Category: Industry News
The shipping industry is influenced by many factors such as supply and demand dynamics, domestic and international policies, and environmental forces. Shipping rates are constantly changing to meet market demands. Since 2008, the industry has seen some drastic shifts. For example, oil prices increased more than 300% from just 2008 to 2012. Without making the proper capacity cuts or rate adjustments during this period, steamship lines lost hundreds of millions of dollars due to a crowded market. In 2017, we experienced record freight rates and tightened capacities. Fewer drivers on the road to haul the increase in freight volume, combined with two major hurricanes further displacing resources, impacted the ability to secure trucks. As demand continues to increase and resources to satisfy those demands decrease, we will be seeing changes in 2018 of a somewhat different nature.
The most recent ELD (Electronic Logging Devices) regulations have put major strains on the market. The new laws were implemented with the intention of creating safer roads by using an automated tracking system to monitor truck operation. While ELDs may increate compliance with the legally mandated maximum 11 hours of driving daily, it is also creating a shortage of drivers. According to the American Trucking Association, the U.S. is short about 30,000 truck drivers as a result of the struggle for compliance to the new regulations. Another reason for the shortage is that drivers feel the regulations to be a violation of privacy as they see their truck-cabs as a home-away-from-home. Lastly, and possibly the most significant, is the aging work force, with the average truck driver in the U.S. being 55 years old. Driver shortage issues will continue if retiring drivers are not being replaced by new recruits.
With fewer drivers on the road, we can expect certain fees and rates to rise. The first being detention fees, as the delivering “free time” is decreasing to one-hour from the previous two-hour standard. Meaning that the current market is moving towards one hour of loading/unloading time. Other fees we may see increase are spot rates, which are onsite quotes for freight that needs to be transported. As capacity remains tight we can expect increased truck rates and more shippers transitioning from truck to intermodal or rail transport. Here are a few ways to avoid additional detention charges:
- Forward plan work schedules to ensure your facility is adequately staffed to load and unload your shipments when truckers arrive. Additionally, palletize the cargo when possible to expedite the loading and unloading time.
- Generate delivery schedules ahead of time with your freight forwarder to help give your facility time to prepare for incoming shipments.
- Try to be adaptable when anticipating a drop-off, this way you will have better chances to save on additional detention costs.
These are the more short-term changes we can expect, but starting in 2018 and a few years out, we will see new technologies impact the industry in a significant way. For example, Uber Freight is an app that launched Spring 2017 which operates like Uber’s prominent ride-sharing app. Independent contractors can now use excess-capacity of their fleet to schedule and fulfill one-off order requests. This is not the only app in development. Amazon and Convoy also have apps that will look to enable on-demand freight. The concept will be to match trucking companies with shippers in efficient ways to reduce the estimated 40% of miles truck drivers travel with no cargo. Another case is the autonomous vehicle – many large asset companies have already showed interest in Tesla’s electric semi-truck which can travel 500 miles on one charge. Without having to pay for diesel or maintenance on a combustion engine, we can certainly understand the appeal.
We can speculate how these trends in the market and new innovations will affect each other. Maybe these new technologies are being fueled by large asset companies that don’t want their shareholders to think they are ignorant to the industry trends. Maybe this move in the domestic trucking industry will remedy the driver shortage issue. What we must make sure of is that we remain flexible in this new shipping environment. Shippers will need to be more adaptable in less-than-ideal-situations. Carriers will be more selective of the business they choose to handle.
We are following developments of Section 232 and Section 301 carefully, as these policies are designed to substantially impact trade volumes of crucial manufacturing materials. The Section 232 clause falls under the Trade Expansion Act of 1962, granting the president power to act against imports that threaten national security. While it traditionally addresses a concern for wartime production capability, the term “threat to national security” can be defined in a variety of ways, such as that which engenders substantial unemployment, displaces the domestic manufacture of product, or gives rise to excessive foreign competition. A ripple effect on the international market is being observed, as new tariffs bring to bear global trade shifts.
With matters of national security, the government ensures the capacity to produce steel for tanks and other military equipment domestically, rather than rely on imported material which may not be available during times of conflict. The executive action carried out under Section 232 applies a 25% tariff on raw steel, and 10% tariff on raw aluminum, effective March 23, 2018. These rates represent a many-fold increase over the standard U.S. trade-weighted average import tariff rate of 2.0% on industrial goods. Commerce Secretary Wilbur Ross, who conducted the investigation into the impact that certain imports have on national security, called for a reduction in steel imports by 37% and aluminum by 13% in order to re-calibrate domestic production quotas.
Section 232 and its estimated $50-60 billion worth of tariffs have been labeled as restitution for intellectual property damages levied on the U.S. by China. China has been accused of having an unfair foreign policy towards U.S. intellectual property that forces companies to transfer their technology to Chinese soil in order to sell in their market. U.S. firms are in a disadvantaged position against the threat of embargo, giving China leverage to skew deals heavily in their favor.
The impact of Section 232 on China has already created a ripple effect on international trade. China being the worlds largest exporter of raw steel material, accounting for 49% of total production, and with the U.S. being the worlds largest importer of steel, accounting for $29 billion of trade in 2017, the new policies are expected to dramatically re-calibrate production. In the short-term, companies with infrastructure overseas or with a 3PL partner able to fabricate their steel and aluminum parts prior to importation are not as effected by the Section 232 tariffs. However, domestic manufacturers are left with increased raw material prices forcing an adjustment in supply and increased market prices to meet demand.
The National Tooling and Machining Association along with the Precision Metalforming Association have voiced their concerns about the trickle-down effects of the new tariffs. They cite the Section 201 30% steel tariffs that occurred in 2002 as being responsible for the closure of thousands of metal-stamping companies due to a lack of access to globally competitive prices on raw material. Their concern is that broad-sweeping tariffs are dangerous to American prosperity because they put workers at risk of losing downstream jobs as professional tool and die makers and machinists.
China reportedly plans to introduce $3 billion worth of its own taxes against U.S. imports of steel piping, pork, fruit, and wine. As a response to this, on April 3, 2018, the U.S. made an announcement for the introduction of Section 301. An investigation by the Office of the United States Trade Representative decried four categories of action by the government of China justifying the action, including:
- [Using] foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.
- [Forcing] U.S. companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients.
- Unfairly [facilitating] the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer…
- [Conducting and facilitating] unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information.
Section 301 consists of 25% tariffs on 1,300 Chinese products. Included in the list are drugs, medical devices, additional alloyed and unalloyed metals, car parts, household appliances, power equipment, agricultural machinery, textile machinery, media devices, and machine tooling. Follow this link for a press release containing the full list of applicable Harmonized Tariff Schedule subheadings: https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf
Here is the current timeline for the Section 301 tariff investigations:
- April 23, 2018 – Due date for filing requests to appear (with a summary of expected testimony) at the public hearing in Washington D.C.
- May 11, 2018 – Due date for any written comments on the proposed actions
- May 15, 2018 – Date of the public hearing at the U.S. International Trade Commission in Washington D.C.
- May 22, 2018 – Due date for the submission of any post-hearing rebuttal comments
Requests can be made for product exemptions, but these are anticipated to be limited and not reliably granted. A business must prove lack of domestic availability, insufficient domestic quality, or critical infrastructure issues pertaining to national defense. It must be determined that no equivalent U.S. manufacturer exists, and proof of contact and qualification attempts with manufacturers must be provided. Exempt countries are expected to implement measures to stop transshipment workarounds by increasing customs screening, and violations carry a civil penalty equal to either the domestic value of the merchandise, or four times the lawful duties, taxes, and fees owed. Click the following link for information on starting the exemption appeal process: https://www.bis.doc.gov/index.php/232-steel
In the coming months, the ripple effects of Section 232 and beyond will become clearer. It is going to be more important than ever to stay savvy, as new developments will have a significant impact on supply chain logistics. Whether your organization is being effected by these tariffs or is worried about it effecting you in the near future, it is critical to know where you stand and what preventative measures you can take. 889 Global Solutions is closely monitoring the situation as it continues to develop. Should you have any questions regarding the update, please feel free to contact us at firstname.lastname@example.org. To learn more, see The Effects of China’s Proposed Tariffs.
In 2014, Beijing’s CRRC Corporation (the largest rolling stock manufacturer in the world), began what has amounted to nearly $ 3 billion of contracts to re-build American transit systems. Headquartered in Beijing with over 180,000 employees, the company has steadily gained ground in the U.S.
Recently CRRC has struck deals in Boston, Chicago and Los Angeles, with plans to invest in major production and assembly facilities. In Boston, plans call for a $ 60 million final assembly facility and test track at a former Westinghouse site Springfield, Massachusetts. In Chicago, it’s a $ 100 million manufacturing facility on the Southeast side. Lastly, in Los Angeles there will be a facility to manufacture major components, including propulsion and air conditioning.
The numbers are obviously astonishing, but the message that local authorities have given so far is that the company had the highest-rated technical offer and lowest price while offering the most robust local employment program and highest U.S. component content.
The first of the deals was with Massachusetts Bay Transportation Authority for Boston’s subway system. The $ 567 million project will build 58 cars by 2021. The design process has taken three years for the Orange Line and Red Line cars. The design will provide 15 more passengers per car, wider and electrically-operated doors, four accessible ADA-compliant areas per car, LED lighting, modern HVAC, automated passenger information, data recorders, and live CCTV capabilities.
In March 2017, CRRC signed a deal with the Chicago Transit Authority to produce up to 846 new rail cars. The $ 1.3 billion contract will revive rail car manufacturing in Chicago after a 50-year hiatus. The manufacturing facility on the Southeast side will be about 381,000 square-feet employing about 170 workers. According to a statement from Mayor Rahm Emanuel’s office, CRRC will spend $ 7.2 million to train the local workforce. In a news release the Mayor said, “This new facility represents a major investment in Chicago that will bring economic development to the Southeast Side, while creating good-paying jobs for hundreds of workers.”
The most recent agreement, in late March 2017 was confirmed for the Los Angeles Metro by Los Angeles County Metropolitan Transportation Authority (LACTMA). It came right before Chinese President Xi Jinping and U.S. President Donald Trump met in Florida to discuss trade and investment between the two nations. The LA deal encompasses building 64 subway cars that will be worth as much as 7 million. The cars have already met Washington’s “Buy America” provisions requiring 60% of components to be made in the U.S. The first car is expected to be delivered in 2020 and completion of the project is expected by Fall 2021.
In totality, the world’s largest supplier of rail transit equipment is looking to improve technology innovation, upgrading capacity, and manufacturing platforms in the U.S. In an interview, Li Yongle (Vice President of CRRC Qingdao Sifang) said, “CRRC will support other project plans in the U.S., including projects for metro cars and high-speed trains.” CRRC will be helpful in developing local U.S. economies as well as the interconnectedness of various business hubs nationwide.
The Chinese New Year of 2018 starts on February 15th, and lasts until February 21st. While this is a major event that is still largely unknown outside of Asia, importers are sometimes painfully… aware of this season. They certainly have good reasons. The Chinese New Year shuts down every single production facility in the entire country, for varying time frames. In the worst case, and rather likely, scenario – the Chinese New Year can result in severe delays.
Although the official dates of the Chinese National holidays are helpful to understand, it is equally important to know the range of dates around the holiday that are impacted. It is difficult to plan supply chains with inconsistent schedules.
The unofficial dates are what allow the factory workers to visit relatives they may not have seen since the previous year’s holiday. The two holidays with the most days off are the Chinese New Year (mid-February) and the Chinese National Holiday (early October). Both are officially celebrated for a full week. Factory workers that are employed in big metropolitan areas tend to follow the official dates more closely since their relatives are closer geographically, or easier to get to. But, many factories close two weeks prior to the holiday and may not open with a full staff until two weeks after the holiday.
It is also helpful to look at it this way: if a factory closes two weeks before Chinese New Year, and workers do not fully return until two weeks after, that factory will not only have no production during that time, but it will also take a few days after the employees return to get things back up to speed. Then if you look deeper in to that factory’s material supplier, they will also be delayed, resulting in another week. Finally, the large amounts of containers that did not make it out before the holiday will take time to be processed. Ultimately, it is wise to forward plan for 4-8 weeks of delays during these times of the year. But why let that be a deterrent from all the positive aspects of working with Chinese manufacturers?
As a company who has been working closely with a lot of Chinese Manufacturers, one of our suggestions is better planning. By having a better understanding about the Chinese holidays and non-working days, U.S. manufacturers should be able to plan their production. Ensure that production starts in late December, at latest. That assumes in average production time is around 30 to 40 days. If it takes more than 40 days, we start counting backwards and look to have a “buffer stock” in our warehouse. Try to have a minimum 2 weeks’ worth of “buffer stock” between the end date of the production, and the date they close. We also attached a Chinese calendar to help.
New Year’s Day 2018: Jan 1st. No makeup days.
Spring Festival/Chinese New Year: Feb 15th to 21st, makeup days on Feb 11th and 24th
Qing Ming Festival: 5 Apr to 7 Apr, makeup day on Apr 8th.
May Labor Day: Apr 29th to May 1st, makeup day on May 28th.
Dragon Boat Festival: Jun 16th – 18th, no makeup day.
Mid-Autumn Festival: Sep 22nd – 24th, makeup days on Sept 29th – 30th.
October National Day: Oct 1st – 7th, no makeup day.
We first began our government contracting work by manufacturing promotional products for the State of Ohio Department of Public Safety in 2012. Since then, we have been able to consistently improve our company supply chain and capabilities to quickly increase our growth. We now currently hold a dozen contracts with our University and State of Ohio clients. In the near future, we are planning to expand into contracting for Federal clients as well as State Governments outside of Ohio.
To supplement this growth, our employee size has more than doubled already in 2017 with full-time employees and part-time interns. We are also happy to be attending the Municipalities Business Conference and Expo (August 2nd – 3rd) in Columbus with our new and improved man power!
With our certifications as a Minority Business Enterprise (MBE), Woman Owned Business (WBE), and Small Business Enterprise (SBE) we have placed ourselves in a unique position to succeed in this marketspace. So far this year, we have added the following contracts to our growing business:
- 800-18 Aggregate, Bituminous Materials (Ohio Department of Transportation)
- 801G-18 Asphalt (Ohio Department of Transportation)
- 839-18 Glass Beads (Ohio Department of Transportation)
- 828-18 Extruded Sign Panels (Ohio Department of Transportation)
- RS902717 Floor Maintenance Machines (All State of Ohio Agencies and Local Political Subdivisions)
- 4775ME Custodial Supplies (Cleveland State University)
We would love to see you at one of our events either in August or the National Minority Supplier Diversity Council Conference in October (featured earlier in the newsletter)!
What an exciting time for Columbus! The Ohio Healthcare Association (OHCA) was established in 1946 and has grown immensely to represent 800 nursing facilities, assisted-living communities, and other intermediate care facilities with over 100,000 individuals in Central Ohio. Last week (May1-4) they hosted their Annual Convention and Expo at the Greater Columbus Convention Center in downtown Columbus.
On Wednesday, May 3rd we went over to the show to experience the thousands of attendees, enormous exhibit hall, enlightening keynote speakers, and hundreds of educational sessions right here in the heart of Ohio. 889 Global Solutions has provided for this industry for over a decade, so what greater opportunity to learn more!
We met with many influential industry leaders, directors, department heads, and experts enabling us to create long-term business relationships. We want to thank OHCA for the experience and look forward to meeting more healthcare personnel next year.
Check out OHCA’s website here: https://www.ohca.org/