Tariffs Shock Electronics Makers; Warehouses Filling Up; Freight Prices Hit Economy

Today's newsletter was written by the WSJ Logistics Report's Erica E. Phillips.

Proposed new U.S. tariffs on $200 billion in Chinese imports could reshape the global supply chain for electronics and telecom equipment. The White House’s latest tariff list would add 10% duties on a broad range of products embedded in the electronics supply chain, the WSJ’s Yoko Kubota, Dan Strumpf and Shan Li report. Electronics manufacturing has been exploding recently in China’s Guangdong province, where China may have sent a signal across the Pacific with its approval of German chemicals giant BASF SE's plans for a wholly-owned $10 billion factory. The U.S. levies would hit both Chinese and foreign companies based in China that ship components to the U.S. for use in product assembly. The tariffs also target a range of consumer goods, including furniture, bicycles and seafood. Chinese officials are weighing how to respond. China's response back may include holding up licenses for U.S. firms and ramping up inspections of American products at borders.

U.S. businesses are filling up new warehouse space as fast as it’s being built. Available warehouse space is shrinking in nearly every marketin the U.S., the WSJ Logistics Report’s Erica E. Phillips writes, even as millions of new square feet of industrial real estate is coming online. Real-estate brokerage CBRE Group Inc. says strong demand for warehouse space during the three-month period ending in June led to the 32nd straight quarter of declining availability. Industrial real estate availability fell to 7.2% in the second quarter of 2018, the lowest measure since 2000, when the first dot-com boom was driving strong consumer spending and imports from China were beginning to surge. While development of new facilities is almost matching demand, making for a “remarkably balanced” market, volatile dynamics in foreign trade could throw that off and tighten up future supply.

Transportation

Accelerating trucking costs are adding inflationary pressure to the U.S. economy. Last month the producer-price index, a measure of the prices businesses receive for their goods and services, rose a seasonally adjusted 0.3% from a month earlier, the WSJ’s Sarah Chaney reports. Freight spending, which has been climbing steadily since last fall, boosted the index as transportation and warehousing costs rose 1.3%, the largest monthly increase in the category since the Labor Department started tracking it in 2009. A tight labor market, growing energy costs and strong consumer demand have contributed to the tight freight market, driving rates to record levels in some regions. Other reports also signal that inflation pressures are building, which could translate to further pain for shippers, and perhaps higher prices for consumers. 

Supply Chain Strategies

Pharmaceutical supply chains could feel stresses now that Pfizer Inc. says it will defer planned price increases on some of its medicines. Pfizer’s move may hit middlemen like drug wholesalers and pharmacy-benefit managers, the WSJ’s Charley Grant writes. List prices are sticker prices before rebates and discounts granted to middlemen in the supply chain, and for manufacturers they aren’t paying off like like they used to. Merck & Co. raised its prices by 6.6% in 2017, but net prices actually fell by 1.9% after rebates and discounts. Middlemen that benefited from past increases now stand to take more of a hit from Pfizer’s move to appease criticism from President Donald Trump. Data from Panjiva shows the average import value per gram of all pharmaceuticals was down by 28.7% on a year earlier in May.