In 2018, US importers and exporters will be greeted by the strongest international and domestic demand conditions in at least a half-decade. Still, uncertainty regarding tariffs and a tight US trucking market are obstacles that could dampen what many expect to be an impressive year for global trade.
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Editor's note: An earlier version of this article indicated that Sears Holdings filed for bankruptcy protection in 2017. Although Sears Canada did so, and subsequently liquidated earlier this year, that business was spun off from the group in 2012 and doesn't reflect the Sears Holdings business.

Shippers share two major challenges this year that make the outlook for those on the JOC’s Top 100 Importers and Exporters and smaller beneficial cargo owners more potentially fraught than usual.

For one, they are being forced to plan in the midst of global trade policy uncertainty. And second, they are dealing with highly asymmetrical market conditions between international and domestic transportation modes.

On the trade policy side, the United States’ posture toward tariffs on steel and aluminum imports has created an environment where virtually every importer and exporter has to consider the impact to their business of a possible tit-for-tat trade skirmish. And on the freight side, the exceedingly tight North American surface transportation market is at odds with the relatively slack ocean freight market.

Both dynamics are always in the background for logistics practitioners, but the degree to which they are heightened this year isn’t so typical and is a source of pronounced consternation for international shippers.

Yet while uncertainty lingers, it hasn’t had a major impact on trade volumes; in fact, it may be stirring some unexpected early containerized growth.

“The threat to impose up to $150 billion in US import tariffs on Chinese exports still stands [as does China’s threatened retaliation in kind] but those tariffs are still pending,” Analyst Paul Bingham wrote in Hackett Associates’ Global Port Tracker report this month. “Somewhat ironically, overall commodity trade volumes, including US imports, have increased, likely as a response to trade threats. Market psychology regarding potential, future, additional tariffs has affected trade behavior quickly, not surprisingly. Following the US trade policy announcements this year it appears some companies have accelerated shipments.”

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Hackett Associates is projecting North American containerized trade volume for 2018 to rise 5.3 percent to 24.7 million TEU. That’s roughly in line with the 4.9 percent growth in containerized trade for 2018 forecast in January by IHS Markit, parent company of JOC.com.

Maritime consultant Drewry recently pegged supply growth in the container shipping industry at 4.2 percent this year.

The US tariffs on $50 billion of imports from China and Chinese retaliation threaten roughly 887,000 TEU, or 6.6 percent of the total US container trade with China and 2.5 percent of total US container volume, according to a JOC analysis of PIERS data, though the ultimate impact of the threatened tariffs remains unclear.

The threats have alarmed global and US economy watchers and raised suspicions that China is trying to squeeze US exporters of waste, pork, and fresh fruits with ramped up container inspections. As of late May, the Trump administation was hinting it would ease sanctions on ZTE, a Chinese telecommuniations company that has drawn the scrutiny of some in the US security community, in exhange for China’s removal of tariffs on US agriculture exports.

Amid the back-and-forth, the major economic forces still look strong. Nariman Behravesh, chief economist at IHS Markit, said global economic growth will likely be sustained between 3 and 3.5 percent over the next couple of years. There’s more tempered growth projected for US GDP, at 2.8 percent for 2018 and 2019.

“The reality is that the business cycles of the world’s major economies are mostly out of phase with one another,” Behravesh wrote in a May 11 global economic outlook note. “Specifically, the cycles in the US, UK, German, and Canadian economies are in a mature phase, whereas the eurozone and Japanese economies are in earlier stages of expansion.”

Smooth oceans, choppy land

Carolyn Glynn, senior manager of international freight and customs compliance at Igloo Products, said her company’s negotiations with its steamship lines and non-vessel operating common carriers (NVOCCs) went smoothly this year. Glynn noted that consolidation in the carrier industry has resulted in what she characterized as enhanced customer service.

“I’m not sure this has been everybody’s experience, but we definitely noticed more of an emphasis on customer service,” she said, adding that her carrier has set up a concierge service for the Igloo account.

Glynn intimated that the focus on customer service is likely due to carriers being freed up to focus more on service and less on cost, with fewer participants potentially driving down market rates.

Igloo, which didn’t make the Top 100 list, predominantly ships all-water from six points in Asia through Houston, and generally uses one carrier and one to two NVOCCs.

Perhaps a bigger imminent challenge for shippers than the pending imposition of tariffs is the extreme dichotomy between conditions in the ocean freight market and those in the US trucking market.

“Precious few shippers only have to worry about containers coming into the United States,” said Foster Finley, a managing director and leader of the transportation practice at AlixPartners. “They also have to worry about surface transportation to points of consumption inside the country.”

Finley said the asymmetry of the international and domestic freight market conditions puts a greater onus on shippers to manage modes more in unison.

“More shippers have become more sophisticated and are looking at transportation more holistically,” he said. “The [chief financial officer] and the chief supply chain officer are asking questions — what’s the total cost and what are the factors associated with that? The management of many of these companies is looking at it from a broad perspective. That forces domestic and international to work with each other, because they’re not discrete pieces to be managed separately.”

According to April data from Wolfe Research’s quarterly State of the Freight report, which surveys shippers across a range of verticals, ocean rates are expected to increase 0.3 percent year over year in the next 12 months, down from 3.4 percent a year ago. That’s the lowest pricing expectation since before the August 2016 Hanjin Shipping bankruptcy, the report notes.

Meanwhile, the same report found that shippers expect to see a 5.2 percent increase in truckload rates and a 3.4 percent bump in less-than-truckload rates during the next year. Both are the highest expectations in the history of Wolfe’s survey.

An e-commerce future?

This year’s Top 100 Importers list looks largely familiar to those of years past, but the shifting sands beneath the retail sector are taking a toll on some household names on the list.

Toys”R”Us (No. 40) declared bankruptcy as part of an especially vicious retail reckoning in 2017, while Sears (No. 15 on the importers’ list), J.C. Penney (No. 16) and Macy’s (No. 56) are said to be struggling. It’s unclear what prolonged impact Amazon’s acquisition of Whole Foods means for the rest of the grocery retail sector, but Kroger (No. 73) and even discount retailers such as Walmart (No. 1), Target (No. 2), Family Dollar/Dollar Tree (No. 7), Cosco (No. 14), and Dollar General (No. 48) could be impacted.

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The Top 100 Exporters list is, as usual, dominated by commodities shippers, especially in the paper goods, agriculture, food, chemicals, and recyclables industries. Aside from concerns that US tariffs on certain imports might rebound on US exporters, shippers in the wastepaper industry have also grappled with restrictions on their ability to export to China.

And then there’s the looming impact of e-commerce. Most experts contacted by JOC.com have yet to make a material shift in how they procure ocean capacity as it relates to e-commerce orders, but explosive growth in e-commerce sales and direct-to-consumer deliveries could reshape the pattern of import volumes at US ports in the years to come. For now, few companies have distinct e-commerce and traditional sales channel supply chains that stretch beyond fulfillment or final-mile legs.

“Direct-to-consumer is big and high profile mainly because it touches the consumer,” Finley said. “We see all sorts of developments, but at the end of the day, it does not tend to have the impact that business-to-business transactions have.”

Overall consumer confidence, in e-commerce and more generally, is driving growth for imports, said Ben Hackett, principal at Hackett Associates.

“Despite the threats and risks to trade, we continue to see solid expansion, and our models are projecting this to continue throughout the year, although at a slower pace than last year,” he wrote in the latest Global Port Tracker. “The main reason is that the consumer is spending more than his net personal income and is also drawing down on savings.”

Meanwhile, a stronger dollar doesn’t portend well for exports, which grew a nominal 1.2 percent year over year in 2017 to 12.5 million TEU, according to PIERS, a sister company of JOC.com.

Searching for contingency plans

The threat of import tariffs is compelling some shippers to set up contingency plans around transportation networks and sourcing locations, Finley said. One of AlixPartners’ clients, he said, engaged the firm a year ago around a profitable and fast-growing product it was sourcing in Asia.

“They wanted to know, if we are forced to discontinue, we need to know what our alternatives are,” he said. “We went through with them where in the United States could these products be made; we did proformas on landed costs in Asia and the United States. And not surprisingly, it was obnoxiously high. So, it pivoted quickly from contingency plans to getting pretty precise about inflection point.

“Every one of these conversations gets to a tipping point: where is the point where tariffs, or lack thereof, force you in one direction or the other,” Finley said.

AlixPartners stresses seven variables when advising clients on where to source, he said: the cost of local materials, overhead, local labor, transport inbound (country of origin to country of destination), buffer inventory, tariffs, and foreign exchange. “Six of the seven are independent variables where it helps to look at historical patterns, but tariffs are purely capricious,” Finley said. “There’s not much utility in trying to forecast that.”

Glynn agreed. “It’s on our radar, but we’re sitting back and waiting to see because it’s too early to know what will happen,” she said. “We don’t want to focus on the wrong segments to guess what the government wants to do. Pulling the trigger prematurely can cost you. Especially if you’ve made the wrong assumption.”  

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.

Rankings compiled by Dustin Braden. Contact Dustin Braden at dustin.braden@ihsmarkit.com and follow him on Twitter: @dustin_joc.

About the rankings: The Journal of Commerce’s annual Top 100 US Importers and Exporters rankings begin with data from PIERS, a sister product of The Journal of Commerce within IHS Markit, and are enhanced by information gathered from other industry sources.

The figures are expressed in TEU, the most common measurement of containerized ocean shipping. One standard FEU equals two TEU.

These lists are restricted to shippers — beneficial owners of containerized cargo that entered or exited US ports by ocean vessel during 2017. The statistics do not include shipper associations, carriers, non-vessel-operating common carriers, forwarders or brokers, third-party logistics providers, or “to-order” negotiable bills of lading, or data falling under privacy strictures. International import and export cargoes into and out of the US via air, rail, or truck are not included.

In tandem with last year’s ranking and considerable industry research, the list also identifies corporate subsidiaries and strives to reflect any changes in corporate status related to mergers, acquisitions, spinoffs, formal name changes, or bankruptcy filings. We also identify the location of corporate headquarters and, if the global headquarters is outside the US, the parent company. We indicate a website if one is available as well as the industry sector.

These rankings represent our best approximation of the total international oceanborne shipments by these companies and their subsidiaries. We welcome your feedback.