JOC: China tariff relief would challenge US ag export logistics

October 23rd, 2019

CHICAGO — Agriculture exporters and analysts are warning that a relaxing or removal of Chinese tariffs on containerized grain, cotton, soybeans, and other agricultural commodities would challenge US inland logistics transport, causing delays and adding costs. 

The prospects of a trade deal between China and the United States, which would remove the 25 percent tariffs on agricultural goods, are still murky. But some so-called goodwill purchases by the Chinese in bulk shipments following the freezing of an escalation of US tariffs earlier this month has raised hopes for a deal.

If a deal is reached, agriculture exporters “will be drinking water from a firehose. It will put a huge burden on everything in logistics from chassis to containers,” Don Lake, senior vice president of enterprise development at Dunavant Logistics Group, said at JOC’s Inland Distribution conference. The Chinese “can buy a lot of cotton in three months and expect to have it in three months.”

weak import peak season has exacerbated the scarcity of containers that can be stuffed with agricultural exports. An earlier Lunar New Year may help in making inbound containers available as US retailers restock before Asian factories, but container availability would then fall as inbound shipments peter out. 

A relaxing of Chinese tariffs could push up demand for US agricultural commodities, encouraging even more outbound shipments and adding pressure to landside logistics, said Scott Sigman, transportation and export infrastructure lead at the Illinois Soybean Association. Orders from Chinese buyers would also spur buyers in other Asian countries to rush US agriculture shipments, lest they allow China to scoop them up, added Sean Mulford, a broker at Agniel Commodities. 

US containerized exports to China plunged 21.5 percent in the first half of 2019, while exports to other Asian countries increased 11.8 percent, showing that shippers of key exports such as wastepaper, grains, plastics, and forest products are developing new markets for their products.

However, because China accounts for about 30 percent of US containerized exports to Asia, even the strong growth in shipments to other nations in the region could not overcome the double-digit decline in the China market in the first six months of 2019. Exports to all of Asia, including China, edged 0.8 percent lower year over year in H1, according to statistics compiled by PIERS, a JOC.com sister company within IHS Markit.

The good news for US exporters is that they have diligently expanded nascent markets outside of China, especially in Southeast Asia, and carriers in the past year have expanded services between Southeast Asia and the US. The bad news is that China has such an outsized impact on US exports to the region that even the cumulative impact of increased exports to Southeast Asia and the Indian subcontinent will fall short of the volume of exports that has been lost to China in the past year.

“There is no replacement for a country of 1.4 billion people,” Mike Steenhoek, executive director of the Soy Transportation Coalition, told JOC.com earlier this month.