Trade War Threatens Port Trucking, Will Trigger Higher Prices

Written by Cathy Morrow Roberson, founder and chief analyst of Logistics Trends & Insights. This is one in a series of periodic guest columns by industry thought leaders.

For better or worse, tariffs have always been a part of the nation’s history.

The Trump administration’s plans to impose new tariffs threatens trucking, freight and logistics just as the industry is dealing with dramatically rising costs for fuel, driver pay and maintenance of increasingly more complicated vehicles.

A cash-strapped Congress made the Tariff Act of 1789 its first important piece of legislation. It raised revenue for the young federal government and protected burgeoning American industry. Fast forward to the Tariff Act of 1930, also known as the Smoot-Hawley Act, which increased duties on more than a thousand items. By the end of 1931, 26 countries had retaliated by raising their tariffs against the United States. The result? International trade almost ground to a complete halt and the Great Depression deepened.

Cathy Morrow Roberson

That taught many countries, including the U.S. to appreciate the benefits of free trade but hasn’t ended the use of tariffs for protectionism or punishment purposes.

Now the Trump administration slapped new tariffs on Chinese goods worth $50 billion. Trump is threatening raising the tariffs on automobile imports from Germany and other nations to 25 percent. The tariff now is 2.5 percent for passenger cars and 25 percent for trucks.  The president also plans 25 percent tariffs on steel imports and 10 percent on aluminum. Our trading partners are threatening to retaliate by slapping tariffs on a wide range of U.S. apparel, wine, agricultural and other exports.

The world economy has changed profoundly since our first session of Congress and even the Great Depression. Global trade has taken off with the rise of outsourcing, the opening of emerging markets and technological advances. For 2018, the World Trade Organization projects a 4.4 percent world merchandise trade volume growth rate following a 4.7 percent rate in 2017, the strongest rate since 2011.

All of this, however, can tumble with the latest introduction of U.S. tariffs targeted toward China, the European Union, Canada, Mexico and others. As the world’s largest importer, the U.S. will need to prepare for retaliation in the form of perhaps fewer and costlier imported goods.

The logistics community will, of course, be hurt. New tariffs put up to 7 percent of Asia-to-U.S. shipping at risk and impact 1 percent of total global shipping, according to Drewry, a maritime research consultancy.

The California port cities of Long Beach and Los Angeles will particularly feel the hit as they are considered the gateway for Asian imports. Almost half of all U.S. imports from Asia move through these two ports. China is the largest partner of the Port of Los Angeles. About $145 billion in trade between China and the U.S. moved through the port last year. Of the top trade lanes, Asia represents 93 percent in terms of trade value for the port. The Port of Long Beach is dependent on Asian trade as well, with over 90 percent of trade from East Asia and China the leading trade partner.

As noted by the ports, the regional economic impact is strong:

  • More than $5 billion a year in U.S. customs revenues from the Long Beach/Los Angeles ports
  • About $4.9 billion a year in local, state and general federal taxes from port-related trade
  • More than $47 billion in direct and indirect business sales yearly
  • Nearly $14.5 billion in annual trade-related wages

It’s not only U.S. West Coast ports that could feel the pain of tariff retaliation, East Coast ports will as well. Almost 80 percent of Savannah, Georgia’s imports and half of its exports, in terms of TEUs, or 20-foot equivalent unit containers, are from Asia. Savannah is booming with record monthly TEUs being regularly reported.

Rail and trucking will also be impacted. International intermodal moves increased about 5 percent in 2017, and some rail operators, despite trade concerns, still plan to grow international intermodal. For example, Canadian Pacific Rail has expanded its routes into the U.S., connecting the Canadian West Coast to such locations as Chicago, New Orleans and the Ohio Valley. Representing 21 percent of its total freight volume, intermodal is important to its growth strategy.

Back in the U.S., 13 percent of Union Pacific’s revenue is driven by trade with China because its trains carry the goods inland from the ports.

The trucking industry, already beset with such problems as declining drivers and regulatory requirements, including electronic logging of driving hours and limits on how long truckers can drive daily and in a week, will also feel the pain. Cross-border trade with Canada and Mexico is at risk. With NAFTA already in a questionable state, tariffs could financially impact revenues of leading U.S. trucking firms.

“Cross-border trade supports over 46,000 U.S. trucking jobs, including 31,000 U.S. truck drivers, and generates $6.5 billion in revenue for our industry annually,” said Bob Costello, chief economist for the American Trucking Associations. “As the U.S. renegotiates this agreement with Canada and Mexico, we urge them to keep the tremendous benefits to our economy and our industry in mind.”

There’s much speculation concerning what tariffs and a potential trade war could mean for the U.S. Based on basic economic theory and past history, the result could mean more regional versus global trade with supply chains focusing on domestic transportation and warehousing.

However, with supply chains entwined throughout the world, it’s not that simple.

Consumers and business owners will probably be willing to pay more for imports as the trade battle wages on as long as the U.S. economy remains healthy.

The Global Port Tracker report released by the National Retail Federation and Hackett Associates seems to follow this line of reasoning with its latest predictions. It expects imports at the major retail container ports in the U.S. to set record numbers this summer and fall.

The numbers forecast for July, August and October would each beat the previous record of 1.83 million TEUs imported during a single month, which was set in August 2017.

Let’s hope the logistics market and the overall U.S .economy remains strong during these threats of trade wars, unbundling of trade agreements, tariffs and such. In the short-term, U.S .consumers and business owners may be willing to continue to pay for higher-priced imports. However, as prices increase the risk of inflation goes up. That eventually triggers a recession and that could have a devastating effect on not only the U.S. but globally as well.

Editor’s note: Cathy Morrow Roberson is the founder and chief analyst of Logistics Trends & Insights, an Atlanta-based logistics and supply chain consulting firm. Roberson has more than 17 years of experience in the logistics market, including 10 years with UPS Supply Chain Solutions.

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