President Trump’s trade war has produced a logistical nightmare for American importers at Southern California ports.
Marisa Bedrosian Kosters, an executive at an Anaheim, Calif.-based ceramic tile and stone retailer, like any other retailer when they heard trade war last year, pulled demand forward by ordering additional product to get ahead of the tariffs and other duties, reported The Gazette.
But when her new tiles, packed into 40-foot containers, from central Guangdong Province, China, reached the Port of Long Beach, she said her containers encountered a logistical difficulty.
The trade war forced American importers to pull forward all at once; this created a massive influx of containers at the Port of Long Beach. Massive bottlenecks at the port formed in 2H19, which Kosters was slapped with thousands of dollars in extra costs charged by the terminals.
The Gazette said her 389,000-square-foot tile distribution center is “overflowing” with tiles because she had to order more product to get ahead the tariffs. Now she is faced with record high inventory.
“There’s no space inside,” she said. “We don’t have anywhere to put the materials.”
Kosters said her troubled situation was all sparked by the trade war: “We’re having to bring in more because there’s so much uncertainty about what country is being hit next.”
Tariffs are having the most significant impact on Los Angeles and Long Beach ports, the nation’s busiest container ports, which both handle about 47.5% of US containerized trade with China. But it’s not just the ports that are feeling the pressure from the trade war, trucking, railroads, warehousing, construction, manufacturing, and farming, have also been impacted. About one million jobs related to international trade in a five-county region are also in question as the trade war continues to deepen.
Trade chaos has “really gummed up the operations of the supply chain,” said Eugene Seroka, executive director of the Port of Los Angeles. “We’ve got a lot of cargo coming in that just sits.”
“Containers are stacked high. Truck lines are long. And warehouses are bursting at the seams.”
There is so much inventory piling up at Southern California’s warehousing and distribution complex, the largest in the world, that it has less than a 1% vacancy, down from the average of 5-7%, he added.
The trade war has left corporate America uncertain about the future by pulling back investments, Seroka said.
“A lot of money is sitting on the sidelines,” he said. “Do you buy more trucks? Do you hire more people? Do you build another warehouse? Do you invest in digital technology?”
“Few companies want to invest at this point in time in the supply chain, not knowing where it is going in the future.”
At both ports, containerized imports from China surged in the summer and autumn, thanks to the tit-for-tat trade war, and then plunged by 12% in the first four months of this year on a YoY basis.
Over the same period, exports to China collapsed by 27.4%.
Now Trump has threatened to slap tariffs on another $300 billion of Chinese exports if China’s leader Xi Jinping doesn’t meet him at the 2019 G20 Osaka summit in Japan. If the meeting doesn’t occur, this could mean a full-blown trade war would be in effect, would spark a global trade recession and lead to severe disruption at California’s ports.
“There is a lot of concern about jobs,” said Mario Cordero, executive director of the Port of Long Beach. “We have 10,000 dockworkers. If they’re not called to do work, they don’t earn money.”
“The less cargo we have, the less demand for logistics workers, for warehouse workers. Whether you’re a trucker or a clerk or you work in manufacturing, the tariffs affect the whole supply chain.”
A full-blown trade war would be absolutely devastating for the California economy.
“It won’t have a catastrophic effect on the Southern California economy,” O’Connell said. “But if you are a company struggling to do business with China, it could be devastating.”
Logistics experts told The Gazette that tariff related pressures would spread to other West Coast ports.
“The supply chain needs a lot of work,” said Weston LaBar, CEO of the Harbor Trucking Association, which represents several hundred local trucking companies. “Now we’re seeing many of the same issues we saw during the complete gridlock in late 2014 and early 2015.”
LaBar said tariffs are a threat to the complex manufacturing supply chain that the ports support.
“So, for instance, China imports scrap metal from the US and recycles it into slab steel. A steel company in Los Angeles imports it back from China and turns it into rolled steel for the aerospace industry,” he said.
“Now that LA company, because of the China tariffs, has had to source steel from Brazil. But there’s a cap on how much slab steel they can import from Brazil. And there are hundreds of manufacturers all over the country looking at layoffs because of these tariffs.”
As the trade war intensifies, the most economically unprotected workers will suffer, predicted O’Connell, the Beacon Economics trade expert.
“Truck drivers are paid by the load, and fewer loads impact their income,” he said. “And warehouse workers from Los Angeles and the Inland Empire up to the San Joaquin Valley are mostly temps.”
“They are sent to work by temp agencies on demand, and they are sent home when the number of boxes declines.”
Despite talk of reworking many supply chains from China to Vietnam, Malaysia, Bangladesh or West Africa, he said, “How fast can you build a new manufacturing facility and move all your component suppliers into a cluster in a new country? We are already starting to hit a wall in Vietnam where the transportation sector — with inadequate roads and ports — is overwhelmed.”
Trump has said his trade war will bring manufacturing back to the US. But many business executives don’t believe the president.
As the US economy cycles down into the summer with the threat of a full-blown trade war, the business cycle has become vulnerable to shocks, and shocks are what can trigger a recession.
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Author: Tyler Durden