Are Shipping Carriers Spacing Out?

The freight industry converged in Shenzhen, China last week for the annual TPM Asia Conference, sponsored by IHS Markit’s JOC.  Carriers, industry experts, and beneficial cargo owners (BCO) paneled to answer some tough questions surrounding the current peak season and ramifications for the long-term ocean freight market.

To most, 2017 seemed like the year of the ocean carrier.  Consolidation of financially unstable providers and the creation of vessel sharing agreements (VSA) should have resulted in more streamlined capacity handling and strong peak season profits, but such has not been the case.

REVIEW: OCEAN CARRIER VESSEL SHARING ALLIANCES, MERGERS & ACQUISITIONS

Containerized demand saw steady 6 percent growth for the first three quarters of the year and major U.S. ports reported 8% to almost 30% increases in container throughput.  So, why have spot rates been dropping since July?  In fact, rates to from Asia to both U.S. coasts are 30% lower year-over-year.  Unusually, even the notorious Chinese Golden Week didn’t result in any space shortages.

Overcapacity has been the driving culprit as carriers began accepting the delivery and deployment of mega-vessels, those with capacities ranging between 14,000 and 21,000 TEU.  Ordered over the past several years, economies of scale in terms of fuel savings drove shipping lines in a race for market share.

The problem is, they haven’t quite been able to get the math right.  Mega-ships of 18,000 TEU and above must have over 90% utilization to achieve cost savings, which is difficult for most trade lanes.  Carriers are then forced to cut spot rates to fill volume, only to hurt themselves in the long-run.

Shipping lines defended themselves at TPM, stating “Sometimes there is a misalignment between capacity and demand but we know how to handle these situations. It is more important that we have solid demand because that is an indication that the world is doing well.”

Some beneficial cargo owners, on the other hand, feel quite differently after seeing spot rates $400-$500 cheaper than their annual contracted pricing.  This type of market volatility is pushing traditional BCOs to consider adding freight forwarders to their carrier mix, giving the shipper more options and less restriction.  For the time being, shipping lines must right-the-ship or risk reversing positive market trends.

For dedicated, flexible freight forwarding, contact Green Worldwide Shipping.

Natural Disasters, How Shipping Ports Weather the Storm

As the Atlantic hurricane season passes the halfway mark, U.S. shippers are only gearing up to feel the economic impact of these ravaging storms.

In August, Irma became the strongest hurricane ever to make landfall in the Atlantic basin, while 2017 altogether featured four hurricanes (Harvey, Irma, Maria, and Nate) that made landfall in the overall United States.

Unfortunately, these incredible atmospheric forces come with devastating impact to people, communities, and economies.  For U.S. shippers, this means everything from capacity to infrastructure.

Tropical storms and hurricanes cause widespread flooding that carries large amounts of silt and debris into the channel, in some areas up to 10 feet and weighing several tons.  As tropical storms become increasingly powerful and frequent, shipping ports in hurricane-prone waters will face continuous challenges from these natural disasters.

Infrastructure damage is not always visible to the naked eye; for port dredging, it needs goggles.  With over 241 million tons of cargo being moved annually through the Port of Houston’s Ship Channel, bottlenecks are felt instantly and ripple through to local economies.  The large Texas freight hub’s channel depth was reduced by up to 30% in some areas, causing the port commission to approve an additional $2 million for Harvey-related dredging expenses.

In 2012, following Hurricane Irene, the U.S. Army Corps of Engineers received supplementary federal funds to dredge East Coast channels. On average, 5,000 cubic yards, or 500 dump trucks, full of sand were removed daily.

In 2013, $7.5 million was funded by the U.S. Department of Agriculture (USDA) Natural Resources Conservation Service Emergency Watershed Protection Program to dredge the aftermath of Hurricane Sandy in Connecticut. The program intended to restore and protect 257 acres of land to prevent flooding in the future.

The U.S. Army Corp of Engineers (USACE) is tasked with managing the National Dredging Quality Management Program (DQM), responsible for maintaining natural depths of waterways, ports and harbors across the United States.  In doing so, the USACE maintains cargo vessel access to ports delivering U.S. import and export goods.

But the strain on these resources is only increasing.  As ocean carriers increase capacity to take advantage of fuel economies and wider Panama Canal access, maintaining and dredging for deeper drafts – especially after widespread natural disasters – only becomes more expensive as countries and ports race to stay competitive.

If your business is in need of flexible, alternative routings, contact Green Worldwide Shipping.

To learn more about the economic impact of natural disasters on supply chains, check out our article Hurricanes on Supply Chain Brains.

Salespeople Can Help Importers with AD/CVD?

As a seasoned freight salesman of almost 20 years, clients are often surprised when I discuss preventative supply chain solutions for regulatory compliance (and not just for international transportation).

With the launch of their new single portal, the Automated Commercial Environment (ACE), U.S. Customs and Border Protection (CBP) has begun to seriously re-enforce and protect domestic industry from trade infringements such as anti-dumping and countervailing (AD/CVD).

There should be no surprise!  From buyer education, to pre-purchasing scope determination, importers can and should proactively avoid, or take advantage of, industry impacting regulations.

The first step is understanding anti-dumping and countervailing scope:

What is anti-dumping?

Dumping occurs when foreign manufacturers sell goods in the United States less than fair value, causing injury to the U.S. industry. AD cases are company specific; their duties are calculated to bridge the gap back to a fair market value.

What are countervailing duties?

CVD cases are established when a foreign government provides assistance and subsidies, such as tax breaks to manufacturers that export goods to the U.S., enabling the manufacturers to sale the goods cheaper than domestic manufacturers. CVD cases are country specific, and the duties are calculated to duplicate the value of the subsidy.

RESEARCH PROACTIVELY

How can I determine whether merchandise that I am planning to import is subject to antidumping or countervailing duties?

Review the scope of antidumping and countervailing duty (AD/CVD) orders to determine whether the merchandise falls under any relevant posted orders.. This can be done through your Customs broker, by reviewing Federal Register notices, CBP’s ACE portal, or government trade resources such as http://addcvd.cbp.gov and www.trade.gov/ia.

How can I find a full, comprehensive list of products covered by AD/CVD orders?

In three convenient places:

  1. ACE contains comprehensive case information on every AD/CVD case.
  2. The U.S. International Trade Commission (ITC) publishes a list of every AD/CVD case.
  3. The website of Commerce’s International Trade Administration, www.trade.gov/ia,under scope information, also contains information on AD/CVD cases listed by country.

DID YOU KNOW

The AD/CVD paid at the time of entry are cash deposits of estimated AD/CVD duties only. The final amount of duties owed is not determined until Commerce conducts an administrative review to establish the final AD/CVD rates on past entries.

The final AD/CVD amount may increase, decrease, or stay the same from the AD/CVD cash deposit paid at the time of entry. After Commerce sends instructions to CBP on the final AD/CVD rate for the entry, CBP will assess this final duty.

CBP will issue a bill for any increase in duty, and refund any decrease of duty. On average, this entire process, from the date of importation, takes approximately three years.

GET YOUR MONEY BACK

I do not believe that the goods that I imported fall under the scope of an AD/CVD order, and CBP required me to pay AD/CVD duties on my imported goods. How can I obtain a ruling that my products are not subject to AD/CVD?

You may apply to Commerce for a scope ruling (know that these a publicly published to the entire trade community). Further, if you believe CBP misapplied the scope of the order as written, you may file a protest with CBP within 180 days after the entry has liquidated.  Your Customs broker can assist with filing and ensuring you receive the maximum refund.

I paid a fair price to my supplier for my imported merchandise, and the estimated AD/CVD duties that I paid are too high. How can I get a refund of the duties when CBP liquidates the entry?

You may request an administrative review of your imports from Commerce to determine the final AD/CVD duty liability. Commerce instructs CBP on the final AD/CVD rates, and CBP will assess final duties based on these instructions.

I imported my merchandise using a consumption entry, paid the AD/CVD duties, and I now want to export the goods. Can I get a refund of my AD/CVD duties?

For refunds of AD/CVD duties, the statute and regulations clearly prohibit “any remission, abatement refund or drawback of duties” (see 19 U.S.C. 1558, & 19 CFR 191.3(b)(3).  An importer should file the correct entry type appropriate for a case such as this. Once the merchandise has been released from CBP custody, the importer is not entitled to a refund of AD/CVD duties.

As your Customs broker, it is our responsibility to fully understand your products and goals. Consultative brokerage can establish preventative methods and avoid costly purchasing mishaps.

You take great pride in sourcing your inventory and providing quality products to your customers, let Green Worldwide bring consultative due diligence to the bigger picture.

 

AUTHOR

Lorenzo Giorgetti

Business Development Manager

Green Worldwide Shipping, LLC

Mobile: +1 310 977 4543

Where Did the Freight Peak Season Go?

As the year winds down, carriers and shippers engage in an annual dance commonly known as the holiday peak season; but in 2017, carriers just haven’t been able to set the pace.

After several years of consolidation and vessel sharing planning, carriers believe they finally landed on the framework that would bring the containerized freight market back to health.  Unfortunately, the numbers were just too close for this peak season as capacity overhang offset spot rates.

While U.S. imports have been strong, extra capacity has eroded carrier-attempted general rate increases (GRI).  Extra capacity from 2016 coupled with a new injection of ten extra-loader vessels has kept spot rates steady heading into Golden Week, a national Chinese holiday when manufacturing closes, marking the final push as shippers try to get product on the shelves.  Chinese manufacturing is also under scrutiny as the country’s Ministry of Environmental Protection (MEP) targeted, evaluated, and shut down thousands of factories and businesses failing to implement pollution controls.

Deliveries of new, completed mega-vessels with carrying capacities of 22,000 TEU will determine if shipping lines will be able to effectively cycle out excess volume in the coming year.  Fuel economies and port serviceability, for issues such as dredging maintenance and labor, are also closely tied to the model’s success.  For now, carriers are content to ride out the remainder of 2017 as long as rates remain profitable.

Hurricanes on Supply Chain Brains

Southern states are reeling from widespread damage in the wake of two major back-to-back hurricanes. Hurricane Harvey struck as a Category 4 on Friday, August 25, displacing thousands of Houston residents, over 20 deaths, and record-breaking flooding.  Harvey’s 51.2 inches of water broke the 48-inch record, set by Tropical Storm Amelia in 1978, for rainfall from a single storm in U.S. mainland history. (more…)