Longer US shutdown equates to more cargo pain points

The US Customs and Border Protection headquarters shows little activity, due to the partial government shutdown.

The US Customs and Border Protection headquarters shows little activity, due to the partial government shutdown.

by Ari Ashe, Associate Editor for JOC.com | Jan 16, 2019 5:18PM EST

While the partial US government shutdown isn’t disrupting the clearance of cargo, customs brokers are increasingly worried that smaller pinches, ranging from the proper coding of commodities to errors in paperwork, will become frequent and larger if federal workers remain furloughed much longer.

There is also a possibility that port authorities would have to shell out additional money to pay US Customs and Border Protection (CBP) for overtime and extended weekend inspections since the shutdown coincides with the Chinese New Year surge of volume. Reimbursing CBP is not an issue that only occurs during a shutdown. The Section 559 Program was enacted in 2014, allowing CBP to be reimbursed by port authorities for extra hours on the job.

John Young, director of surface transportation policy for the American Association of Port Authorities (AAPA), said that the shutdown only exacerbates the situation. The line between what constitutes overtime hasn’t changed during the shutdown, but Young said it makes a tenuous situation worse.

“It exacerbates everything. There is just a lot of uncertainty right now,” he said.

This direct impact is an ‘if,’ however, because Young hasn’t seen any evidence to suggest the shutdown translated into more reimbursable hours.

The Food and Drug Administration (FDA) is funded, so it continues to operate normally. The Environmental Protection Agency (EPA) has minimal staff working on clearances and pre-arrival approvals for commodities in their jurisdiction, such as pesticides, but CBP is conditionally releasing FDA and EPA cargo to maintain fluidity through terminals.

Nuisance, rather than paralyzing problems, so far

The problems occuring are nuisances rather than paralyzing right now. Paperwork filed in CBP’s automated system, for example, isn't always going through properly and is causing logistics providers to spend time digging for answers on their own.

The AAPA said that ports are having difficulty getting reimbursed for grants given by the Federal Emergency Management Agency, US Department of Transportation, US Maritime Administration, and EPA covering issues such as port security, infrastructure rebuilding, maintenance and repair, and terminal expansion.

“The immediacy of having personnel to clear freight and do inspections are first and most critical. From a scale standpoint, they were minor nuisances and have become nagging concerns for our members,” said AAPA spokesperson Aaron Ellis.

He said another port has been unable to receive the permitting necessary from EPA and the National Oceanic and Atmospheric Administration to conduct maintenance and repairs.

Another AAPA member reports that a local tug boating company cannot bring in new hires to help guide containerships into terminals because there is no one available in Washington to process the necessary credentials to be a mariner.

These are annoying situations, and in some cases cause costly delays to port authorities and companies connected with the ports, but none will completely shut down cargo flows.

Customs brokers — proper paperwork filing a must

For customs brokers, the issue tends to revolve around properly filing paperwork with CBP.

Jan Fields, corporate director with John S. James Co., said the company has run into issues reporting trade data to the federal government on commodities in which the rules changed on Jan. 1.

“CBP has an update that tells us when you’re moving X, you must report in units of Y, but they cannot send it out because employees are furloughed. The information is in their system, so we can find the information, but it takes us extra time when we have to search for the answer,” she said.

The issue is particularly troubling for exports because if they don’t properly file the data, the computer system will generate an error.

“When you export an item, you have to transmit information to the US Census on the product. Any classification number valued over $2,500 requires you report the overall value and reportable quantity. When you report the information, you receive a transaction number and put it on the ocean bill of lading. The carrier cannot take the container without that information,” Fields said.

She said there haven’t been any cases yet in which an export was unable to be placed on a vessel, but it’s an issue that would become increasingly likely as the shutdown continues.

There also haven’t been any recurring issues from importers filing for a release of cargo through customs, but brokers are worried problems will occur and no one will be available to resolve them.

For now it remains a wait-and-see situation. Cargo owners are worried their goods will get stuck in a bureaucratic abyss during the shutdown, but so far containers appear to be moving normally for a January.

US maritime taking a hit as shutdown drags on

US_Coast_Guard+shutdown+credit+USCGmil.jpg

By John Gallagher on January 13, 2019 for FreightWaves.com

With no end in sight to the partial government shutdown, there’s growing concern that the ability to move water-borne freight could shift into crisis mode the longer the shutdown continues.

That’s because much of the work that gets done behind the scenes in the US maritime industry is done by civilian employees – most of whom are furloughed. Also, while much of the regulatory and enforcement responsibilities fall on the shoulders of active duty U.S. Coast Guard personnel, they’re the only branch of the military that is being required to work without getting paid.

An estimated 31% of the branch’s 41,000 active duty members don’t have enough money in an emergency savings fund to cover one month’s worth of expenses, according to Congressman Peter DeFazio of Oregon, Chairman of the House Transportation & Infrastructure Committee, who introduced a bill this week that would provide funding to ensure they are paid during the shutdown.

“We are asking them to do their job serving and protecting our communities, which sometimes means life or death situations, without pay,” said DeFazio’s colleague, Congressman Kurt Schrader, in a statement. “Meanwhile Congress can’t do its number one job. What kind of message is that?”

The Coast Guard is vital to the movement of foreign and domestic freight in and out of port areas – particularly during severe weather, when it is required to make crucial decisions of when and how long to close and open cargo ports.

The cumulative effect of furloughed and unpaid personnel will start to be felt in actual freight operations the longer the shutdown continues.

“Active duty Coast Guard will miss their January 15 paychecks if there’s not an appropriations bill enacted, and that will have real effects on their lives and how well they’re able do their jobs,” Jim Sartucci, a government affairs attorney with the law firm K&L Gates, told FreightWaves.

Much of the document work required to credential merchant mariners that crew US-flagged vessels – coastal tankers moving fuel from refineries in Texas to consuming areas in the Northeast, for example – is performed by civilian staff, who are furloughed and off the job.

“Over time there’s an increasing impact on the merchant mariners themselves, and to a lesser extent the vessel and vessel operations,” Sartucci noted. “Right now it’s just an inconvenience, but if this shutdown lasts for several months, it could affect vessel operations” if mariners can’t obtain the required qualifications and credentials to operate them.

Another area within the maritime sector that could be affected by a prolonged shutdown is the Maritime Security Program, overseen by the U.S. Maritime Administration, an agency within the shut-down Department of Transportation.

The program provides financial assistance to operators of 60 US-flagged vessels currently enrolled in MSP that meet certain qualifications. Participating vessel operators are required to make their ships available if needed by the Secretary of Defense during times of war or national emergency, and are paid a monthly stipend to do so.

But if a long-term shutdown threatens those payments, vessel operators may decide to leave the program or re-flag their vessel, depending on the economic pressures on a particular operator and how much they rely on the stipend to compete for cargoes.

The flow of federal money that the US maritime sector relies on to build and obtain new freight capacity, such as the Federal Ship Financing Program - known as Title XI - is also in danger of being stalled.

Title XI encourages U.S. shipowners to build new vessels at American shipyards through low interest, long-term debt repayment guarantees. Program funding also helps shipyards to modernize their facilities for building and repairing vessels. Delays in processing those loans could cause an additional financial hit to US vessel operators and shipyards.

The Federal Maritime Commission, an independent federal agency that regulates US containership imports and exports, is also closed due to lack of funding. Contract disputes on international cargo and rulemakings affecting issues such as fuel surcharges and service delays have therefore been put on hold.

As More Trump Tariffs Loom, Data Shows Grim Outlook

by Natalie Lung, Miao Han and Peter Martin, With assistance by Peng Xu, and Dennis Ting, for Bloomberg.com on January 10, 2019, at 4:11 AM CST

With seven weeks to go until a deadline that could see the U.S. ramp up tariffs on Chinese goods once again, the economic damage wrought by the months-long trade war is becoming clearer even as a pathway to a lasting resolution remains muddied.

While Chinese goods going to the U.S. initially held up in the face of higher tariffs due to so-called front-loading, their value slumped in the final quarter of 2018, according to the latest available data. For sales going the other direction, the crunch was more immediate. In both cases, further declines are on the cards if the talks fail to produce a resolution.

Tariff Consequences.jpg

Negotiators from both the U.S. and China expressed optimism after mid-level talks wrapped in Beijing this week, boosting sentiment across global markets. Still, the path forward remains unclear: Another round of talks hasn’t been scheduled, and the government shutdown in the U.S. has dominated President Donald Trump’s attention.

Both Trump and Chinese Vice President Wang Qishan were slated to appear later this month at the World Economic Forum in Davos, Switzerland, providing an opportunity for high-level dialogue. But the shutdown may yet prevent Trump’s appearance, according to a report in the Wall Street Journal.

Companies in both countries just want to see a deal get done.

“We urge both governments to use the time remaining in the 90-day negotiating period to make tangible progress on the important issues at the core of the current dispute: equal treatment of foreign companies in China, as well as China’s intellectual property and technology transfer policies,” said Jake Parker, vice president of China operations at the U.S.-China Business Council in Beijing. “Uncertainty is bad for business.”

As evidence mounts by the day that the slowdown in China’s economy is worsening, policy makers in Beijing are focusing on getting rid of the duties that Trump has leveled on Chinese goods since last year, according to a former high-level official briefed on the government’s thinking. U.S. officials appear to want to maintain the pressure of tariffs, the official said.

China’s Rekindled Deflation Fears Add to Global Growth Concerns

China and the U.S. will move ahead with trade talks as scheduled, Ministry of Commerce Spokesman Gao Feng told reporters in Beijing at a regular weekly briefing Thursday, without giving any further details over when they would take place. He wouldn’t confirm reports that Vice Premier Liu He will visit the U.S. soon to meet U.S. Trade Representative Robert Lighthizer.

Meanwhile, the economic risks are growing. Economists now see the threat of deflation in China after producer price inflation slowed sharply in December, to the weakest pace since 2016.

Trump Said to Want Trade Deal With China to Boost Stock Market

That would not only squeeze corporate profitability at home, but also put pressure on global price gains, as export prices usually follow those at factory gate. With industrial output and retail sales growth both at the weakest levels in a decade, China’s woes would also mean softer demand for imports, hurting other economies including the U.S.

A reduction in Chinese imports of U.S. goods came quickly after the retaliatory imposition of tariffs, the data show. Without a breakthrough in talks, U.S. corporations are likely to experience a deepening decline in their Chinese sales, with Bank of America Merrill Lynch analysts even seeing an “informal boycott” in place.

The full year numbers will look somewhat different, partly because China has resumed purchases of U.S. soybeans and other goods. Even if the current truce is made permanent and the tariffs are eventually rolled back, the damage to many companies may already be done.

China’s trade data for the full year of 2018 is due to be released on Jan. 14, and economists see year-on-year export growth slowing in December from November.

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The Trump administration is pushing for a way to make sure China delivers on its commitments in any deal. Trump and Xi have given their officials until March 1 to reach an accord on “structural changes” to China’s economy on issues such as the forced transfer of American technology, intellectual-property rights and non-tariff barriers.

“The hard work of addressing structural issues to create a level playing field in China do not appear to have been resolved,” said Lester Ross, a policy committee chief at the American Chamber of Commerce and also partner-in-charge at the Beijing office of law firm WilmerHale. “And China going forward will likely still want to increase the diversification of its sources of supply even for agricultural commodities.”

The 90-day time frame is a tight window in which to nail down deep changes to China’s economic model, reforms which past U.S. administrations advocated for years and U.S. lawmakers on both sides of the aisle support.

Even so, progress in talks signals that an interim deal that suspends new tariff hikes is possible, according to Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

“The earlier escalation of the trade conflict between the U.S. and China and souring bilateral relations appear to have given way to a more conciliatory approach since early December,” he wrote in a note Thursday. “However, we do not see the U.S. fully removing the specter of tariff hikes any time soon.”

US SHUTDOWN THREAT NOT YET A CRISIS

The Port of Los Angeles has not experienced any backlogs or delays so far. Credit: Port of Los Angeles

The Port of Los Angeles has not experienced any backlogs or delays so far. Credit: Port of Los Angeles

Published 10 Jan 2019 for Port Strategy

As the US partial government shutdown continues, the maritime industry has raised concerns over operational stability as security, customs and air safety workers are facing being unpaid, but ports appear yet to be impacted by the situation.

At the Port of Seattle, approximately 2,000 federal staff are used including Transportation Security Administration officers for security screening, U.S. Customs and Border Protection officers for customs processing and Federal Aviation Administration air traffic controllers, though the port said it had not experienced significant delays.

“Workers who are deemed essential to our nation’s safety and productivity deserve their full paychecks this Friday. They did not waver in their commitment to the public good. We need to pay them,” said Port of Seattle Commission President Stephanie Bowman. “This partial federal shutdown is not making our borders or our facilities safer or more secure. The Trump administration needs to end this shutdown now.”

However, the shutdown doesn’t appear to have affected port operations so far, with the Port of Los Angeles telling Port Strategy that it “has not experienced any backlogs or delays due to the partial government shutdown.”

Aaron Ellis, public affairs director at American Association of Port Authorities (AAPA), stated that “most of the services provided by the federal government to ensure the movement of goods (imports and exports) and people (primarily cruise passengers) through America’s ports are considered “essential,” so the impacts of the partial government shutdown to America’s seaports has been relatively light so far.”

The AAPA issued a warning prior to the shutdown, however, it stated that DHS inspections and any safety or emergency programmes of government agencies, including the Coast Guard, are continuing to function.

Week three

Nine US government departments are affected by the shutdown, which began on 22 December after US President Donald Trump requested US$5m in funding for a wall on the US-Mexico border, which the US Democrat party opposed, but Mr Trump refused to back down on. The resulting standoff has seen funding for salaries blocked meaning some workers being required to work without pay.

Departments and agencies on which ports depend that have been shuttered include the Department of Homeland Security (DHS) and U.S. Coast Guard, Transportation Security Administration and Customs and Border Protection; Department of Agriculture; Department of Commerce and the National Oceanic and Atmospheric Administration (NOAA); Department of Housing and Urban Development; Department of Interior; Department of Justice; Department of State; Department of Transportation; Department of Treasury and the Environmental Protection Agency.

The Port of Seattle said that state and federal laws limit what it can do to help workers, but it is looking into multiple initiatives including partnerships with local non-profit financial institutions who can offer zero-interest loans to federal employees working at the port who are not being paid.

U.S.-China Trade Talks Wrap Up After Extending To 3rd Day

U.S. and Chinese envoys extended trade talks into a third day Wednesday after President Trump said negotiations aimed at ending a tariff war were "going very well!"   Oliver Zhang/AP

U.S. and Chinese envoys extended trade talks into a third day Wednesday after President Trump said negotiations aimed at ending a tariff war were "going very well!"

Oliver Zhang/AP

by MATTHEW S. SCHWARTZ for NPR on January 9, 2019, 6:39 AM ET

After extending to an unexpected third day, trade talks between U.S. and Chinese officials have concluded, a spokesman for the Chinese foreign ministry announced Wednesday morning. Delegates to the talks have not yet revealed what specifically was discussed, or if anything was agreed to. In a Tweet Tuesday morning, President Trump said the talks were "going very well!"

Productive talks could be a boon to the economies of both countries, which spent most of 2018 mired in a trade war that imposed hundreds of billions of dollars in tariffs on each other's goods. Over dinner in Argentina last month, Trump and Chinese President Xi Jinping agreed to a 90-day tariff truce so that negotiations could take place. If the talks were successful, they could lead to discussions in Washington, D.C., between senior officials of both countries, NPR has reported.

"Asian stocks jumped after trade talks were extended for an unscheduled third day, fueling hopes that the world's two largest economies may soon reach a trade deal, putting an end to months of tariffs on each other's goods," reports NPR's Shanghai-based correspondent Rob Schmitz. The Asian markets reached nearly one-month highs on speculation that the world's two largest economies were hammering out a deal, Schmitz said.

Shanghai economist Andy Xie says the talks wouldn't have been extended if they were going poorly. "Without some progress already made, there would not be an extension to the negotiations," he told NPR.

The U.S. is seeking assurances that China will buy more products from the U.S. in order to reduce the trade deficit, and it wants a fairer playing field for U.S. companies that do business inside China, NPR has reported.

But if the countries fail to reach a deal by March 2, Trump has threatened to restart the trade war, increasing tariffs on $200 billion-worth of Chinese imports from 10 to 25 percent. If a "REAL" deal with China is possible, the U.S. will "get it done," Trump tweeted shortly after his dinner with Jinping last month. But if a deal doesn't happen, remember, "I am a Tariff Man," Trump said. "MAKE AMERICA RICH AGAIN."

"The U.S. feels uncomfortable with China's rapid development, and can't adapt to its own declining influence," wrote Chen Yonglong in the state-run China Daily. "Instead of making sincere efforts to solve its domestic problems, it resorts to unilateralism and protectionism, breaks the rules-based international order, coercing allies to accept unfair treaties, triggering trade frictions with China, and blocking technology transfer while trying to contain China's rise."

"China is determined to bring the trade war to an end," The Economist has reported. "The view, once commonly heard in Beijing, that it could outlast America in a grinding tariff battle has given way to the realisation that, as the country with the huge trade surplus, China has more to lose upfront."

Tariffs have in fact raised billions — and done little for the deficit

Published: Jan 8, 2019 4:00 p.m. ET, By STEVE GOLDSTEIN, D.C. BUREAU CHIEF for MarketWatch

The latest data on tariffs shows that President Donald Trump is right when he says they will bring in “billions” to the federal Treasury.

It also shows they’re having a negligible impact on the nation’s finances.

The Congressional Budget Office on Tuesday published its latest data on the nation’s finances.

According to the CBO, in the fiscal first quarter, customs duties shot up by $8 billion, or 83%, “largely because of new tariffs imposed by the Administration during the past year.”

But for the October to December period, total receipts of $771 billion rose just $2 billion, or less than 1% compared with the same period a year earlier.

Individual income and payroll taxes fell slightly, as the growth in wages and salaries was more than offset by the decline in the share of income withheld for taxes.

Corporate income taxes fell by $9 billion, or 15%, as the statutory rate fell to 21% from 35% in the Tax Cuts and Jobs Act.

For the first quarter as a whole, the U.S. ran a $317 billion deficit, or $92 billion more than the same period last year. Adjusted for timing shifts impacting payments, the deficit would have climbed by $47 billion during the quarter.

The Meaning of Employee Relations in 200 Words or Less

Written by Caroline Forsey for HubSpot.com on Jan 4, 2019 at 6:00:00 AM

Workplace culture and strong internal relationships are undeniably critical for your company's long-term success. Focusing your efforts on cultivating good relationships between employers and employees can help your Human Resources department mitigate conflict, build trust between team members, and decrease turnover rates.

At its core, employee relations is a branch of human resources that deals with policies regarding your employees' relationships with their employers, and each other.

For instance, an employee relations manager might create and implement policies regarding sexual harassment in the workplace, negotiate new contracts as employees move up in the ranks, and work with directors or employers to create benefits packages for individuals or departments.

If you aren't sure what employees relations is, or simply aren't sure why it's important, keep reading.

What are Employee Relations?

Riley Stefano, a Culture Content Creator at HubSpot, explains employee relations like this -- "At its core, employee relations is about trust and transparency. But that doesn’t just happen overnight -- you have to build it. And every department, team, manager, and leader is responsible for building and adding to that culture of trust and transparency. In People Operations, we strive to create remarkable experiences for employees throughout their time at HubSpot so that they can do their best work and help HubSpot grow better."

Essentially, employee relations is any effort or programming a company implements to ensure their employees are treated fairly, feel safe, and are happy in their work environment. Additionally, employee relations cannot be successful unless employees feel there is a level of transparency from management.

At HubSpot, this includes utilizing HR Business Partners, and implementing culture programming and events to help build stronger relationships with HubSpot employees.

However, employee relations programming might look different at your company. Perhaps your employee relations efforts include ensuring a good work-life balance for employees, or giving each employee stock in the company, so they are treated as stakeholders in the business.

Alternatively, perhaps you hire an employee relations manager to provide guidance on new and existing contracts and policies, so that you can ensure each employee is treated fairly and feels safe in the workplace. Perhaps your employee relations manager can also gather employee feedback, and use it to create new benefits packages that incentivize and properly reward employees for their hard work.

It's critical you take the time and effort to ensure you've cultivated strong relationships between employers and employees. If your employees respect leadership, they're more likely to work harder, communicate better, and feel more engaged at work. All of these things can motivate employees to go above-and-beyond in their roles. 

Ultimately, a company can't be successful unless there's a universal alignment of vision, goals, and purpose between employers and employees -- and that alignment doesn't happen naturally. It must be cultivated, in large part through strategic employee relations efforts.

Search is on for containers lost off Dutch coast by ship

Aerial photo provided by the Central Command for Maritime Emergencies Germany shows container vessel MSC ZOE near the German North Sea island of Borkum Wednesday, Jan. 2, 2019. The Dutch coast guard said that along with light bulbs, toys and flat screens, some of the containers carried closed-off barrels of an organic peroxide, a flammable and highly toxic compound. The container ship is suspected to have lost the cargo during an overnight storm in waters off the coastal border between Germany and the Netherlands.  DPA VIA AP   CENTRAL COMMAND FOR MARITIME EMERGENCIES GERMANY

Aerial photo provided by the Central Command for Maritime Emergencies Germany shows container vessel MSC ZOE near the German North Sea island of Borkum Wednesday, Jan. 2, 2019. The Dutch coast guard said that along with light bulbs, toys and flat screens, some of the containers carried closed-off barrels of an organic peroxide, a flammable and highly toxic compound. The container ship is suspected to have lost the cargo during an overnight storm in waters off the coastal border between Germany and the Netherlands. DPA VIA AP CENTRAL COMMAND FOR MARITIME EMERGENCIES GERMANY

Released by THE ASSOCIATED PRESS and the Charlotte Observer, JANUARY 03, 2019 11:06 AM

BERLIN — Authorities in Germany and the Netherlands were searching Thursday for up to 270 shipping containers lost at sea by a cargo ship caught in a storm, saying that a few of them are carrying hazardous material. A bag of the substance washed ashore on a Dutch island.

The ship that lost the containers, the MSC Zoe, arrived in the German port of Bremerhaven early Thursday. The ship, which had last called at Sines, Portugal, lost part of its cargo Wednesday in a storm off the northern coast of the Netherlands and Germany.

Germany's Central Command for Maritime Emergencies said authorities have established that three missing containers at most contained a dangerous substance, but none of them has been found yet.

The substance in question is an organic peroxide, a flammable and highly toxic compound. On Thursday, authorities in the Netherlands said that one bag of peroxide had been washed ashore on Schiermonnikoog island.
German authorities said that most of the containers located so far were in Dutch waters. Special ships equipped with sonar were being used to search in the North Sea for sunken containers.

The Dutch defense ministry said it was recalling soldiers from their Christmas leave to help clear up beaches on North Sea islands starting Friday, following requests from the mayors of Schiermonnikoog and nearby Terschelling island. It said about 100 soldiers will be deployed.

Officials in both countries have warned the public to stay away from the containers.

The ship's operator, MSC Mediterranean Shipping Company, said it "takes this incident very seriously, both in terms of the impact of such accidents on the natural environment and in terms of any damage to customers' cargo."

It said it is collaborating with local authorities "in all aspects of the cleanup." Police in Bremerhaven were investigating the cause of the accident.

US warehouse rents, scarcity rising in 2019

Net asking rents nationwide increased 1.7 percent, to $7.21 per square foot, the highest level since CBRE began tracking rents in 1989. Rents have increased 5.6 percent each year since 2012. (Above: Los Angeles, with warehouses in the foreground.) Photo credit: Shutterstock.com.

Net asking rents nationwide increased 1.7 percent, to $7.21 per square foot, the highest level since CBRE began tracking rents in 1989. Rents have increased 5.6 percent each year since 2012. (Above: Los Angeles, with warehouses in the foreground.) Photo credit: Shutterstock.com.

by Bill Mongelluzzo, Senior Editor of JOC.com | Jan 02, 2019 12:59PM EST

The US industrial real estate market in 2019 will look much like it has in recent years, with record low vacancy rates, increasing rents, and a steady supply of new warehouse and distribution space, but not enough to meet growing demand.

“Nothing has changed. It’s a good time to be an owner or developer of industrial real estate,” said David Egan, head of Americas and global industrial and logistics research for real estate developer CBRE.

Users of industrial space who are looking for the right location for additional space, however, must be prepared to pay more, possibly more than anticipated, for the right building in the right location to serve their supply chain needs. “They don’t want to pay it, but they are,” Egan said.

With trucking, rail, and labor costs increasing faster than rental rates, managing transportation costs is now the main driver in choosing the right location for warehouse and distribution space, industrial real estate experts say. For every dollar spent on rent, cargo interests pay 10 times that for transportation and seven times that on labor, according to Chris Caton, senior vice president and head of global research at Prologis. For importers, exporters, and especially e-commerce fulfillment providers, managing transportation costs by choosing the right location for logistics space is critical, he said.

Tightness continues

CBRE’s third-quarter 2018 industrial and logistics indicators were overperforming nationwide, in most markets, both primary and secondary. The overall availability rate declined 10 basis points to 7.1 percent, the lowest level since the fourth quarter of 2000. This marked the 34th consecutive quarter of positive net absorption, the longest streak since 2001. The national vacancy rate edged down to 4.3 percent, the lowest level since at least 2002. Vacancy rates in key transportation hubs and seaport cities were even lower.

“Vacancy is essentially zero in Southern California,” Egan said.

Net asking rents nationwide increased 1.7 percent, to $7.21 per square foot, the highest level since CBRE began tracking rents in 1989. Rents have increased 5.6 percent each year since 2012.

Despite these robust conditions, industrial real estate doesn’t appear to be headed for a bubble because demand remains stronger than supply. Rent increases, though somewhat troublesome, haven’t been so great that users of industrial space walk away from the deals. 

“If paying a premium for the right location works for your network, that’s the way to go,” Egan said.

Because managing transportation costs is paramount, the good news for shippers and logistics providers is that improvements in technology, alternative fuels, and automation should flatten out transportation costs in the next five to 10 years, Caton said. The Prologis report, Innovation, Disruption and the Value of Time: The Next 10 Years in Logistics Real Estate, states that each 1 percent savings in transportation and labor costs equates to 15 to 20 percent of logistics real estate rent.

Electric-powered vehicles for short-haul last-mile/last-touch deliveries, solar power in warehouses, and robotics and automation in cargo-handling already are changing the economics of logistics real estate, the report stated. Those improvements, coupled with information technology and predictive analytics to reduce inventory and cargo-handling costs, will make higher-rent locations in the urban core areas more desirable than lower-rent options in more distant ex-urban locations.

When speed of delivery to consumers and lower transportation costs are important, third-party logistics and e-commerce fulfillment providers are choosing in-fill locations in higher-cost cities in Los Angeles County over the Inland Empire, New York and northern New Jersey versus the Lehigh Valley, and Oakland or San Francisco over California’s Central Valley, Caton said.

Warehouse sizes vary greatly

Building sizes range greatly from fewer than 100,000 square feet to more than 500,000 square feet where such properties are available, as long as the logistics facilities allow users to handle high volumes of shipments and provide convenient access to transportation infrastructure, Caton said.   

The CBRE third-quarter report cited secondary markets such as Pittsburgh; El Paso, Texas; Phoenix; Sacramento, California; and Albuquerque, New Mexico, as experiencing some of the largest decreases in availability rates. That makes sense in an era of e-commerce and omnichannel logistics, Egan said. “There are people who live in those cities, so it is important to be close to those markets,” he said. The barriers to entry in secondary markets also tend to be lower than in the large urban hubs.

The US-China trade war that started in 2018 exposed the tightness of the warehouse and distribution markets in the larger seaport and inland hubs. Retailers front-loaded holiday season merchandise, followed immediately by spring 2019 merchandise, to beat the implementation dates of a series of Trump administration tariffs and threatened tariffs. As a result, the warehouses were still holding some Christmas products when spring shipments began to arrive.

With available space at historical lows, what in normal times would have been considered slack or buffer space was used up, Egan said. Although the trade situation likely will work itself out this year, the industry must get a better grip on how much slack space is truly available in the event of future surges, he said.

Looking ahead to the coming year, “There is new construction, but not a lot of it,” he said.

Although import volumes are generally expected to soften in the first quarter, given the amount of front-loading that occurred in the fourth quarter, last year’s trade disruptions won’t impact the course that industrial and logistics space has been on in recent years. “The leases we deal with are five years or longer,” Egan said. “Certain port areas may be exposed in the short term, but the broader market will not be affected.”  

Freight delays loom if government shutdown goes long-term

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by John Gallagher on December 27, 2018 for FreightWaves.com

Backups and congestion on land and along the nation’s waterfronts due to a lack of customs clearance personnel could be where carriers and shippers see the most immediate effect of a long-term federal government shutdown.

The prospects of avoiding such a scenario did not improve at the close of business today on Capitol Hill, where lawmakers returned to work for the first time since Saturday but with no votes scheduled on the appropriations bill to re-install funding.

The shutdown affects 25 percent of the federal government, including funding for the Departments of Transportation, Homeland Security, Agriculture, Commerce, Justice, Housing and Urban Development, Interior, Treasury, and State. Also swept up in the closure is the Food and Drug Administration and the Environmental Protection Agency.

In the short term, the effects on the processing of imports are likely negligible, says Jason Craig, director of government affairs for C.H. Robinson (CHRW), who has lived through major federal government shutdowns.

But while the current partial shutdown – now in its 6th day - may be having little immediate effect, that could change if it moves beyond two weeks and into 2019, Craig told FreightWaves.

“In the chaos of a shutdown, some workers get told to stay home, and some are told to come back in. It’s unlikely that the government would stop the clearance process completely, but things could get delayed if the process gets overwhelmed” at the borders he said, affecting imports of everything from auto parts and machinery to fruits and vegetables.

“And it's not just the land borders with the US and Mexico - imports from Europe and Asia could be affected as well. The same type of clearance process goes on whether it arrives by truck or ship or plane,” he said.

“It also depends on what type of clearance. Everything has a unique requirement, some require fumigation, some require USDA inspection - there are lots of different types. So you can’t say one sector will be more impacted than another, because it depends on the type of clearance and the priority given at a particular port or border crossing.”

For shippers and carriers throughout the supply chain, “that’s the toughest part about shutdowns, the uneven impacts that are very difficult to predict.”

The Port of Los Angeles, the country’s largest container port, relies on both the U.S. Customs and Border Protection and the U.S. Coast Guard – both a part of the Homeland Security department – for clearing and securing freight.  

Port of L.A. spokesman Phillip Sanfield said the shutdown has so far not slowed freight clearance at the port’s terminals as customs and security agents there are exempt from the government funding problem.

“These folks crank it up a notch in these situations, but I’m not sure how long that situation lasts as the shutdown continues,” Sanfield told FreightWaves.

It’s a situation the port is keeping a close eye on because of the record freight volumes it is currently seeing – along with problems with chassis availability and truck appointment times – much of it related to the timing of tariffs on Chinese imports. The port is on track to have a third year in a row of record container volume.

“We have enough other logistical issues to contend with, with the amount of volume we’re seeing and labor supply being somewhat lighter during the holidays,” he said.

If a shutdown does extend long term, there is also the possibility that rulemakings from the Federal Motor Carrier Safety Administration related to new hours-of-service proposals could be delayed as well.

While the FMCSA is not directly affected by the shutdown, a government official contacted by FreightWaves confirmed that agency proposals requiring sign-off from the DOT secretary could delay rulemakings.

Running with doubles: How North America’s safest fleet navigates with two 53-foot trailers

BISON TRANSPORT OPERATES TWIN 53-FOOT TRAILERS IN CANADA, AND GENERALLY HAS LOWER RATES OF INCIDENTS THAN WITH SINGLE TRAILERS.

BISON TRANSPORT OPERATES TWIN 53-FOOT TRAILERS IN CANADA, AND GENERALLY HAS LOWER RATES OF INCIDENTS THAN WITH SINGLE TRAILERS.

by Brian Straight on December 24, 2018 for FreightWaves.com

Whether you call them twins or doubles, the debate about longer and heavier trucks in the U.S. has been ongoing for years, with each side staking out clear battle lines. The latest skirmish has been over efforts to turn double 28-foot pup trailers into 33-foot pup trailers. Critics say they are not safe; proponents say they increase productivity and save wear and tear on roads.

The truth is probably somewhere in between yet, seems particular hard to find. This despite the fact that in some states it is legal to operate with three pup trailers pulled by a single tractor, or even what is known as a Rocky Mountain Double – a longer trailer, usually 48 foot in length with a shorter pup trailer in the back. A few states also allow full 53-foot doubles.

According to Gail Rutkowski, executive director of NASSTRAC, a coalition of shippers, the tonnage of goods shipped is expected to grow more than 40 percent over the next 30 years. To transport those goods will require more trucks and drivers – unless the trucks and drivers become more productive.

“That is where twin 33s enter the picture,” she wrote. “Twin 33s are tandem trailers of 33 feet in length each. Twin 28s have become a common sight, as they are currently allowed on the national highway network. Some states permit goods to be transported in triple 28s, and others even permit twin 53s on their roadways. Twin 33s, however, can only operate in 20 states. We need to allow them in all 50 states.”

Rutkowski cites efficiency and less wear and tear on infrastructure as benefits. “If twin 33s could operate in all 50 states, trucking companies and others involved in freight transport could reap even greater benefits in efficiency, with consumers being the ultimate winners. The reduction in fuel consumption, congestion, wear and tear on the roads, and pollution will benefit everyone,” she wrote.

Trevor Fridfinnson, COO of Winnipeg, Canada-based Bison Transport, tells FreightWaves the use of double 53s have been beneficial his fleet. Bison has run the trailers primarily through Manitoba, Saskatchewan and Alberta “as a primary application in our network.” The fleet will run about 35 million miles this year, or 21% of its total miles, using this configuration.

“We have seen this as a progressive step, certainly for our business, but also for the industry,” Fridfinnson says, noting that Bison is a supporter of longer trucks operating throughout North America.

As to claims that longer trucks are unsafe, Fridfinnson says it comes down to training and picking the right drivers. “Because it is a larger vehicle … if you have an incident, it can cost more because you have twice the cargo, but our incidents have been less,” Fridfinnson points out.

FMCSA SAFER data shows that in its U.S. operations, which do not run the longer doubles, Bison had just 7.7% of its vehicles placed out of service in the past 24 months versus a national average of 20.72%. Its vehicles also have been involved in just 35 reportable crashes during that timeframe, with only 16 resulting in injury. There have been no fatalities.

“The number of incidents per million miles [for Bison’s doubles] is less than single trailers,” he says. “There are a number of factors, number one is the driver.”

Bison operates 1,371 power units with 1,626 drivers, according to its FMCSA SAFER account. The Truckload Carriers Association has recognized Bison as the winner of its Fleet Safety Award as North America’s safest fleet 10 times, including nine years in a row, in the large carrier division.

Clearly safety is not an issue, and when it comes to running doubles, it starts with choosing the right drivers. Fridfinnson says this application requires a “higher capability of driver,” but it also involves choosing the right operations, running roads that are familiar, and getting the drivers home nightly.

That last part requires network optimization and finding the right freight mix.

“You have to have a certain amount of density in lanes, and [sometimes] even take business that may not fit into [traditional] linehaul models,” Fridfinnson notes.

Building the proper network and scheduling takes time and adds cost, Fridfinnson points out, but it also pays off with more productive vehicles and drivers moving twice the freight. While he declined to provide any specific numbers, Fridfinnson did say that it is not a straight calculation.

“It’s not as simple as a 2-for-1 tradeoff,” he says. “You do have the reduced fuel economy of the truck compared to hauling just a single trailer; you have higher driver wages; and you have higher maintenance costs with higher horsepower, plus the costs of the dollies and higher costs to align shipments.”

There is a cost benefit, he acknowledges, noting that it may be closer to a 1.5-for-1 tradeoff.

Drivers themselves must complete additional certifications and a yearly “renewal” PBIC course to maintain their certification. But the biggest obstacle to making double trailers work is not the equipment or the cost, but rather the aligning of the loads, and ensuring the vehicles are moving into areas and facilities that can handle the added length.

“If only a single truck and trailer can access an area, then there is another cost to handle the P&D to deliver the trailer,” Fridfinnson points out, noting that building the freight network was actually the hardest part. “It’s a big part of it and probably the one part that has required the most investment.”

“In a perfect world, you’d have a customer shipping the same amount of freight in the same directions each day,” he adds, but “at the end of the day, they are still individual trailers.”

Where loads can be aligned, though, the benefits are worth the investment. Fridfinnson points out to make it ultimately work requires not just loads moving in one direction, but having return loads that match up timewise. “There’s a real coordination of efforts needed,” he says.

Bison used to run 53-foot doubles in North Dakota before they were outlawed, in what Fridfinnson says was more likely due to competitive reasons than for safety, but Bison continues to support reevaluating their use.

“It seems there is an opportunity here that needs more education,” Fridfinnson concludes.

GO! You Have Less Than 90 Days

If you haven’t already made plans for your supply chain operations, don’t waste any more time. The clock is ticking.

By Rosemary Coates for Supply Chain Management Review on December 12, 2018

GO! You now have less than 90 days to do something before China import tariffs are raised again. Get going now.

As many of you know by now, the United States and China temporarily paused the trade dispute after the G20 Summit in early December. As part of this pause, President Trump has agreed to hold off on increasing the third tranche of the Chinese tariffs from 10% to 25%.  These tariffs, on $200 billion in Chinese-made goods, are paused in exchange for China purchasing a “very substantial” amount of American-made products.

Those of us who are China watchers agree, that an agreement between the U.S. and China is very unlikely to happen, especially with the recent arrest of Meng Wanzhou, the CFO and heir-apparent of Huawei, one of China’s largest electronics equipment makers. Meng Wanzhou was arrested in Canada and is expected to be extradited to the U.S. for violating U.S. export sanctions on products shipped to Iran.

What is more likely to happen is, at the end of the 90 days, the U.S. will increase the third tranche of the 301 China tariffs on the $200 billion worth of Chinese imports from 10% to 25%.  All three tranches will then be at 25%.

If you haven’t already made plans for your supply chain operations, don’t waste any more time. The clock is ticking.

Many companies have already started building inventory by procuring parts and products now, prior to the tariff increase. December is usually a slow month for China imports, with holiday merchandise already on the shelves, but this year December shipments from China are forecasted to be 1.83 million TEU, up 6.1 percent from 2017. This means that many companies are buying extra inventory now to avoid the increase in tariff rates.

Another alternative is to start sourcing or developing new sources in other countries such as Vietnam, Thailand, Indonesia, and other low-cost countries. But developing and qualifying new sources takes time. Even the giant contract manufacturer Foxconn, Apple’s biggest iPhone assembler, is considering setting up a factory in Vietnam to mitigate any impact of an ongoing trade war between the United States and China. If you haven’t already started the process of identifying and engaging new suppliers, get going NOW! The trade wars are likely to get worse before they start to get better.

As always, our favorite alternative is to bring manufacturing back to America. To make this decision work economically, there are a lot of factors to consider including location, labor rates and skills, tax incentives, automation, transportation, and logistics.  A Total Cost of Ownership (TCO) model should address all of these factors. 

We are in the process of helping several companies with reshoring decisions and it is more complex than it appears when you take all the factors under consideration. Every business has unique characteristics, requirements, and business goals that must be addressed. This takes time and skilled assistance from professionals.

The bottom line is: Don’t delay. Get going and develop an executable strategy now.  There is no time to waste.

General Rate Increases for 2019

From Intelligent Audit: UPS & FED EX rates rising about 6% overall in 2019

As we round out 2018 and head towards the new year, we felt it was important to make sure you were fully up-to-date on the latest General Rate Increases for 2019. Below you will find a detailed overview of these changes for both UPS and FedEx.

UPS

Coming in at the tail end of the year, UPS has recently announced their General Rate Increase for 2019. For most shippers, this is usually short notice for such an announcement - we don't you want to be caught off guard. 

Here's a high level overview, followed by some more in-depth information:

  • Nearly 5% (on average) increase rate for ground/air international services (starting 12/26)

  • Fuel surcharges will apply to Additional Handling, Over Maximum Limits, Signature, and Audit Signature Required... among others

  • Not-yet-announced fuel surcharge increase, to be detailed on 12/27

  • Processing fee will be applied when Package Level Detail is not provided

  • Significant increases to lightweight SurePost

  • Express and Ground minimum increases ranging from 3.7% to 10.08%

Minimum Net Charge 2019 Rates:

  • Next Day Air: $29.47 (5.36% increase)

  • Next Day Air Saver: $27.32 (5.44% increase)

  • 2 Day: $18.40 (4.01% increase)

  • 3 Day: $11.23 (4.47% increase)

  • Ground: $7.85 (3.70% increase)

  • SurePost (>1lb): $8.52 (10.08% increase)

  • SurePost (<1lb): $8.46 (9.87% increase)

Surcharge Rates for 2019:

  • Over Maximum Limits: $700 (40% increase)

  • Additional Handling, Weight (Over 70lbs): $23.00 (21.05% increase)

  • Additional Handling, Length: $14.25 (18.75% increase)

  • Additional Handling, Width: $14.25 (18.75% increase)

  • Additional Handling, Packaging: $14.25 (18.75% increase)

  • Large Package Surcharge, Commercial: $95.00 (18.75% increase)

  • Large Package Surcharge, Residential: $115.00 (27.78% increase)

  • COD: $14.50 (7.41% increase)

  • Ground Weekly Pickup (>$75/Week): $13.50 (8.00% increase)

  • Ground Weekly Pickup (<$75/Week): $27.00 (8.00% increase)

  • Address Correction: $16.40 (3.14% increase)

  • Delivery Area Surcharge, Commercial Ground: $2.80 (7.69% increase)

  • Delivery Area Surcharge, Commercial Air: $2.95 (7.27% increase)

  • Delivery Area Surcharge, Commercial Ground Extended: $2.80 (7.69% increase)

  • Delivery Area Surcharge, Commercial Air Extended: $2.95 (7.27% increase)

  • Delivery Area Surcharge, Residential Ground: $3.80 (8.57% increase)

  • Hazardous Materials, Air, Accessible Goods: $53.00 (10.42% increase)

  • Delivery Area Surcharge, Residential Air: $4.35 (7.41% increase)

  • Delivery Area Surcharge, Residential Ground Extended: $4.85 (8.99% increase)

  • Delivery Area Surcharge, Residential Air Extended: $4.85 (8.99% increase)

  • Residential Surcharge, Ground: $3.95 (9.72% increase)

  • Residential Surcharge, Air: $4.55 (9.64% increase)

  • Hazardous Materials, Air, Inaccessible Goods: $49.00 (5.38% increase)

  • Hazardous Materials, Ground: $35.00 (6.06% increase)

  • Dry Ice: $5.55 (5.71% increase)

  • Delivery Confirmation Signature Required: $5.00 (5.26% increase)

  • Delivery Confirmation Signature Required, Adult: $6.05 (5.22% increase)

  • Third Party Billing Fee: $4.50 (80.00% increase)

FedEx

In early November, FedEx also announced its General Rate Increases for 2019. 

Minimum Rate Increases:

  • Priority Overnight Letter: $24.40 (5.40% increase)

  • Priority Overnight: $29.18 (5.38% increase)

  • Standard Overnight Letter: $23.94 (5.00% increase)

  • Standard Overnight: $27.18 (5.39% increase)

  • 2 Day: $18.22 (4.00% increase)

  • Express Saver: $16.07 (4.01% increase)

  • Ground/Home Delivery: $7.85 (3.56% increase)

Surcharge Rates 2019:

  • Print Return Label, US Express and Ground: $1.00 (100% increase)

  • Oversize Charge: $90.00 (12.50% increase)

  • Additional Handling, US Express and Ground (Dimension): $13.50 (12.50% increase)

  • Delivery Area Surcharge, SmartPost: $1.40 (7.69% increase)

  • Ground Weekly Pick Up (>$75/week): $14.50 (7.41% increase)

  • COD: $14.50 (7.41% increase)

  • Address Correction: $16.00 (6.67% increase)

  • Hazardous Materials, Ground: $35.00 (6.06% increase)

  • Residential Surcharge, Ground: $4.40 (6.02% increase)

  • Residential Surcharge, US Express and Ground: $4.40 (6.02% increase)

  • Delivery Area Surcharge, Extended, Ground: $2.70 (5.88% increase)

  • Delivery Area Surcharge, Home Delivery: $3.65 (5.80% increase)

  • Dangerous Goods, Dry Ice: $5.55 (5.71% increase)

  • Delivery Area Surcharge, Extended, US Express Residential: $4.65 (5.68% increase)

  • Delivery Area Surcharge, Extended, Ground Residential: $4.65 (5.68% increase)

  • Delivery Area Surcharge, Extended, US Express: $2.85 (5.56% increase)

  • Residential Surcharge, Home Delivery: $3.80 (5.56% increase)

  • Dangerous Goods, Accessible, First Overnight, Priority Overnight: $98.00 (5.38% increase)

  • Dangerous Goods, Inaccessible, US Express: $49.00 (5.38% increase)

  • Direct Signature: $5.00 (5.26% increase)

  • Adult Signature: $6.05 (5.22% increase)

  • Non-Machinable, SmartPost: $3.05 (5.17% increase)

  • Dangerous Goods, Accessible, International: $153.50 (5.14% increase)  

  • Delivery Area Surcharge, Express Residential: $4.20 (5.00% increase)  

  • Delivery Area Surcharge, Ground Residential: $4.20 (5.00% increase)  

  • Dangerous Goods, Inaccessible, International: $75.50 (4.86% increase)

THE EMPLOYMENT SITUATION — NOVEMBER 2018

Released by the US Bureau of Labor Statistics on Friday, December 7, 2018

Total nonfarm payroll employment increased by 155,000 in November, and the unemployment rate remained unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, and in transportation and warehousing.

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Household Survey Data

In November, the unemployment rate was 3.7 percent for the third month in a row, and the number of unemployed persons was little changed at 6.0 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 641,000, respectively.

Among the major worker groups, the unemployment rates for adult men (3.3 percent), adult women (3.4 percent), teenagers (12.0 percent), Whites (3.4 percent), Blacks (5.9 percent), Asians (2.7 percent), and Hispanics (4.5 percent) showed little or no change in November.

The number of long-term unemployed (those jobless for 27 weeks or more) declined by 120,000 to 1.3 million in November. These individuals accounted for 20.8 percent of the unemployed.

Both the labor force participation rate, at 62.9 percent, and the employment-population ratio, at 60.6 percent, were unchanged in November.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.8 million, changed little in November. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

In November, 1.7 million persons were marginally attached to the labor force, an increase of 197,000 from a year earlier. (Data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 453,000 discouraged workers in November, essentially unchanged from a year earlier. (Data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.2 million persons marginally attached to the labor force in November had not searched for work for reasons such as school attendance or family responsibilities.

Establishment Survey Data

Total nonfarm payroll employment increased by 155,000 in November, compared with an average monthly gain of 209,000 over the prior 12 months. In November, job gains occurred in health care, in manufacturing, and in transportation and warehousing.

Health care employment rose by 32,000 in November. Within the industry, job gains occurred in ambulatory health care services (+19,000) and hospitals (+13,000). Over the year, health care has added 328,000 jobs.

In November, manufacturing added 27,000 jobs, with increases in chemicals (+6,000) and primary metals (+3,000). Manufacturing employment has increased by 288,000 over the year, largely in durable goods industries.

Employment in transportation and warehousing rose by 25,000 in November. Job gains occurred in couriers and messengers (+10,000) and in warehousing and storage (+6,000). Over the year, transportation and warehousing has added 192,000 jobs.

In November, employment in professional and business services continued on an upward trend (+32,000). The industry has added 561,000 jobs over the year.

Retail trade employment changed little in November (+18,000). Job growth occurred in general merchandise stores (+39,000) and miscellaneous store retailers (+10,000). These gains were offset, in part, by declines in clothing and clothing accessories stores (-14,000); electronics and appliance stores (-11,000); and sporting goods, hobby, and book stores (-11,000).

Employment in other major industries—including mining, construction, wholesale trade, information, financial activities, leisure and hospitality, and government—showed little change over the month.

The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.4 hours in November. In manufacturing, both the workweek and overtime were unchanged (40.8 hours and 3.5 hours, respectively). The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.7 hours.

In November, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.35. Over the year, average hourly earnings have increased by 81 cents, or 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.95 in November.

The change in total nonfarm payroll employment for October was revised down from +250,000 to +237,000, and the change for September was revised up from +118,000 to +119,000. With these revisions, employment gains in September and October combined were 12,000 less than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.) After revisions, job gains have averaged 170,000 per month over the last 3 months.

JPMorgan, BofA Detect Hints of a U.S. Recession Looming in 2019

By Jeanna Smialek on December 9, 2018, 11:01 PM CST for Bloomberg.com

Wall Street’s biggest banks are scouring U.S. data for signals of an impending recession. On balance, they’ve been finding that a 2019 downturn still isn’t likely -- though it’s becoming slightly more so.

The current expansion is eight months away from becoming the longest in postwar history. Most indicators remain solid enough to suggest it’ll get there. But the sell-off in stocks and an inversion in part of the bond yield curve has analysts parsing the tea leaves for anything that points to a contraction in 2019.

Economists at JPMorgan Chase & Co, Goldman Sachs Group Inc., UBS Group AG and Bank of America Corp. are among those who’ve joined the hunt in their recent research notes.

JPMorgan sees a 35 percent chance of a recession next year, close to the highest probability in the current cycle, and up from 16 percent in March. Globally, UBS studied 40 countries over about 40 years and found the U.S. to be among those currently behaving in a way inconsistent with prior peaks.

So if a downturn is creeping into the realm of possibility, it’s hardly the base-case scenario. The alarm bells that usually ring when a recession is imminent are doing a muted job of signaling one. Several indicators are slowing down, but economic data have yet to fall off a cliff.

Alarm Bell 1: Jobs Data

Initial jobless claims are among the five most relevant indicators of a coming slump, according to Bank of America economists. “In the last seven recessions, the 6-month growth rate of initial claims has, on average, jumped double digits heading into the recession,” they wrote.

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Claims are heading slightly higher on a weekly basis of late, data published Thursday confirmed, but they’ve been at extraordinarily low levels and their recent pop has been relatively small.

Friday’s November jobs report also showed that job gains had slowed slightly. Still, unemployment is very low, wage growth is finally above 3 percent, and the participation rate is stable. “We can’t ignore the pickup in claims, but I don’t think it’s a decisive enough shift to conclude that the labor market is slowing in a troubling fashion,” said Michelle Meyer at Bank of America.

Bank of America’s other top recession signals are auto sales, industrial production, the Philadelphia Fed index, and aggregate hours worked. Some of those are weakening, but none are falling off a cliff. Meyer said her team’s market-based recession indicator shows a 20 to 30 percent probability of a 2019 downturn, while their gauge based on economic data puts the chance at less than 10 percent over the next 6 months.

Alarm Bell 2: Business Surveys

Business sentiment gauges have softened recently, and that’s one reason for the increase in JP Morgan’s recession-predicting index, which is “getting close to the highest levels of the expansion so far,” analyst Jesse Edgerton says. The cycle peak came in 2016 when growth and markets wavered.

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“The risks are drifting toward the economy being softer,” Edgerton says, though he adds that surveys aren’t uniformly weak, and his team still isn’t predicting a 2019 recession. He’ll be focused on high-frequency data, including the regional Fed business reports, for an up-to-date picture of activity.

Alarm Bell 3: Yield Curve 

Much ink has been spilled about the recession-predicting magic of a yield curve inversion -- a situation in which rates on short-dated debt securities move above those on longer-maturity bonds. The closely-monitored gap between 2-year and 10-year yields has been narrowing, and a less fashionable portion of the yield curve has already inverted.

When the yield curve flips, a downturn usually follows. “We hardly have any empirical regularity that’s this regular,” San Francisco Fed President Mary Daly said in a November interview.

That said, Fed officials so far don’t sound overly concerned about the curve. They’re monitoring it, but they aren’t willing to focus on it exclusively so long as real economic data hold up.

There’s a reason for their reticence. Inversions are a “flawed crystal ball,” UBS Global Wealth Management’s Chief Investment Officer Mark Haefele wrote in a Dec. 5 note. While a flip in the 10-year and 2-year curve preceded each of the past seven recessions, the lag was longer than 24 months on the last two occasions.

The Summary Measure

One of the widest measures of what economists expect, the Fed’s Survey of Professional Forecasters, shows that they’re starting to sour on the economy’s prospects four quarters from now. But their pessimism might be too remote to mean much.

The Survey puts the odds that economy will be shrinking in a year’s time at 23 percent. That’s the highest level since 2008 -- but it still implies a recession probability of less than 20 percent, according to a Goldman Sachs analysis based on the Survey’s track record. Forecasts are pretty inaccurate that far out, and respondents put a low probability on a recession within the next couple of quarters.

That “supports our view that a 2019 recession is unlikely,” economists Daan Struyven and David Mericle conclude. The wisdom of crowds can work, they say, “but primarily at relatively short horizons.”

In the end, markets and hard data are sending different signals right now. And most economists are sticking with the latter -- along with survey numbers -- until a more decisive shift becomes obvious.

“The incoming data continues to be good,” Deutsche Bank’s Torsten Slok wrote in a Dec. 6 note. “Where is this recession the market is so worried about?”

Significant Southern Storm to Produce Heavy Rain as well as Areas of Heavy Snow and Ice

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From the NWS Weather Prediction Center in College Park, Maryland, at 130AM EST on Fri Dec 7 2018
Valid 12Z Fri Dec 7 2018 - 12Z Sun Dec 9 2018

Winter storm to bring ice and snow from the southern plains to the Appalachians, and heavy rain from eastern Texas to Georgia... A strong storm system crossing the Desert Southwest early Friday morning will take a southerly track across the southern plains to the Deep South and then the southeast U.S. coast through the weekend. Snow and freezing rain is forecast to overspread eastern New Mexico and the Texas/Oklahoma panhandles by late Friday, and continuing into early Saturday. The greatest snowfall accumulations through early Saturday are expected across the southern High Plains from eastern New Mexico and across parts of the Texas Panhandle, with amounts on the order of 3 to 6 inches and locally higher. In addition, ice accretion of about a tenth of an inch, perhaps higher, will be possible on the southern edge of the heavier snow band, roughly from Lubbock to Oklahoma City.

In the warm sector of the surface low, heavy rain is forecast across southeast Texas in response to a deep surge of moisture from the Gulf of Mexico. The Weather Prediction Center currently has a Moderate Risk of excessive rainfall for Friday and Friday night for much of southeast Texas, with several inches of rainfall expected. The rainfall rates are expected to be high at times, increasing the threat of flooding. Flash flood watches are also in effect for this region.

A slight risk of excessive rainfall exists through Saturday night for the central Gulf Coast region as heavy bands of showers and thunderstorms develop in conjunction with the surface low and a deep moisture surge ahead of it. As the surface low tracks eastward roughly along the Gulf Coast through late Sunday, a swath of accumulating snow and ice is expected to extend from eastern Oklahoma to the southern Appalachians.

Winter storm watches are now in effect from the Texas Panhandle to the Ozarks of northern Arkansas, and also for the southern Appalachians and adjacent Piedmont region. Travel will likely be severely affected across much of these areas, and some power outages are also possible. Elsewhere across the nation, some lake effect snow is likely across parts of Michigan and New York for Friday and Saturday as cold northwesterly flow crosses the warmer lake waters. Showers and mountain snow returns to western Washington and Oregon on Saturday as a cold front approaches from the eastern Pacific. Colder than normal temperatures are expected to persist across much of the central and northern U.S. through Saturday with a large Canadian surface high in place.

THE LATEST IN THE US/CHINA TRADE WAR DRAMA & THE GLOBAL SUPPLY CHAIN

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From Intelligent Audit on December 5, 2018

At the G20 Summit in Argentina, a huge announcement was made – a “pause” was put on the ongoing trade war between China and the United States.

The big concession by the Chinese government is that they will reduce the existing 40% tariff on automobiles and, potentially, remove it. According to Economic Advisor to the President, Larry Kudlow, “We expect those tariffs to go to zero.”

This latest act of the on-going drama between the administration of Donald Trump and the Chinese Government of Xi Jinping has brought about a collective sigh of relief from markets and the public at large.

Here’s a timeline of how we got to this point:

  • January: Initial “Safeguard Tariffs” on washing machines and solar panels are imposed to the tune of nearly $10 billion

  • February: China investigates its first response to Trump’s tariffs – $1 billion on US exports of Sorghum

  • March: US imposes a 25% tariff on steel imports and 10% on aluminum imports

  • April: China imposes a 15-25% on 128 products totalling $3 billion

  • April: China officially announces a 180% duty on imports of sorghum

  • May: China ends sorghum tariffs in an effort to promote negotiations to end the trade war

  • May: US and China pause trade war to help negotiations as China agrees to buy more US goods

  • May: US reinstates tariffs

  • June: Trump administration puts a 25% tariff on $50 billion of Chinese goods, China retaliates with similar measures

  • September: US announces a 10% tariff on $200 billion of Chinese goods, with to up that rate to 25% in 2019. There are threats to add $267 billion more if there is retaliation

  • September: China retailiates with tariffs on $60 billion in US goods

  • November: Wider tariffs on $200 billion in Chinese goods are threatned

And now, after the cooling of the trade war that began on December 2nd, President Trump has stated that China has indicated to his administration that they plan to get rid of tariffs on American cars – a significant step.

The question is, what happens next and what does it mean for the US economy?

What Happens Next?

This is not the first time in the last year that, for a brief moment, it looked like the trade war might be behind us – it happened back in May and lasted just about a month.

Is this “detente” a flash in the pan, or the beginnings of a robust trade deal that will be more favorable to the United States, as has been promised by the administration? There’s no way to know for sure.

However, if this pause fails in completely ending the trade war, we’re likely to see additional tariffs from both sides – benefitting neither.

What Effects Does this have on Supply Chains?

Trade tensions have always been a source of great concern when it comes to their impact on global supply chains, and this trade war of 2018 is no exception.

The concept of a supply chain means that each link in that chain is inexorably linked to the next; a disruption in one affects the entire chain.

Here’s a stunning statistic: supply chain disruptions can account for up to 80% of the potential impact on growth.

The most obvious impact on companies is the increased costs they incur; most often these costs end up getting passed off to customers. In addition, the unknowns of where this trade war goes makes forecasting for the future nearly impossible.

What Does This Mean for the US Economy?

The potential for completely getting rid of auto tariffs would be a huge coup for the Trump Administration.

The United States currently exports nearly $10 billion automobiles, which is a huge increase from the $8.5 billion in 2016 – even with the tariffs. A 0% tariff on automobiles could be a major boon for the US economy.

The optimistic take on this latest announcement is that it’s the first step towards a larger trade deal that would significantly lessen the tension between two of the largest economies on earth. If the Trump administration were able to negotiate a new, wide-ranging trade deal with China, it could give the US economy the kind of shot in the arm it needs to get back to the sustained growth it was seeing earlier in 2018.

Marriott and SF hotel workers reach agreement to end strike

Marriott-affiliated hotel and hospitality workers strike outside of the Marriott Marquis hotel Saturday, Oct. 20, 2018 in San Francisco, Calif. before taking the streets in a massive march. Photo: Jessica Christian / The San Francisco Chronicle

Marriott-affiliated hotel and hospitality workers strike outside of the Marriott Marquis hotel Saturday, Oct. 20, 2018 in San Francisco, Calif. before taking the streets in a massive march. Photo: Jessica Christian / The San Francisco Chronicle

by Roland Li for the San Francisco Chronicle on Dec. 3, 2018

Striking hotel workers said they reached a contract agreement with Marriott on Monday to end the city’s largest hotel strike in decades.

The strike, which began on Oct. 4, spanned seven San Francisco hotels operated by Marriott and had reached its third month. Almost 2,500 workers marched outside the hotels, demanding higher pay, lighter workloads and preservation of existing health benefits.

Workers were set to vote to ratify the agreement on Monday, and if it passes, they would return to work on Wednesday, said Anand Singh, president of Unite Here Local 2, which represents hotel workers.

Details of the settlement weren’t immediately available. “We think it meets all of our goals and expectations,” Singh said. “This immediately sets the standard for hotel workers in this city.”

Six other locations also had Marriott strikes and reached labor agreements in the past few weeks: Oakland, San Jose, Detroit, Boston, Maui and Oahu.

The San Francisco strike encompassed some of the city’s largest hotels, including the Courtyard Marriott Downtown, the Marriott Marquis, the Marriott Union Square, the Palace Hotel, the St. Regis, the W, and the Westin St. Francis.

Events organized by the Communications Network, Shanti Project, Chicana Latina Foundation, Bay Area Wilderness Training and others moved out of Marriott hotels in solidarity with the workers.

Marriott bused in temporary workers from hours away to keep hotels running. Some temporary workers alleged they weren’t paid on time and were fired to in retaliation for speaking to union leaders. Complaints have been filed with federal and state regulators.

"We can confirm we have a tentative agreement. We look forward to welcoming our associates back to work," said a Marriott spokesman.

How was 2018 for container shipping? That depends.

by Gary Ferrulli, CEO, Global Logistics & Transport Consulting, for JOC.com on Dec 03, 2018 3:06PM EST

The year 2018 came into the ocean carrier’s world like a sacrificial lamb, first-quarter results showing significant losses primarily because of the failure of carriers to charge for rising fuel costs. They continued the error by extending the no-fuel surcharges to many favored shippers in the 2018-2019 trans-Pacific service contracts.

In the third quarter, carriers began to evoke some fuel surcharges, started controlling capacity, and raised spot market rates to more than $2,500 per FEU to the US West Coast and over $3,400 per FEU to the East Coast.

While those rates are what they rarely are — full cost recovery plus — they still don’t apply to most of the freight on relatively full vessels; those are protected by the “friendly” service contracts.

Recent available financial reports indicate there has been some improvement in the carriers’ bottom lines, with some still losing money albeit at lesser amounts and some reporting profits. While we generally focus on the trans-Pacific and tend here to forget the other major trades in the Asia-Europe market, the carriers not only didn’t capture the fuel increases during the first half of the year, they didn’t manage capacity in the same way as in the trans-Pacific and their spot rates decreased, not increased.

There were actions to manage capacity in the past few weeks, but the horse left the barn months ago. And container lines have already announced the return of withdrawn capacity for December.

This offers an interesting view of the same carriers in two different marketplaces taking different routes, one trying to rescue what was turning into a financial disaster into a modicum of success, the other ignoring virtually the same conditions and dragging down the gains in the trans-Pacific. It makes you wonder about the decision-making processes of carriers.

According to Drewry and other industry experts, the industry for 2018 will end up at a slight loss; Drewry says about $200,000. This follows 2017, which was the first year of profitability since 2010. The anticipated year-end losses are better than expected though after the poor results of the first and second quarters.

There will be losses by HMM, Ocean Network Express, and Yang Ming; for those who pay close attention, look at the details of the Cosco Shipping report with several notes on subsidies being injected into the profit and loss stream.

While these events took place, so did the continuation of deteriorating services, with recent reports on reliability hitting 40 percent for some, with a high of only 72 percent. Some of that is the result of the heavy trans-Pacific utilization and the relatively poor terminal productivity on the US West Coast impacting the entire system, with no increased vessel speeds to make up some of the lost time owing to high fuel costs with little recovery in place.

2018 — the year of blockchain

The other significant events relate to the push for advanced technology, with some carriers reaching to provide end-to-end services. On the technology side, the issue of blockchain was beginning to be better understood — it isn’t the silver bullet to solve all supply chain or container shipping ills.

And there are significant issues with the lack of standards in development, etc., and so many entities creating their own “best solution.” It is a work in progress with some difficult hurdles. Carriers have yet to address that the input will be coming from a multitude of sources, with many relying on inefficient and ineffective underlying systems to feed the “blockchain.”

I believe in five to 10 years there should be systems to cover all entities who must be involved in a complete supply chain or a complete international shipment. For those who think that is a long time to be completed, consider that the largest carrier in the world was fully digitized internally by 1996, yet we see many articles today on the requirement to digitize.   

Another work in progress is the end-to-end services some carriers desire. It’s been done before with varying degrees of success — and failure. Will this effort prove any more successful? Be patient.

From the vantage point of early December 2018, the current year will be a mixed bag of near disaster, continuing frustrations, and some glimmer of hope; it all depends on your position and perspective.

For carriers, in like a lamb and out like a … who knows? For shippers, if you had friendly service contracts, you avoided the fuel surcharges and much higher spot market rates — up to the point of your minimum quantity commitment. If not, well, you likely depended on your friendly freight forwarder, non-vessel-operating common carrier, or third-party logistics provider (3PL) and got some shocking increases along the way, with perhaps your cargo rolled a few times. All cargo was subject to the poor reliability, with high-volume service contract signatories getting better access to space and equipment.

Looking to the future, there still exists many unknowns, including the ongoing drama involving trade agreements. Agriculture exporters in the US were particularly negatively impacted in 2018; will that get better or worse? Imports are reported to be strong because of the increases in duties coming in April 2019, postponed from January 2019, as a result of the US-China 90-day ‘truce,’ but then what happens? Will the bottom drop out? Or will the negotiations mitigate the negatives?

Good News for FF&E Importers: 25% Tariffs Delayed 90 Days

The U.S. will delay a planned increase in tariffs on Chinese goods, as the two sides prepare for further negotiations.

President Trump and administration officials attend a working dinner with Chinese President Xi Jinping in Buenos Aires. PHOTO: KEVIN LAMARQUE/REUTERS

President Trump and administration officials attend a working dinner with Chinese President Xi Jinping in Buenos Aires. PHOTO: KEVIN LAMARQUE/REUTERS

Presidents Trump and Xi Jinping met for a working dinner this weekend, resulting in a 90 day delay in the planned imposition of 25% tariff rate on many Chinese imports (currently paying a 10% additional tariff). This is good news for FF&E importers, and raises hopes that future tariffs may be avoided completely. More details below, in the statement issued by White House press secretary:

The President of the United States, Donald J. Trump, and President Xi Jinping of China, have just concluded what both have said was a “highly successful meeting” between themselves and their most senior representatives in Buenos Aires, Argentina.

Very importantly, President Xi, in a wonderful humanitarian gesture, has agreed to designate Fentanyl as a Controlled Substance, meaning that people selling Fentanyl to the United States will be subject to China’s maximum penalty under the law.

On Trade, President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately.

President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.

It was also agreed that great progress has been made with respect to North Korea and that President Trump, together with President Xi, will strive, along with Chairman Kim Jong Un, to see a nuclear free Korean Peninsula. President Trump expressed his friendship and respect for Chairman Kim.

President Xi also stated that he is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.

President Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”