Universal Cargo Management

China Not Named in Treasury Report but US Maintains Pressure for Currency Reform

The Treasury Department released its semi-annual report on foreign currency practices on November 28, and Secretary John Snow said it did not name China as a currency manipulator. Snow indicated that Beijing avoided this designation largely by virtue of the steps it took earlier this year to liberalize its exchange rate regime, but warned that this could change next spring if China does not take further reform measures.

The 1988 Omnibus Trade and Competitiveness Act requires Treasury to report on whether countries manipulate the rate of exchange between their currency and the US dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade. According to Snow, Monday’s report found that no major US trading partner meets this standard. The Bush Administration has been under increasing pressure from lawmakers and US industry groups to designate China as a currency manipulator, which would have required bilateral consultations and could have led to the imposition of trade sanctions. However, Treasury officials had suggested for months that such a designation was not forthcoming, noting that currency valuation is only one of many factors in the growing US trade deficit with China. In a likely attempt to head off the expected protests from Capitol Hill, Snow said the report includes a special annex that “highlights the complexity of reaching judgments on this issue” and “shows that no one indicator or set of indicators can provide determinative evidence.”

Snow applauded China for the steps it took in July to increase exchange rate flexibility, saying they were largely responsible for the report’s determination. Whether or not that determination will be sustained in the next report is “contingent on further progress to incorporate flexibility reflecting underlying market forces in China’s [yuan] exchange rate,” he said, noting that such progress has not been apparent so far. “The actual operation of the new system is highly constricted. As a result, the distortions and risks created by China’s rigid exchange rate still persist…It is imperative that China move towards greater flexibility as quickly as possible.”

Snow said the Treasury report also calls on the International Monetary Fund (IMF) to intensify its efforts to promote greater flexibility in exchange rates for China and other large emerging Asian economies. The report urges the IMF to provide a comprehensive report on these issues, including associated policy assessments, on an expedited basis. Treasury will also explore possible proposals for reforms in IMF exchange rate surveillance procedures.

TSA lines say industry should brace for up to $400 hike in inland costs

Member lines in the Transpacific Stabilization Agreement said Friday they expect rising inland rail and trucking charges, cargo and equipment imbalances and the network effects of inland infrastructure to add at least $150 per 40-foot container to their costs for port-to-port West Coast service; $350 per FEU for intermodal mini-landbridge and inland point intermodal shipments; and $400 per FEU for East Coast all-water service, including reverse inland point intermodal moves.
   Those costs represent a minimum which lines say they intend to recover from customers in upcoming 2006-2007 contract negotiations, and do not include fuel, terminal handling, Panama Canal transit, documentation or other costs already addressed by separate charges.
   TSA has estimated that inland transport costs alone will increase 25 percent or more in 2006, as railroads add locomotives and crews and upgrade their infrastructure, and as truckers upgrade their vehicles and try to attract more drivers back to the industry. Equipment repositioning costs are expected to rise 11 percent, due to increased volumes, tighter port and rail free-time/detention rules, and periodic rail embargoes of empty containers.
   As worldwide vessel charter rates ease, many transpacific carriers still pay premium rates under long-term charters negotiated during a crisis environment in 2003-2004.
   Carriers anticipate continued strong traffic growth in 2006, while the capacity of new, larger ships deployed next year will be offset by network capacity constraints due to ongoing inland transport and infrastructure difficulties.
   Carriers are adjusting their operations to manage a structural shift in global trade, said TSA executive director Albert A. Pierce in a statement. กงA very large share of oceanborne trade is now between the world's largest manufacturer, China, and the world's largest consumer market, the U.S. There will always be ebbs and flows, but this shift reflects long-term investment that isn't going away anytime soon.
   Container lines have responded quickly to the change over two years, Pierce maintains, adding larger ships, new China services and expanded Asian feeder networks, while diversifying port gateways and expanding Panama Canal service in response to West Coast congestion.
   Pierce said that current market conditions with respect to demand, capacity constraints and costs are unlikely to change for at least the next one or two years.
   The feeling among ocean carriers is that the cost issue can't wait another year to be addressed,he said, especially after 2005 when they were unable to achieve full recovery and fell farther behind. The situation has become urgent.

FDA Issues Revised BTA Prior Notice Compliance Policy Guide

The Food and Drug Administration (FDA) has announced the availability of a revised compliance policy guide (CPG) regarding the prior notice requirements of the BioTerrorism Act (BTA). The CPG provides written guidance to FDA and Customs and Border Protection (CBP) staff on enforcement of section 307 of the BTA and the FDA’s implementing regulations, which require prior notice for food imported or offered for import into the US. The CPG has been revised to provide additional flexibility in filing prior notice when (a) due to geography, the only practical transportation route available for the shipment is through the US and (b) there is a violation because the prior notice does not include the 6-digit HTSUS number for the article of food.

Portman Warns China on Lack of Progress on Trade Issues

In a November 14 speech and press conference in Beijing, US Trade Representative (USTR) Rob Portman took a tougher than usual approach to the various irritants in the US-China trade relationship. Portman’s remarks come ahead of a visit to China this coming weekend by President Bush, who is under pressure from lawmakers upset over the soaring US trade deficit with China to take stronger actions on issues such as currency reform and intellectual property rights (IPR) enforcement.

Portman warned that US attitudes toward trade with China have shifted over the past few years. He opined that Congress might very well reject permanent normal trade relations (PNTR) status for China if a vote were taken on the issue today because “Americans are greatly concerned about…whether China is playing by the rules.” Portman said much of that concern stems from the enormous bilateral trade deficit, which is likely to hit $200 billion this year – in particular, the belief that it is the result of unfair practices. “This is why many Americans are becoming more and more frustrated with China, which we see reflected in their elected representatives, the U.S. Congress,” Portman said. “They believe that the game is rigged: that American goods and services are not receiving fair treatment in China, and that Americans must compete at home and abroad against Chinese producers who are able to sell at less than fair market prices. They want that to change.”

Portman chastised China for not taking the situation seriously enough, asserting that current bilateral trade and economic tensions “threaten to undermine the much greater good that each country derives from this relationship.” He noted that Chinese officials typically offer one of three responses when confronted with US complaints about unfair treatment, and offered a rebuttal to each one.

• “It’s not true” – Beijing argues that it is “open to a huge amount of foreign investment and trade and that this should be enough to satisfy everyone,” said Portman. But significant obstacles abound; e.g., prohibitions on foreigners owning 100% of their Chinese investments, and increasing numbers of technical barriers that “directly affect the ability of our firms to sell to and operate in China.” He indicated that market access was likely to be one of the main issues of discussion during President Bush’s upcoming visit.

• “It’s beyond our control” – “Even when China admits there are barriers, we frequently hear that China has no other choice – that the barriers are not really its fault, but something the nation cannot help but impose,” Portman said. For example, China continues to maintain restrictions on direct sales companies in light of “the ‘unique’ history of fraud in this industry in China.” But all countries deal with business fraud, and “[t]here is no reason why China cannot use [protections offered in other countries] while sill allowing legitimate businesses to operate.”

• “Not so fast” – “[P]erhaps the most common and sometimes most frustrating response I hear from the Chinese is that the government is working on the problem but it will take lots of time,” Portman said. “We…hear this very often in regard to the protection of intellectual property rights.” But there are IPR protection systems all over the world that China can use or borrow from, he noted, pointing out that “Chinese companies seem to understand these concepts pretty well when they invest in other countries.” The bottom line, Portman said, is that “the problem of intellectual property protection is not being solved quickly enough” and it “needs to be fixed sooner rather than later.”

In order to preserve and grow the bilateral economic relationship, Portman concluded, China must discard these excuses and take concrete measures to increase foreign investment, access for US products, and protections for IPR. These steps will do much to improve the bilateral trade relationship, he emphasized – by allowing more US exports to China, thus easing the bilateral trade deficit, and by demonstrating China’s commitment to the rules-based international economic system that has enabled the high domestic growth rates of the past 25 years.

Operations Weekly Report Week Ending November 11th

National Liner Weekly Operations Summary Report

Week Ending Nov 11^th, 2005

Vessel Operations

1. Vessel Schedule Delay Exception

USWC

All US West Coast vessels sailed from the

North America

on schedule or with minimal delay this week.

USEC & Gulf

All NATCO and SAMCO vessels sailed from the

US

ports within two days of published schedule this week. Following TASCO vessels experienced more-than-two-day delay.

- TASCO-3:  Fei Yun He (FEI) - 542E sailed from

Charleston

on Nov.10^th, three days behind schedule. She was delayed due to prior berth congestion in the

US

and Europe and further impacted by inclement weather in the

Mediterranean

and on her approach to the US East Coast.

- TASCO-6: California Luna (CALUNA) - 063E sailed Houston on Nov.10^th, 8 days late due to prior berth congestion and bad weather.

Hamburg

will be omitted on her

Europe

and WB rotation as an initial schedule recovery.

Terminal update

Southern California

Despite some rainy and wet conditions this past week, ITS operations and general gate activity have been fluid for the most part with no major operating issues/delays reported or experienced. Gate movement was remaining moderate on both the dayside and night-side, with minimal issues.

 

Hanjin TTI has experienced some sporadic heavy truck congestion at the in-gates, however, no major terminal issues have been reported as conditions and gate activity remained fluid and stable. The cause for congestion was being attributed to unusually heavy truck traffic arriving within a relatively short window span.

No major congestion or terminal issues were reported for WBCT and PCT.

New York

Construction continues. We experienced congestion this week, the slightly late running NATCO-1 and the on-time TASCO vessel and one day delayed NATCO-4 “Victoria Bridge” meant vessels had to be shuffled. All vessels were expedited without delay to their overall schedule.

New Orleans

CP maintains their weekly call with 2 to 3 cranes being utilized to tend vessels.  The general consensus seems to be that the volume of traffic into

New Orleans

is still lighter than pre hurricane Katrina. The port is operating at normally and labor shortage is no longer being an issue.

Rail Network Update

Special Bulletins/General Network Overview

NS Embargo to

Miami

ends – The NS embargoed all traffic going to

Miami

on Wednesday 10/26 because of damage associated with Hurricane Wilma.  On Monday 11/7 the embargo to

Miami

was lifted.

UP – UP network performance continued to be poor this week due in part to peak season volumes and the continued rerouting of New Orleans/Gulf (non KAM) traffic through

Memphis

due to damage caused by Hurricane Katrina.  As

New Orleans

is (was) the main interchange point between UP and CSXI, the extra volume of containers moving through

Memphis

is having a major impact on the UP’s southern route between LA and

Memphis

.

Congestion in LA,

Chicago

,

Memphis

and the PNW negatively impacted the movement of traffic across the UP network.  In transit delays aside from below mentioned delays this week remained 1 to 4 days.

With post-peak season liftings in November TPS averaging over 92% for the month, the UP will have difficulty to significantly improve operations until perhaps mid-December, after

Asia

liftings have decreased.

BNSF – Steamship lines in the LA area are loading more traffic on-dock to avoid congestion/delays at the BNSF Hobart yard.  The BNSF has an allocation system in place for the LA Basin.  Additionally the BNSF is dragging traffic out of

Chicago

with at least a 2-day delay to westbound BNSF traffic.

NS – Overall the NS network performed well this week.

CP – The CP network performed well this week.

Pacific Southwest

Westbound Traffic Delayed Deramping in the LA Basin – This week, due to high volumes and congestion the UP delayed deramping some TPS westbound traffic and domestic traffic between 1 and 4 days until space was available at the ramp.  Fewer westbound trains were held outside of the LA Basin this week.  The UP was better able to balance westbound arrivals versus eastbound departures.

Congestion/Equipment Shortages/Drag Outs LA Basin – This week ICTF maintained similar performance to last week, mainly due to the UP diverting both eastbound and westbound traffic to other LA rail locations.  The additional volumes resulted in delays at the UP’s

East LA

and LATC ramps.  Off dock delays to TPS import traffic were in the 1 to 9 day range for departures.  TPS import traffic suffered additional delays as the UP drug out trains to keep the terminal fluid and to use the power on older drug out traffic.  Drug out traffic was delayed an additional 2 days.  Some TPS on-dock traffic was delayed due to late empty cars being spotted in to the LA ports -- delays were 48 hours. 

Pacific Northwest

                                                                   

Congestion/Equipment Shortages in Pacific Northwest – High volumes resulted in congestion and equipment shortages delaying traffic originating/destined to the

Pacific Northwest

.  TPS import traffic was delayed 10 to 55 hours departing

Tacoma

and

Seattle

due to equipment shortages this week.  Westbound TPS export traffic is being delayed 24 hours into the PNW due to the congestion.  KAM held the VTSB-9E due to the late arrival of

Tacoma

export traffic caused by congestion on the UP.  The UP held westbound traffic outside the

Seattle

ramp due to congestion at the ramp.  The UP has been prioritizing eastbound traffic over westbound traffic.  The congestion has delayed

Seattle

westbound traffic up to 5 days.

Midwest

UP Interchange Congestion Delays – Due to congestion at Global 2 the UP was not able to accept a block of Marysville TPS export auto traffic this week at that facility.  The traffic was then interchanged to the UP at Global 3,

Rochelle

,

IL

.  The UP and NTG are working on a recovery plan for this traffic.  NTG expects this traffic will make the intended vessel.

Engine and Congestion Delays on the UP in

Chicago

– TPS export and domestic traffic originating in

Chicago

and points east was delayed departing Chicago Global 2 by 8 to 24 hours this week.  Due to delays in Chicago KAM diverted the

Chicago

to ITS on-dock train to

Oakland

in order to protect vessel loading for the CALCO-A & C, BHB-23E and VCCB-4E respectively.  In addition, the UP drug out most

Chicago

export/domestic trains and stripped the power in order to keep

Chicago

fluid, delaying traffic for between 30 to 90 hours.  Some export traffic missed the intended vessel due to the delays.  TPS import traffic was delayed 12 to 48 hours to/interchanging in

Chicago

due to congestion in the

Chicago

area. 

Gulf

Congestion in

Memphis

– Cargo heading from

Long Beach

to the Southeast has seen extra delays on top of rail car and engine shortages delays in the LA Basin.  Due to track outages in

New Orleans

, there has been an increase in traffic traveling over the

Memphis

gateway.  This has caused congestion in

Memphis

and has forced the UP to take a more creative approach to moving traffic to the Southeast.  Instead of departing Southeast traffic on a train combined with

Memphis

proper traffic, the cars are being held and consolidated into one train that will interchange with the NS.  This is causing an additional 2-3 delay in arrival on top of the delays departing from

Long Beach

.  In addition, the UP routed traffic interchanged from the NS bound for Long Beach/Oakland in

Memphis

to

St. Louis

for switching.  Currently all export traffic is expected to make the intended vessel.  The UP currently does not have an estimate for how long

Memphis

interchange traffic will be routed through Dallas/St. Louis. 

Northeast

Traffic in the Northeast performed well this week.

Southeast

            

Traffic in the Southeast performed well this week.

Canada

               

Traffic in the

Canada

performed well this week.

CITA Adjusts Import Limits for Vietnam

The Committee for the Implementation of Textile Agreements (CITA) has issued a directive, effective November 10, adjusting the import limits for certain cotton and man-made fiber textiles and textile products, produced or manufactured in Vietnam and exported during the period January 1 through December 31, 2005. The current limits for certain categories are being adjusted for swing.

US and China Reach Bilateral Textile and Apparel Trade Agreement

Officials from China and the US were able to reconcile their differences after several rounds of hard-fought negotiations and formally signed a comprehensive bilateral agreement on textile and apparel trade on November 8 in London. The two sides came to terms during the most recent negotiating round held last week in Washington, DC. This round was arranged at the last minute and without much advance notice in order to preclude the imminent establishment of additional safeguard quotas by the Committee for the Implementation of Textile Agreements (CITA).

The agreement establishes quotas from January 1, 2006, through December 31, 2008, but also allows the US to impose additional safeguards under certain conditions. The agreement includes a clause similar to one included in the EU-China Memorandum of Understanding on Textile Trade (EU-China MOU) that requires the US to “exercise restraint” in the application of any safeguard quotas on products outside the scope of the agreement for the duration of the deal. Additionally, the US committed not to pursue any safeguard actions with respect to products that were integrated (i.e., removed from quota) pursuant to the Agreement on Textiles and Clothing before January 1, 2002.

As expected, the scope of the agreement is significantly broader than that of the EU-China MOU, covering a total of 34 product categories. The arrangement does not establish limits for five categories that had been under consideration for safeguard action: cheesecloth, batistes, lawns, and voiles (category 226); women’s and girls’ cotton and manmade fiber woven blouses (category 341/641); cotton and manmade fiber skirts (category 342/642); cotton and manmade fiber robes and dressing gowns (category 350/650); cotton and manmade fiber nightwear (category 351/651); and manmade fiber coats and jackets (category 634/635).

According to a fact sheet issued by the Office of the US Trade Representative (USTR), “quotas established by the Agreement for 2006 on ‘core’ products are lower than the safeguard threshold, about the same as the safeguard threshold for 2007, and higher than the safeguard threshold for 2008.” Core products include cotton knitted shirts and blouses, manmade fiber knitted shirts and blouses, men’s and boys’ cotton and manmade fiber woven shirts, cotton trousers, manmade fiber trousers, cotton and manmade fiber brassieres, and cotton and manmade fiber underwear. The USTR claims that, over the life of the agreement “China can export 3.2% more of the covered products to the United States than if the safeguards were invoked on all of the covered products for all three years.”

The deal includes a flexibility mechanism that will enable the Chinese government to increase a quota limit during a particular quota year by borrowing from the previous year’s quota (carryover) and/or the following year’s quota (carryforward). Carryover will only be available in 2007 and 2008, amounting to 2% of the base level in each of those two years. Carryforward will total 3% of the base level and will be available in 2006 and 2007. Combined use of carryover and carryforward in any given year may not increase an agreed quota for a category by more than 3%. Unlike the EU-China MOU, the agreement between China and the US does not include a mechanism to allow China to transfer small quantities of quota between highly-utilized limits and limits with low activity.

The agreement also provides for the re-establishment of the Electronic Visa Information System (ELVIS). An ELVIS transmission is defined as an electronic message describing a quota shipment that is sent by China’s Ministry of Commerce (MOFCOM) to US Customs and Border Protection (CBP). Entry of products subject to this agreement will not be permitted if the ELVIS transmission is missing any of the following information: visa number; date of issuance; correct category(ies), part-category(ies), merged category(ies), quantity, and unit of quantity; and Manufacturer Identification Code (MID). Merchandise imported for the personal use of the importer and not for resale, regardless of value, and properly marked commercial sample shipments valued at $800 or less may be entered without an ELVIS transmission, or any other required documentation, and will not be charged against the agreed levels.

The agreement includes an illegal transshipment provision whereby China and the US commit to “cooperate in enforcing the agreed levels and in preventing circumvention of the agreed levels by transshipment, rerouting, false declaration concerning country or place of origin, falsification of official documents, or any other means.” If the US obtains evidence that circumvention has occurred, it may charge the actual quantities of goods that entered the US in circumvention against the agreed levels for those goods.

It is still unclear whether the US and China reached any type of understanding regarding the treatment of merchandise presently under embargo.