Tariffs, Trade Tensions Impact Auto Shipping

The lingering impacts of various trade wars are refashioning supply chains and slowing the flow of goods across borders and across various logistics corridors — including over the waves.

The Wall Street Journal reported Monday (Oct. 21) that in one vertical — the transport of vehicles spanning cars, trucks and even railroad cars — a slowdown has been palpable.

Italy’s Grimaldi Group, which operates one of the largest fleets of vessels focused on getting vehicles between countries, says Brexit, the trade war between China and the U.S. and other macro factors are eating into vehicle sales growth, which in turn negatively affects shipping demand.

Grimaldi, as the Journal reported, operates 50 carriers that transport vehicles made by Ford, GM and Fiat across trade corridors. In one example of trade and fund flows, the European Union is the largest exporter of vehicles, at 6.1 million cars shipped last year, worth $154 billion. The U.S. is the largest importer of that European production, at 1.2 million of that 6.1 million tally. According to the report, China is next in line, importing 600,000 vehicles.

But global car production was down 1 percent in 2018 from 2917, and that marks the first downturn since the 2009 financial crisis. “There will be no growth in our trade over the next months,” said Emanuele Grimaldi, co-owner of the Grimaldi Group. “Seaborne trade is falling and it has to do with this new protectionism in America. Tariffs hurt trade.” U.S. car exports are slowing, to 1.8 million units last year, the slowest pace in four years. In one snapshot, GM said earlier this month that sales in China were down by 17.5 percent in the third quarter from a year ago.

Tariffs saw a recent, new round of activity, this time focused on the Continent, as the U.S. imposed tariffs on another $7.5 billion worth of European goods. Global GDP growth forecasts continue to slide, as the International Monetary Fund (IMF) has said growth will be 1.1 percent, where once forecasts had stood at 2.5 percent. The tariffs that are already on the board, across various trade disputes, are on track to cut global economic output as a whole by 80 basis points.

“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement, as reported last week by CNBC.

One way that companies across various verticals have been grappling with new economic realities has been to shift production to lower-cost corridors. As noted in this space Monday, John Ahearn, managing director and global head of trade for Citi’s Treasury and Trade Solutions business, told Karen Webster the shifts may be permanent.

“You’re seeing major disruptions,” said Ahearn of cross-border activity. “It’s a transition, and you can’t just move a major production facility overnight. It’s a process, and as you start that process, you need to get all the infrastructure in place. If the trade wars were settled tomorrow, I don’t see a lot of these transaction flows coming back.” For at least part of the supply chain, he said, online platforms can help smooth the interactions (and payments) between buyers and suppliers, amid onboarding activities and negotiation of payments terms.