Wall Street set several records in August, yet the Fed remains very cautious about the near-term future of the U.S. economy. Who to believe? Mortgage rates are now low enough to make you put your mask on and march into your bank for a new mortgage, or a refinance of an existing one. People are using them to buy cars and homes. J.C. Penney, the 118 year-old American retailer, will close forever in the next ten days if a buyer cannot be found soon. 70,000 jobs would be lost in a flash. We highlight belowsome of the very different impacts the pandemic is having on the fortunes of the international trade industry.
CBP is releasing updates to the e214 process this month. Even though the ACE modifications are very modest, and don’t address direct delivery or PGA filing, FTZs need to take note and make sure they are ready for the changes.
The FTZine staff is mindful of the damage done, and those affected by Hurricane Laura, but thankful it was not as destructive in the same areas where Katrina is still not long enough ago.
Layoff and furlough announcements last month will be a hurdle to economic recovery in the United States. American Airlines (AAL) and MGM Resorts (MGM) alone announced they would lay off or furlough more than 40,000 employees in the face of dramatic shifts in customer behavior. Public and private colleges and schools also plan to reduce staff, and more bad news is probably on the way from companies where customers are expected to gather together in closed spaces.
Areas of the economy that do not rely on groupings of people are having the opposite experience. Automobile and home sales rebounded sharply after the first few months of the pandemic and are still going strong. Consumer spending and manufacturing production have grown faster than expected and the foot is still on the gas. The expiration of tens of billions in dollars in federal aid for the unemployed has not yet caused households to scale back spending.
With these opposing experiences it is clear that the fast economic rebound in May and June, as businesses were allowed to reopen, is giving way to an extended recovery whose progress largely depends on how well a region or business is suited for the COVID economy.
The U.S. economy is likely to continue to recover, but tied to progress on the coronavirus, a top Federal Reserve official said.
Cleveland Fed President Loretta Mester said “I do believe that the recovery is likely to be a slow one,” in an interview on CNBC.
“There is more pain out there that we are going to have to support the economy through,” Mester said.
Mester, who is a voting member of the Fed’s interest-rate committee this year, said that job growth has tempered in her districts as businesses remain uncertain.
Mester said the economy would move forward with “fits and starts.” That’s very similar to the outlook presented by Fed Chairman Jerome Powell in his August speech to the Jackson Hole economic conference.
“The layoffs add to concerns the market has about the sustainability of the pace of the recovery,” said senior economist Sam Bullard of Wells Fargo.
“That’s the point I have been making to people. Now the hard part starts,” said chief economist Richard Moody of Regional Financial. Still, most economists are skeptical the U.S. can grow much faster without another federal relief package. “Consumers and businesses are going to remain cautious heading into the fall,” Bullard said. “Given all the headwinds, it’s going to take time for the economy to come fully back.”
It remains to be seen whether Democrats and Republicans can break a Congressional deadlock over the next financial aid bill, and before workers still dependent on the last stimulus bill become unemployed.
A recent CBP ruling on bonded moves has a direct impact on zones.
In headquarters ruling HQ H307742, CBP considered the question of whether bonded merchandise can be carried by non-bonded parties in instances where a bonded carrier does not take physical delivery of the merchandise, but simply obligates its bond to a non-bonded carrier. The request was filed on behalf of Ford Motor Company who, as outlined in the ruling request, transports vehicles manufactured in Canada to a U.S. FTZ in bond, and then later exports these vehicles from the FTZ in bond. Ford states they were approached by a third-party logistics provider proposing to consolidate the bonding of the movements for Ford by booking a rail carrier using the carrier bond of one of its strategic partners. The rail carrier’s bond would not be obligated for the movement. The company whose bond would be obligated would never take physical possession of the goods throughout the process.
CBP ruled that the goods in this scenario, when the goods being bonded were never in the physical possession of the entity whose bond is obligated for the movement, are NOT properly bonded. Analyzing the scenario, Office of International Trade, Regulations and Rulings wrote, “We find that the proposed transaction is not compliant with 19 CFR § 18.2(a)(1) as interpreted in prior Customs rulings because the subject merchandise would not be physically delivered to the bonded carrier and subsequently transferred to a non-bonded carrier for transportation.”
What does this mean for zones? This ruling still leaves open some questions about using the FTZ bond for transport, since the FTZ either has possession before export or will get possession of inbound cargo. What is clear is that if you are using the bond of a 3rd party logistics provider, you must make sure that the bond being used for your movements is that of a carrier that has possession of the goods in the process, not a partnered entity that does not get involved in the physical handling of the merchandise. You must be diligent in asking these questions because other 3rd party logistics providers may assume, as the one that approached Ford did, that as long as a valid carrier’s bond is obligated it doesn’t matter who is transporting the goods. Remember, if the carrier gave permission to file on their bond, ACE will allow the filing of an in-bond even it isn’t permissible activity, so you have to make sure it is correct before you file.
You can find the complete ruling at https://rulings.cbp.gov/ruling/H307742.
If you have questions on the new rules, please send them to our Sr. Vice President Melissa Irmen at Melissa.Irmen@iscm.co.
Aluminum Tariffs Draw Swift Canadian Response
Just a month after the United States-Mexico-Canada Agreement went into effect, President Trump signed a proclamation reimposing 10% Section 232 tariffs on aluminum imports from Canada.
The new tariffs follow months of negotiations between the two countries over whether there has been “a meaningful surge” in aluminum exports from Canada to the United States.
The response from Canada to the new tariffs was swift, and Deputy Prime Minister Chrystia Freeland said new tariffs on American goods will match the U.S. ones dollar-for-dollar. Canada is considering imposing $2.69 billion in tariffs on dozens of products, including golf clubs, bicycles, refrigerators, washing machines, tripods, sports equipment like bats and hockey sticks and aluminum cans for beverages.
Chrystia Freeland, who has served as deputy prime minister since last fall’s federal election, was named Canada’s finance minister last month.
Does the name sound familiar? That is because Chrystia Freeland was responsible for final negotiations and implementation of the USMCA. After years spent focusing on Canada’s foreign relationships, Freeland becomes the first woman to take charge of the nation’s finances.
Two of the largest U.S. aluminum producers, Century Aluminum and Magnitude 7 Metals, claim that there has been such a jump, and they argued to the White House earlier this year that aluminum prices were being depressed as a result.
President Trump originally imposed the tariffs on aluminum imports in 2018. He then lifted them last year on Canadian and Mexican metals to smooth the way for the U.S.-Mexico-Canada Agreement, which took effect July 1 and was expected to bring stability to North American trade.
The new tariff spat comes after the U.S. imposed Section 232 tariffs in 2018 - 25% on steel and 10% on aluminum. Canada responded with tariffs on hundreds of U.S. products such as ketchup, coffee, strawberry jam and whisky before the two countries dropped their efforts and agreed to the new North American free trade deal.
The President said Thursday that he was re-implementing tariffs because there was a surge in aluminum exports from Canada to the U.S. in recent months, but industry organizations dispute that claim. Aluminum imports from Canada rose sharply from February to March but have since leveled off and dropped 2.6% from May to June, according to the Aluminum Association trade group.
CBP is updating the e214 this month - are you ready? Changes in this release will affect the FTZ admission process for all zones.
In a recent CSMS (CSMS #43782284 - Update: Modernizing e214 Online Admission Process – Phase 2, Release 2 Information Notice), CBP announced that the update to the e214 will go into production on September 26.
September 26th is a Saturday, the day on which CBP does major ACE production maintenance. Many of the changes in this release are new functionality to update or cancel things about previously filed e214s, so after this goes into production you’ll be able to do things such as this for e214’s filed before Sept 26:
There is one new thing you can do on admissions filed after Sept 26:
CBP has also provided space for larger zone IDs on admission, but the corresponding availability isn’t on the entry summary, so CBP is asking that it not be used until an FRN can be published to make the update to filings other than the e214.
There are still a lot of open questions about how all of this will work, including for how long it will be possible to update a 214, how that will sync with zone status changes required by proclamations and tariff actions, and how getting officer approval of these changes will work. CBP has promised a FTZ Business Rules Document to be published before Sept 26.
When we know more, we’ll be sure to share. In the meantime, if you have questions or feedback on the new e214, please send them to our Sr. Vice President and Vice-Chair of the National Association of Foreign-Trade Zones, Melissa Irmen at Melissa.Irmen@iscm.co.
Sang Noh of Bel Air, California agreed to plead guilty to conspiracy and subscribing to a false tax return, stemming from improperly filed U.S. Customs entry documents. The felony plea could lead to a sentence of eight years in federal prison, according to the U.S. Attorney’s Office.
Ambiance Apparel agreed to plead guilty to eight charges, including conspiracy, money laundering and customs violations and agreed to pay nearly $118 million for defrauding the government by undervaluing imported clothing and cheating on taxes, authorities said.
Noh and Ambiance were charged after raids in 2014 that targeted money laundering in LA’s Fashion District. The company reports it was founded in 1999, as a manufacturer and wholesaler of junior knit tops, pants and activewear. The company specializes in the import and domestic manufacture of junior and junior plus knit tops, woven shirts, activewear, outerwear and sweaters. The firm lists 600,000 square feet of warehouse space near LA with 30-50 million units in stock.
Prosecutors said Ambiance imported clothing from Asian countries and submitted phony commercial invoices that undervalued the shipments so it wouldn’t have to pay the full amount of tariffs. The company was also accused of concealing more than $11M in cash sales.
Container shipping lines have reported profit increases despite losing volume in the pandemic, according to public reporting of 2020 financial results.
This boom contrasts with our reports last month on the negative impact the pandemic is having on most ports and terminal operators, who have suffered from both congestion and a fall in volume. The question now is whether this unprecedented growth for the shipping lines will be sustained into the future.
The Port Authority of New York and New Jersey announced it had lost $800 million in revenue since March as a result of the pandemic. The Port of Hamburg, Germany saw its TEU throughput fall by 12.4% in the first six months of the year versus 2019, in particular with China and other major trade partners.
The difference in financial fortunes reflects the fixed nature of port and operator expenses, where shipping lines have more flexibility to deal with the impact of COVID-19 on changes in volume and shipping patterns.
“The carriers’ improvement in profitability stems from a number of sources,” said Lars Jensen, CEO and Partner, SeaIntelligence Consulting.
“Strongly increased freight rates, much lower bunker fuel prices, operational savings due to cancellation of sailings, reduced charter rates,” he explained.
Furthermore, traffic has improved after the resumption of trade between US and China following the widespread closure of factories in late 2019.
On the other hand, the Port of Hamburg saw a 14.9% decline in trade with Russia, a 13.3% decline in trade with Sweden, a 14.4% decline in trade with South Korea, a 10.5% decline in trade with Poland, and a 2.7% decline in trade with Denmark.
“We are naturally not pleased about this trend, but the drop in first-half throughput caused by the pandemic seriously affected all ports in Northern Europe,” said Axel Mattern, Joint CEO, Port of Hamburg Marketing.
In contrast, container demand in other lanes has accelerated so much that MSC has launched a new service connecting North America with China and South Korea.
ZIM posted its highest net profit since 2010. The carrier made $25.3 million in the second quarter, an increase of 394% versus the same period last year.
Hapag-Lloyd said it had almost doubled its profits between January and June from $165 million to $314 million and claimed to have a “good first half of the year” despite the uncertainty brought about by the pandemic.
A.P. Moeller-Maersk (Maersk) said earnings had increased by 25% in the second quarter, even though volumes had fallen substantially.
Port and terminal operator DP World reported a 3.9% decrease across its portfolio and a 6.8% at its flagship hub in Dubai, the Port of Jebel Ali.
Hutchison Ports Trust (HPH), also suffered a substantial drop in traffic and reported a decline of 8% in fiscal year 2020, with some terminals reporting drops of as much as 12%.
The Governments of Mexico and the United States agreed to extend the restriction of non-essential travel at the border.
"Both countries will attempt to coordinate health measures in the border region that will be in effect until 23:59 hours on September 21, 2020," Mexico's Ministry of Foreign Affairs (SRE) said on Twitter.
The Mexican Chancellery stated that the restrictions will remain "on the same terms" since their implementation on March 21, when they decided to close non-essential travel, but allow transit for commercial or medical reasons.
Americans who are returning to the U.S. and Canadians who are returning to Canada are exempted from the border closure. . . for now.
The Trump administration is considering ways to restrict entry on the US-Mexico border that could include US citizens and lawful permanent residents over coronavirus concerns.
Wall Street set several records in August, yet the Fed remains very cautious about the near-term future of the U.S. economy. Who to believe? Mortgage rates are now low enough to make you put your mask on and march into your bank for a new mortgage, or a refinance of an existing one. People are using them to buy cars and homes. J.C. Penney, the 118 year-old American retailer, will close forever in the next ten days if a buyer cannot be found soon. 70,000 jobs would be lost in a flash. We highlight below some of the very different impacts the pandemic is having on the fortunes of the international trade industry.
CBP is releasing updates to the e214 process this month. Even though the ACE modifications are very modest, and don’t address direct delivery or PGA filing, FTZs need to take note and make sure they are ready for the changes. The FTZine staff is mindful of the damage done, and those affected by Hurricane Laura, but thankful it was not as destructive in the same areas where Katrina is still not long enough ago.