Featured Headlines:
Biden Raises the Tariff Roof in Russia
US Pivot Exercise on Chemical Exise Tax
West Coast Laboring Through Negotiations
Biden Raises the Tariff Roof in Russia
- This week, President Biden issued an Executive Order that will increase Column 2 tariff rates to 35% on more than 570 groups of Russian products effective July 27, 2022.
- The action will also move certain Belarusian imports into Column 2 rates; however, the changes will not affect any previously existing bans on Russian imports.
- Additionally, Biden called on Congress to work on finding a way to send the revenue collected from the tariffs to help support the Ukrainian economy.
- The list of products subject to the higher duty rate has yet to be announced; however, officials said it will soon be published in an annex in the Federal Register.
- Click here to view the official White House Statement.
US Pivot Exercise on Chemical Exise Tax
- The Infrastructure Investment and Jobs Act (IIJA)— which was originally signed into law last November— reinstates the Superfund excise tax on certain chemicals and imported chemical substances beginning July 1, 2022 through December 31, 2031.
- Importers will need to report the Superfund chemical taxes to the Internal Revenue Service (IRS) via Form 720 – Quarterly Federal Excise Tax Return and Form 6627 – Environmental Taxes; US Customs and Border Protection (CBP) is not responsible for collecting the excise tax.
- For more information check out this helpful taxpayer FAQ from the IRS.
US Railroad Hodge
- In Southern California, an alarming 50,000 containers and counting are dwelling for 9 days or more due to rail congestion and inefficiency. US shippers simply must wonder if a successful ILWU negotiation will be enough to ensure a smooth-operating domestic supply chain in the future.
- In similar news, a worsening chassis shortage in Dallas has badly clogged the BNSF Railway terminal. Because the ramp is not a grounded facility, some 2000 containers are basically blocking normal operations. Chassis providers TRAC and DCLI have indicated that average chassis dwell in Texas now exceeds 7 days—which is more than 33% longer than it was 3 months ago; and more than double the average dwell in 2019 (3 days).
- The Federal Maritime Commission (FMC) has urged regulators to reject a proposed merger of Kansas City Southern and Canadian Pacific Railway, arguing that the move will ultimately hurt US ports and intermodal rail services by diverting more cargo to Canadian ports.
- Interestingly, many shippers disagree with the FMC, since the merger would improve access to the American Midwest from Vancouver, Canada and Lazaro Cardenas, Mexico.
- US distribution centers have noted 25-44% transit increases for all cargo handled by both rail and truck before delivery.
Domestic Trucking Podge
- Despite the slowing expansion of US gross domestic product (GDP) and consumer inflation jitters, the Less-than-Truckload (LTL) trucking industry expects rates to rise and remain elevated, even if the US slips into recession.
- Demand for LTL remains powerful, a credit to its occasional ability to thrive in times of broader congestion and supply chain inefficiency. Remember— when international freight is late, LTL is often the best means to accelerate cargo farther downstream.
- In 2022, LTL price indices have risen approximately 4% each month and are up a whopping 34.1% from 2021. Intelligently, LTL carriers have established terminals closer and closer to US ports to take advantage of transloads and emergency shipper needs.
- Despite some recent progress, Kansas City and Memphis have joined the “usual suspects” as markets requiring two weeks lead-time to secure uncontracted drayage; and after another week of major congestion and equipment dislocations, those “suspects”— New York, Norfolk, Miami, Houston, Los Angeles/Long Beach (LA/LGB) and Seattle— have broken their already dubious record!
Global Grab Bag
- The North Atlantic Treaty Organization (NATO) breathed a sigh of relief this week after Turkey, Sweden, and Finland were able to forge an agreement, clearing the way for Sweden and Finland to join NATO. Many analysts called the deal a win-win since Turkish President Recep Tayyip Erdogan is in dire need of positive news, as his nation faces inflation levels nearing 70%. Many analysts expect trade to increase within NATO and between the US and other NATO members given hostilities with Russia and the possibility of China supporting Russia.
- Watch those bunker fuel surcharges soar…the price for very low Sulphur fuel oil has increased by 64% since January!
- While Americans may be focused on decreasing rates from China, the United Nations Conference on Trade and Development (UNCTAD) has indicated that global shipping costs, including fuel, are rising again due to the conflict in Ukraine. UNCTAD contends that the war has reversed the temporary decline in shipping prices, when viewing transportation globally.
- As more and more shippers mis-declare cargo weights, Japanese powerhouse ONE has announced a $2000 fine for all bookings that deviate by more than 3000 kgs as expressed on Verified Gross Mass (VGM) documentation.
- MSC just announced another standalone service on the transatlantic trade lane that will loop between Antwerp, Rotterdam, Freeport, and Veracruz— which marks the fifth non-2M service launch in the lane since April! The world’s largest carrier already dominates 50% of the Atlantic market share and has amassed 200 secondhand vessels in two years; so, capacity is certainly not a problem for the Swiss giant!
Air Lines in the Sand
- Lufthansa has been forced to bring six jumbo A380’s back on-line as passenger and cargo demand lines soar (pun intended). Additionally, Boeing was forced to delay delivery of several jumbo 777s until 2025 due to broader production line and supply chain delays.
- In related news, Lufthansa publicly apologized for an overall degradation of service and schedule reliability. Typically, air carriers draw the line at a public admission of guilt! The carrier announced, “We can only apologize to you for this. In the coming weeks…the situation is unlikely to improve in the short term.”
- Effective March 1, 2023, all air carriers, postal operators, freight forwarders, and couriers must submit a complete entry summary declaration (ENS) before all air cargo arrivals and transfers in the EU. The EU’s new Customs pre-arrival security and safety program has been in the works for months and picked up speed after the conflict in Ukraine.
- As Covid lockdowns created what amounted to a cross-border embargo for Hong Kong, Cathay Pacific put its air cargo on ocean feeder services to connect China and Hong Kong. In a fascinating strategy, Cathay utilized the slowest mode of transportation to optimize the fastest. The line in the sand for Cathay was 20% utilization of freighters during Covid, and the highly creative ocean solution allowed them to at least improve those utilizations.
- After Covid forced airlines to cut back staff and/or hours, the current boom in passenger travel has crippled airline operations and fueled labor strife. Air France had to cancel 85 flights in a single day after workers walked off the job. It is painful to see airlines cancelling so many flights after losing so much money since 2020.
- A poignant example: Air France passenger volume was up 267% in May 2022 vs. 2021, but that was still 26% lower than pre-pandemic levels. How does an airline line-up staffing to deal with such peaks and valleys?
- Despite the Lufthansa news, global air cargo demand has declined for three straight months. Most insiders cite worldwide inflation, unstable fuel prices, and the Ukraine war as the main causes of cargo constriction.
- The World Trade Organization (WTO) has diminished its forecast for merchandise trade growth from 4.7% to 3% for 2022. The WTO expects a modest 3.4% growth for 2023.
West Coast Laboring Through Negotiations
- With approximately half of American imports and exports transiting the US West Coast, the stakes could not be higher for this year’s contract negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). So far, only one thing is certain: a new deal will not be signed before the July 1 expiration of the current contract.
- More than 22,000 workers are represented by the ILWU in 29 West Coast ports, and some 70 companies represent the PMA. The two organizations did release a joint statement promising that there would be neither a strike nor a lock-out. With the US still recovering from a 24-month cargo surge and resulting port congestion, a new contract is imperative especially in the broader context of US inflation.
- One could argue that the stakes are just as high for President Joe Biden as we watch his approval rating decline, most probably because of that same worrisome inflation. In fact, this June Biden became the first sitting President to directly participate in ILWU negotiations.
- Now, there are frequent rumors of increasingly hostile relations between US railroads and their workforce. Under government pressure to expand employment and nationwide coverage, the railroads and the US supply chain can hardly contend with a rail strike.
- As we look around the globe, transportation labor unrest is all but rampant. From trucker strikes in Spain and South Korea, to rail disruptions in Canada and the UK, to a combination in Germany, global inflation has provoked transportation workers to seek better wages.
- While most pundits expect at least a temporary deal for the ILWU, there are also whispers of a demand to double wages for dock workers. It is also true that the last major port disruptions and the worst in US history (1972) happened on the sunny West Coast.
- There are two words none of us want to hear: “Taft-Hartley.” This Cold War era law allows the federal government to call for an 80-day cooling off period should negotiations between ownership and labor deteriorate enough to imperil the US economy. The last use of Taft-Hartley was by George W. Bush in 2002, and Richard Nixon was forced to do the same in 1972 during the longest port strike in US history.
