Market Update: Tariffs and IMO 2020

Alert: What you need to know about the tariffs now

As reported by JOC.com and The New York Times, on October 11, U.S. and Chinese negotiators worked out the details of the first phase of a trade deal that calls for China to buy $40 to $50 billion worth of U.S. agricultural products and for the U.S. to cancel its plan to increase tariffs from 25 percent to 30 percent on over $250 billion in Chinese imports. The original date of the increase was October 1, and it would have affected building products, vacuum cleaners, lighting and plumbing fixtures, handbags, luggage, vinyl flooring, semiconductors, printed circuit boards, and chemicals.

The next round of tariffs is set for December 15. If implemented, these will affect products including footwear and apparel.

Exclusions, refunds, and more

While the 25 percent tariffs have brought stress to importers for more than a year, some are finding relief via product-specific exclusions and refunds for tariffs already paid. These exclusions are available whether importers have applied for them or not. Over 3000 exclusions have already been granted for products impacted by Section 301, and over 2000 are still under review.

The exclusion submission window for List 3 closed on September 30, and, as recently announced, the window opens October 31 for qualifying goods on List 4A. Companies interested in applying for List 4A exclusions should be aware that those letters are due by January 3, 2020, so they will need to act quickly. Product exclusions are announced in rounds, so importers should regularly check USTR postings or consult with a customs broker. For additional guidelines and important dates to meet, importers should follow the instructions on the Tariff Actions page at the USTR website: https://ustr.gov/issue-areas/enforcement/section-301-investigations/search.

Alert: IMO 2020 is a little more than 2 months away

January 1, 2020, the day IMO 2020 goes into effect, is just around the corner, and the International Maritime Organization’s regulation will bring about significant changes in the shipping industry.

To combat the high level of pollutants in the exhaust of the bunker currently used to power some 50,000 ships globally, carriers will have to re outfit their fleets so that they can burn fuel that’s better for the environment. This will involve physical upgrades designed to reduce sulfur emissions by more than 80 percent. One option is to install on board scrubbers that process the current fuel’s exhaust. The other is to convert the fuel supply to liquid natural gas.

“Goldman Sachs estimates that the overall impact on consumers in 2020 could be as much as $240 billion,” according to an article published online by Logistics Management. The article also mentions that the changes will add approximately $40 billion in increased shipping costs.

“This is the largest regulatory change in the oil space ever, and it will have a massive effect far outside of shipping,” says Svelland Capital portfolio manager Kenneth Tveter in the Logistics Management article.

IMO 2020’s effect on the industry

It is expected that carriers will comply with IMO 2020. One reason: Those that don’t comply risk alienating customers who care about protecting the environment. As ships are converted, new low-sulfur fuels will be in high demand. The conversions and the cost of fuel will create higher shipping prices. In addition, as ships are dry docked and converted, fleets will be reduced, creating more demand on the ships still at sea. And with fewer sailings, shipment delays will affect supply chains all over the world.

What you can do to prepare

With regard to tariffs: American Lamprecht can help you navigate the complex process of identifying existing exclusions, applying for new ones, and handling entry corrections and refunds (if applicable). Here are a few other things you can do:

• Determine how the tariffs affect your cash flow, line of credit, vendor payment schedule, payroll, and more.
• Confirm your credit status with your broker, forwarder, and overseas vendors.
• If you haven’t done so already, set up an Automated Clearinghouse (ACH) account with Customs so that you can pay through Periodic Monthly Statement (PMS), which gives you an up-to-45-day float.

With regard to IMO 2020: There are things you can do now to prepare your company for the industry’s new changes:

• Ship early to avoid the capacity shortage, and arrange for domestic storage if required
• Optimize flexibility in the event your first or second option are blank sailings
• Diversify shipments so that no single carrier has all of your product
• Learn how using multiple carriers can work for you, especially in periods of limited capacity
• Consider air freight for certain shipments
• Reconfirm allocations and forecasts

Like the challenges caused by the escalated tariffs, those caused by IMO 2020 will require importers and exporters to work with logistics experts like American Lamprecht to find solutions that preserve the integrity of supply chains and the profitability of their businesses.