coming to just 0.8% and 0.4% respectively.
MAERSK’S CHINA DRAG HAS FEW OFFSETS
Chart segments U.S. seaborne imports handled by Maersk by port-of-lading region.
Huawei exports to Mexico
may be bigger issue than rural sanctions relief
The U.S. government may extend relief from sanctions against Chinese telecoms equipment firm Huawei for customers in rural areas of the U.S. That may generate some goodwill as part of the ongoing, but reportedly faltering, U.S.-China trade talks to create a «phase 1» trade deal.
U.S. seaborne imports associated with Huawei amounted to just 99 shipments in the 12 months to Oct. 31. That was mostly shipments of network equipment to its local, research-focused Futurewei subsidiary.
A bigger issue, in the context of the U.S.-Mexico Canada Agreement on trade may be Mexican imports linked to Huawei. Those totaled $1.63 billion in the 12 months to Sept. 30, with 63.2% representing imports of mobile phones. That included Huawei’s telecoms network gear – where U.S. sanctions are applied – which were worth $291 million despite dropping by 48.9% year over year in 3Q.
( Comms. Equipment)
HUAWEI PHONE SHIPMENTS SURGE AS NETWORK EQUIPMENT WANES
Chart segments Mexican imports associated with Huawei by product on a monthly and three-month average basis.
Arconic faces overstocking,
aerospace late to the tariff-worry party
Our analysis of over 5,800 company earnings call transcripts since Oct. 1 indicates the proportion of firms concerned about trade policy is in decline. Since Oct. 1, 20.9% of calls discussed either tariffs or Brexit, down from 23.7% in the Jul. 1 to Sept. 30 period. The rise of a potential «phase 1» U.S.-China trade deal and a delay to Brexit have likely helped sentiment.
The only sector to see an increase in mentions of the topics was aerospace and defense with a rise to 25.9% since Oct. 1 from 22.2% the prior quarter. The aerospace supply chain that may be facing second-order challenges from tariffs on U.S. imports from China. For example the CEO of aluminum component maker Arconic, John Plant, has stated its customers have seen a «quarter of inventory correction» as a result of «overly imported product from Europe» to offset tariffs on imports from China.
Arconic’s woes may be continuing into 4Q. seaborne data shows U.S. imports linked to the firm fell by 15.4% year over year in October, including a 29.2% slump in shipments from China.
( Aerospace & Defense)
CHINA ISN’T ARCONIC’S ONLY ISSUE
Chart segments U.S. seaborne imports associated with Arconic by origin.
Savli Copper, Motherson Sumi may face higher copper costs
India may levy a countervailing duty against copper wire imports from Indonesia, Malaysia, Thailand, and Vietnam on the basis of alleged subsidies. Imports increased by 14.2% year over year in the twelve months to Jun 30.
Malaysia led that increase with imports rising by 26.1% year over year, followed by Thailand and Indonesia with export growth of 18.3% and 10.1% respectively. Suppliers from Vietnam may already be cutting back with imports that dropped by 1.0%.
Shipments linked to Savli Copper Products accounted for the lion’s share of imports, accounting for 71.7% of imports sourced principally from Malaysia. Motherson Sumi and Ram Ratna had significantly lower importers and are more diverse in their sourcing. Ultimately though, the case may work to solidify the UAE’s place as the top supplier nation.
(Metals & Mining)
Chinese exporters’ willingness to eat tariff hikes may be diminishing
U.S. import price deflation accelerated in October, with a headline 3.0% year over year decline for all imports. When combined with a 8.9% slide in U.S. seaborne shipments there’s likely to have been a significant drop in the value of U.S. imports in October.
The price deflation has largely been down to lower commodity prices, with imports ex food and fuel down by 1.3%. Imports from China saw price deflation of 1.6%, continuing a trend that can be linked to Chinese exporters cutting prices to offset tariffs.
Yet, this phenomenon does not appear to have spread beyond industrial products like chemicals, where prices fell by 8.3%. Indeed, apparel prices – where tariffs were applied for the first time in September – rose by 1.1% while footwear only slipped by 0.8%. The computer and communication segments may face tariffs from September, though prices have already been in decline by 2.8% and 2.9% respectively.
Brighter Europe doesn’t change global export recession in 3Q
Exports from the EU to the rest of the world climbed 4.3% year over year in euro terms in September. That marked a reversal from a 3.3% slide a month earlier, and came as German business sentiment towards export orders improved. In dollar terms, though, there was a 2.3% slide.
Globally that meant exports across 37 countries tracked by Panjiva fell by 2.0% year over year in 3Q. That marked the third straight quarter of falling trade activity, reaffirming the presence of a global trade recession. The outlook for October is worse – with 13 countries having reported figures there’s been an average 4.2% drop.
No shortage of talks, just shortage of agreement, in U.S.-China phase 1 process
Negotiators for China and the U.S. held «constructive discussions around the respective core concerns of the first phase of the agreement» on Nov. 16. While too much shouldn’t be read into the commentary, the «core concerns» reference would suggest that there are still fundamental disagreements to be addressed rather than final window-dressing.
U.S. may be expecting more fundamental reform than China wants to give, while China may not want to make firm commitments on commodity purchases. There’s currently no formal timetable for talks to be completed.
Vietnam struggles to manage Trump tariff risk
Vietnam’s Director of Customs Controls, Au Anh Tuan, has stated that Vietnam Customs is struggling to control the flow of transshipped goods from China, referring to just 5% of shipments being formally checked and a shortage of staff. There are 15 separate industries that Customs are concerned about.
From a macro-level, the Vietnamese government is concerned that the increased flow of products to the U.S. that are transshipped could trigger a wide-ranging, section 301 review by the U.S. government. That in turn could lead to significant tariffs – similar to the 25% seen for Chinese exports – which could limit Vietnamese exports even outside transshipped goods.
(Agence France Presse)
Shipping conditions improve, for high-sulfur fuel users
Container shipping rates improved, in places, last week. S&P Global Platts’ assessment of global rates may have fallen by 2.1% week-on-week, but outbound shipments from China increased by 3.2%, led by a 5.1% surge in China-to-Europe rates. the container lines had struggled to raise China-Europe rates through capacity reduction.
The complication for shipping lines, however, comes from shifting fuel prices. High-sulfur bunker fuel rates have fallen by 10.3% since the end of October, while low-sulfur rates have increased by 0.7%. That likely reflects the initial period of vessels shifting to low-sulfur fuels ahead of IMO 2020 requirements.
(Shanghai Shipping Exchange, S&P Global Platts)