Monday, 14 October 2019 | 22:13
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Four Ways The U.S.-China Trade War May Affect Shipping And Logistics In 2020

Tuesday, 08 October 2019 | 16:00

The ongoing trade war between China and the United States has already begun affecting the economies of both countries — none more noticeably than in the shipping and logistics industry. In 2019 alone, we have seen Chinese imports drop by nearly 6.5%, while the United States shows a 10% drop in exports. IHS Markit currently predicts a drop in the global real GDP by 0.8% by the end of 2019, and 1.4% in 2020 — numbers that teeter on the threshold of a global recession.

With both sides continuing to posture and threaten with increasing tariffs and no end in sight, this trade war will likely continue into the upcoming years with no clear winner expected, causing a potentially dramatic reshaping of the shipping and logistics industry.

U.S. importers have already begun switching their production from China to other countries like Vietnam, India, Malaysia and the Middle East, and this trend may even accelerate in upcoming months and years.

Assuming our predictions are correct, let’s explore four ways the U.S. trade war may impact shipping and logistics over the next year.

1. Diversifying Import Sources

As importers observe and adapt, they will quickly see that buying from a single source could be a lethal mistake for their businesses in the long term. During the Los Angeles longshoreman strike of 2012, many importers switched from the Port of Los Angeles to a number of East Coast ports to avoid paying thousands of dollars in detention fees. Even after the strike was resolved, those importers continued to utilize multiple ports as a safety net.

In the U.S.-China trade war, we already observe a repeat of these trends as some U.S. importers have begun switching their production from China to other countries. Even when the trade war slows, these importers and exporters will continue to source from several locations to reduce their risks.

For the shipping and logistics industry, this shift translates to smaller orders with increased numbers of shipments to more locations, countries and cities, providing an opportunity for midsize NVOCC Freight Forwarders to become more competitive with steamship lines and larger NVOCCs. Where it once made the most sense for one large importer to transact business to and from a single country, smaller orders from multiple locations will require more involvement from the NVOCC/Freight Forwarder market.

2. Increased Consolidation In The Logistics Industry

With the sourcing map becoming more complex, and with increasing numbers of smaller orders to manage, we’re likely to see more consolidations within the logistics sector as companies attempt to simplify their supply chains. Instead of contracting multiple companies for storage, cartage, ground transport and shipping, for example, we may see logistics providers taking over these responsibilities themselves to improve oversight and reduce risk.

As Matt Gunn of Industry Week points out, “Visibility is a fundamental part of managing risk. Businesses that have end-to-end visibility of their supply chain are able to react to change more quickly and reduce the harmful effects of a breakdown somewhere along the way.”

We are already seeing increasing consolidation, but we can expect to see it peak in 2020 as a result of the trade war.

3. Increased Focus On Foreign Trade Zones

As tariffs begin taking effect, companies naturally begin looking for opportunities to bypass or avoid them. The United States currently has 200 foreign trade zones — entry points where domestic and foreign products enjoy the same customs treatment — and China has recently announced six new pilot free trade zones in addition to existing ones, according to China.org.cn. Companies having zone status are likely to experience a boon as these foreign trade zones come into the spotlight, at least for the short term or until their respective countries decide to change the rules.

4. Growth In Domestic Transportation

For some companies, the new tariffs will simply make it more feasible to source from domestic suppliers whenever possible. As these companies look within their own shores, we can expect to see increased growth among logistics companies focused on domestic transportation, either overland or to/from ports within the same country. It may also trigger these companies to seek out more innovative and streamlined solutions to provide better service as domestic travel routes become more congested. These innovations are likely to remain in place even after the trade wars fade.

Turbulent times such as these can have a significant impact on global economies in general, and shipping and logistics in particular. However, supply and demand remain as high as ever, and this means the companies most likely to come out ahead in the U.S.-China trade war are those who are willing to innovate and adapt. The changes we foresee for 2020 won’t be easy for all companies to navigate, but they will be the natural next steps for the ongoing survival of shipping and logistics in the years to come.
Source: Forbes

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