Q&A: Paul Bingham, Director, IHS Markit Economics and Country Risk / Transportation Consulting

Following comments made by United States Trade Representative Katherine Tai last week week, regarding the White House’s new approach to the United States-China bilateral trade relationship, Logistics Management Group News Editor Jeff Berman caught up with global trade Paul Bingham, Director, IHS Markit Economics and Country Risk / Transportation Consulting.

In his role at IHS Markit, Bingham leads business advisory services product teams, advises on client engagements and report delivery, analyzes and forecasts freight transportation demand and infrastructure requirements, and drives business innovation. Paul primarily focuses on North American freight transportation markets, including the international trade of North America. Paul manages multimodal freight transportation market analysis and forecasting for public and private sector clients. 

Bingham provided Berman with an overview of the USTR’s comment, the state of U.S.-China trade, as well as other topics. Their conversation follows below.

LM: What, in your opinion, are the supply chain and logistics takeaways of recent comments made by the United States Trade Representative Katherine Tai about the state of U.S.-China trade relations?

Bingham: I think it was great to hear what she included in terms of the U.S. relationship with China. From a trade perspective, it obviously has potentially enormous supply chain implications, but the bottom-line takeaway of that, in terms of how it would actually affect a shipper or the functioning of logistics, is some point in the future. It is not going to address the crisis we face now and it is probably not going to change some of the decisions people have to make.

LM: What types of decisions are those?

Bingham: If you are a BCO now, you are thinking that this is another layer of potential complication of the sourcing of goods into my supply chain…like they had to do when the Trump administration was imposing rounds of tariffs. There were deadlines imposed, and you had to pay attention to which commodities were covered and when those deadlines were going to take effect, and then you had to take action right away. There was nothing that specific in Tai’s comments that said “because of this, here is an action item takeaway with a deadline and a specific scope that I have to follow through on with no delay. There were some elements of that, though, with some potential changes to some of the tariffs. They are obviously going to look at the tariffs in place, and there was some language saying that there may be some additional changes down the road without defining what is included right now and what is in the queue to be looked at as the additional category later. I think she was alluding to­—but did not say specifically—that there have been a number of industry complaints saying “you are penalizing U.S. companies because you have this one particular line- item tariff still in place. Give us an exemption for this.”

LM: How does this all fit in, or match up, with what is happening now?

Bingham: One example is the international import container chassis being still subject to tariffs right now. So, the cost of those with that 25% additional tariff is substantial for the leasing companies and others that are looking at spending the capital trying to alleviate the chassis shortage, which is part of the problem with port congestion and even the intermodal terminal congestion. Most shippers and BCOS are aware of that but may not realize that part of that problem is the tariffs that the U.S. imposed on those chassis under the Trump administration, which the Biden administration has kept in place.  The USTR did not say that chassis are amongst those things that are constrained, in terms of how expensive they are right now. Nor did she get into some of the details for looking at domestic producers of those to expand production. It is something on the radar, as per the supply chain executive order issued by the White House and has come up in meetings as part of the federal advisory committee on supply chain competitiveness. There are policies and issues around supply chain performance and the government’s role in that, which she did not touch on because she would probably view those as the responsibility of someone else in the administration.

LM: What happens now, in terms of the next steps?

Bingham: Most immediately, the USTR has indicated there are two paths of action. One is directly engaging with the Chines government to discuss the enforcement items and compliance like the Phase One deal not being reached, in terms of China’s commitments. At the same time, there is also talking about some potential changes in those tariffs…there might be some negotiation around line items that would therefore affect individual importers. That could happen relatively quickly. You would expect that what is very likely to happen in return are some changes to some of the retaliatory tariffs still in place. So, there may be some exporters that also are warranted and paying attention to what is going to come out of this, because you may find that some of those retaliatory tariffs that are still in place could be removed, which might be an advantage to some U.S. producers. The multilateral approach she talks about on dealing with other countries, I think, invariably takes longer to see a result. Even if the Biden administration were to reverse policy and go ahead and me a member of the Transpacific Partnership, which went ahead and had gone into place with Mexico and Canada as members but without the U.S., that is something that could proceed that might be worth watching. But we are talking about 2022, at the earliest, to have any chance of an impact.

LM: Why is that the case.

Bingham: It is a move by the U.S. to shift back from the unilateral, or at best, bilateral, approach under the previous administration to return to the world of multilateral trade agreements and policy setting with other developed countries—our allied countries—with similar interests. That is probably very important to the Biden administration, from a foreign policy perspective. But as far as what that is going to do in the near-term that probably takes longer to see a result.   

LM: What did you think about the USTR’s comments on infrastructure improvements that are needed to boost U.S. competitiveness?

Bingham: I think that was part of the messaging and am sure the WH wanted to highlight that, given what is going on in relation to that right now and the President is trying to move that and taking every opportunity to mention it. It is not wrong to say that if the government is going to significantly invest in infrastructure, part of that is to serve trade. But even if a bill passed tomorrow, by the time the money flows and infrastructure is actually in place in the ground, we are talking well into 2022 or beyond that. It is easy to look around the import system and say here is an example of if the government had spent money, we would be in a better situation than we are today.

LM: Shifting gears, the West Coast port congestion issues remain front and center. That said, how do you view prospects for the 2021 Peak Season?

Bingham: I think things are set up for record-setting poor performance, in terms of reliability and delivery times. It does not seem like there is any way around that. In its earnings report, FedEx basically admitted they are having labor issues, in terms of [worker] availability. And that is before we are even at the “peak of the Peak Season,” which is a bad signal, in terms of performance expectations. It also obviously depends what mode you are in, given, for example, that the peak for the Transpacific is a lot earlier than it is for FedEx or UPS trying to get those last week deliveries in December.

LM: What about things on the ports side?

Bingham: With the delays built into the system right now—with so many ships at anchor and how long it is going to take to work them off—in a way, we are at a point in which the Peak has to be advanced. If you are not on a vessel to get into the queue to get unloaded, you don’t have until November to get those goods into a distribution center, a store shelf, or an e-commerce fulfillment center, to get to a customer by December. In a way, Peak Season is going to be over earlier this year, in some respects, in terms of practical performance. If you miss the [delivery] window, it is going to be too late to get those deliveries made, and you are not going to find the capacity you need in the air cargo system either. A report from IATA with data through August showed that, for the Transpacific, capacity is still down on a pre-pandemic basis by around 13%. So, despite all of the attempts to operate every piece of equipment that you can…is still leaving a capacity situation against a demand situation. IATA showed that Transpacific air cargo demand is up 30% compared to 2019 against capacity being down by double-digits. You don’t have air cargo as an alternative realistically, if you have not already booked it and thought about it through Peak Season. It is going to be too late, at almost any price, for you to say “OK, suddenly I am going to divert this many TEU to air. That is not going to work, because you are not going to be able to get the capacity, because it is going to have already been committed to the other operators and other shippers, even at much higher prices. Both ocean and air cargo are at record-high rates. In way, the planning and expectations, for Peak Season, have to be advanced, to the point where it is going to be over earlier than it normally would be, by which point it is just going to be too late. You are going to have stockouts and upset customers, because there is no way you’re going to be able to make the deliveries. All of the signals seem to be saying that this Peak Season is already in trouble, and there is not enough time left sitting here in October to right the ship or correct the conditions to recover.

LM: When might things recover, do you think?

Bingham: Basically, that has to happen in 2022. If you are already at this point and have not taken drastic steps to get the capacity you need for Peak Season, it is almost too late.