Freight Market Update: March 18, 2020
Ocean and air freight rates and trends; customs and trade industry news for the week of March 11, 2020.
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Ocean Freight Market Update
Air Freight Market Update
Freight Market News
Tanker Freight Rates Skyrocket As Russia and Saudi Arabia announce oil production boosts, daily rates for VLCCs have jumped from $33,000 in early March to between $200K and $300K this week. The WSJ reports Saudi Arabia will raise output from 12m to 13m barrels a day, creating tight VLCC capacity through April, despite economic troubles in China, the world’s largest oil importer.
Shippers Want Unfair Demurrage Fee Ruling A group of 67 trade associations addressed the US Federal Maritime Commission Chairman in a letter calling detention and demurrage fees punitive in the wake of Coronavirus logistics snarls beyond shipper control. According to American Shipper, the group requests publication of a rule defining unfair assessments.
Truck Routes Close As Hours of Service Expands US regulators are allowing truck drivers hauling specific Coronavirus-relief cargo to drive beyond usual 11-hour limits. The allowance does little to balance delivery obstacles, including business closure, driver detention, and curfews across the country, writes the JOC. Impacted verticals include auto, grocery and categories experiencing import increases as China re-opens.
Meanwhile, this week, Flexport Chief Economist Dr. Phil Levy noted the following economic highlights:
- The Federal Reserve made an emergency rate cut to zero and promised direct bond buying of at least $700bn (quantitative easing) on Sunday, days before a regularly scheduled meeting. Chair Jay Powell said the highly unusual move was made because the Fed anticipated the Coronavirus pandemic would have a significant effect on the economy, including negative growth in Q2.
- While the move was intended to demonstrate the Fed’s resolve to support credit markets, the extreme response suggested a level of alarm that could spook investors.
- While it is possible to cut target interest rates below zero, doing so creates serious strains in the banking sector.
- Separately, last week the Fed planned to devote $1.5 trillion to address strains in short-term financial markets.
- China’s economy shows a sharp drop as economic numbers come in significantly worse than expected. For January and February combined, industrial production was down 13.5%, retail sales were down 20.5%, and fixed asset investment was down 24.5%, all compared to a year earlier.
- European leaders pledge aid worth hundreds of billions of euros to counteract the economic effects of Coronavirus
- US March consumer sentiment drops as The University of Michigan index fell to its lowest level in 5 months. The data covered the first 11 days of March.
Customs and Trade Updates
USTR Grants Exclusions to More Medical Supplies The USTR granted 19 additional exclusions from Section 301 list 4 to medical supplies that were part of the COVID19 response. Unlike for previously exempted medical supplies, this list has specifically prepared headings for the 19 products that are excluded. They apply retroactively to the implementation date of September 1st, 2019 and will remain until September 1st, 2020.
USTR Grants Exclusions to List 3 The USTR granted exclusions for 5 full tariff numbers that were subject to the Section 301 List 3. These apply retroactively to the September 24th, 2018 implementation date and remain in effect until August 7th, 2020.
USMCA Passes Canadian Parliament Vote The Canadian Parliament unanimously approved the US-Mexico-Canada Agreement on Friday March 13th. Now that all three countries have ratified the deal, each country must continue to uniform the regulations to fulfill the commitments that were agreed to. Labor reform and origin requirements are among the main hurdles to issuing USMCA as the replacement for NAFTA.
For a roundup of tariff-related news, visit Tariff Insider.