West Coast Ports Still Face Risks of Trade War

The Bond Buyer - - Front Page - By Kee­ley WeB­ster

West coast port vol­umes climbed to his­toric highs as con­cern over planned tar­iffs and an­tic­i­pated price in­creases on Chi­nese goods drove U.S. ship­pers to stock­pile goods.

Now port of­fi­cials are brac­ing for a drop in vol­ume in the new year, even af­ter the Trump Ad­min­is­tra­tion and Chi­nese trade of­fi­cials agreed Dec. 2 to re­sume talks and post­pone fur­ther tar­iffs.

Credit qual­ity at most ports is closely tied to con­tainer vol­ume, so frosty re­la­tions with a ma­jor trade part­ner has the po­ten­tial to hurt. An­a­lysts had al­ready ex­pected a de­layed re­ac­tion to the trade war, as Moody’s In­vestors Ser­vice ex­plained in a re­cently-pub­lished

piece.

“Our ex­pec­ta­tion of lower vol­ume growth in 2019 re­flects the fact that some ship­ments were front-loaded into 2018, ahead of planned tar­iff in­creases,” Moody’s said.

While Moody’s said the out­look for ports gen­er­ally was sta­ble go­ing into the new year, it could turn neg­a­tive if tar­iff bat­tles es­ca­late.

“An es­ca­la­tion of the trade dis­pute be­tween the US and China re­mains the key risk,” the agency said.

The Trump Ad­min­is­tra­tion had threat­ened in Novem­ber to ratchet up trade tar­iffs on $200 bil­lion of Chi­nese goods to 25% from the cur­rent 10% by Jan­uary 1, but backed off those plans in early De­cem­ber pend­ing con­tin­ued talks.

The White House and Chi­nese of­fi­cials an­nounced on Dec. 2 that they would re­sume talks with a fo­cus on re­mov­ing all U.S. tar­iffs and Chi­nese re­tal­ia­tory tar­iffs. A dead­line has not been set, but White House of­fi­cials have said if the talks should fail the fed­eral gov­ern­ment would move for­ward on stiffer tar­iffs.

U.S. Pres­i­dent Don­ald Trump on Dec. 3 ap­pointed U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer to lead trade talks. Lighthizer, viewed as a pro­tec­tion­ist, re­places Trea­sury Sec­re­tary Steve Mnuchin in that role.

Im­ports into U.S. sea­ports had been surg­ing over usual sea­sonal pat­terns through Novem­ber in an push by re­tail­ers and man­u­fac­tur­ers to pull or­ders for­ward ahead of the new round of tar­iffs that were slated to hit in Jan­uary 1, ac­cord­ing to the Cal­i­for­nia Busi­ness Roundtable.

The West Coast Basin Con­tainer Ter­mi­nals and Ever­port Ter­mi­nal Ser­vices han­dled the big­gest ships to ever call at those fa­cil­i­ties in Oc­to­ber, Port of Los An­ge­les Ex­ec­u­tive Direc­tor Gene Seroka said in a state­ment.

The Los An­ge­les port has been see­ing

larger and larger ves­sels and every port across the coun­try has been see­ing in­creases in im­ports, said Phillip San­field, a Port of Los An­ge­les spokesman.

“But things could drop off con­sid­er­ably the rest of the year, be­cause a lot of cargo that would have come through the ports in Jan­uary and Fe­bru­ary came in Oc­to­ber through De­cem­ber to try to beat the Jan. 1 dead­line,” San­field said.

Ports in south­ern Cal­i­for­nia, Ge­or­gia and Vir­ginia re­ported dou­ble-digit growth in im­port vol­ume from Septem­ber to Oc­to­ber, set­ting monthly records as fur­ni­ture, ap­parel, auto parts and other goods streamed in, ac­cord­ing to the Cal­i­for­nia Busi­ness Roundtable.Though num­bers spiked in Oc­to­ber at the Port of Los An­ge­les, over­all vol­umes for the first 10 months of the year showed a 1.1% in­crease to 7.7 mil­lion TEUS, com­pared with 2017 when the port set an all-time an­nual cargo record.

Through Novem­ber 2018, loaded ex­ports in 2018 are about 1.7 mil­lion TEUS, which is about the same as last year, San­field said.

Port of Los An­ge­les Oak­land Mar­itime Direc­tor John Driscoll cited front-load­ing as part of the rea­son for the jump in im­ports at the north­ern Cal­i­for­nia port. He also said the strength in the U.S. econ­omy and the an­nual in­crease in hol­i­day or­ders from im­porters were fac­tors.

Oak­land’s im­port vol­ume rose 2.7% by late Novem­ber over 2017, which was a record year for con­tainer­ized cargo at the port. Im­ports from China have in­creased 5% this year, ac­cord­ing to port of­fi­cials. Ex­ports to China de­clined 33% in 2018, which was at­trib­uted to tough new Chi­nese re­stric­tions on wastepa­per ship­ments, an Oak­land ex­port sta­ple.

“We are pleased by our peak sea­son fig­ures,” said Port of Oak­land Mar­itime Direc­tor John Driscoll. “Now, we will see how tar­iffs af­fect fu­ture trade flows.”

While Oak­land’s China ex­ports have de­clined, ex­ports to other na­tions have

in­creased. Ex­port ship­ments to Viet­nam jumped 96% in Septem­ber and ex­ports to Tai­wan in­creased 37%, ac­cord­ing to port of­fi­cials.

The Port of Oak­land re­ported in Novem­ber that it is on track for its third straight year of record con­tainer vol­ume in 2018; and that all West Coast ports are re­port­ing un­prece­dented cargo vol­ume growth since mid-sum­mer.

The con­sen­sus among the 40 trade and trans­porta­tion ex­ec­u­tives that com­prise the Oak­land port’s Ef­fi­ciency Task Force was that cargo vol­ume is spik­ing right now, but could drop by Jan­uary.

The task force re­ported that ware­houses are fill­ing up as U.S. re­tail­ers im­port mer­chan­dise from Asia at higher lev­els to pre­pare for price in­creases.

Transpa­cific ship­ping lines have added more than 30 ex­tra voy­ages in­volv­ing larger con­tainer ships to trans­port higher con­tainer vol­umes.

Los An­ge­les has 1.8 bil­lion square feet of ware­house and distri­bu­tion space that is cur­rently packed with goods, San­field said.

The UCLA An­der­son Fore­cast economists said dur­ing their De­cem­ber fore­cast that a trade war be­tween the U.S. and China and the Fed­eral Re­serves nor­mal­iza­tion of rates will dampen eco­nomic growth in 2019.

While Cal­i­for­nia’s econ­omy has been evolv­ing as ex­pected, the risk of a trade war with China re­mains a con­cern, as it could ad­versely af­fect the lo­gis­tics in­dus­try, one of the fastest grow­ing sec­tors in Cal­i­for­nia this past year, said Jerry Nick­les­burg, direc­tor of the An­der­son Fore­cast.

“With re­spect to trade it ap­pears that we are in the process of en­ter­ing into an eco­nomic cold war with China,” David Shul­man, a se­nior econ­o­mist with the UCLA An­der­son Fore­cast, wrote in his De­cem­ber fore­cast. “Pres­i­dent Trump is threat­en­ing to im­post tar­iffs on up to 25% on all $537 bil­lion in Chi­nese im­ports. At an av­er­age rate of 20%, that would amount to a $107

bil­lion tax on the U.S. econ­omy.”

Though most mar­ket par­tic­i­pants “cling to the hope that a rea­son­able deal can be made,” Shul­man wrote, “we would cau­tion them to take care­ful note of the re­cent re­marks made by Vice Pres­i­dent [Mike] Pence and for­mer Sec­re­tary of the Trea­sury and Gold­man Sachs CEO Henry Paul­son, a long­time friend of Bei­jing.”

Speak­ing at the Hud­son In­sti­tute, Pence said: “Amer­ica had hoped that eco­nomic lib­er­al­iza­tion would bring China into a greater part­ner­ship with us and with the world. In­stead. China has cho­sen eco­nomic ag­gres­sion, which has in turn em­bold­ened its grow­ing mil­i­tary.”

Shul­man called Paul­son’s re­cent re­marks in Sin­ga­pore the most sur­pris­ing, as he had long cham­pi­oned en­gage­ment with China, but re­cently noted that an “eco­nomic iron cur­tain” may soon de­scend re­sult­ing in a “long win­ter in U.S.-China re­la­tions and sys­temic risk of mon­u­men­tal pro­por­tions.”

“In other words, both coun­tries are play­ing with fire,” Shul­man wrote. “In fact, China is al­ready feel­ing the pain with slow­ing eco­nomic growth and a nearly 30% stock mar­ket de­cline. There are few win­ners in a trade war with lots of col­lat­eral dam­age.”

Shul­man also ques­tioned whether the Demo­crat-led House of Rep­re­sen­ta­tives would ap­prove the USMCA Treaty that re­places the North Amer­i­can Free-Trade Agree­ment be­tween the U.S. and Mex­ico, given that Democrats have not his­tor­i­cally been free-trade ori­ented.

“Un­less cooler heads pre­vail, our fore­cast is that the risks com­ing from the trade sec­tor are all on the down­side,” Shul­man wrote. ◽

A tug­boat pulls a con­tainer ship into the Port of Oak­land. West Coast­port of­fi­cials are con­cerned vol­ume may drop early next year.

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