U.S. containers to peak in November ahead of new import duties

Fifteen months after the U.S. imposed the first round of punitive levies on Chinese imports, those tariffs continue to drive shippers to bring goods into the U.S. quickly. But the tariff fallout is more muted this year as those additional costs gets incorporated into the supply chain.

Total 2018 container imports into the U.S. reached 21.8 million twenty-foot equivalent units (TEUs), according to the National Retail Federation, a 1.3 million TEUs increase from 2017 and the second highest year-on-year increase in imports since the end of the last recession.

As the White House ramped up talk of using tariffs throughout the year, shippers responded by bringing in more containers than expected. Actual monthly retail imports were higher than NRF estimates for eight of 12 months in 2018.

This year will see import volumes reach a new record, albeit the rise will be much smaller than last year’s. The NRF expects retail imports to reach 22 million TEUs this year.

Shippers cutting back on import demand

Thanks to last year’s front loading of Chinese imports ahead of tariffs, retailers and other businesses are sitting on the highest levels of inventories in a decade. One barometer of inventories, the U.S. Census Bureau’s inventory-to-sales ratio, currently sits at 1.40 for July, just shy of the all-time high of 1.43 set in March 2016.

As a result, shippers have cut back on their import demand this year. Monthly retail imports have fallen short of NRF estimates in four of the first seven months of 2019.

Still, there are pockets on front-loading occurring sporadically through 2019. July 2019 retail imports of 1.96 million TEUs was about 100,000 TEUs above NRF estimates. August volumes of 1.97 million TEUs was the highest level of imports for the year.

Those volumes came ahead of the U.S. Trade Representative imposing 15% tariffs on $112 billion in Chinese imports, mostly clothing and shoes, starting September 1.

“No two peak seasons are ever the same,” said Lidia Yan, Chief Executive Officer and co-founder of NEXT Trucking. “The geopolitical environment has created more variability than in past years, impacting drayage and the entire supply chain.”

15% tariffs for Chinese imports

November may match the August level, as the NRF expects total retail imports of 1.97 million TEUs, a 9% increase over last year’s figure and the highest monthly growth in 2019. The volume boost will come ahead of the 15% tariffs that are scheduled to start on $188 billion in Chinese imports, a list which includes cell phones, laptops, and toys, starting December 15.

Negotiators from the U.S. and China are meeting in Washington October 10 to work out a deal on trade. But there is still little in the way of public consensus on the issue and the dispute between the two largest world economies is “moving firmly beyond the bilateral imposition of tariffs,” according to a report from S&P Global’s trade analytics arm Panjiva.

Just ahead of the new talks, the U.S. blacklisted eight Chinese companies from buying computer chips and similar technology components in response to concerns about their use in police surveillance. The U.S. is also still going ahead with raising tariffs on $200 billion in Chinese imports from 25% to 30% starting October 15.

Little impact on retail sale

Consumers are still taking most of the tariffs in stride. U.S. retail sales were up 4% in August. Retail giant Target is pushing on its vendors to work out ways to absorb the costs of tariffs so retail prices will not have to be increased.

“Most companies appear to now consider tariffs as a business-as-usual affair,” Panjiva said in its fourth quarter trade outlook. But “there are signs of accelerated imports ahead of tariff increase[s].”

Clothing retailers saw particularly large increases in import volumes, according to Panjiva. Guess and Urban Outfitters saw their imports rise 48% and 70%, respectively, in August “as they rushed to beat tariffs,” a Panjiva report said.

Similarly, toy retailers appear to be stockpiling well ahead of those tariffs. Panjiva data show toy and videogame imports from China rose 17% in August.

Among shippers in that category, Mattel saw its August imports climb 67% from a year earlier while Hasbro’s imports from China rose 14%.