WASHINGTON, D.C. – The specter of potential tariff hikes continues to fuel a wave of imports into the United States, overshadowing the recent resolution of labor concerns at East Coast and Gulf Coast ports. A new report from the National Retail Federation (NRF) and Hackett Associates, titled “Port Tracker,” reveals that this “front-loading” phenomenon is expected to persist well into 2025, as retailers scramble to mitigate the impact of anticipated tariff increases.
The Port Tracker report, which analyzes import volumes at major U.S. ports including Los Angeles/Long Beach, Oakland, Tacoma, Seattle, Houston, New York/New Jersey, Hampton Roads, Charleston, Savannah, Miami, Jacksonville, and Port Everglades (Fort Lauderdale), paints a picture of a supply chain grappling with uncertainty. While the immediate threat of labor disruptions has subsided, the looming possibility of higher tariffs, particularly those potentially reinstated or increased by the previous administration, is driving a surge in import activity.
Key Findings of the Port Tracker Report
- Tariff Fears Driving Import Surge: Despite the resolution of potential labor strikes, the primary driver of increased import volumes is the anticipation of higher tariffs on goods imported into the U.S. Retailers are proactively importing goods to build up inventories and avoid the potential cost increases that would ultimately be passed on to consumers.
- Front-Loading Expected to Continue: The report predicts that this front-loading behavior will continue throughout 2024 and into 2025, as retailers attempt to stay ahead of potential tariff changes. This will likely result in continued high import volumes at U.S. ports.
- Import Volumes as a Barometer of Retail Sentiment: While import volumes do not directly correlate with retail sales or employment figures, they serve as a rough indicator of retailer sentiment and expectations for future market demand. Higher import volumes generally suggest that retailers are optimistic about future sales and are building up inventories to meet anticipated consumer demand.
- Impact of ILA Agreement: The recent preliminary agreement between the International Longshoremen's Association (ILA) and the United States Maritime Alliance (USMX) has provided some stability to the supply chain, averting a potential strike that could have caused significant disruptions. However, the agreement was reached at the last minute, leading retailers to import goods in advance as a precautionary measure.
2023 Import Data and Projections
In November 2023, the latest month for which complete data is available, U.S. ports handled 2.17 million Twenty-Foot Equivalent Units (TEU). This figure excludes final data from the Port of New York and New Jersey but represents a 3.2% decrease from October and a 14.7% increase year-over-year.
The Port Tracker report projects that December 2023 imports will reach 2.24 million TEU, a significant 19.2% decrease year-over-year. If this projection holds true, total imports for 2023 will reach 25.6 million TEU, a 15.2% increase compared to 2022.
The report's forecasts have been revised upward since October, reflecting the impact of the port contract extension and the anticipation of potential tariff increases. The initial forecast for November was 1.91 million TEU and for December was 1.88 million TEU, with a total import volume of 24.9 million TEU for 2023.
2024 Outlook
The report provides import volume forecasts for the first five months of 2024:
- January: 2.16 million TEU, up 2.5% year-over-year.
- February: 1.87 million TEU, down 4.5% year-over-year due to factory shutdowns for the Lunar New Year in China.
- March: 2.13 million TEU, up 10.6% year-over-year.
- April: 2.18 million TEU, up 8% year-over-year.
- May: 2.2 million TEU, up 5.9% year-over-year.
Expert Commentary
Jonathan Gold, Vice President for Supply Chain and Customs Policy at the NRF, emphasized the importance of the ILA agreement in providing certainty to the supply chain. “The new contract brings certainty and avoids disruption, and we hope to see it ratified quickly,” Gold said. “However, the agreement was reached at the last minute, and retailers had already been importing spring merchandise early to ensure they had enough inventory to serve customers in case of disruptions, which led to increased import volume. The other reason for the import surge is the potential for increased tariffs under the previous administration, as retailers want to avoid higher costs that will ultimately be borne by consumers. The long-term impact on imports remains to be seen.”
Ben Hackett, founder of Hackett Associates, noted that while the threat of a strike has been averted, its potential impact is still being felt. “Importers have been shipping goods ahead of time to guard against potential delays, boosting import volumes in December and early January,” Hackett said. “At the same time, carrier announcements indicate there have been several ‘blank’ sailings, suggesting that import volumes will be down on both coasts in February and early March due to factory shutdowns for the Lunar New Year, primarily in China.”
Implications for Businesses
The Port Tracker report highlights several key implications for businesses operating in the U.S. import market:
- Monitor Port Congestion: Retailers and importers need to closely monitor port congestion and communicate with carriers to ensure that goods arrive on time. The surge in import volumes could lead to increased congestion at ports, potentially causing delays and increased costs.
- Diversify Sourcing: Businesses should evaluate the resilience of their supply chains and consider diversifying sourcing channels to reduce reliance on a single country or region. This can help mitigate the impact of potential disruptions, such as tariffs or geopolitical events.
- Track Trade Policy: Companies need to closely monitor changes in trade policy and develop strategies to address potential tariff increases or other trade barriers. This includes assessing the potential impact of tariffs on their products and exploring options for mitigating those costs, such as renegotiating contracts with suppliers or passing costs on to consumers.
- Optimize Inventory Management: Retailers should optimize their inventory management practices to ensure they have enough inventory to meet consumer demand without holding excessive amounts of stock. This requires accurate forecasting and efficient supply chain management.
- Strengthen Relationships with Suppliers: Building strong relationships with suppliers is crucial for navigating supply chain challenges. This includes open communication, collaboration, and a willingness to work together to find solutions.
The Bigger Picture: A Supply Chain Under Pressure
The U.S. import market is currently facing a complex set of challenges, including the potential for higher tariffs, ongoing supply chain disruptions, and evolving consumer demand. While the resolution of the ILA labor dispute has provided some relief, the underlying uncertainty surrounding trade policy continues to weigh on the market.
The potential for increased tariffs, particularly those targeting goods from China, remains a significant concern for retailers and importers. The previous administration implemented tariffs on a wide range of goods from China, and there is a risk that these tariffs could be reinstated or increased. This would likely lead to higher costs for consumers and could negatively impact economic growth.
In addition to tariffs, the U.S. supply chain is still recovering from the disruptions caused by the COVID-19 pandemic. Port congestion, labor shortages, and transportation bottlenecks continue to pose challenges for businesses. These disruptions have led to increased costs and delays, making it more difficult for retailers to get goods to consumers on time.
Furthermore, consumer demand is constantly evolving, driven by factors such as changing demographics, economic conditions, and technological advancements. Retailers need to adapt to these changes by offering the right products at the right prices and providing a seamless shopping experience.
Navigating the Uncertainty: Strategies for Success
In this uncertain environment, businesses need to be proactive and strategic in their approach to supply chain management. Here are some key strategies for success:
- Develop a Risk Management Plan: Companies should develop a comprehensive risk management plan that identifies potential threats to their supply chain and outlines strategies for mitigating those risks. This plan should be regularly reviewed and updated to reflect changing market conditions.
- Invest in Technology: Technology can play a critical role in improving supply chain visibility and efficiency. Companies should invest in technologies such as cloud-based platforms, data analytics, and automation to optimize their supply chain operations.
- Build a Resilient Supply Chain: A resilient supply chain is one that can withstand disruptions and adapt to changing conditions. This requires diversifying sourcing channels, building strong relationships with suppliers, and investing in technology.
- Focus on Sustainability: Consumers are increasingly demanding sustainable products and practices. Companies should focus on reducing their environmental impact by implementing sustainable sourcing, manufacturing, and transportation practices.
- Embrace Agility: In today's rapidly changing market, agility is essential for success. Companies need to be able to quickly adapt to changing consumer demand, market conditions, and technological advancements.
Conclusion
The U.S. import market is facing a challenging but dynamic environment. While the resolution of the ILA labor dispute has provided some stability, the potential for higher tariffs and ongoing supply chain disruptions continue to pose risks. By taking a proactive and strategic approach to supply chain management, businesses can navigate these challenges and position themselves for success in the long term. The key is to remain vigilant, adapt to changing conditions, and focus on building a resilient and sustainable supply chain.