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With signs of US imports from Asia recovering, trans-Pacific carriers today will impose a highly unusual third general rate increase (GRI) in one month’s time. Importers and other shippers say carriers, who filed July 1 GRIs as high as $1,500 with US regulators, this week are quoting additional figures as high as $800 or more per FEU.
There’s nothing new about carriers levying such charges as the summer-fall peak shipping season for retailers approaches. However, carriers previously implemented GRIs on June 1 and June 15, so the July 1 increase will be the third in a 30 day period, an unusual occurrence even during periods of high demand. Carriers and shippers told JOC rates will continue to rise even though volumes are down almost 10 percent from the first five months of 2019.
Several carriers last month filed July 1 GRIs with the Federal Maritime Commission; Carriers rarely succeed in implementing the full GRIs they post with the FMC.
The NVOs and BCOs said some carriers are indicating that peak-season surcharges may be charged on top of the GRIs. In past years, carriers often began to quote PSSs in June or July, but the peak-season surcharges were delayed until early fall, when the majority of holiday merchandise is shipped.
Carriers, meanwhile, told JOC space on vessels leaving Asia is tight due to an unexpected surge in imports since late May. This is driven primarily by retailers replenishing their inventories and the reopening of businesses and manufacturing plants previously closed because of the coronavirus disease 2019 (COVID-19).
Uffe Ostergaard, president of Hapag-Lloyd USA, said the carrier files a standard GRI every two weeks in order to provide flexibility to adjust to market conditions, so the carrier does not necessarily expect to achieve the full amount. However, current conditions point to a GRI going forward.
Spot rates to Southern California surge
GRIs imposed by the carriers in June are reflected in eastbound spot rates that have spiked despite a precipitous drop in volumes amid the COVID-19 crisis. As of June 26, spot pricing from China to the US West Coast had risen 94.8 percent from the same week last year, according to the Shanghai Containerized Freight Index (SCFI), while rates to the East Coast jumped 37.4 percent year over year per FEU.
The combination of blank sailings and the increase in consumer demand this past month has had the greatest impact on spot rates in the Pacific Southwest services to Los Angeles-Long Beach. Space has been “very tight” on the PSW services.
In addition to replenishing inventories, retailers and manufacturers are looking ahead to August when some of the tariff exclusions in the Phase One trade agreement between the US and China are set to expire. Given the uncertainty of US-China trade relations, importers are focusing on the Asia-Los Angeles routing, which is 10 days to two weeks faster than all-water services to the East Coast, in order to ensure that their products enter the country and clear US Customs in case the tariff exclusions are not extended.
Nevertheless, spot rates to both coasts are elevated. A logistics executive noted that the price of low-sulphur fuel that most vessels now burn is down 50 to 60 percent from the January peak, meaning that when the bunker component is removed from the all-inclusive rate, the transportation component is disproportionately high when compared with previous years. “Take out the price of fuel, and the [spot] rate is probably the highest in history,” he said.
Carriers backing off from blank sailings
So far, carriers have announced only four blank sailings for July and August, according to Sea-Intelligence. “It is too early to say if this reflects a genuine market strength, or if the carriers simply haven’t gotten around to announcing for this period yet,” said Sea-Intelligence CEO.
Shippers contend that earlier this spring, when economic prospects looked discouraging, carriers overestimated how many blank sailings they needed in order to balance supply and demand. Carriers from early February through April blanked more than 150 sailings from Asia to North America. However, even as import volumes began to rise in May, carriers announced more than 75 blank sailings for May and June, although some previously announced blanked sailings were reinstated. Shippers and carriers all agree that container volumes — and pricing — for July and August remain uncertain.
USMCA Enters Into Force Today
The United States-Mexico-Canada Agreement (USMCA) trade pact goes into effect today, bringing new regulations aimed at boosting North American economies. President Donald Trump signed the USMCA trade pact into law on Jan. 29, replacing the 26-year-old North American Free Trade Agreement (NAFTA).
The USMCA overhauls rules for trade in agriculture, manufacturing and services with Mexico and Canada. While the agreement has been hailed for raising standards for and increasing enforcement of certain labour, environmental, pharmaceutical and digital trade provisions, some shippers are still struggling to determine how the transition from the North American Free Trade Agreement (NAFTA) to the USMCA will impact their business.
A few key changes/considerations for shippers to under the new USMCA:
Rules of Origin Introduce New Level of Complexity: For shippers of high-tech machinery or in auto manufacturing, whose products contain hundreds of globally-sourced components, the new trade deal includes requiring 75% of a vehicle’s components be made in the U.S., Canada or Mexico, to receive tariff free access to the three countries; and creating higher wages by requiring that 40%-45% of auto content be made by workers earning at least $16 per hour.
Certification of Origin: Exporters are no longer required to provide a certificate of origin in mandatory format. Documentation can be submitted via informal formats, such as commercial invoices, and may be completed by the importer, exporter or producer. Included in the documentation must be: which party is making the certification (importer, exporter, or producer); Certifier, exporter, importer and producer details: Name, title, address, phone number and email.
Description and HTSUS number (to, at least, the 6-digit level); Origin criteria; and Blanket period (if applicable). Full documentation are outlined in the USMCA Implementation Guidelines, Annex A. Under USMCA documentation must be kept for a minimum of five years.
De minimis: Under the USMCA, Canada will raise de minimis levels from 20 Canadian dollars ($15.29) to 40 Canadian dollars ($30.59) and provide duty-free shipments for items valued up to 150 Canadian dollars ($194.66). Mexico’s de minimis values will remain at $50 and provide duty free shipments up to the equivalent level of $117.
Sunset Clause: Unlike the previous NAFTA Agreement, the USMCA is set to expire July 1, 2036. If one of the member states does not agree to remain in the USMCA, a joint process review will commence. Shippers whose supply chain depend on Canada and Mexico will need to keep the Sunset Clause in mind for their supply chains in case a termination of the agreement occurs
Delta Temporarily Shuts Down Cargo Facility at O’Hare Airport
Delta Air Lines said its cargo station at Chicago’s O’Hare International Airport is closed indefinitely and not processing shipments.
Delta Cargo said the embargo extends to all products originating, transferring or arriving at O’Hare and that inbound and outbound trucks will not be serviced. Only westbound cargo-only charter flights from London Heathrow International Airport and two-way traffic with Frankfurt International Airport in Germany are exempt from the embargo.
Freight already in the facility will be stored and processed after operations have restarted. Delta said it will notify shippers when freight is available for pick up. All storage fees will be waived from June 29 through the restart date.
Delta declined to comment on the reasons for the shutdown. O’Hare has been beset by extensive cargo delays in recent weeks because ground handlers and warehouses have been swamped by personal protective equipment and other cargo arriving on a daily procession of all-cargo flights during the COVID-19 pandemic.
U.S. Ports Status Update
Below is a general overview of the operations BRI USA has been able to gather for most major U.S. ports. This list will be updated as information is made available.
Port of Seattle and Tacoma – The Northwest Seaport Alliance has identified container yards in Seattle, Tacoma, and Portland to offer container and chassis storage in an effort to keep the marine terminal operations fluid as cargo volumes continue to recover. All terminals at the ports are open this week, closed for second shift Friday, July 3 and closed Saturday and Sunday.
Ports of Los Angeles/Long Beach – The ports are currently preparing for five blanked sailings remaining in July and August. All terminals are open on Friday, with Pier C terminal being the only facility open second shift. All terminals are closed Saturday and Sunday this week.
Port of Oakland – The terminals at the Port of Oakland are all open Friday, July 3 for first shift, closed second shift. TraPac and Matson terminals are open Monday, July 6, the remaining terminals are closed.
Port of Houston – Port Houston has received nearly $80 million in a grant from the Infrastructure for Rebuilding America (INFRA) program.
Barbours Cut Container Terminal comprises 6,000 linear feet of wharf, and about 390 acres, including container yards and support areas. The $198 million project will restore and strengthen 2,667 linear feet of wharf and 83.5 acres of yard space. Both Bayport and Barbours Cut Terminals are open and operating normally this week, including Friday, July 3 for general cargo (gate hours limited to 7:00 a.m. - 5:00 p.m. July 3). Breakbulk and Project Cargo operations will be closed Friday, July 3.
Port of New York/New Jersey – The ports of NY/NJ are open this week for normal operations and gate hours. All terminals are closed for the holiday Saturday and Sunday.
Port of Virginia - The Maersk Idaho is currently sitting outside the Port of Virginia waiting for directions after a crew member tested positive for COVID-19, and preparations are being made for the ship to be brought into a quarantine facility for cleaning. The port terminals are open for normal operations this week, closing reservations at 5:00 p.m. The terminals are closed Saturday and Sunday. Truck gates and administrative offices will be closed on Monday, July 6; however, container and rail activities will be open.
North Carolina Ports - North Carolina Ports' terminals in Wilmington, Morehead City and Charlotte will be closed to commercial truck traffic on Friday, July 3 and closed Saturday and Sunday. Special pickup arrangements are available and may be made by contacting the terminals.
South Carolina Ports - The SC Port Authority is continuing efforts on infrastructure projects scheduled for completion in 2021. The infrastructure improvements include phase 1 of the Leatherman Terminal, set to open in March, will be the first new container terminal in the U.S. since 2009. SC Ports in Charleston, Greer and Dillon are operating normally for gates and vessels at this time. All ports will be open this week, closed Saturday and Sunday. Inland Port Greer will be open for abbreviated hours Saturday.
Port of Georgia - Port Savannah has taken the top spot for U.S. exports, handling 1.33 million TEUs in the last 12 months. The port is open for normal operations, with Saturday gate hours suspended at this time. Both Port Savannah and Brunswick are open for normal hours this week, closed Saturday for the holiday and Sunday.
BIS Suspends License Exceptions for Hong Kong
Effective June 30, the Bureau of Industry and Security (BIS) is suspending all license exceptions for exports to Hong Kong that provide differential treatment than those available to the Peoples Republic of China. Shipments of items subject to the Export Administration Regulations (EAR), 15 CFR Parts 730-774, that are no longer eligible for a license exception that were on dock for loading, on lighter, laden aboard an exporting or transferring carrier, or en route aboard a carrier to a port of export or reexport on June 30, 2020 for export to Hong Kong, reexport to Hong Kong, or transfer within Hong Kong, may proceed to their destination under previous license exception. Deemed export/reexport transactions involving Hong Kong persons previously authorized under a license exception prior to June 30, 2020 may continue to be authorized until August 28, 2020 after which a license will be required. Exporters, reexporters, or transferors (in-country) availing themselves of this 60 day savings clause must maintain documentation demonstrating that the Hong Kong recipient was hired and provided access to technology eligible for Hong Kong under part 740 prior to June 30, 2020.
BRI USA Office Holiday Closure
All BRI USA offices will be closed in observance of Independence Day on Friday, July 3. Offices will reopen on Monday, July 6.
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As a valued customer, we hope that you will continue to trust us to source the best options for your supply chain needs now and into the future. Should you have any questions regarding USA News, please feel free to contact your Customer Solutions Representative.
Keeping you updated,
BRi Customer Solutions Team
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