BRi USA NEWS - China Trade War Intensifies Sourcing Shift in Household Effects


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The Georgia Ports Authority (GPA) has reached the halfway mark in a $218 million project to expand Savannah’s on-dock intermodal rail yard, saying that nine of 18 working intermodal tracks are ready for action. The port authority will commission two rail-mounted gantry cranes in June and the first Norfolk Southern Railway trains will be leaving on a daily basis from the new yard starting in a few months, the GPA executive director said.


The “Mega Rail Terminal” is the cornerstone of GPA’s vision to quicken transit times to what it dubs the “mid-America arc”, which includes beneficial cargo owners (BCOs) in Memphis and Chicago, and smaller markets such as St. Louis, Louisville, Kentucky; and Cincinnati and Columbus in Ohio. By building longer and a greater number of trains on a daily basis, the GPA believes containers will reach their destinations faster than ever before. When completed, the port will be able to lift 1 million containers per year onto the rails, double its current capacity.


Phase 1 of the project encompasses the Norfolk Southern portion, while Phase 2 will reconstruct the CSX Transportation side of the intermodal yard. The NS portion was scheduled to be completed in the spring, but the cranes faced construction delays in Florida. The CSX portion is scheduled to be operational in 2021.


Mega Rail targeting Chicago, Memphis


The GPA plans that the Mega Rail terminal when completed would be part of a “1, 2, 3” strategy: one day to get containers from ship to rail, two days on the rail to any destination, including Chicago, and picked up and delivered to the BCO upon arrival at destination on the third day.


In 2019, GPA announced a joint service offering with CSX and NS to get containers to Chicago in 67 hours, 29 hours faster than any currently available transit time. That will be possible with the completion of the first phase. The Mega Rail terminal will also enable the railroads to build larger unit trains on site for a straight shot to Chicago, rather than stopping on ramps along the way to build density. GPA has said containers going to Memphis are usually available within 56 hours of discharge from the vessel.


Chicago and Memphis are the two major focal points of selling Savannah's intermodal yard to ocean carriers. GPA considers the main competition to be cargo owners in the two markets currently using the ports of Los Angeles and Long Beach. If GPA can provide transit times close to those from the Los Angeles-Long Beach port complex, especially when Savannah is the first US port of call, then BCOs would diversify their routing of containers to hedge against West Coast terminal congestion.


U.S. Will 'Revoke Hong Kong's Preferential Treatment'


U.S. President Donald Trump said on Friday he was directing his administration to begin the process of eliminating special treatment for Hong Kong, in response to China's plans to impose new security legislation in the territory.


It is expected that the White House will publish an Executive Order outlining the changes to policy.


BRi USA will be closely monitoring this emerging situation and provide further details when available.


Carriers See Rise in Booking Cancellations, No-Shows


As US retailers cancel purchase orders at Asian factories due to plunging demand for a variety of consumer goods, ocean carriers and terminal operators report a troublesome increase in booking cancellations and container no-shows at overseas ports. Cancelling bookings, and the failure to notify carriers that they will not fulfill a booking order, prevent carriers from optimizing vessel capacity and can result in other shippers from being unnecessarily shut out of voyages.


Juergen Pump, president North America at Hamburg Sud, spoke at a virtual conference last week it is important that all members of the international supply chain keep the lines of communication open. “Information flow is critical. We have to keep our shippers informed when operational issues will occur because of blank sailings,” Pump told the group. “My ask of you is to tell us when you have to cancel your bookings.”


A normal level of booking cancellations in the trans-Pacific is about 15 percent, Pump said. Cancellations reached 40 percent in the last week of April and 29 percent in Week 20 in mid-May, he said.


Disruptions across supply chain


Booking cancellations are yet another supply chain disruption that has flared up as a result of the demand destruction wrought by the coronavirus disease 2019 (COVID-19).


Carriers since April have announced more than 120 blanked sailings into July. As import volumes plunge, terminal operators at US ports are cancelling work shifts, sometimes without giving enough advance notice to adjust their pickup schedules, truckers say. A knock-on effect of the blanked sailings is that detention and demurrage charges are on the rise for exceeding free storage time and for the late return of equipment to marine terminals.


The supply chain disruptions have caused warehouses in overseas ports to fill up due to retail store closures amid the COVID-19 lockdowns in the US, while shipments of non-essential merchandise sit idle in US warehouses. Empty containers have backed up at US ports because the blanked sailings have reduced vessel capacity for the return of empties to Asia.


China Trade War Intensifies Sourcing Shift in Household Effects


Higher US tariffs on Chinese goods and a weakening US economy last year contributed to the first decline in US household effects imports since 2011.


Containerized shipments of appliances and furniture to the United States dropped 4.6 percent year over year to 4.16 million TEU in 2019, according to market data. That sets the stage for potential further declines in 2020, as the COVID-19 crisis puts the brakes on already slowing consumer demand.


Last year’s decline in imported household effects followed increases of 8.7 percent and 10.5 percent in 2018 and 2017, triggered by stronger consumer spending during the latest economic mini-boom in the US, part of a 10-year expansion that came to an abrupt end in March with the arrival of the coronavirus disease 2019 (COVID-19). As the trade war raged last year, some US importers moved away from China as an origin point, and those moving household effects were no exception. Although China still accounted for two-thirds of containerized US imports of household effects last year, that was an 8.1 percentage point decrease from 2018.


The trend is part of an evolution toward production in neighbouring countries that’s likely to accelerate this year in response to the COVID-19 pandemic. “In 2019, we moved a significant amount of our products to Vietnam factories from China,” said the president of a furniture manufacturer.


There’s also little doubt that additional US tariffs of as much as 25 percent were the prime factor in the decline. The tariffs created a chain reaction of higher product costs, higher selling prices to consumers, and supply chain and inventory disruptions.


Vietnam main beneficiary of sourcing shift


Vietnam was the leading beneficiary of changing sourcing patterns. The second-largest source of US household effects imports, Vietnam saw its US-bound container volume jump 33.6 percent to 681,537 TEU. Vietnam increased its share of US household effects imports by 5.4 percentage points to 18.5 percent as more US importers switched to Southeast Asian factories.


China’s share of containerized household effects imports into the US has remained in the high 60th percentile for several years, underscoring the long-term dependence of retail supply chains on the nation’s manufacturing muscle, labour costs, and mature logistics infrastructure. The US-China trade war and now the COVID-19 pandemic, however, are changing the calculus for importers.


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