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World Wide Customs (COVID-19) Market Update – JUNE 1ST, 2020

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The World Health Organization on May 25 warned of a potential second peak of infections if government restrictions are eased too soon. Chile-based LATAM Airlines, the largest Latin American carrier, files for Chapter 11 bankruptcy and restructuring as it begins fleet reductions, which may spell long-term capacity loss for many countries in the Americas. Reports show that the coronavirus pandemic is hitting hardest on Latin America, India, Pakistan, and Russia, while Europe and the US are experiencing job losses associated with the global pandemic response. In the wake of the lockdown lift, an oversupply of commodities draws down prices in some European countries while consumers and B2B buyers take on conservative spending attitudes. Meanwhile, production shortages and lack of shipping capacity continues to take its toll on the global supply chains of agricultural produce as producers and buyers are eyeing the next harvest season.

DISCLAIMER – All information is provided in good faith for guidance and reference purposes only. It is of a general informational nature, and KWE Canada takes no legal responsibility for the accuracy of the information provided via this document. KWE Canada makes no representation as to the accuracy or completeness of any of the information contained herein and accepts no liability for any loss arising from the use of the information provided.

Country Focus

Canada – The Canadian Automated Export Declaration (CAED) system has extended its transition to the Canada Export Reporting System (CERS)—exporters have until September 30, 2020 to register. The Canadian government will provide at least $300 million in business relief aid and $252 million in domestic agricultural assistance, including $50 million to buy surplus produce as wholesale buyers remain unable to operate. Journalists report that travelers are still arriving in Canada’s international airports despite a continued border lockdown, which may impede the country’s efforts to stem its outbreak. The nation’s flag carrier, Air Canada, announced a new passenger cancellation policy and service to nearly 100 destinations domestic and international for its summer schedule. Routings will be introduced in the coming months of June, August, and September.

United States –The Secretary of State rescinded Hong Kong’s special trade status on May 27; all tariffs and export controls placed on China will also affect Hong Kong. However, the current administration is hopeful that a Phase 1 trade deal will be implemented with China. On May 24, the government banned the entry of travelers from Brazil to limit the spread of the virus. Following relaxed lockdown restrictions, retail stores incrementally open to resume operations. The Memorial Day holiday saw air travel increase by 1.5 million passengers, according to the Transport Safety Administration (TSA). Despite this, the Transportation Department announced on May 23 that 15 airlines will temporarily halt service to 75 U.S. airports due to low demand. US has extended partial closure of the Mexican border for non- essential traffic until June 22nd. Several US-Mexico ports of entry will install additional x-ray systems to boost inspection rates.

China – KWE sources report that China continues to experience limited air capacity due to an influx of PPE and medical shipments. The Shanghai-Pudong International Airport witnesses a never-before-seen “Super Peak Season,” with export screening wait times ranging from eight to 48 hours. Although air freight rates ex-China to US are dropping, the pace remains slow as much of the capacity is allocated to PPE shipments. Economic uncertainty and prolonged use of freighter fleets may lead to further changes in demand, supply, and rates. The Shanghai Port reveals over 50% year-over-year increase in soybean imports thanks to Brazilian suppliers. South China seaports remain operational and uncongested. Four China-Los Angeles voyages have been reinstated by the T.H.E. Alliance through June, although an additional sailing to Shanghai by steamship carrier O.N.E. will be blanked on June 18.On May 22 the government announced an extension to port construction levy relief for imports and exports, which may potentially reduce costs of production for coal and energy suppliers—the duration has been increased to the end of 2020.

Argentina – The government has extended lockdown to June 7 and enforced closure of non-essential businesses in Buenos Aires metropolitan areas. While automotive industry giants seek to resume factory operations by the end of May, many local suppliers are hard-pressed to obtain approvals from district officials. Health experts predict that Argentina’s infection rate will peak in the coming months.

Bangladesh – Following the departure of Cyclone Amphan, the Chattogram Port resumed normal operations on May 23. However, a slowdown in delivery of cargo attributed to the Eid Al-fitr holiday in the past weekend threatens to overwhelm inland container depots connected to the port. Border problems with local governments have resulted in significant increases to cargo transport by rail and ship. Air cargo space remains critically low as the government-imposed lockdown remains in effect until May 30; most flights at the Dhaka Airport have been repatriation flights or medical shipments.

Brazil – The government has extended lockdown and aims to partially reopen low-risk businesses in June; higher-risk businesses and spaces after July. Over the past four months, Brazil has recorded a $19.7 billion trade surplus through sea freight, due in part to a two-month slump in fertilizer rates and an increased demand for agricultural produce. Air and seaport activities remain operational.

Egypt – The two major seaports, Alexandria and Said, as well as the Suez Canal, have posted losses owing to the compounded effects of the coronavirus global response and the oil market crash. To recover, a series of amendments to decrease line tariffs and renew assets, among others, has been announced by the Port of Alexandria’s Container and Cargo Handling Company. The Suez Canal Authority has offered further toll discounts—however, this has not persuaded shipping lines to rethink alternative routings via the Cape of Good Hope.

France – On May 26, Prime Minister Macron announced a comprehensive recovery plan worth more than €8 billion to support the French automotive industry. Le Havre Port’s ro-ro terminal reaches critical congestion as up to 60,000 cars—whether for import or export—wait for pickup. Air France-KLM will cut 40% of its domestic flights as part of a restructuring program to receive aid from the French government. The carrier intends to restart 15% of its passenger flights in June.

Hong Kong – Transit services at the Hong Kong International Airport will partly resume on June 1st. Anti-CCP (Chinese Communist Party) protests in Hong Kong’s metropolitan hubs have stirred up again after a set of national security laws were proposed on May 21 by the Chinese government. The extent and duration of the protests may impede local transit performance. Due to India’s mandatory 14-day quarantines of vessels with stops in China, sea freight transit times remain sluggish—blanked carrier sailings have also reduced capacity to Europe and Trans-Pacific destinations.

India – The displacement or migrant workers and truck drivers exacerbates both domestic transportation and cargo handling services—over 2,200 trucks are stranded along the India-Bangladesh border near the Benapole land port. Further labor shortages in the private and public sector means manufacturing, inspection, and customs clearance may see delays. The government-imposed ban is set to end May 31.

Indonesia – Due to the sudden increase of infections, the government has deployed hundreds of thousands of army and police officers to enforce social distancing as investigators trace the spread to transit infrastructure. KWE sources warn that cargo containers may see shortages in June due to a slowdown in imports; the government plans to partly re-open shopping malls on June 8.

Japan – On May 27, Japan added 11 more countries to its entry ban list: India, Bangladesh, Pakistan, Afghanistan, Tajikistan, Kyrgyzstan, El Salvador, Argentina, South Africa, Guinea, and Ghana. The government officially lifted its state of emergency on May 26, days ahead of its official end-date. Beginning in June many of Japan’s airlines will enforce temporary risk-reduction measures to ensure passenger safety: All Nippon Airways (ANA) will require passengers to wear face masks inside airports and aircraft, while Japan Airlines Co. (JAL) and Skymark Airlines Inc. will avoid seating passengers within three feet of each other. Shipping line NYK has announced success in testing remote controlled boating capabilities, which could pave the way for unmanned containerships.

Korea – The volume of cargo at Incheon Port is increasing as industrial production in China normalizes and trade activity increases with Southeast Asia. Customs regulations have been relaxed for food imports to prevent delays in clearance. Negotiations between Busan Port and an alliance of container yard operators may break into a strike if an agreement is not reached this week, potentially clogging container operations.

Mexico – Altamira Port recorded a significant increase in cargo operations, handling over 259,000 TEUs in the past four months. The gains are attributed to the continued operations of the agricultural sector. The country’s flag carrier Aeroméxico is facilitating a sky bridge with Asia to ship medical supplies and plans to resume some international passenger flights in June.

Pakistan –Space is limited to freight operations. Bottlenecked uplift means some shipments must wait five to ten days for loading—advanced booking is mandatory. There are no reported trucking shortages or unusual traffic congestion for cargo handling.

Philippines –Some factories are already operational in line with the government-imposed Modified Enhanced Community Quarantine (MECQ) which was enforced May 16, increasing traffic congestion. Air shipment demands still exceed the supply due to the cancellation of many passenger flights; however, commercial passenger flights are expected to resume June 3 pending update from the government.

Spain – The government is weighing the possibility of opening designated travel corridors in the EU to draw international travelers back before July 1 and help the tourism industry recover. The phased lockdown schedule has also been updated as of May 26. The government will allow international tourism in Spain starting July 1st.

Thailand – The government confirms it likely will not resume international tourism this summer as the national state of emergency remains in effect until June 30. Neighboring countries tighten their border controls to prevent the movement of migrant workers into Thailand—another border was closed on May 27 following the crossing of confirmed coronavirus patients. The nation’s port authority published results of its operations between October 2019 and March 2020, noting decreased ship calls and cargo handling in a predominant number of ports.

United Kingdom – Beginning June 1, the government announced that all inbound air travelers will be required to self-quarantine for 14 days, as airlines gear to resume flights by June 15. Non-essential businesses may reopen June 15 pending update. Analysts project that the road to recovery may spark fierce price competitions and continued imbalances in the movement of empty containers.

Vietnam – Vietnam’s Immigration Department has announced that it will extend temporary residence permits for those that have entered before March 1 until the end of June 30. Foreigners that have entered on visa-free policies, e-visas, or tourist visas since March 1 will also be entitled to the same automatic extension program until June 3. Vietnam has approved the reopening of sub-border gates and border crossings in Lang Son and Quang Ninh provinces connecting with China to ease trade between the two countries. Airport and seaport operations remain normal.

Air Freight

The Lufthansa Group Will be adding three weekly direct passenger services from Toronto (YYZ) to Frankfurt (FRA) as of June 4th, 2020. These flights will operate in addition to the existing 4 weekly B777F freighter services to Frankfurt (FRA). Montreal (YUL) will also be restarting operations with 3 weekly direct passenger services to Munich (MUC) as of mid-June 2020. In addition, we are taking steps to gradually remove restrictions in transporting specialized shipment such as Emergency Shipments (BXO), Live Animals (AVI), and others to and through our hub in Frankfurt (FRA).

Airline Debt to Balloon by 28% -Heavy New Debt Levels Will Weigh Down Recovery. Geneva – The International Air Transport Association (IATA) released an analysis showing that the airline industry’s global debt could rise to $550 billion by year-end. That is a $120 billion increase over debt levels at the start of 2020. – $67 billion of the new debt is composed of government loans ($50 billion), deferred taxes ($5 billion), and loan guarantees ($12 billion). – $52 billion is from commercial sources including commercial loans ($23 billion), capital market debt ($18 billion), debt from new operating leases ($5 billion), and accessing existing   credit facilities ($6 billion). Financial aid is a lifeline to get through the worst of the crisis without folding operations. But during the re-start period later this year, the industry’s debt load will be near $550 billion—a massive 28% increase Government aid is helping to keep the industry afloat. The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating,” said Alexandre de Juniac, IATA’s Director General and CEO.

Sea Freight

Facing at least a 10 percent decline in global volumes driven by the COVID-19 crisis, container lines have been able to cut capacity enough to keep spot rates elevated from a year ago. But a wave of government support measures and the rising threat of overcapacity speaks to the pain on the way, even if carriers have shown they have learned from the 2008-09 global financial crisis not to pull punches when it comes to cutting capacity. “We learned the hard way,” Rodolphe Saadé, CEO of CMA CGM, said in an interview with JOC Uncharted, a weekly virtual event. “This year as an industry we have decided to take a different look at the situation and reduce capacity to match supply and demand.” The coronavirus disease 2019 (COVID-19) is upending global container volume demand and rippling through containerized supply chains. That’s sending shockwaves to all freight transport modes, from trucking to air cargo.

The widening impact COVID-19 is having on retail and manufacturing demand is creating the need for two importing speeds. Cargo owners such as apparel and automotive importers want to delay receiving goods for now-closed brick-and-mortar stores and production lines, whereas importers shipping personal protective equipment (PPE) and essential household consumer goods want them faster. Against that backdrop, carriers, forwarders, port authorities, and marine terminals are warning of a cargo bottleneck if more Western importers fail to pick up containers when they arrive, causing port congestion and inland equipment shortages that will slow down the broader supply chain.

Capacity cuts keep Asia–Europe spot rates aloft. Spot rates on trades from China to Europe and the Mediterranean continue to track well above levels recorded last year as carriers match the sharp decrease in demand with equally severe cuts in container shipping capacity. The rate from Shanghai to Northern Europe rose 4.4 percent sequentially this week, almost 11 percent higher than the same week last year, according to the Shanghai Containerized Freight Index (SCFI). The Shanghai-North Europe rate has only fallen below 2019 levels twice since the start of the year, despite Asia-North Europe volumes declining 12 percent in the first quarter of 2020, according to data from Container Trade Statistics. From China to the Mediterranean, the SCFI rate rose 5.1 percent this week, up 25 percent compared with the same week last year. It is the highest comparative weekly percentage so far during a year when the year-over-year increases have been in the double digits since December 2019.

Spot container freight rates from Asia to the US West Coast surged this week, as declining vessel capacity could not keep pace with an increase in import volumes driven by inventory replenishment. The spot rate from Shanghai to the US West Coast jumped 25 percent week-over-week. The East Coast rate rose 7.4 percent week-over-week. The last time spot rate to the West Coast hit these levels per FEU was in the week of Jan. 25, 2019. On a year-over-year basis, Shanghai– US West Coast rates were up 42.6 percent, while East Coast spot rates were up 7.5 percent. Carriers see rise in booking cancellations, no-shows. As US retailers cancel purchase orders at Asian factories due to plunging demand for a variety of consumer goods, ocean carriers and terminal operators report a troublesome increase in booking cancellations and container no-shows at overseas ports.

Canceling bookings, and the failure of beneficial cargo owners (BCOs) to notify carriers that they will not fulfill a booking order, prevent carriers from optimizing vessel capacity and can result in other shippers from being unnecessarily shut out of voyages. “No-shows for bookings are as high as 20 percent. A normal level of booking cancellations in the trans-Pacific is about 15 percent, Pump said. Cancellations reached 40 percent in the last week of April and 29 percent in Week 20 in mid-May, he said. In the vast majority of cases, the BCO is not penalized for a no-show. Likewise, carriers are not penalized if they accept a booking but then have to roll a shipment because of insufficient capacity. A small number of contracts, such as those in which bookings are made via the NYSHEX exchange, include nonperformance clauses with penalties.

CN offering intermodal service through Moncton. MONTREAL – CN, in collaboration with the Halifax Port Authority, stakeholders, ocean carriers, and customers, it will now offer integrated solutions through its Moncton, New Brunswick, yard aimed at reducing short-haul trucking in Halifax. “This intermodal service will play a key role in overall integrated solutions that drive value and support growth in the Atlantic region,” said JJ Ruest, president and CEO at CN. “We are pleased to be moving forward with this initiative that will benefit all of our partners and customers.” “The CN Intermodal Ramp in Moncton continues to have a positive impact on truck traffic as containers are loaded and unloaded onto rail at that point as opposed to being trucked to and from Halifax,” explained Captain Allan Gray, president and CEO, Halifax Port Authority. “Expanding the existing CN Intermodal Ramp in Moncton is showing positive results during this initial development phase, and we will continue working with CN, terminal operators and ocean carriers to find new ways of developing a more sustainable supply chain.”

Surface Transportation

Freight indicators suggest the worst is in trucking’s rearview mirror. TORONTO, Ont. – The worst of trucking conditions wrought by the Covid-19 pandemic may be in the rearview mirror, but the recovery could be choppy. In its most recent Commercial Vehicle Dealer Digest, ACT Research predicts the economy will transition from contraction to growth over the third and fourth quarters, as the focus shifts from saving lives, to saving livelihoods. “Clearly the global economy does not have the luxury of waiting a year or two for a vaccine to be developed before the current solution itself becomes the greater risk,” said Kenny Vieth, ACT’s president and senior analyst. However, the economy will not rebound to pre-Covid levels overnight. “Our forecast anticipates that the U.S. economy, as defined by GDP, will not return to its Q4 2019 size until after 2021,” Vieth added US reopening’s spur uptick in spot truck rates.

The slow, staggered reopening of the US economy is rebalancing trucking demand and supply, as capacity shifts from spot load boards to newly available contract freight. That is gradually pushing truckload spot rates higher, according to load board operator DAT Solutions, as the number of trucks available to pick up spot loads drops as volumes rise. Higher shipment volumes in the busiest US spot truckload lanes helped push spot market pricing higher in the days leading up to Memorial Day, DAT Solutions said Wednesday.

“With contract carriers taking capacity out of the spot market, rates were higher on 73 of DAT’s top 100 van lanes by volume compared to the previous week, and volumes were up 5.7 percent on those 100 lanes,” DAT said. In addition, spot rates were higher on 49 of the top 72 refrigerated truckload spot lanes. Rates were higher than in early May, but still mostly lower than in April. Only refrigerated spot rates rose above April’s average. In May, outbound spot rates rose in states such as California, Washington, Oregon, Nevada, and Arizona in the West and Georgia and Florida in the Southeast, according to analyses of all-in shipper quotes for top US freight lanes supplied by digital marketplace

Loadsmart. That data shows outbound spot quoted rates declining in 37 other states sequentially, indicating much of the pricing increase is likely driven by produce activity.

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