The Friday Report: July 20, 2018

U.S. Ports at Record Highs but for How Long?

Across the United States, ports are reporting record volumes.  Talk and action on tariffs is increasing anxiety of manufacturers and retailers.  Eager to ensure a successful holiday season, some goods are being shipped ahead of schedule to ensure they can be in place before tariffs are imposed, whether by the U.S. government or as a result of retaliatory actions by other nations in response.

In May, automakers shipped vehicles in record numbers to get ahead of potential tariffs.  The ports of Baltimore, Jacksonville Florida and Brunswick Georgia, the three leading American ports for importing automobiles reported received 23,000 more vehicles than in 2017.  This was a 39% increase for Baltimore and 19% for Jacksonville for the month of May.

The increase in vehicles arriving in the U.S. was not preceded by an increase in sales.  American sales of some Asian and European autos such as BMX, Mercedes-Benz and Toyota are flat or in the negative this year,  Globally, automakers have been expediting delivery of vehicles to markets in which tariffs were scheduled to increase.

Although container volume at U.S. ports increased, industry experts have concerns about the longevity of the trend.  On July 18th , the CEO of the American Association of Port Authorities (AAPA), Kurt Nagle testified before the U.S. Senate Finance Committee’s Subcommittee on International Trade, Customs and Global Competitiveness.  During his testimony, Nagle voiced industry concerns that potential trade sanctions could end up costing jots at American ports and have a downstream effect on the global value chain.

 

Tariffs Target Soybeans and Increase Price of 1300 Products

It is a race against time.  Company executives bite their nails watching and waiting for news of when tariffs will be imposed and hope that the goods they need are in place beforehand.

It appears to be highly likely that shipping costs will increase.  Tariffs increase the cost of goods and this may lead to manufacturers and retailers ordering fewer products.  Fewer orders equates to reduced trade volume between countries.  With less volume, shipping costs rise on all goods.  The supply chain, trade and logistics industry will be the first to feel the effects of any trade wars.

Companies across the supply chain are bracing for tariffs and many are planning to initially absorb the added cost.  Some acknowledge that if tariffs increase beyond a certain point, the costs have to be passed on to consumers.

In a global economy, companies frequently depend upon raw materials and components from other parts of the world.  If trade wars escalate, the supply of these goods may become less stable.  Other potential consequences could be reductions in quality of goods to save money. If the supply of goods becomes less reliable, this can affect manufacturing and eventual delivery of goods to customers.  According to CNN Money, approximately 1300 individual products recently became more expensive and the list of products seems to be growing.

For its part, China reduced its commitment to purchase 366,000 metric tons of soybeans for the season which ends August 31st and dropped 2019 purchases by 66,000 tons.  120,000 of the 366,000 metric tons were sold to other countries.  Globally, China is the largest importer of soybeans with nearly one third of the world’s demand. The big winner in the soybean trade war is Brazil which is already the world’s largest shipper of soybeans worldwide.  With its extensive soybean inventory, Brazil is able to fill the gap in American soybean shipments.  Brazil had a bumper crop of soybeans this year so supply is strong.  American soybean futures dropped 14 percent in June due to talk of tariffs.

 

FDA Issues New Guidance on Recalled Medicines

The Food and Drug Administration (FDA) announced an enhanced effort to expand transparency, empower consumers and improve public health by alerting the public more rapidly whenever FDA-regulated products are recalled.  FDA issues a weekly online Enforcement Report for public information.  FDA classifies the relative degree of health hazard related to the recalled product so that consumers can better understand the risk involved and take appropriate action.

As part of the process, the FDA provides guidance to companies regarding product recall strategies especially as this relates to the type and severity of the risk involved with the recalled product.

Because developing and presenting recall classifications can take weeks  or possibly even months, the FDA now will provide a new classification of recalled products, “not-yet-classified” recalls.  This includes product recalls of human drugs, foods and veterinary products in the weekly Enforcement Report.  This will be presented while the work involving product recall classification is ongoing.

This new standard does not impact FDA protocols for working with companies to ensure timely alerts across the supply chain.  The FDA will continually monitor company actions involving recalled products held by retailers, pharmacies, grocery stores, hospitals, etc.

In addition, the FDA has already began to post early summaries of correction or removal actions that involve serious issues involving medical devices in the Medical Device Recalls Database.