FTZ’ine August 2021
August 3, 2021
FTZ’ine October 2021
September 30, 2021
16 Years To The Day
Its an eerie anniversary. Category 4 Hurricane Ida slammed into Louisiana’s Gulf Coast on Sunday, exactly 16 years to the day after Hurricane Katrina did the same. The financial impact of this week’s massive storm is expected to be less severe than Katrina, thanks in part to a lower storm surge. Also credit New Orleans’ improved levee system, which held intact this time, featuring massive pumps from FTZ operator/user Patterson Pumps. Even so, trade and the energy industry can expect storm damage impact to be felt for some time.
Peak ocean shipping season is upon us, and so is the Delta variant. The highly transmissible virus form is interfering with the recovery of supply imbalances for normally critical components and suddenly popular products such as semiconductors and laptops. At least one major port in China was forced to curtail operations after a new outbreak.
The new COVID variant has also dampened hopes to fully reopen offices this month, and travelers and cruise lines must once again rethink their plans to return to full operation. Vacation travel seems to have recovered but business travel, especially international business travel, has not, keeping a lid on air freight options. Ocean rates continue to rise despite record profits reported by the steamship lines.
Even paying those high rates hasn’t made getting your merchandise on time a sure thing. There are so many ships waiting to dock on the west coast that LA/LB has run out of offshore anchor locations, and ships are now drifting in assigned areas near Catalina Island. The peak season backlog has spread to the east coast including Savannah and Newark that now have uncharacteristic delays. The mad scramble continues for international traders.
Top Story: Hurricane IDA Trade Impact Just Beginning
The storm that landed in Louisiana to start the week is tied for the fifth-strongest hurricane to ever come ashore on the U.S. mainland, and was the state's worst direct hit since the 1850s. President Biden declared the storm a disaster in a state still reeling from COVID and its impact on tourism.
Gasoline futures have already jumped this week, and oil prices also rose. To prepare for the storm, more than 95% of Gulf oil production was suspended, representing about 1.74 million barrels per day. In addition, 85% of the natural gas output in the Gulf of Mexico was shut down, as well as refineries all along the Gulf coast.
The Port of New Orleans has halted container terminal and break-bulk operations until further notice, and the U.S. Coast Guard has closed the Lower Mississippi River to all vessel traffic. A widespread power outage is likely to delay reopening of shipping operations, although the Port reported no major impact to its facilities.
Nearly 300 manned oil platforms and drilling rigs were closed and evacuated. At least nine oil refineries in the region are shuttered, representing 13% of the nation’s total refining capacity. Several pipelines are also closed as a precaution.
At the moment, the ports of Baton Rouge, Houma, Gramercy and Morgan City in Louisiana and the Ports of Biloxi, Gulfport and Pascagoula, Mississippi are all closed.
The Louisiana Offshore Oil Port (LOOP), the largest privately-owned crude terminal in the United States, paused deliveries ahead of the storm. LOOP's marine terminal is located in open waters 18 miles off the Louisiana shore. LOOP’s land base is located in Port Fourchon, where the eye of the storm made landfall with winds up to 150 miles per hour.
LOOP is the only U.S. deepwater terminal capable of offloading supertankers. It handles about 10% to 15% of the country's domestic oil, 10% to 15% of the nation's imports of foreign oil, and is also connected to about half of the U.S. refining capacity, according to the Port Fourchon website. It services 90% of the Gulf of Mexico's deepwater oil production.
Ships diverted away from the Mississippi river will affect exports of grains from the U.S. South. The lower Mississippi river is by far the largest export region for soybeans and corn, accounting for more than half of U.S. shipments, according to Mike Steenhoek, executive director of the Soy Transportation Coalition.
Tech Tip
This month’s Tech Tip is actually low-tech: You might be able to use Excel as your ICRS. Many people assume that an FTZ Inventory Control and Recordkeeping System (ICRS) has to be a specialty FTZ Management software connected to the company’s warehouse management or manufacturing planning software. But this isn’t always the case for smaller or simpler zone operations.
If you plan to have only a small amount of non-U.S. sourced goods in the FTZ, it is possible to track those on an Excel spreadsheet. Maybe you have only a couple of imported goods that are high-value and worth the duty-deferral benefit of the zone, and those are received and shipped on a controlled basis. Or perhaps your imports are regular and relatively low volume and easily matched with shipments out of your zone. A simple spreadsheet of all the incoming shipments of those goods that then matches them to outgoing shipments could be structured to provide enough information to your broker and have the admission and entry filings completed.
Another good example of this approach is the case of manufacturing or repair of large items for which some components are admitted to the zone over a long period of time with one large shipment of all of those goods when the item is completed. Again, a spreadsheet tracking all the component receipts that then matches to the completion and shipment of the finished good to the U.S. or even exported, is enough to have the filings completed successfully by a third party. There are other reporting requirements to CBP and the FTZ Board that must also be accommodated to make the approach work.
If you have questions about how such ICRS tracking can be completed, or are wondering if this would work for your scenario, contact us at Info@iscm.co .
Record-Breaking Profits For Ocean Carriers
Carriers are expecting 2021 to be very financially rewarding.
Last month, Maersk predicted its earnings would reach $18 billion to $19.5 billion, an increase of nearly $5 billion over its last prediction. The ocean carrier specifically cited the "exceptional market situation", saying it is "expected to continue at least until the end of the full-year 2021." "The strong results benefited both from the exceptional circumstances in Ocean, where congestions and bottlenecks continued to drive up rates, and from solid progress in executing on our strategic transformation where we kept a firm focus on our customers need for integrated solutions across their supply chains," Maersk CEO Søren Skou said in a statement accompanying the company's second-quarter report.
And Maersk is far from alone as other ocean carriers have reported big figures in their recent earnings disclosures. This has raised frustration amongst cargo owners experiencing dramatic price increases, container shortages, and late deliveries.
An analysis of earnings reports by Denmark-based consultancy Sea Intelligence shows 11 of the largest ocean shipping lines combined to yield more than $16 billion in first quarter earnings. Matson's ocean transportation revenue grew 66% to reach nearly $683 million.
Hapag-Lloyd increased its earnings outlook for the year and now expects EBITDA to be in the range of $9.2 billion to $11.2 billion. Its EBITDA was $1.3 billion for 2020.
ONE's revenue more than doubled in its most recent quarter to reach nearly $5.8 billion.
Eight of the 11 major shipping lines are part of three “alliances” that work together on routes and bookings.
The major alliances are 2M (Maersk Line and MSC), THE Alliance (Ocean Network Express, Hapag-Lloyd and Yang Ming), and OCEAN (CMA CGM/APL, Cosco Shipping and Evergreen Line).
The U.S. Federal Maritime Commission is “reviewing data pertaining to the trans-Pacific and trans-Atlantic trades” of those three alliances, according to an online Journal of Commerce article.
Section 301 Plaintiff List Grows to Over 3,700 Importers
Apple, Intel, and Pfizer joined the growing list of importers pursuing elimination of the List 3 and List 4 tariffs imposed on goods from China under Section 301 of the Trade Act of 1974. The provision is enforced by the U.S. Trade Representative, and both sides have now requested summary judgement from the Court of International Trade.
There are now over 3,700 US businesses as plaintiffs in the suit against the tariffs on $300 billion worth of Chinese products.
This lawsuit was first brought by HMTX Industries LLC in September 2020 and initially targeted List 3 tariffs. However, the lawsuit grew in size, expanding to include List 4 tariffs and was joined by major companies such as Ford, Tesla and Walgreens.
In February the Court of International Trade, which has jurisdiction over tariff suits, consolidated the cases, currently titled In re Section 301 Cases v. United States (Docket number 1:21-cv-00052). The panel hearing the case is composed of Judges Mark Barnett, Claire Kelly and Jennifer Choe-Groves.
The plaintiffs argue that the List 3 and List 4 tariffs were not authorized under Section 301 because USTR did not properly associate them with IP theft or illegal technology transfer as required tariffs under Section 301. Rather, the subsequent tariffs merely amounted to part of the trade war and did not have any justification permitted by the 1974 Trade Act.
Automobile Origin Rule Differences Heat Up USMCA Partners
The U.S. Trade Representative has made clear it has a tougher interpretation of the rules of origin for automobiles and parts eligible for preferential treatment under the USMCA trade pact than do Canada or Mexico.
Mexico is now seeking formal consultation with the United States over the issue. Canada and Mexico use more flexible interpretations of regional value content (RVC) with respect to auto parts. "Mexico has identified a divergent position between our governments on the interpretation of ... provisions on rules of origin for the automotive sector," Economy Minister Tatiana Clouthier said in a letter.
A request for consultation is the first non-contentious stage of the dispute resolution mechanism provided for in USMCA.
At the same time, U.S. Customs has proposed a new rule which would seem to make it easier to claim Mexico as the country of origin for goods that do not meet USMCA requirements, potentially sidestepping Section 301 and Section 232 additional duties.
USMCA requires 75% North American content for a vehicle to be considered as being from North America.
The same percentage will apply for so-called essential parts from July 1, 2023, up from 69% now, and compared to 62.5% under NAFTA.
But once the level of essential parts hits 75%, it should be considered 100% originating and should be counted as such towards the regional value content of the automobile, Mexico says.
The tougher stance on USMCA eligibility is in stark contrast to the softening of country of origin requirements proposed by CBP for non-USMCA merchandise.
Importers of non-textile and apparel products from Canada and Mexico are currently subject to two different non-preferential origin determinations, one for marking and another for duty calculation purposes.
In July, CBP published a Notice of Proposed Rule Making (NPRM) to expand the use of the marking rules (Part 102 rules) to determine the country of origin for duty calculation purposes on imports from Canada and Mexico.
If the proposed rule is adopted, imports from Canada and Mexico would only have one standard for determining country of origin for non-USMCA merchandise. The new rule is largely based on tariff shifts within the Harmonized Tariff Schedule of the United States (HTSUS), an easier standard to meet and determine.
Using a simple tariff shift rule would seem to make it easier to circumvent Section 232 and Section 301 tariffs for goods assembled in Mexico. Even though the goods may not qualify for duty-free treatment under USMCA, manufacturers may need to re-evaluate their manufacturing locations where the duties on components subject to Section 301 or 232 in the U.S. can be eliminated with assembly or processing in Mexico or Canada sufficient to change the tariff classification.
CBP extended the comment period on the new rule and companies may now submit comments through September 7th.
Peak Season Is Here, But Normal Shipping Rates And Times Aren’t
Are spot rates to the west coast headed for $20,000?
According to U.K. logistics firm Drewry Supply Chain Advisors, the average spot rate for a 40ft container back in September 2020 from Asia to the US West Coast was $4,000, slowly rose past $5,000 in May 2021 and then rapidly sailed past $6,000 (June), $8,000 (also June) and $9,000 (July).
Drewry reported that Asia-Europe spot rates have likewise broken multiple price records.
This is the 18th consecutive week of increases, and Drewry expects rates to increase further.
Freight rates from Shanghai to Los Angeles soared 6% or $647 to reach $10,969 per 40ft container, a change of 242% year over year. However, rates on Los Angeles – Shanghai plunged 7%, a decrease of $103 to $1,358 per FEU.
According to the World Economic Forum, obsolete technology contributes to the slowdown that is increasing costs in the ocean supply chain.
“Global logistics companies, running to a surprising degree on brittle mainframe systems, siloed spreadsheets and even paper documents, are unable to keep up with rebounding demand for goods following last year’s lockdowns. This is causing serious shipping delays and bottlenecks that are driving up costs, with containers from Asia to the United States surpassing $15,000 – more than quadruple the pre-pandemic rate. All told, container costs are driving roughly 3 per cent inflation on goods shipped by ocean,” the WEF writes.
CBP Starts Blocking China Solar Imports
China’s imports and exports rose by double digits in July but growth slowed as global efforts to control the coronavirus’ more contagious delta variant weighed on business and consumer spending.
China’s exports to the United States rose 13.4% over a year ago to $49.6 billion in July, decelerating from June’s 17.8% growth, despite the lingering tariff war. Imports of American goods rose 25.6% to $14.2 billion. China’s trade surplus with the U.S. expanded by 8.9% to $35.4 billion, or more than double the total of Chinese imports of American goods.
President Biden has taken no action to roll back penalties imposed on Chinese imports, and no negotiations have been scheduled.
On top of a dim outlook for the additional tariffs, CBP has begun blocking the import of solar panels that may be products of forced labor in China, a mechanism that may dampen imports from China as well as slow construction of solar-energy projects throughout the U.S.
China’s economic growth slowed to 7.9% over a year earlier in the three months ending in June as a rebound leveled off.
At the same time the Commerce Department reported that the U.S. trade deficit increased to a record $75.7 billion in June as a rebounding American economy sent demand for imports surging.
The June deficit set a record, topping the old mark of $75 billion set in March.
With the U.S. economy rebounding much more quickly than the rest of the world, U.S. demand for imported goods is out-stripping a slower increase in foreign countries’ appetite for U.S. exports. CBP imposed a ban in June on Hoshine Silicon, which produces raw materials used in solar panels. Customs said it had information “reasonably indicating” that Hoshine, which operates plants in China’s Xinjiang region, uses forced labor.
Hoshine had been linked by The Washington Post and human rights researchers to coercive state labor programs targeting Uyghurs and other minorities.
Chinese companies dominate global production of solar panels, with many using raw materials from Hoshine, the world’s largest producer of metallurgical-grade silicon.
Solar is the fastest-growing source of new electricity generation in the United States, according to the Biden administration, which is aiming to boost it from 3 percent of electricity generation today to more than 40 percent by 2035.
The ban brings to the fore the tension between the administration’s human rights agenda and its efforts to address the climate crisis.
Homeland Security Secretary Alejandro Mayorkas, who oversees CBP, has said the administration remains committed to renewable energy. “But, and this is very important, we’re going to root out forced labor wherever it exists, and we’ll look for alternative products to achieve the environmental impacts that are a critical goal of this administration,” he said when he announced the import ban in June.
From its three factories in Xinjiang, Hoshine produces metallurgical-grade silicon that other manufacturers refine into polysilicon, a key ingredient used to make the panels. Hoshine has supplied at least eight of the world’s largest polysilicon manufacturers, according to the company’s public statements and annual reports.
FTZ Staff Activity
FTZ Board Activity
- Swagelok Company received authorization of production activity for finished bar stock within FTZ 33 in Koppel, Pennsylvania. MORE
- BMW Manufacturing Company, LLC received authorization of production activity for additional components of passenger motor vehicles within FTZ 38 in Spartanburg, South Carolina. MORE
- Sheffield Pharmaceuticals, LLC received authorization of production activity for healthcare products within FTZ 208 in New London and Norwich, Connecticut. MORE
- Savannah Yacht Center Inc. submitted a notification of proposed production activity for repair of yachts, sailboats, and boat tenders within FTZ 104 in Savannah, Georgia. MORE
- MSD International GMBH (Puerto Rico Branch) LLC submitted a notification of proposed production activity for additional components of pharmaceuticals within FTZ 7 in Las Piedras, Puerto Rico. MORE
- Treasure Coast Foreign-Trade Zone, Inc. has been designated as the new grantee of FTZ 218 in St. Lucie County, Florida. MORE
- Tesla, Inc. submitted an application for the expansion of subzone 18G in Lathrop, California. MORE
- Mercedes Benz USA, LLC submitted an application for subzone status for its facility within FTZ 98 in Vance, Alabama. MORE
- BMW Manufacturing Company, LLC submitted a notification of proposed production activity for additional components of passenger motor vehicles within FTZ 38 in Spartanburg, South Carolina. MORE
- VIAVI Solutions, Inc. submitted a notification of proposed production activity for optically variable pigments within FTZ 75 in Chandler, Arizona. MORE
- The Greater Mississippi Foreign-Trade Zone, Inc. submitted an application to reorganize and expand the service area of FTZ 158 under the Alternative Site Framework in Vicksburg/Jackson, Mississippi. MORE
- Lely North America, Inc. received authorization of production activity for automated milking and feeding equipment within FTZ 107 in Pella, Iowa. MORE
- Pfizer, Inc. submitted a notification of proposed production activity for mRNA COVID-19 Vaccine within FTZ 43 in Kalamazoo, Michigan. MORE
- Lam Research Corporation received authorization of production activity for additional components of semiconductor production equipment, subassemblies and related parts within FTZ 45 in Tualatin and Sherwood, Oregon. MORE
- Kaiser Premier LLC received authorization of production activity for special purpose vehicles within FTZ 293 in Fort Morgan, Colorado. MORE
- The West Virginia Economic Development Authority withdrew their application to reorganize FTZ 240 under the Alternative Site Framework in Martinsburg, West Virginia. MORE
- The Economic Development Alliance of St. Clair County received approval for the reorganization of FTZ 210 under the Alternative Site Framework in St. Clair County, Michigan. MORE
16 Years To The Day:
Its an eerie anniversary. Category 4 Hurricane Ida slammed into Louisiana’s Gulf Coast on Sunday, exactly 16 years to the day after Hurricane Katrina did the same. The financial impact of this week’s massive storm is expected to be less severe than Katrina, thanks in part to a lower storm surge. Also credit New Orleans’ improved levee system, which held intact this time, featuring massive pumps from FTZ operator/user Patterson Pumps. Even so, trade and the energy industry can expect storm damage impact to be felt for some time.
Peak ocean shipping season is upon us, and so is the Delta variant. The highly-transmissible virus form is interfering with the recovery of supply imbalances for normally critical components and suddenly popular products such as semiconductors and laptops. At least one major port in China was forced to curtail operations after a new outbreak.
The new COVID variant has also dampened hopes to fully reopen offices this month, and travelers and cruise lines must once again rethink their plans to return to full operation. Vacation travel seems to have recovered but business travel, especially international business travel, has not, keeping a lid on air freight options. Ocean rates continue to rise despite record profits reported by the steamship lines.
Even paying those high rates hasn’t made getting your merchandise on time a sure thing. There are so many ships waiting to dock on the west coast that LA/LB has run out of offshore anchor locations, and ships are now drifting in assigned areas near Catalina Island. The peak season backlog has spread to the east coast including Savannah and Newark that now have uncharacteristic delays. The mad scramble continues for international traders.