Expect Drop in Low-Value Imports From China, Higher Costs, LA Port Director Says

Cargo volumes for goods that would have been eligible for de minimis “will probably come down,” Seroka said during the port's May briefing, noting that some American parcel companies have already started tweaking their service offerings. Expected layoffs of 20,000 workers at UPS are “not just related to de minimis, but broadly [reflect] what they see in the consumer uptake and the parcel service business coming in months ahead,” he said.

Even though increased U.S. duties on goods from China and Hong Kong have been suspended for 90 days (see 2505120006), “this 54% tariff will be impactful,” Seroka said, referring to the stacked duties that the U.S. is levying on goods from China. “Likely, prices will go up, and some already have. Selections will be fewer, and the American consumer will be a little more choosy about what they're buying.”

Although there may be an uptick in cargo volumes because of the 90-day pause in the trade war between the U.S. and China that started on May 14, market observers aren’t expecting a big bump in imports, Seroka said.

That’s in part because the manufacturing and logistics operations involved in importing are complex, and the time frame to get goods in is short. Factories in China may need to recall workers, ships may need to be repositioned to key locations, and then in Los Angeles, the procedures have to be in place to distribute to 15 major hubs throughout the country, Seroka said.

“It typically takes about three months to send an order to a factory, have those goods made and get them ready to ship from Asia to the United States. So, this 90-day pause is not a long time in our business,” Seroka said.

While some companies have resumed bookings and there is cargo available now to move because of committed purchasing orders, the port is “still well below traditional run rates, and although we have a little bit of a pickup in the first week of June, that may be just better profiles on these vessels from the services that remained in existence,” Seroka said.

Seroka noted that the stated goal of reaching a trade deal after the end of the 90-day pause in the trade war is ambitious, as bilateral trade agreements typically take a long time, plus or minus “a year and a half,” with thousands of pages of rules.

U.S. trade officials also must simultaneously grapple with trade negotiations involving 20-plus countries facing the reciprocal tariffs.

“Some people are betting that if agreements on the framework side are not reached, the tariffs could be unilaterally increased. Maybe some folks will rush to be at the front of the queue to get their deal done so they have the most competitive tariffs and origin rules among all the other details that go into this,” Seroka said. “So, it's going to be real interesting to see how all this plays out. Chances are that if you were really concerned about 4% inflation back in November, when you hear 10% tariffs on products coming from everywhere except for China, Canada and Mexico, it's a concern, and that's what families are talking about today at the kitchen table.”

He continued, “If you're an importing organization, you can work with your manufacturer to see if you could both share in some of this increased cost. You could look at margin compression in your own company. More than likely, you're going to try to find efficiencies to help minimize that impact.”

Either way, companies and consumers should brace for increased costs all around because not only is it challenging to move supply chains to other countries and away from China, but countries that face lower U.S. duty rates may also feel compelled to raise prices amid higher prices for Chinese-made goods, Seroka said.

China’s share of the port’s business portfolio at Los Angeles shrank from 60% in 2018 to about 45% currently, with that share expected to drop even further, Seroka said. Despite that decline, there are still “great interdependencies between the two” countries, and both countries need trade with each other to continue, he said.

When asked for his views on proposed plans to place tariffs on Chinese-made cargo handling equipment such as ship-to-shore cranes (see 2505200015), Seroka said such actions could encourage competition among manufacturers from other countries, such as South Korea.

“You don’t have a lot of choice with going out and looking for shore-side cranes, and the few that have stepped up since this discussion really took place in earnest last summer should cost two-and-a-half, three times more than what's on the books today,” Seroka said. That said, “generally speaking, more competition should mean better prices and higher quality. That's my hope for the future of shore-side cranes and other cargo handling equipment.”

For the month of May, about 80 sailings were expected to arrive in Los Angeles, but 17 of those sailings have been canceled, Seroka said, while 10 cancellations “remain on the books” for June.

Imports to the port for the first week of May were down by more than 30% from a year ago, with May's import volume total looking to show a “substantial” decrease, although estimates are hard to pin down, given the start-stop nature of U.S.-China trade negotiations, Seroka said.