The spread of coronavirus has disrupted global supply chains across most industries, though the impact on individual firms varies. We look at 11 emerging themes and 7 company-pairs that illustrate the impact.

Also: EU-U.K. talks struggling, whiskey leniency needed to lubricate U.S. deal; Stitch Fix weaves tariff lessons into coronavirus strategy; Sunshine state faces dark clouds from EU-U.S. trade conflict; Oil-for-corn deal shows supply chains adapting to Venezuela sanctions; Trump’s travel ban could lead to freight-only flights; Europe-first strategy for medical supplies; LVMH does its French patriotic duty; Hapag-Lloyd trims rate surcharge, rates robust as fuel collapses; time to prove the USMCA pudding; and Boeing loses tax break, but better EU trade relations catch a break.

Daily Datum: $4,703
per capita value of exports from Illinois in 2019

NEED TO KNOW

We’re not there yet – 18 coronavirus lessons from supply chain and financial data
We’ve published a 20 page report today that draws on over 50 Panjiva research reports and includes a systematic review of trade and financial data to analyze the impact of the SARS-CoV-2 / COVID-19 coronavirus outbreak. We’ve identified 11 broad themes from our reports so far and identified seven interesting performance-pairs.

The impact on supply chains has been widespread with autos, electronics, capital goods, commodities and apparel firms all feeling a drag to sales and availability of parts in their supply chains.

The logistics industry is already experiencing a downturn in activity – U.S. seaborne imports from China fell by 21.5% year over year in February – there’s also logistical challenges with a shortage of empty containers for exports back to China.

Chart segments change in U.S. seaborne imports by origin between China, Asia ex-China and the EU.Source: Panjiva

The chemicals, autos and technology hardware industries appear to be the most preoccupied with the impact of the virus on the basis of recent company conference calls. The recent ISM survey also indicates import expectations are at their lowest in the U.S. since at least 2010.

Many companies are applying lessons learned during the trade war between the U.S. and China, with firms ranging from Stitch-Fix in retail to Lenovo in technology accelerating their supply chain restructuring efforts.

Expedited deliveries – particularly using airfreight – have provided firms such as Deere & Co. a route to maintaining supplies, with the Indian government providing support for a national level scheme in electronics.

Second order effects are also emerging with the apparel industry now seeing a shortage in materials for manufacturing outside of China due to a lack of supplies from within China.

Retailers including Costco and Target are gaining from increased sales of health- and personal care products though supply shortages are rapidly emerging.

Restrictions on exports of pharmaceuticals and medical supplies from India and Turkey are making the situation worse, while the U.S. government has cut tariffs on medical supply imports to keep costs down.

Chart compares change in U.S. seaborne imports of products exempted from list 4A tariffs by consignee and origin for Cardinal Health and Brady Corp.Source: Panjiva

The recovery, when it comes, is more likely to take an extended period than being an instant rebound according to most logistics firms.

There’s signs that the worst may be passed in terms of supplies from China on the strength of evidence from firms as diverse as UPS and Hasbro.

Once normality does return though, a surge in exports from China may result in a new round of tariffs from the U.S., especially if China does not meet its purchasing commitments made in the phase 1 trade deal.

Panjiva’s programmatic performance analysis considered the proportion of companies’ U.S. supply chains sourced from Asia (containerized freight per dollar of cost of goods sold) and revenue exposure to Asia (self-reported) compared to the sector relative share price performance.

Seven selected examples of the analysis are shown for the retail apparel – eg Vera Bradley vs Ralph Lauren – consumer electronics (Sonos vs Garmin), materials (Ball vs Kraton), toys, health care and home / personal care sectors. One conclusion from the analysis – in times of stress what you sell matters as much as where you source it.
(Panjiva Research – Coronavirus)

Chart shows U.S. seaborne containerized freight imports from Asia associated with Hasbro, Mattel and Funko on a monthly and three-month average basis.Source: Panjiva

GLOBAL SUPPLY CHAIN WRAP

Brexit Watch: EU talks struggling, whiskey leniency needed to lubricate U.S. deal
The British government is pursuing trade deals with the EU and U.S. concurrently. The first round of EU negotiations went poorly with the EC lead negotiator Michel Barnier citing “very serious” differences in four areas ranging from the position of the ECJ to fisheries. Talks are scheduled to recommence this week.

In the meantime, U.K. trade with the EU slumped 11.2% lower year over year in January, including a 15.3% slide in British imports. Talks with the U.S. may stick on differences in digital services tax policy, while the British government has called for the removal of tariffs related to an EU-U.S. aerospace subsidy row.

Those tariffs have led to a 15.1% year over year slide in exports of the affected products in January including a 32.4% slump in food shipments and a 3.5% slip in whiskey exports. The latter may have accelerated in February with U.S. seaborne imports linked to Diageo and Bacardi having fallen by 63.5% and 27.6% year over year in the three months to Feb. 28.
(Panjiva Research – Policy)

Stitch Fix weaves tariff lessons into coronavirus strategy
Apparel retailer Stitch Fix has provided guidance for the fiscal year to July 31 that was below analysts’ expectations. Panjiva’s data shows that U.S. seaborne imports linked to the firm have increased by 38.9% year over year in January and February combined, a marked slowdown from the 84.2% rate seen in Q4.

So far the firm “hasn’t yet seen a material impact” from coronavirus disruptions, CEO Katrina Lake has stated. Indeed, the firm’s supply chain should prove robust given that “when we did a lot of the work around tariffs, we really got a handle around our kind of understanding of our dependence on China” according to Lake, though the firm does face second-order effects in terms of its suppliers’ sourcing of materials.

The proportion of Stitch-Fix related U.S. seaborne imports from China fell to 4.7% in 2019 from 13.2% in 2018 with imports from Vietnam and South Korea having been scaled up. Renewed imports from China in February may reflect a reduction in tariffs from mid-month.
(Panjiva Research – Apparel)

Sunshine state faces dark clouds from EU-U.S. trade conflict
The U.S. primary elections on Mar. 17 may include a trade policy focus in two states. Of the four states voting, Illinois has seen the fastest drop in exports between 2017 and 2019 with an 8.2% drop to $4,703 per capita. That’s been down to a slide in refined oil and certain medical devices.

Florida has only seen a 2.1% rise in exports in the past three years and is expected to be a marginal state in November’s Presidential elections. Exports from Florida to China fell by 34.4% year over year due to a slide in shipments of scrap metal and wood pulp due to a mixture of new Chinese waste regulations and tariffs.

Trade with the EU may prove more sensitive with bilateral trade worth $1,365 per capita in 2019 versus $652 per capita with China. A potential U.S.-EU trade war cannot be ruled out, which would prove challenging for the state’s aerospace industry which represented 21.3% of Florida’s exports to the EU.

Imports of cars, specialty chemicals – including those by BASF and Syngenta – and luxury goods are all potential candidates for U.S. tariffs that could raise costs for Florida consumers and businesses from such a trade war. A campaign by Congresswoman Stephanie Murphy (D-FL07) for increased Congressional oversight of Presidential trade powers may sharpen the focus on policy ahead of the general elections.
(Panjiva Research – Policy)

Oil-for-corn deal shows supply chains adapting to Venezuela sanctions
Libre Abordo, a Mexican trading firm, has made an unconventional deal with Venezuela to trade corn for oil. That allows Venezuela to sell oil despite U.S. sanctions. Mexican corn exports of $163 million dollars to Venezuela in 2019 make it the largest market for Mexican corn farmers. Exports have increased by 190.9% year over year in the three months to Jan 31.

The other top exports to Venezuela are also foodstuffs including cereals, processed cereals, and dairy products. Exports of cereals and processed cereals rose by 26.4% and 123.3% year over year while dairy dropped 98.4%. That may reflect a focus on necessities during the continued downturn in the Venezuelan economy.
(Panjiva Research – Agriculture)

Trump’s travel ban could lead to freight-only flights
The U.S. ban on passenger travel from Europe has been extended to include the U.K. and may lead airlines to cancel significantly more flights. That in turn will likely lead to higher freight rates, though it remains to be seen whether they will rise high enough for airlines to keep flights purely for their belly-cargo capacity.

As flagged in Panjiva’s research of March 5, the global freight forwarders had begun to signal a return to normality in China outbound freight. Europe will likely be the next source of disruptions.
(White House)

Europe-first strategy for medical supplies; LVMH does its French patriotic duty
The European Commission has launched an EU-wide set of politics for tackling the spread of coronavirus that include limiting exports to outside the EU of key medical supplies. That’s not a surprise given many member states – and indeed other countries globally as outlined in Panjiva’s March 9 report – have already instituted limits on such exports.

There are also signs of supply chains being retooled to provide essential goods. LVMH will repurpose its perfume production in France to provide hand sanitizer. The products will likely stay for use in France given the new regulations.
(European Commission, BBC)

Hapag-Lloyd trims rate surcharge, rates robust as fuel collapses
Staying with the knock-on effect of coronavirus for logistics, Hapag-Lloyd has cancelled its refrigerated freight surcharge for shipping out of China. As discussed in Panjiva’s March 6 report, the container line has warned it could take “an extended period” for logistics from China to fully return to normal.

In terms of other container rates there was a 0.6% fall last week for all routes out of China, led by a 1.1% slip in China-to-U.S. west coast rates and a 1.3% slide in China to Southeast Asia. Most other routes were largely unchanged, which is somewhat remarkable given that bunker fuel rates globally slumped 18.2% lower as a result of the drop in global crude oil prices.
(Hapag-Lloyd, Shanghai Shipping Exchange, S&P Global Platts)

USMCA Watch: Time to prove the pudding
The Canadian government has ratified legislation covering the U.S.-Mexico-Canada Agreement (USMCA) ahead of closing parliament. That now allows the new regulations – most notably including new rules of origin for the autos sector as discussed in Panjiva’s research of Jan. 30 – to be implemented over the next few months.

Many rules will only be phased in over the next couple of years but there will be a search for evidence of its success in changing trade flows in the next few months. One remaining risk: Senator Sanders has indicated in the Democratic primary debates that he would re-open USMCA if elected President.
(Bloomberg)

Boeing loses tax break, better EU trade relations catch a break
The Washington state House of Representatives voted to end subsidies provided to Boeing. That may reduce the likelihood of the EU applying tariffs against U.S. exports as part of the bilateral aerospace subsidy spat analyzed in Panjiva’s Feb. 17 report. While a decision on tariffs is not due until a WTO ruling later this year, a stand-still could reduce the chances of an EU-U.S. trade war.
(Reuters)