Featured Headlines:
301 Exclusion Extensions Within a Hair’s Breadth
USMCA Protecting The Back Pocket
301 Exclusion Extensions Within a Hair’s Breadth
- Last week, the Office of the U.S. Trade Representative (USTR) announced that it will extend Section 301 tariff exclusions on medical products used to treat COVID-19 for an additional 90 days.
- The 81 exclusions were originally set to expire on November 30, 2022; however, the exclusions will now apply to products meeting the specified criteria until February 28, 2023.
- All importers who have an eligible product are able to claim an exemption under the exclusions, regardless of whether the importer filed an exclusion request. Please contact our compliance experts with any questions or for assistance with the exclusion process!
- Click here to view the Federal Register Notice.
USMCA Protecting The Back Pocket
- Beginning January 1, 2023, certain apparel items of Chapter 62 that are made of blue denim fabric and contain at least one pocket will become duty-free under the US-Mexico-Canada Agreement (USMCA).
- In order to be considered for duty-free treatment, the apparel must fall under subheadings 5209.42, 5211.42, 5212.24 and/or 5514.30 for pocket bag fabric that is formed and finished in one or more of the USMCA countries (US, Mexico and/or Canada).
- Additionally, apparel shipments must be able to prove the country of origin for the pocket bag textiles and provide a completed USMCA to qualify for the duty-free rate.
- Click here to view CSMS #54152243.
Railmate Behind Us?
- As expected, the US House of Representatives used legislation to force the four rail unions (out of 12) that had previously rejected ownership’s offer to accept the deal. In a nod to labor, the House added a second bill calling for seven paid sick days per year; the number of leave days was the most contentious aspect of final negotiations.
- Promptly, the US Senate passed the first bill, pushing for acceptance of the labor deal brokered by the Biden Administration and calling for 24% wage hikes. However, the Senate rejected the secondary bill calling for seven paid sick days. Rail workers are reportedly “pissed,” and they are trying to decide which political party to blame, since that is the new American way.
- All kidding aside, it is unclear if we can expect illegal strike actions, slowdowns, or other less obvious forms of labor action after the leave portion of the new offer failed in the Senate.
- Just an hour ago, President Joe Biden signed the legislation into law. And, all but 115,000 of us emitted an audible sigh of relief.
- A US railroad strike would have immediate and dangerous consequences for inflation, supply chain costs and efficiencies, and the reliable supply of fuel, food, and water. As we enter winter, it could easily be suggested that human lives were at stake here.
- With the House voting 290-137 and the Senate voting 80-15 to avoid this crisis, have we entered the dawn of a new era where gun violence, American “education,” responses to viruses, climate change, North Korea, Russia, and all forms of government spending will be addressed with thoughtful, adult collaboration?! Yeah…no.
UP Demurrage Up or Down?
- At the peak of the madness after the madness—known to most of us as “rail congestion”— several railroads had to offer 14-day caps on demurrage to offer even a slender semblance of fairness to shippers. Since two weeks is already several thousand dollars, one might argue that these caps are like offering somebody a bagel after striking them with your car… but that’s just showing off our metaphorical prowess, gentle readers!
- Well, effective November 28th, the UP will no longer cap demurrage for the following rail hubs: Dallas, Denver, Houston, Memphis, Salt Lake City, St. Louis, and Council Bluffs, Iowa. While we are skeptical about UP’s justification, motivation, and plain ol’ chutzpa overall, we do think Council Bluffs shippers can manage to pull their containers on time.
- Here’s the thing: what starts rail congestion and train bunching? Poor efficiencies at rail depots connected to ocean ports, that’s what. And where does the VAST majority of the cargo for all these cap-less rail gateways originate? Yup, LA/Long Beach.
- So, LA/Long Beach must be kicking—blank—and taking names for rail efficiency, right? (Wrong!)
- Check this out: in LA/Long Beach, the average container dwelled between 3 and 3.5 days for October-November before exiting the port by truck; not bad! For rail, the number swells to 12-14 days! Let’s add some more dirt: roughly 10% of truck moves sat on port for longer than five days the last two months, but that number eclipses 60% for rail-bound containers. Come on, man!
- The only good news here is that the UP is no longer grounding and stacking containers at the now cap-less rail gateways. This is actually pretty good news. And yes, you shippers need to go get your boxes (or have us do it for you!).
- Guess where UP’s 14-day demurrage cap is still in place? Yes! Chicago, El Paso, and Kansas City!
- As a 3PL, we can confirm that we spend at least four hours of labor for every single container our loyal customers ship to KC, and our profit can only be measured in negative numbers. The joy! The bitterness! Hey, we still love you, yes, every single one of you.
Why Freighters are Greater
- Many of us (yes, you too) have been thinking that the grand return of passenger air traffic will solve all capacity woes for air cargo, and we will enjoy great rates until our grandchildren are forced to move to Mars or Jupiter. Think again, dear dreamers!
- Boeing, which has billions of investors to please (just sayin’), issues a twice a year World Air Cargo Forecast (WACF). The latest edition forecasts 60% growth in the global number of active air freighters in the next two decades. By 2041, the WACF predicts that nearly 1,300 new production aircraft and 1,700 converted freighters will be required to help lift all that profanely profitable airfreight.
- Why can’t we use all that returning belly space? Right-ho, sensitive reader! That is the burning question!
- The obvious reason is that 90% of the air cargo industry’s revenue is derived from the deployment of the main-deck freighters within airline fleets. We suspect that this number has been significantly sweetened by Covid’s withering consequences for belly space, but a closer look reveals a more interesting story. Tell us more, Shapiro! You bet, but please don’t interrupt!
- Firstly, more than half of passenger belly capacity does not serve key cargo trade routes. This stands to reason since factories and distribution centers—though vital to human commerce and existence—rarely serve a nice French white to accompany that scampi in that beautiful bistro by that beautiful water. Quite rarely, really.
- Secondly, a freighter is easier to plan, to load, and to serve with labor.
- Thirdly, the schedules for twin-aisle passenger routes align poorly with shipper timing requirements. (Let’s be honest here; this feels like a solvable problem, no? Shift the cognac snifter sniffing by 90 minutes and make some extra cargo money, airlines!).
- Fourthly, passenger belly space is either impossible or a poor choice for project cargo and/or hazardous materials—which are critical air cargo sectors to say the least. Also, as 3D printing and AI take over the entire world, all air cargo will be hazardous. Yeah, we totally made up that last bit, but who’s to know, really?!
- Finally, rascals like this writer, known to John Q. Public as “freight forwarders,” prefer to consolidate clients’ cargo on pallets to rake in the really big bucks. Single-aisle passenger craft just won’t do for pallets, intelligent readers.
- From a more editorial perspective, we believe that the cargo operations of airlines have simply become more nimble, creative, and effective during Covid. Yesterday’s 50% on freighters and 50% inside the bellies of the passenger beasts may well be yesterday’s news. We anticipate something like a 60/40 freighter to passenger craft mix and soon.
- Freighters may only be 8% of the global air fleet, but this is a truly mighty 8%, and will only become more significant in the coming years!
Loose Odds, Ends, and Trends
- Everyone’s favorite Danish giant, A.P. Moller-Maersk, broke up with everyone’s favorite American giant, IBM Corporation. It is not yet known how IBM feels about it, but we did send flowers. The two have ended a joint venture to build a global blockchain platform aimed at enhanced cargo tracking and digitizing shipping documents/communications.
- The cleverly named TradeLens simply did not pay the bills as fast as the costs were coming; or, as Maersk put it, “the level of commercial viability necessary to continue work and meet the financial expectations as an independent business.”
- South Korea’s cargo truckers commenced a general strike protesting their exposure to surging fuel costs. They are demanding that the government develop a freight rate system that ensures basic living wages.
- We witnessed the same in Europe months ago, and it seems that the American system of adding “fuel surcharges” is not so simple in Korea and beyond.
- Unfortunately, a second round of negotiations failed yesterday. As of this writing, South Korean ports are essentially at a stand-still, costing their economy over $220 million per day.
- Apparently, there IS a mountain high enough! And, that mountain is made up of empty containers stacking up in China. Volume weakness across all trade lanes has essentially reversed the acute equipment imbalance we witnessed until June of this year.
- It is much less clear if shippers believe there “ain’t no valley low enough” for rates after supporting record carrier profits for three years. Rates have tumbled in nearly every single global trade lane in Q3 and into Q4.
- One of the few bright spots for ocean carriers has been North Europe to the US East Coast, where spot rates have been resilient. However, as one might expect, several carriers are re-deploying capacity to capture that relatively more profitable freight. This added capacity will inevitably put downward pressure on rates.
- As one of our competitors put it, “just as haters gonna hate, carriers gonna be carriers.”
- On a slightly more serious note, reductions in port congestion and equipment shortages/imbalances on both sides of the Atlantic should also gently nudge rates down for this key route.
- Interestingly, while we talk about LA and Long Beach about 76% of the time, New York has emerged as the US’s largest single port again, after spending years in third place. This is expected to be temporary, but dramatically shows how much Transpacifc volumes have diminished.
- Every single New Yorker has commented about how little they are surprised to be back in first place.
- Shippers to and from the Indian Subcontinent suffered terribly during the Great Cargo Surge as inter-Asia services increasingly skipped ports in India, Bangladesh, and Pakistan to focus on faster, more profitable work in Asia. Additionally, even direct-call mother vessels struggled mightily to maintain viable transits due to the congestion created by irregular inter-Asia services.
- As volumes markedly decrease from Asia, so increases steady and reliable service levels for the India Subcontinent. Rates are falling as well—though not yet at the plunging, “hold on for dear life, tell the wife and kids I loved them” pitch as Asia.
