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Tariffs push carriers to expand services from Southeast Asia
Source
American Shipper
Post Date
07/03/2019

Trans-Pacific carriers this year have added four weekly services from Southeast Asia to North America, demonstrating that they anticipate the Trump administration’s 25 percent tariffs on imports from China will be in effect for some time, according to the Sea-Intelligence Sunday Spotlight.

Carriers have also reduced transit times by one to two days from Southeast Asia and have increased the number of origin port calls in Southeast Asia to 38 from 33 last year at this time, indicating a comprehensive approach to serving the region. Southeast Asia is expected to experience continued growth in manufacturing and exports as the tariffs, which began at 10 percent last summer, have already influenced several manufacturers to expand outside of China.

However, with the summer-fall peak shipping season just now ning to take shape, Alan Murphy, CEO and partner at Sea-Intelligence Consulting, added a cautionary note about the data. “This does not conclusively prove that carriers have shifted their trans-Pacific networks from China to Southeast Asia ports, but it does strongly suggest it,” he said.

Further shift of manufacturing to SE Asia may be limited
Sea-Intelligence cited several unknowns about the increase in Southeast Asia services that emerged in January. Right now, there is no way to determine what share of Asian shipments to North America will continue to be sourced from China if the 25 percent tariffs that took effect on May 10 remain in effect this season. It is also unclear what share of imports from China will simply “disappear” because margins are too small to permit a shift to Southeast Asia for import sourcing. Further, there is no solid information available as to how quickly and to what degree manufacturers can shift production to Southeast Asia if the tariffs remain, and which products factories in that region are able to manufacture.

Additionally, with the peak season at hand, how flexible can carriers be in adjusting to an escalation of exports from Southeast Asia if the tariffs remain in effect at least through the of the year? Can carriers add more capacity to Southeast Asia if the remaining $300 billion in Chinese products not yet under tariff are included on the so-called List 4 that may be implemented this summer if this week’s meeting at the G20 Summit in Tokyo between the presidents of the two countries fail to the trade war? Carriers have stated that “network changes are very complex and cumbersome processes that are not done without deliberate consideration of the long-term consequences,” Murphy said.

It is likely that the total transaction cost for North American retailers, including the cost of production in Southeast Asia and ocean transportation, will be higher than importing the same merchandise from China if the tariffs go away, he said. To make a permanent shift to Southeast Asia sourcing, North American importers would have to be convinced that the tariffs would “remain in place for some exted period of time for it to make sense to shift to Southeast Asia,” Murphy said.

Trans-Pac carriers moved quickly to expand services
Late last year, carriers demonstrated their ability to move relatively quickly because the new services from Southeast Asia began to call in January — several months after the 10 percent tariffs took effect — and with the expectation that the next round of 25 percent tariffs was going to take effect on Jan. 1, 2019, as originally announced by the administration.

Carriers apparently expect that the Southeast Asian services will remain in effect at least through the peak season, regardless of what happens with the tariffs, because they have invested in improved transit times and port-pair diversity.

“When we compare the 2019 peak season with the 2018 peak season, we find that the number of services connecting Southeast Asia ports with North America has increased from 14 [to] 18, or an increase of 28.6 percent,” Sea-Intelligence said. “We also find that the number of Southeast Asia port calls on trans-Pacific services per week increased substantially, from 33 per week in the 2018 peak season to 38 in the 2019 peak season, or an increase of 15.1 percent.”


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